Coeur commits to royalty business

In an attempt to generate a higher margin, less volatile free cash flow and diversify its metal exposure and future avenues for growth, Coeur Mining (TSX: CDM; NYSE: CDE) is acquiring privately held Global Royalty Corp., which has interests in operating mines in Mexico and Ecuador.

The largest U.S.-based primary silver producer plans to spin out those assets — along with its own existing royalty and streaming interests — into a subsidiary it calls “Coeur Capital,” which will also hold the company’s portfolio of strategic equity investments. 

Under the agreement, Coeur will pay Vancouver-based Global Royalty US$23.8 million ($0.3 million in cash and $23.6 million in Coeur d’Alene’s common shares), and retain Global Royalty’s president and CEO Mark Kucher as managing director at Coeur Capital. 

Mitchell Krebs, Coeur’s president and CEO, said in a press release that Coeur Capital would “build sufficient critical mass to make a meaningful impact on our overall margins and cash flow, and eventually be valued by the equity markets at the multiples currently enjoyed by streaming and royalty companies due to the attractive nature of this business model.”

Global Royalty owns a tiered royalty on McEwen Mining’s (TSX: MAI; NYSE: MUX) El Gallo–Magistral mine in Mexico, paying a 3.5% net smelter return royalty (NSR) and a 1.5% NSR on Dynasty Metals & Mining’s (TSX: DMM) Zaruma gold mine in Ecuador.

Both mines are in production and paying royalties.

Global Royalty has an option to acquire a 1.5% NSR on Zaruma (for a total of 3%), plus a 1% NSR interests on Dynasty’s Jerusalem and Dynasty Goldfields projects in Ecuador for another $5 million. (Coeur Capital says it plans to exercise the option once it closes the Global Royalty transaction.)

For its part, Coeur owns 100% of the silver production and reserves (up to 20 million payable oz.) of Endeavour, an underground lead–zinc–silver mine in Australia operated by a subsidiary of Toho Zinc, and a 2% NSR on the Cerro Bayo, a silver–gold mine in Chile operated by Mandalay Resources (TSX: MND). Coeur received its first royalty from Cerro Bayo in this year’s third quarter.