Franco-Nevada offers ‘financial lifeline’ to Red Pine Exploration

Trading at a 50% drop year-to-date at 15¢ per share, Red Pine Exploration (TSXV: RPX; US-OTC: RDEXF) has sold a 1.5% net smelter return (NSR) royalty on its advanced gold project in Ontario to Franco-Nevada (TSX; FNV; NYSE: FNV) for an immediate cash injection of $6.8 million.

The royalty is on Red Pine’s Wawa gold project in the Michipicoten Greenstone Belt of northern Ontario, near Wawa.

“This NSR royalty agreement throws Red Pine a financial lifeline,” said Haywood Capital Markets mining analyst, Pierre Vaillancourt in a note. “It allows them to advance their drill program and aim for a resource estimate by Q2 24 without heavily diluting their equity.”

However, in light of recent market conditions, Vaillancourt adjusted his predictions, cutting the stock’s price target in half to 40¢ from the previous target of 80¢ per share.

Under the terms of the agreement, after Red Pine completes a feasibility study at Wawa, Franco-Nevada can opt to buy an additional 0.5% NSR royalty. The cost of this acquisition will depend on the mineral reserves’ value from the feasibility study, considering a 5% discount rate and the current analyst consensus on commodity prices.

The deal gives Red Pine some breathing room to advance its flagship project. “With a robust cash reserve of over $10 million, Red Pine is now ready to progress its ambitious 20,000 metres drill program,” Vaillancourt said.

This sets the stage for the updated mineral resource and a potential preliminary economic assessment following later in the year.

Currently, two rigs are drilling at full capacity. The main thrust of the program is open pit exploration, which occupies 90% of the team’s efforts, while the remaining 10% explores areas outside the open pit or at vertical depths beyond 500 metres.

Vaillancourt’s recommendation remains bullish: “We’re holding a long-term ‘buy’ as funding for the drilling program stretches well into 2024. This financing deal gives Red Pine a fantastic opportunity to demonstrate the Wawa project’s potential,” Vaillancourt said.

While eyes are now on the forthcoming resource update, the analyst expects Red Pine to issue regular drill updates and an expanded underground mineral resource at both of Wawa’s Surluga and Minto deposits, which he expects would likely propel Red Pine’s stock higher.