“We are building The Green Energy Metals Royalty and Gold Company. Our business model provides the unique entry point into the creation of supply chains for critical materials like energy metals which are powering Tesla Energy rEVolution and Gold industry which is providing the ultimate hedge during this part of the economic cycle. Our shareholders are participating in the building of The Green Energy Metals Royalty and Gold Company. In our portfolio, we have a unique combination of assets providing exposure to different parts of mining cycle: starting with the power of blue sky discovery and including partnerships with industry leaders like McEwen Mining, Ganfeng Lithium and Lundin Mining as operators on the projects that will potentially generate royalty cashflows to contribute significant value for our shareholders.”Kirill Klip, Executive Chairman TNR Gold Corp.
Proactive:
TNR Gold’s recent rejection of a takeover bid from Lithium Royalty has shone a spotlight on the value of its royalty and exploration portfolio
"It was a low-ball bid, and it was rejected.
But one thing the recent opportunistic offer for TNR Gold from Lithium Royalty Corp (TSX:LIRC) did highlight is that people are beginning to smell value.
TNR’s portfolio of assets has always had a lot going for it.
It’s got a 1.35% royalty on a major lithium project in Argentina that’s currently being developed by Chinese champion Ganfeng.
It’s got a 0.36% royalty on the giant Los Azules copper, gold and silver project, also in Argentia, that’s currently being worked up by McEwen Mining.
It’s got a 7% net profits royalty on a Batidero I and II Properties of the Josemaria Project - significant Lundin development project in Argentina.
And separate to all that, it also owns the Shotgun gold project in Alaska, which could well turn out to hold several million ounces of gold.
Not surprisingly, Lithium Royalty was first attracted to TNR by the royalty on Ganfeng’s Mariana lithium project, which it subsequently bought a portion of.
But equally not surprisingly, once its attention had been drawn towards TNR, it wanted more.
What seems to have happened, is that after an initial offer to buy the remainder of the Ganfeng royalty was rejected by TNR, Lithium Royalty decided to go all-in for the whole company. Certainly, at the current share price, the value on offer is fairly easy to demonstrate.
But TNR’s shareholders know that too.
It’s a company that’s fairly closely held, and which is run by a single-minded chief executive in the shape of Kirill Klip.
TNR is not for sale at bargain basement prices, he said.
And in any case, for now at least, TNR wants to hold onto its royalty on Mariana. The reason it did sell a portion of it was to pay down debt. But now, TNR looks cashed up to last it through to first income from the Ganfeng royalty itself. There’s no reason to sell. And especially not at a lowball price.
On the other hand, though, think back to when Klip sold the first part of the royalty. Back then, the lithium price was trading up at around US$80,000 per tonne, a country mile away from where it is now. That deal now looks well vindicated, although he did face some blowback at the time.
Now, though, with lithium on the floor, with cash in the bank, and value also available from gold and copper assets, is not the time to sell.
Unrecognized value
A recently published research report on TNR, written by Fundamental Research Corp, reckons fair value for the company at C$0.22 per share. The current price is significantly lower than half of that.
Were it to start to move towards the Fundamental Research price target, then perhaps Klip might reconsider his unwillingness to sell.
But until then, there’s still too much unrecognised value still inside the company that needs to be husbanded.
Even on a back-of-an-envelope basis this is fairly easy to demonstrate.
Let’s start from the top.
The current market capitalisation of TNR Gold is just over C$10mln.
And towards the end of last year, Lithium Royalty paid it US$9mln for a 0.5% royalty in the Mariana project. TNR retains a 1.35% royalty, and also holds 0.15% on behalf of a shareholder. What’s that worth, now that Mariana is less than a year away from production?
Probably not much less than C$9mln, even allowing for the subsequent decline in the lithium price. After all, lithium could come back, the royalty remains in place, and a year is not long to wait in mining terms, assuming there are no delays.
Even if it’s just the 0.45% royalty that TNR is likely to be left with if Ganfeng exercises its right to acquire the other 1% that TNR owns, that should still prove lucrative enough.
Assuming a long-term lithium price of US$40,000 per tonne, pre-tax income is likely to amount to US$3.6mln a year.
Equally, if the price returns to anything like the levels it was at last year, that number rises to over US$7mln per year.
And there’s likely to be more to come from Mariana, perhaps even before first production. An additional C$0.9mln will come into TNR if Ganfeng exercises its option to buy a further 1% of the royalty back off TNR, and the chances are, with a project this size, that it will.
But is the Mariana royalty even the best asset inside TNR?
Arguably not, since the Los Azules royalty, according to some calculations, may be worth as much as US$30mln. Rob McEwen himself holds a 1.25% NSR royalty over Los Azules, and he’s been putting some pretty punchy numbers around his own interest in his recent video presentations.
Revenue potential
On the assumption of production of 182,000 tonnes of copper per year from Los Azules, and a ballpark copper price of US$10,000 per tonne, TNR could end up receiving income of upwards of US$6.6mln per year from its royalty.
There are different ways of valuing that, of course, given that more work is needed to get Los Azules into production, but on the basis of what Lithium Royalty paid for its Mariana royalty, the market’s discounting of Los Azules to virtually zero seems overly harsh.
Then there’s the potential value for Shotgun in Alaska. This is a bit more subjective, as the exploration potential remains to be meaningfully quantified. But it’s certainly substantial.
Klip does have some room for manoeuvre here, because Shotgun isn’t just another piece of prospective ground. Rather, the project already boasts an inferred resource of over 700,000 ounces of gold at Shotgun Ridge, and shows every sign of being able to deliver a markedly larger total than that, once the next major exploration programme delivers its results.
Shotgun Ridge is just one of multiple gold target areas controlled by TNR Gold. ‘Shot’, ‘King’ and ‘Winchester’ add to the collection to form a distinct gold district with five separate targets identified so far.
Klip is reckoning on the best possible outcome for Shotgun – a possible spin-out into a standalone vehicle after a joint venture with a major mining company.
TNR's response
Given all that, was Lithium Royalty’s C$0.08 offer really realistic?
“We will properly entertain any reasonable offer,” says Klip.
And to do so, he’s set up a special committee. He’s also set up a shareholder rights plan, so no opportunist can creep up to over 20% and slide the company away from its existing owners.
But the real message is that TNR does hold genuine value.
Plenty of it.
In a diversified portfolio in more than one jurisdiction.
And in metals that will be required for the greening of the economy and for hedging against inflation.
On a reasonable valuation the company is more than likely to attract further interest in due course. Klip will be ready. He is prepared to cut deals. But at the right price."
TNR Gold Corp Continuing to Court Interest After "Lowball" Offer Withdrawn by Lithium Royalty Corp
TNR Gold Corp. Executive Chairman Kirill Klip Responds to Unsolicited Non-binding Offer by Lithium Royalty Corp.
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