Terraco Scores $5 Million Goal
I visited the Almaden Project of Terraco Gold (TEN-V) over a year ago and wrote about it. I liked the project and really liked the strength of management on the geological side in the form of the VP for Exploration Charlie Sulfrian and Dr Ken Snyder, Consulting Geologist.
The company has two primary projects, the 100% owned Almaden gold project located in Idaho and the 100% owned Moonlight silver/gold project in Spring Valley Nevada, just north of the Rochester silver/gold mine owned by CDE.
Recently Terraco released the best drill hole ever drilled on the Almaden project. The company has already produced a 43-101 showing 948,000 ounces of gold based on 69,000 meters of drilling in 935 holes. The project is considered at an advanced exploration stage.
Todd Hilditch called me up when they released the incredible results of 76 meters of 1.2 g/t gold from the surface down to the bottom of the hole. For a project with 935 holes already drilled, to have come up with a hole like that is pretty remarkable. Todd was proud but pretty frustrated. While the stock is up 50% since the hole was announced, even at today’s price the market is only giving him $21 an ounce for an ounce of gold in a mining friendly environment.
What frustrated Todd the most was the total lack of understanding of the $5 million coup he pulled at the end of last year, bringing in $5 million with only a tiny dilution and picking up a five year call on a 2.5% royalty on part of the Barrick/Midway Gold Spring Valley project.
I hemmed and hawed a bit before finally spitting out, “Hell’s Bells, Todd, even I don’t understand it. Why would someone give you $5 million and a 2.5% option on a gold royalty?”
Todd sent me to the home page and said I should read the corporate presentation. I did and I still didn’t understand it.
“Todd, why the hell would these guys give you an option on the royalty and a chunk of change at the same time? Put it in writing, simple enough that even I can understand it and I’ll get back to you.”
He did, I read it and now I understand it.
The property owner for the Midway Spring Valley mine subject to a JV between Barrick and Midway holds a 7% NSR royalty on the project. Like the rest of us, he’s getting older every day and he wanted to see if he could cash out. The project has a 3.5 million ounce resource and Barrick is advancing the project rapidly to production.
Todd approached him with the idea of selling part of the royalty and managed to get an exclusive on 5% of the royalty. The owner wanted $20 million for the royalty. Todd managed to find a private equity group interested in purchasing it. The private equity group did a three-way deal. They purchased the royalty for $20 million and gave Terraco a five-year option for $12.5 million on 2.5% of the 5% they bought.
In addition, Todd managed to get the private equity group to pay $5 million to Terraco for a .5% royalty for their Almaden project, a 1% royalty for the Moonlight project and 1 million share warrants.
At a very difficult time for gold juniors, Todd Hilditch managed to pull off a $5 million dollar coup. Obviously he would have preferred for Terraco to buy the royalty but there was no way he could raise the money without blowing his share structure sky high. He managed to get a five-year call on 100,000 ounces of gold and managed to do it while getting the same partner to invest in Terraco to fund this years’ projects.
The royalty deal is a little more complex than I have said because there are two different royalties on two different parts of the project but the key to understanding something pretty complex is that it’s a three way deal and good for each of the partners and a free call on gold for Terraco.
It doesn’t get any better than that. Now if they can keep coming up with the barn burning drill results, one of these days investors may actually give them some love.
Terraco is an advertiser and we are biased. Feel free to contact the company with any questions. You are responsible for your own due diligence.