Great Plug & Exposure for SSL on CIBC's Morning Tr
Great Plug & Exposure for SSL on CIBC's Morning Trading Notes - Dec. 14/10!
Franco Nevada (FNV) / Gold Wheaton (GLW): Not a cheap price tag for a deal with risks attached to it
>Yesterday morning, FNV announced the acquisition of Gold Wheaton (GLW) for $5.20/share (total price tag of $830 million) in a cash and stock transaction (valued GLW at 1.2x NAV)
>Sure, the deal will be 1% accretive to NAV and 25% accretive to CF for FNV - but hold on, the transaction comes with a fair amount of risk:
>GLW has only been an entity for 2.5 years yet they’ve had a ton of operational issues in that time frame – First Uranium (FIU), where GLW has one of their three royalties, had their mining permits pulled many months ago and the stock plunged on that news – they’ve since received them back but still the stock has not fared well, down 42% YTD in 2010
>GLW doesn’t exactly fit into the “low political risk” portfolio of FNV – GLW has three royalties, with two of them being in Africa
To me, it’s a little perplexing why FNV would do such a marginally accretive deal that still has a lot of risk (operational and political) attached to it - from the transaction, it’s clear that FNV management lacks the ability to find accretive deals (lack of growth for FNV going forward?)
Wouldn’t you rather be in the next potential target in the royalty space? Take a look at Sandstorm (SSL):
>SSL’s smaller size ($245 million market cap) gives them the ability to look at deals which would be considered too small for the likes of SLW or RGLD US – this puts SSL in a unique niche of its own in the royalty space
>SSL boasts a portfolio of five gold royalties, all located in lower political risk countries – Canada, U.S. and Mexico – the most recent being the acquisition of the royalty from Brigus Gold (BRD)’s Black Fox Mine in early November
>SSL is very under followed and under the radar with the name only covered by two smaller brokers currently
>Management owns over 10% of the company so their interests are very much aligned with shareholders
>Cash flow will be very strong in 2011 if gold prices do hold in above $1100 or 1200/oz – the spread between their fixed payments to the gold producers and the underlying gold price translates into a significantly positive spread for SSL
>If you’re looking for a better way to play the royalty space, Sandstorm (SSL) is the way to do it