Silver Crown Royalties Inc. (SCRI:CBOE; SLCRF:OTCQX; QS0:FSE) announced the closing of the final tranche of the silver royalty on PPX Mining Corp.'s (PPX:TSX.V) Igor 4 project in Peru, reported Couloir Capital Analyst Tim Wright in an Oct. 17 research note. Silver Crown paid the final US$637,000 due, to acquire the remaining 3.9% balance of the 15% cash equivalent royalty.
"This paves the way for Silver Crown Royalties to receive an annual royalty covering 56,250 ounces a year for the next four years, which is equivalent to US$2.81 million (US$2.81M) per year," Wright wrote. "At current silver prices, the company is set to receive US$11.25M million in royalty payments over the next four years, on a royalty which it paid US$2.5M for."
628% Upside Implied
Couloir Capital maintained its CA$44.40 per share fair value target price on this pure play silver royalty company, trading at the time of Wright's report at about CA$6.10 per share, the analyst noted.
From this share price, the return to target is 628%. Silver Crown remains a Buy.
Recap of Year's Events
Wright presented Silver Crown's other key developments since September 2024, when Couloir Capital initiated coverage on the company. In addition to completing payments for the Igor 4 project royalty, they are:
Another Royalty: Silver Crown acquired and closed the EDM Resources Inc. (EDM:CVE) royalty agreement, on 90% of net silver proceeds or a minimum of 7,000 ounces (7 Koz) of silver production per year at the past-producing Scotia mine in Nova Scotia. The term of the royalty, to begin with the start of commercial production, is for 10 years. For the royalty, Silver Crown paid CA$500,000, issued 60,000 units of SCRI shares and issued an equivalent number of share purchase warrants.
A Royalty Setback: Silver Crown will not have money coming in from its royalty with Gold Mountain Mining Corp. in the near term. This is because on Aug. 1 it became known that Gold Mountain Mining Corp. and its two subsidiaries, Bayshore Minerals Inc. and Elk Gold Mining Corp., were to be placed into receivership for an unpaid outstanding balance of CA$11.2M owed to Nhwelmen Construction.
All is not lost, however, for Silver Crown, Wright noted, because this royalty is secured to the asset not the operating company. This means that if a new operator restarts the project, either the royalty would kick in with production or an agreement would be made to buy Silver Crown out of the royalty, "either of which would be favorable," the analyst added. The royalty is for a minimum of 6 Koz of silver equivalent cash per year, with the potential for more with greater production.
A Successful Financing: Earlier this month, Silver Crown closed an oversubscribed financing for gross proceeds of CA$3.3M. It used the funds to finalize the PPX Mining and EDM Resources royalty deals.
Added Technical Expertise: Silver Crown appointed Christian Aramayo, a chartered engineer, as an adviser to the company. Now chief operating officer and director at Kuya Silver (with which Silver Crown Royalties signed a letter of intent for a silver royalty), Aramayo has nearly 20 years' experience at many projects in varied jurisdictions, including Pueblo Viejo, Paracatu, Fruta del Norte and Tasiast.
Achieved Growth: Since founding, Silver Crown averaged 31% quarter-over-quarter growth in royalty silver ounces and in revenue.
Investment Highlights
Along with this "impressive growth," there are two other key highlights of the Silver Crown investment story, Wright wrote and reviewed them. One is the company's status as the only pure-play silver royalty company in the market and its related benefit of first mover advantage. The company acquires royalties from mines where silver is produced as a byproduct and the metal typically accounts for less than 2% of total revenue.
According to management, an estimated 350,000,000 ounces of total silver production globally are unreported each year, and capturing even just 10% of this amount could yield more than US$100M in potential royalty revenue.
Also noteworthy is Silver Crown's strategic approach to royalty dealmaking, which aims to minimize risk and "return metrics of investments," Wright pointed out. The company stages its investments and ensures capital tied to its royalty agreements is deployed in tranches when certain project-related milestones are reached.
Capital Structure and Ownership
Wright reported that with respect to ownership of Silver Crown, management holds 20%, friends and family have 8% and institutions hold 23%.
The company's capital structure is tight with only 3.8M common shares outstanding. It has 1.99M warrants outstanding, at a weighted average exercise price of just under CA$13, most of which expire in 2028. Because the exercise prices are significantly higher than SCRI's share price, the warrants likely will not be exercised now. However, when they are, they will cause shareholder dilution but also bolster the company's treasury by CA$25.7M, much more than the total of any of Silver Crown's previous capital raises.
What to Expect
Silver Crown will continue to expand its silver royalty portfolio, noted Wright. Because it has a pipeline of projects for royalty agreements and has shown it can raise the required capital, Couloir Capital expects more deals to happen and thus more growth in the months ahead.
"We expect the firm to turn cash flow positive in the next six to 12 months," the analyst wrote.
Once this happens and portfolio revenues increase, Silver Crown "will be able to raise debt on the back of those cash flows, which will substantially reduce their cost of capital and further boost revenue growth," Wright added.
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