Paul's Notes #6
IPOs
Initial public offerings, or IPOs, can cause great excitement, as the public listing of a new entity brings something new to market. In the natural resources space, IPOs, RTOs and spin-offs become increasingly common in a bull market as promoters seek to capitalise on bullish sentiment to launch new products in which they may have a large stake and raise capital.
Spinouts of non-core assets are part of this phenomenon, which often creates another orphaned and underfunded public company to add to the more than 2,000 publicly traded resource companies competing for attention and investment. Despite this cynicism, an honourable mention goes to the creation of G3 Goldfields, which G2Goldfields (TSXV:GTWO) is creating to house the gold exploration assets in Guyana that G Mining Ventures (TSX:GMIN) is not buying as part of its US$2.2B acquisition of GTWO at a 72% premium. Curiously, future exploration success may see GMIN subsequently buy G3 to add to the 500,000oz/y potential production center it is developing at Oko-Oko West. It may seem foolhardy for GMIN to let these concessions go at this time, but the G3 spin-out speaks to the relative strengths of the parties as minebuilders/operators and explorers.
This focus of this Paul’s Notes however, is a copper-silver IPO in Poland, and a gold IPO in Nevada, USA.
As a reminder the Rule Natural Resource Investing Symposium 6-10 July, where over 1,500 investors have already registered to attend in person in Boca Raton, Florida or via our live stream. To join them, click the banner above or the button below:
Lumina Metals (TSX:LMCU) www.LuminaMetals.pl
Lumina Metals is the latest public company to be launched by serial entrepreneur Ross Beaty, who says it will be his last. I first learnt about this directly from Ross at a dinner Rick organized in Vancouver in January, who explained that this has been a slow burner for him, as he founded the company in 2011. This highlights the vision, patience and gestation time required to be successful in the mining space.
LMCUs main asset is the Nowa Sól copper-silver Kupferschiefer deposit in western Poland, within sight of the smelter used by its neighbor, KGHM where it has produced copper from similar sedimentary-hosted deposits since the 1970s. Nowa Sól hosts a measured and indicated resource of 604Mt @ 1.24% Cu & 38g/t Ag for a 2% CuEq, containing 7.5Mt Cu & 743Moz Ag. A PFS is underway for delivery in the second half of 2027, for what could be a US$6.4B capital investment, the largest foreign direct investment ever in Poland.
I spoke at length with the president & CEO, and former Glencore (LSE:GLEN) executive Jordan Pandoff, about the company, which Rick Rule was an early investor in, and the opportunity it presents. While developing a new source of copper in the European Union is highly desirable, Nowa Sól is also one of the largest silver deposits in the world, and with silver prices rising, it has the potential to supercharge the mine's financial performance once developed. Here is Pandoff on the value of the silver:
“Ross and I are focused on the silver component as it is way too big to ignore. In terms of value, KGHM’s historical copper to silver ratio was 70:30. Today, it is approaching 55:45, and at $90/oz silver, it would be 50:50. Copper investors typically put a lower valuation on silver, say $35/oz, but the recent Wheaton Precious Metals (TSX:WPM) silver stream on the BHP (LSE:BHP) Antamina production implied a silver price of $80-85/oz. With a silver stream, we can easily raise $3 billion cash up front, or we could spin out a silver stream of 10% of our silver.”
The LMCU IPO was undertaken at a time when the world is crying out for new copper supply. Indeed, shortly after the IPO, the copper price hit US$6.25/lb, approaching $14,000/t. The European Union is acutely aware of how bare its critical minerals cupboard is and of the error, and now challenge of overcoming this, due to a lack of deposits, but the prevailing NIMBY (not in my backyard) mindset that has grown dominant in recent decades. The EU thought it had evolved beyond natural resource extraction, only to have a rude awakening that it does need them.
The LMCU IPO on the TSX was a great success as it was three times oversubscribed and debuted with a C$1.3B market capitalization, which meant each investor only received about 20-30% of their order. In part, this again reflects the need for new copper production, but also because the market knows Ross Beaty doesn’t bring any old concepts to market; he brings those that can have a meaningful impact and grow into giants. Pan American Silver (NYSE:PAAS) and Equinox Gold (TSX:EQX) are current examples of his success.
The potential of LMCU company is also seen, with up to 10 banks likely to initiate research coverage, including a Polish broker, ahead of a secondary listing on the Warsaw Stock Exchange. A Polish investor presence and stressing the strategic role Nowa Sól can play for Poland and its economy is critical is the company is to smooth the one wrinkle it faces.
