Summit Royalties (SUM.V) has entered into an agreement with Star Royalties (STRR.V) whereby the latter will be acquired by Summit in an all-share deal. Star shareholders will receive 0.36 shares of Summit Royalties for each share they own, resulting in a stronger and faster growing combined entity with an expected 47% gold-equivalent ounce CAGR in the next three years. The combined entity would currently have four cash flowing assets, increasing to six by 2027 as the Copperstone mine owned by Minera Alamos (MAI.V) and the Pitangui mines are expected to be in production by that year.
On top of the obvious production expansion possibilities, Summit has also identified approximately C$2M in annual cost synergies, providing a nice synergy-based rate of return on the acquisition which comes with a C$51M price tag.
Using Wednesday’s closing price of C$0.50 per share of Starr, the implied value per share of Summit is C$1.39, which represents a 5% discount to the Summit share price.
Disclosure: The author has a long position in both Summit and Star Royalties. This post is for educational purposes only; be mindful investing in junior mining stocks is risky and you may lose your entire investment if things go wrong. Please read the disclaimer.
