Silver Crown Royalties Inc. (SCRI:CBOE) captured the interest of Couloir Capital which initiated coverage on it with a Buy rating and a CA$31.20 per share fair value, reported analyst Tim Wright in an Aug. 29 research note. The target implies 285% upside from the current share price of about CA$8.10.
"Based on the large opportunity set of silver royalties available and Silver Crown's first mover advantage, we believe the company is well-positioned to grow rapidly and become a household name in the silver royalty space," Wright wrote.
In his report, the analyst discussed the key points of Couloir Capital's investment thesis on this pure play silver company.
Clear growth strategy
Silver Crown has a clear strategy for expanding its royalty portfolio, Wright explained. The company is looking to make royalty deals tied to projects and operations where silver contributes to overall revenue but in a small way, typically less than 2%. As such, it has identified 2,200 operating mines and 33,000 exploration projects meeting this criterium.
"This is important because it allows operators to derive value for a byproduct or co-product of an asset without having a hefty royalty or streaming agreement reducing the profits from the main economic driver of a mine," the analyst added.
When negotiating royalty deals, Silver Crown aims for a mutually beneficial arrangement, noted Wright. It ensures all royalties are registered on title, a minimum delivery obligation is tied to funding and investments are divided into tranches and contingent on milestones being achieved.
Off to a strong start
Silver Crown landed its first royalty in May 2023 and since, added two more and has another one pending, Wright wrote and described each of them.
"While the track record is short, it shows that the company can source and add new royalties to its portfolio with some consistency," he added.
Royalty with Gold Mountain Mining Corp.: For a cost of CA$2.5 million (CA$2.5M) in cash up front, 250,000 (250K) share units and 125K warrants, Silver Crown is entitled to a 90% net smelter return (NSR) royalty of the cash equivalent of aggregate net proceeds of silver produced annually at the Elk Gold mine in British Columbia, with a minimum of 6,000 ounces (6 Koz) of silver cash equivalent due annually.
Royalty with Pilar Gold Inc.: The core deal is Silver Crown Royalties receives either 90% of the silver produced from the PGDM gold complex in Brazil or the cash equivalent of 16 Koz of silver, whichever is greater, over 10 years, for CA$2M in cash up front.
Royalty with Tucano Gold Inc.: Beginning in early 2025 and for 10 years, Silver Crown will receive 90% of payable silver, at least 7 Koz, produced annually at the Mina Tucano project in Guyana. In exchange, the royalty firm will pay CA$1M in units, each comprising one share and one half-share purchase warrant of the company.
Royalty with PPX Mining Corp. (PPX:TSX.V): This agreement has yet to be finalized. As it stands now, though, Silver Crown would pay PPX US$2.5M in cash toward construction of a carbon-in-leach and flotation plant at its Callanquitas mine, at the Igor project in Peru. Silver Crown would get a 15% royalty on Igor's four mining concessions.
"Silver Crown is likely to start generating significant cash flows in the coming years and having free cash flow available for reinvestment," Wright commented.
First mover advantages
Silver Crown is the only publicly listed royalty company focused on silver, differentiating it in the royalty space, Wright relayed and cited three benefits to being the first.
One, as Silver Crown develops a track record and reputation in the industry, it will become a well-known name in the mining sector and a credible funding source for mining operations. This, in turn, will lead to more potential royalty opportunities from which to choose.
Two, as Silver Crown builds its portfolio of cash flow-returning investments, its access to capital will improve. Three, as Silver Crown grows, it will become an increasingly popular investment for those seeking exposure to silver.
What to watch for
Silver Crown expects to finalize the pending royalty agreement with PPX Mining in Q4/24.
In the meantime, the silver royalty company will concentrate on corporate development, using a large percentage of the funds raised during its recent initial public offering to do so.
"The potential for near-term upside from more royalties being added to the portfolio and increasing near-term cash flow" should support the share price," Wright wrote.
Savvy management team
The analyst described Silver Crown's management as having "the relevant industry experience to drive the company's growth and success."
Leading the team is Founder, Chairman and Chief Executive Officer Peter Bures. He is a geological and mineral engineer with 25-plus years of experience in mining and metals capital markets and past executive roles at C2C Gold, Star Royalties and BMO Capital Markets.
Silver Crown's vice president of corporate development is Zachary Kotowych. Also with years of experience in the same capital markets, he has worked in equity research at Haywood Securities and Red Cloud Securities and in geological exploration at Solstice Gold, Great Bear Resources Ltd. (GBR:TSX.V; GTBDF:OTCQX) and Carlisle Goldfields.
Ownership and share structure
As for ownership of Silver Crown, insiders and management hold a total of 21%, institutions own 16% and private corporations have 6%, noted Wright.
"Insider ownership by management aligns management's interests with those of shareholders, which is a desirable attribute," he added.
Regarding share structure, the royalty company has 2.3 million (2.3M) outstanding shares, 474.9K in CA$8 warrants, 757.1K in CA$16 warrants and 66.3K in restricted stock units, for a total of 3.7M fully diluted shares.
Silver Crown's market cap is CA$18.7M.
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