Last month the company bought back a 0.6% NSR for CAD 7.5 million. [See below.] This is roughly 0.6% of the market cap today. Even on an enterprise value basis, net of cash and securities, it is not far off. This royalty doesn't cover all company's properties, but most of the good stuff, for now. Effectively, it swapped equity for royalty on an equal basis. A royalty should be worth a multiple of the equity. What that multiple should be is a question of the operating margin and capital intensity of the mine, but it should be at least 3-4x, and perhaps more. So either the stock is significantly overvalued, or NFG made an accretive acquisition.
Any thoughts on this? Does anyone track and value royalties in such a way? I find it's often an intersting comparable on these exploration and development properties.
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"Vancouver, BC, November 15, 2021: New Found Gold Corp. (“New Found” or the “Company”) (TSXV: NFG, NYSE American: NFGC) is pleased to announce that it has entered into three royalty purchase agreements (the “Royalty Purchase Agreements”) with arm’s length royalty holders (together, the “Vendors” and each, a “Vendor”), whereby New Found will purchase 100% of each Vendor’s royalty interests, each equal to 0.2%, for an aggregate of 0.6% of net returns from the Company’s Linear and JBP Linear properties (the “Royalty Interests”). New Found had previously granted the Vendors the Royalty Interests under a Net Smelter Royalty Agreement dated as of July 15, 2016. These properties cover key target areas on the Company’s Queensway Project and include the Company’s Keats, Golden Joint, and Lotto discoveries.
Under the terms of the Royalty Purchase Agreements, as consideration for the Royalty Interests, New Found will pay $1,300,000 cash consideration and issue 152,941 common shares in the capital of the Company (the “Common Shares”) to each Vendor, for an aggregate cash consideration of $3,900,000 and aggregate share consideration of 458,823 Common Shares.
Subsequent to completion of the transaction, there will remain a low royalty burden of just 0.4% on the ground covering the Keats-Golden Joint-Lotto-Big Dave corridor."