Silver Royalty Co. Acquires 3rd Producing Royalty With Peru Project

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Silver Crown Royalties Inc. (SCRI:CBOE; SLCRF:OTCQX; QS0:FSE) announced it has signed a definitive royalty agreement with PPX Mining Corp. (PPX:TSXV; PPX:BVL) for up to 15% of the cash equivalent of silver produced from PPX's Igor 4 project in Peru for an aggregate of US$2.5 million in cash.

The first tranche of US$1 million is to be paid to PPX on closing, which is expected to occur in early 2025, with the second tranche of US$1.5 million to be paid within six months of that.

"The PPX transaction marks a significant step forward toward free cash flow for the company while underscoring our diversification strategy," Silver Crown Chief Executive Officer Peter Bures said. "We are thrilled to welcome this Peruvian producer into our expanding portfolio of revenue-generating royalties. With over 20,000 annual silver ounces currently, we anticipate reaching 80,000 silver ounces annually by Q4 2025 with the full completion of this transaction."

Couloir Capital also initiated research coverage recently on the company, which analyst Tim Wright noted is the only currently listed royalty company to focus on silver, "giving it a first-mover advantage."

"Listed in July 2024, the company already boasts cash flow generating silver royalties," Wright wrote. "It is likely to add new acquisitions in the near future, growing its cash flow base."

Couloir issued a Buy rating with a CA$31.20 per share fair value, implying a 285% upside from the time from the share price at the time of the report, which was about CA$8.10 per share. It was CA$7.07 on Monday.

"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.

Opportunity Set Is 'Very Large'

In the PPX agreement, Silver Crown will be granted a royalty for 6% of the cash equivalent of silver produced from the project which will automatically be increased to 15% upon the completion of the second tranche. If the second tranche is not completed within six months of closing, PPX may repurchase the royalty for US$1 million in cash less any royalty payments made to date.

The royalty will provide for minimum deliveries of the cash equivalent of 14,062.5 ounces of silver per quarter up to a total of 225,000 ounces, Silver Crown said. Upon the closing of the second tranche and upon the delivery of the cash equivalent of an aggregate of 225,000 ounces of silver to Silver Crown, the royalty will automatically terminate.

"PPX intends to use the proceeds from the sale of the royalty together with other sources of financing to complete the construction of the Beneficiation Plan," the company said in a release.

When negotiating royalty deals, Silver Crown aims for a mutually beneficial arrangement, noted Wright with Couloir. It ensures all royalties are registered on title, a minimum delivery obligation is tied to funding, and investments are divided into tranches that are contingent on milestones being achieved.

The company's business plan has "the potential for near-term upside from more royalties being added to the portfolio and increasing near-term cash flow," Wright noted. "Given SCRI's unique strategy of targeting operations where silver is a by-product, the opportunity set is very large, and the chances of acquiring more attractive royalties are good."

Recent Deal With BacTech

Earlier this month, Silver Crown announced it had closed on its purchase of a silver royalty from BacTech Environmental's future bioleaching facility in Ecuador.

Under the agreement, Silver Crown acquires a 10-year annual silver royalty on the plant, equating to the cash equivalent of the greater of 90% of the silver processed at the facility or a minimum annual payment of 35,000 ounces silver.

The plant is expected to produce 45,000 to 50,000 ounces of silver every year, with a second-phase expansion to take annual production to more than 200,000 ounces per year. Silver Crown is paying CA$4 million in common shares in three tranches to BacTech in exchange.

The expected annual revenue paid to Silver Crown would be a minimum of US$1.4 million annually based on the price of silver at writing, which was US$30.85 per ounce.

The Catalyst: White Metal's Outlook Remains Bullish

As the most conductive element in nature, silver is essential to the green energy transition in addition to being a precious metal. It's used to coat electrical contacts in computers, phones, cars, and appliances and is also an important element in solar technology.

Silver prices edge up Monday as traders waited for the Federal Reserve's policy meeting, when it is expected to announce its third interest rate of the year, James Hyerczyk wrote for FX Empire.

"The outlook for silver remains bullish, driven by expectations of dovish Fed guidance and persistent economic risks," he wrote. "A break above US$31.29 could set the stage for further gains, with potential targets near US$31.65. However, traders should remain cautious, as downside risks could emerge if the Fed's comments suggest limited rate cuts in 2025."

On November 26, The Daily Gold highlighted that silver had reached an 11-year high at US$35 per ounce after breaking through a four-year resistance level. Despite these gains, the analysis noted that silver, along with gold, remains undervalued in real terms.

Mordor Intelligence noted that the white metal is expected to register a compound annual growth rate (CAGR) of more than 5% between 2024 and 2029.

"Silver is viewed as the relatively cheap sibling to gold, and as gold continues to reach fresh record highs and copper hits a 2 ½-month high, traders took it through resistance at US$32.50," said Ole Hansen, head of commodities strategy at Saxo Bank A/S, Bloomberg reported.

Ownership and Share Structure

Insiders and management hold a total of 21% of the company, institutions own 16%, and private corporations have 6%, noted Wright with Couloir.

"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 2.39 million outstanding shares and a market cap of CA$16.9 million. It trades in a 52-week range of CA$6.50 and CA$9.85.