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FISH: Acquires Stream and NSR on Permitted Project in Nevada

What you need to know:
• Sailfish Royalty announced that it has entered a binding term sheet with Mako Mining to acquire a five-year gold stream and a subsequent 2% NSR royalty on the permitted Mt. Hamilton Gold-Silver Project in Nevada.
• The gold stream is for five years, whereby FISH will receive payments of $11.9M per year (at $3,300/oz Au), at which point the stream converts to a 2% NSR on all mineral production for the remaining LOM.
• Mount Hamilton is an open-pit heap leach project which has all the major state and federal permits to begin construction.

This morning, Sailfish Royalty (FISH:TSXV, SROYF:OTC) announced it has entered into a binding term sheet with Mako Mining Corp. (MKO:TSXV) to acquire a five-year gold stream and subsequent 2% NSR royalty on the permitted Mt. Hamilton Gold-Silver Project in Nevada. The transaction involves FISH acquiring Mt. Hamilton LLC, which holds the property, and then transferring it to Mako in exchange for the stream and royalty. To finance the deal, the Company secured a commitment from Wexford Capital LP for a senior secured bridge facility of up to $40M.

In exchange for transferring Mt. Hamilton LLC to Mako, Sailfish will receive a five-year gold stream of roughly 375oz/month at 20% of the LBMA PM Fix price, subject to a floor of $2,700/oz and a cap of $3,700/oz. Following the stream period, the Company will hold a 2% NSR royalty on all future production from the property. We also note that Sailfish has engaged National Bank Capital Markets as a strategic advisor, which, given the bank’s role in prior royalty transactions such as Orogen, suggests the Company may be evaluating broader strategic alternatives or, at a minimum, assessing its options (see below for more details). We are maintaining our BUY rating and increasing our target price to C$3.75/share (previously C$2.75/share) on Sailfish Royalty.

The Mount Hamilton Project is an open-pit heap leach gold-silver project which, based on an outdated 2014 Feasibility Study, was expected to produce an annual gold production of 68.8Koz and 1.7Moz of silver over a seven-year mine life. Given the resource and study was completed using $1,300/oz Au and $20/oz Ag we believe there is material upside to this operation.

Using the 2014 mine plan, we have incorporated the stream and 2% NSR into our model, which results in an NPV5% of $48M or $0.62/share. We currently conservatively model that the operation begins production in 2029 and the NSR begins in 2031 (year 3 of the mine life). Additionally, we assume that FISH would be able to secure similar financing to the Wexford loan in years two and three, which would bridge FISH to a point where it could pay off the loan in full, as it will be seeing heavy cash flow from Spring Valley.