Key Concepts
- Silver Streaming: A financing arrangement where a company (Luna Royalties) provides upfront capital to a mining company (Lending Gold) in exchange for the right to a percentage of the silver produced from a mine (Fruta Del Norte).
- Royalty Company: A company that owns rights to a percentage of the revenue or production from a mine, without operating the mine itself.
- Free Float: The portion of a company’s shares that are available for trading in the public market.
- Precious Metals Focus: Luna Royalties’ initial strategy of concentrating on acquiring royalties and streams related to gold and silver.
- Phase Advancement (PA): A preliminary economic assessment (PA) is an initial, high-level economic analysis of a mineral project.
- Net Cash Position: A company’s cash and cash equivalents minus its total liabilities.
Luna Royalties’ $670 Million Silver Stream & Growth Strategy
This discussion, featuring Adam Lundine, CEO of Luna Royalties, at the 35th Metals Mining and Critical Minerals Conference, centers on Luna Royalties’ recently announced $670 million silver streaming agreement with Lending Gold’s Fruta Del Norte mine in Ecuador. This deal is described as “transformational” for Luna, providing immediate cash flow and accelerating the company’s growth.
The Silver Stream Transaction – Details & Rationale
The agreement involves Luna Royalties issuing approximately 50 million shares (valued at $670 million USD) to Lending Gold in exchange for the right to a portion of the silver production from Fruta Del Norte. Fruta Del Norte produces roughly 500,000 ounces of gold and a comparable amount of silver (slightly over 500,000 ounces), with silver representing only 1-2% of Lending Gold’s revenue. Lundine explained that Lending Gold did not require the cash but saw an opportunity to “daylight the silver production” for its shareholders. Lending Gold will redistribute the Lunar shares to its shareholders, effectively giving them exposure to Lunar’s future growth. This structure is considered “elegant” as it provides cash flow to Luna while allowing Lending Gold shareholders to benefit from the silver production.
Impact on Luna Royalties – Liquidity & Shareholder Base
The deal is expected to significantly increase Luna’s free float, potentially attracting index funds and increasing trading liquidity. Currently, Luna has approximately 120 million shares outstanding. The Lundine family will remain a significant shareholder, while NGX (the company that spun out Luna) will see its ownership reduced from 20% to around 10%. Newmont will become a major shareholder with a representative joining the board. Lundine emphasized the excitement surrounding the collaboration with Newmont.
Luna’s Market Positioning & Growth Strategy
Luna Royalties aims to occupy a niche in the royalty and streaming space, targeting companies with a market capitalization between $1 billion and $10 billion – a segment with limited competition. The initial focus is on acquiring quality, long-life precious metal assets. While initially focused on precious metals, the company may diversify into base metals over time. Lundine highlighted the importance of disciplined growth and sequencing, having already established two non-cash flowing assets (Lunawasi and Loselados) prior to this transaction.
Competitive Advantage & Deal Sourcing
Beyond the relationship with Lending Gold, Luna Royalties leverages the broader London Group network to source deals. Past transactions within the group, such as deals with Wheaton and Franco-Nevada, demonstrated the potential for internal deal flow. Lundine emphasized the importance of building relationships and identifying opportunities where companies might be willing to offer shares in exchange for capital, rather than solely focusing on cash payments.
London Group Updates & Copper Outlook
The conversation also touched upon recent developments within other London Group companies.
Vikunia Project – Positive Preliminary Economic Assessment (PA)
Lundine expressed satisfaction with the recently released Preliminary Economic Assessment (PA) for the Vikunia project (a joint venture with BHP). He described the PA as “realistic” but with significant upside potential, particularly in future phases of development. The initial phase, focused on the Joseé Maria deposit, is expected to self-fund subsequent phases. Further resource expansion is anticipated.
BHP Partnership & Potential for Vikunia Silver Stream
The recent $4.3 billion silver streaming deal between Wheaton Precious Metals and BHP for the Antina project in Peru sparked discussion about a potential similar arrangement for Vikunia. While Luna is comfortable funding its share of Vikunia with cash, the possibility of a collaborative deal with another streaming company was acknowledged, given BHP’s strong financial position.
Faraday Copper & Arizona Land Package
Faraday Copper’s acquisition of a significant land package in Arizona from BHP for approximately $330 million Canadian (30% of Faraday’s market capitalization) was highlighted as a positive development. This acquisition expands Faraday’s scale and positions it adjacent to existing mining operations (San Manuel and Kameazoo).
Copper Market Outlook
Lundine expressed a bullish outlook on the copper market, citing tight supply, increasing demand (outpacing GDP growth), and the strategic importance of copper from a geopolitical perspective. He noted that London Mining is generating strong margins at the current copper price of around $6 per pound, but cautioned against excessively rapid price increases.
Luna Royalties – 2024 Outlook
Looking ahead, Luna Royalties will focus on completing the silver stream transaction, securing shareholder approval (requiring a vote due to the 40% stock issuance), and continuing to evaluate further growth opportunities. The team is actively pursuing additional deals to scale the business.
Notable Quotes
- Adam Lundine: “It was a very elegant way to get cash flow into Lunar and also daylight that value for London Gold shareholders.” (Regarding the structure of the silver stream deal)
- Adam Lundine: “We’ll be very focused on uh getting this deal done. It'll require a shareholder vote on the the Lunar side uh because we're issuing about 40% of the stock.” (Regarding next steps for the deal)
Conclusion
Luna Royalties’ $670 million silver stream with Lending Gold represents a significant milestone for the young company, providing immediate cash flow, increasing liquidity, and positioning it for growth within the royalty and streaming sector. The company’s strategic focus on precious metals, coupled with its access to the London Group network and disciplined approach to deal sourcing, suggests a promising future. The positive developments within other London Group companies, particularly in copper, further enhance the overall outlook.
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