The Franco Nevada origin story that we covered in part one of our series on gold royalty companies is likely baked into the background memory of the backers of Ely Gold (TSXV: ELY). The TSX Venture-listed company went on a tear February 3rd, following the acquisition of a Nevada claims package that they haven’t said much about. The Feb 3 release disclosed the seller and purchase price of the claims package, referred to the Tonopah, NV district that they reside in as a “deposit,” and drew parallels to the world class Comstock Lode, but didn’t say much about exploration done on the claims, operations they might be adjacent to or on trend with, etc. Ely optioned the claims package from “Cliff ZZ LLC” for $650,000 in cash and warrants to purchase 650,00 shares at $0.65/share for 2 years.
Ely was up +0.08 (+11.4%) to $0.78 on 1.3 million shares Monday in 3 hours and 15 minutes worth of trading before being halted at 9:44 am PST, pending news which, as of this writing, hasn’t yet been filed. Ely reports having purchased a 100% interest in the claims, so a casual observer might have looked for them to stay on-brand by optioning them to another company interested in earning an interest by spending on exploration, while Ely watched a carried interest appreciate on their balance sheet.
The cagey, vague wording of the press release, in context of the extreme market action, got our attention. Typically, small cap companies who option new claims shout from the rooftop about the larger companies who are their new neighbours, and their budgets, and the inevitable depletion of their reserve base. It was curious that ELY was being so cool about it.
For example, when Ely Gold optioned a claims package called “Tonopah West” to Coeur Mining (NYSE: CDE) in 2017, keeping a 2% NSR in the project, the release was very clear about the trend that it was on, the previous production from that trend, etc.
This page from a May 2018 Coeur Mining presentation outlines that at least seven holes had been done on the “Cliff ZZ” claims outlining a faulted two-vein system of mineralization. The graphic labels the claims as ground “to be” leased, adjacent to the claims they leased from Ely Gold.
Coeur counts their Tonopah project as part of their exploration portfolio and doesn’t presently list any reserves or resources there. Coeur isn’t in the habit of making noise about their exploration properties until they’re relevant compared to their larger operating footprint, so it’s hard to say exactly how Tonopah figured into their plans going forward, and whether they failed to do this deal by choice or if the ground got scooped by Ely.
Large mining companies have a history of losing important claims either through neglect or attitude, so it’s entirely possible that Ely got a hold of this property because they were ready to pay attention to the previous owners when Coeur wasn’t. If that’s the case, we can expect Ely to extract its proverbial pound of flesh before Coeur gets a hold of the claims that they were going to get around to optioning eventually.
It’s equally possible that Coeur just adjusted their priorities and decided to focus elsewhere, or will pretend that’s what happened. In that event, look for Ely to take on another exploration partner, happy to use the work that Coeur appears to have done already to continue de-risking this system in a capital environment buttressed by a strong metals market, while Coeur continues to act like they were never really interested in those claims anyway. Ely can have them. Wish them all the success in the world. Whatever. It’s fine.
ELY’s earnings from its royalty portfolio aren’t yet significant (about CAD$300,000 in the 9 months ending September 30, 2019), but the market clearly likes their aggressive approach at this stage of this strong precious metals market. We expect that the coming news will better flesh out the Tonopah story, because odds are slim that traders woke up Monday morning and just had to have this Nevada royalty generator, but we write that without wanting to take anything away from Ely Gold, who surely deserves the attention.
The nature of gold exploration is that there’s really no telling where the deposits are before the drills turn, and this company has accumulated the rights to places that it might reasonably be through a period in which nobody really cared. Now, as the pendulum swings back to precious metals being the trade, they’re in a position to be able to use other companies’ exploration budgets to add value to their portfolio. It’s a neat move and one that figures to work at least as well as the metals prices allow it to, and potentially much better. The production-stage and near-production stage projects that Ely holds interest in are small, relatively speaking, but the nature of these things is that they’re often expanded after production begins.
Ely has been as careful with the cap table as one could hope from a developing royalties story. The company presently carries a market cap of only $78 million. Typical of royalty operators, their expenses consist mostly of capital expenditures, done in chunks, and a fairly low operating cost. Look for them to use this recent market strength to bolster their cash position – $2.3 million CAD as of Sep 30, 2019. The company lists no debt.
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