Globex Royalty Partner One Step Closer To Full Mine Development
It is not uncommon for activity to wind down in the junior mining sector during the late fall months. Investors often sell stocks trading below their average purchase price in order to realize a tax loss at this interval. This frequently leads to weak market performance during the seasonal window before the more bullish winter months renew expectations. Nonetheless with so many active projects and high quality partnerships already in process, there is always something positive to highlight for Globex Mining Enterprises Inc. (CA: GMX – $0.95 & US: GLBXF – $0.70 & GER: G1MN – €0.63).
The Company provided updates on three exceptional projects that are currently underway. The Mont Sorcier iron ore and vanadium project is rapidly moving forward as Cerrado Gold Inc [CERT] works to finalize plans to begin construction of a mine. At the other end of the spectrum, early stage exploration activity launched by Brunswick Exploration Inc [BRW] surpassed expectations such that the option partner has made the decision to accelerate the purchase for the Lac Escale lithium project and complete the acquisition years ahead of schedule. Moreover, Orford Mining Corp. [ORM] has renewed its option of Globex’s Joutel Eagle Property and is planning an exploration program on its prospective gold property in 2024.
Mine Development Loan Application Advancing with Selection of TD Bank
The Mont Sorcier project is well-advanced along the process to begin the development of a producing mine. Several important milestones have been achieved along the way by royalty partner Cerrado Gold Inc. Infill drilling work in 2021 successfully confirmed expectations in the grade and thickness of the resource zones. This led to the completion of a feasibility study to consider the outlook for a development decision with at least a 20 year mine life. The study delivered positive results highlighted by an after-tax NPV of $1.6 billion for the proposed development with an estimated 43% IRR.
With the robust economic potential established, Cerrado launched the formal process to secure development capital. Last month, the company reported its application to the Export Credit Agency (ECA) for a loan of up to $598 million to finance mine construction. This week, Cerrado announced the selection of the TD Bank as Mandated Lead Arranger to assist with the process. The potential loan would provide up to 70% of the required capital funding to establish a mine at Mont Sorcier.
This potential mine development plan would also be beneficial to Globex as the Company retains a 1% GMR on the property, which is currently expected to generate US$235M per annum in free cash flow over a 21-year period. The significant capital expense to establish mining operations are entirely carried by Cerrado and Globex is not obligated to participate in this risk. However, the Company anticipates a steady revenue stream in the event of a successful outcome.
Another layer of shareholder benefit is associated with this project as Globex also holds nearly 12 million common shares of Electric Royalties Ltd. Globex transferred a 1% GMR on all vanadium produced from Mont Sorcier to Electric Royalties in a previous transaction. The Globex portfolio of stock holdings in partner companies may thus also gain value if the royalty stream becomes a reality.
Option Partner Brunswick Exploration Completes Acquisition of the Mirage Project
The decision to build lithium leverage in the diversified property portfolio holdings ultimately proved fortuitous for Globex. As consumer demand for electric vehicles has grown in recent years, the demand for lithium has also increased. Lithium is a component necessary for the fabrication of the batteries that power these cars. This in turn led to a boom for lithium exploration and prompted Brunswick Exploration to acquire the Lac Escale lithium project from Globex through an option deal announced earlier this year.
Under the terms of the transaction, Brunswick agreed to payments of $500,000 in cash and shares over a four-year term to earn 100% ownership of the project. Brunswick also committed to at least $1 million in exploration funding during that time. The project was subsequently rebranded as the Mirage Lithium property. Drilling work commenced immediately thereafter and delivered some attractive results.
This week, Brunswick formally announced the decision to accelerate the transaction and exercised its option to purchase the project outright. Globex was paid the final installment of $212,500 in cash plus 216,395 shares of Brunswick to complete the purchase agreement years ahead of schedule. An exploration camp has now been established at the property to support an ambitious winter drilling program. Brunswick expects to complete an additional 15,000m of drilling. This aggressive pace of exploration plus the accelerated decision to purchase the project so early in the term of the agreement represents a validation for the quality of the project.
Globex retains a 3% GMR on the property. Brunswick may repurchase one third of this royalty interest for $1 million. In addition, an annual royalty advance of $100,000 is payable to Globex starting after the fifth anniversary of the transaction.
Option Partner Orford Renews Joutel Eagle Option
This week, more good news was announced as Orford Mining Corp. [ORM] renewed the option of Globex’s Joutel Eagle Property in Joutel township, Quebec. The terms of the transaction involve a series of cash/share payments over a five-year period, along with phased work commitments funded by Orford. The total value of this transaction is $1,655,000 (half in cash and half in Orford shares). For this second anniversary, Orford paid Globex $125,000 and issued 2,500,000 Orford shares to Globex.
The Joutel Eagle Property is an advanced exploration stage gold property with approximately 20,000 metres of historic drilling and 3,253 m of current drilling completed by Orford in 2022 & 2023 that has identified multiple gold zones. Orford is currently assessing drill targets for a 2024 diamond drilling program on Joutel Eagle.
Orford can earn 100% interest in the 50 square kilometre Joutel Eagle Property. Globex retains a 3.5% GMR on the property.
Cerrado has demonstrated the importance of the Mont Sorcier iron ore and vanadium project for its business model. Significant investment has been directed towards the rapid development of the prospect. With the appointment of TD Bank as its MLA, the potential to secure access to significant funding is enhanced. Thereafter the construction of a producing mine would create a royalty stream payable directly to Globex, and also to Electric Royalties. The potential for back-end royalty leverage based on the success of a partner company highlights the appeal of the royalty portfolio. In this example it also highlights the value of holding a portfolio of shares in partner companies, as the value of the Electric Royalty holdings may also be expected to increase with a mine development at Mont Sorcier.
Lithium exploration is another subsector that has shifted into favor in recent years. The option deal with Brunswick is yet another demonstration of Globex partnering with a high-quality junior to participate in the advancement of an exploration project. In addition to the payments in shares and cash to Globex involved in the terms of the transaction, the value proposition for its retained royalty leverage on the project also gains value as the next phase of exploration work gets underway.
The successful Globex formula for shareholder value creation continues to generate positive results. Property transactions earn payments of cash and shares up front. Partner companies fund advancement towards mine development. The potential for successful mining builds the prospect of additional revenues from royalty payments.
Globex currently is in a very strong position with approximately $25,000,000 in cash, vendable shares of other companies and receivables in addition to 240 mineral property assets including 92 royalties as well as real estate (land and buildings). Smallcaps Recommendation: BUY.
|Smallcaps.us Advice: Buy
|Price Target: $2.87
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