Its wrinkle isn’t spending billions on infrastructure as Vicuña Corp, the Lundin Mining (TSX:LUN) and BHP JV will have to in San Juan, Argentina. The deposit is within sight of a smelter, it has roads, power, rail to a port and Poland has tens of thousands of trained underground copper and coal miners. The wrinkle is a specific tax on copper and silver mining that effectively acts as a 19% royalty on revenues, which would give LMCU an effective tax rate of around 70%. Other natural resource industries in Poland do not have such a tax. Coal pays a corporate tax rate of 19%, while oil and gas pay about 30%. The company finds this unacceptable and is working with business advisory firms such as EY, as well as other participants in Poland’s mining sector, including Electrum and KGHM, the only company that pays this tax, to present a unified front for modelling and presenting different taxation scenarios. LMCU aims to achieve a tax rate in line with those of other advanced mining countries, around the 40% level. Lundin Gold (TSX:LUG) successfully undertook such an exercise with the government of Ecuador a decade ago to arrive at an acceptable taxation level for its Fruta del Norte gold mine.
It is worth noting that even with a 70% tax rate, LMCUs PEA shows that Nowa Sól easily clears the 15% IRR hurdle rate frequently used for base metal mining investments, which shows the importance of its silver co-product. Here is Pandoff:
“Even with this tax, at today’s metal prices, we would have an IRR of 22%, but we have made it clear to the government that tax reform is imperative, and we will not be building the mine without tax reform.”
In addition to a future secondary listing on the Warsaw stock exchange, in 2027, the company plans a secondary listing on the NYSE or NASDAQ to benefit from the US silver retail investor base. This may also include a spinout of the company’s second project, Sulmierzyce, into a newco as a resource growth story. Sulmierzyce is a higher-grade and shallower deposit 150km from Nowa Sól, which hosts an inferred resource of 307.8Mt @ 2.09% Cu & 31.85g/t Ag, containing 6.4Mt Cu & 315Moz Ag. Here is Pandoff:
“Sulmierzyce is slightly smaller than Nowa Sól and has a lot of scope for resource growth, so we might put out as a demerged entity 12 months from now and consider a spinco.”
Mackay Gold (TSXV:MACK) www.mackaycorp.com
Mackay Gold went public in April and is a gold exploration story that combines a historical name in a great location with a proven team. The Comstock gold district, at the northern end of the Walker Lane Trend near Reno, Nevada, which produced an estimated 8.2Moz Au & 192Moz Ag between 1859 and 1926 from bonanza-grade deposits, with grades of up to 35g/t Au & 726g/t Ag. As in many historical mining areas, miners extracted the high-grade ore and left the lower-grade material, making the former mining areas exploration targets in addition to the region's wider potential.
As with many historical mining districts, ownership was fragmented into small concessions, claims or titles, which explains why the Comstock area has not been subjected to modern exploration. MACK has consolidated the area and now controls 7km of strike on the two principal lode veins, allowing it to undertake district-scale exploration using a systematic approach and modern exploration tools. An example of a successful consolidation strategy like this can be seen further south in Nevada, where Blackrock Silver (TSXV:BRC) essentially did the same in the Tonopah area, allowing it to develop the largest primary silver resource in the US.
As a result of MACKs April IPO, the company has $62 million in its treasury, which it will use to advance on its target of the discovery of a 5Moz resource. Exploration will initially focus on the historically under-explored Occidental/Brunswick lode, which will receive 10,000-20,000m of RC drilling and 5,000-10,000m of diamond drilling targeting heap-leachable oxide gold. Success in achieving this goal would likely attract a number of companies interested in acquiring it. This list of potential acquirees with current production in Nevada includes Kinross Gold (TSX:KGC), Coeur Mining (NYSE:CDE), SSR Mining (NASDAQ:SSRM), McEwen Inc (NYSE:MUX), Integra Resources (NYSE:ITRG), Orla Mining (NYSE-A:ORLA), i-80 Gold (TSX:IAU), Mako Mining (TSX:MKO), and others.
Chair of the company is Jeff Pontius who had great exploration success in the Walker Lane Trend with Corvus Gold, which was sold to AngloGold Ashanti for $370M in 2022 as the major consolidated ounces around its Silicon discovery, which is now its Arthur development project. CEO Darwin Green founded and sold HighGold Mining to Contango Ore (NYSE-A:CTGO) in 2024. Green has great geological bench strength through advisors Dr Moira Smith, a geologist with tremendous experience in the Great Basin, and John Robbins of the Discovery Group, among others.
Barrick Mining (NYSE:B) www.BarrickMining.com
These IPO’s are just the prelude, of course, to the big Kahuna IPO due before year end: Barrack spinning out its North American assets (good bunny Barrick) into a newco. Analysts estimate that the newco will account for two-thirds of the company's current $77B market capitalisation and will likely be multiple times oversubscribed. At its heart will be Barrick’s controlling interest in the Nevada Gold Mines JV with Newmont (NYSE:NEM), and its adjacent Four Mile deposit. It will also have Barrick's controlling interest in the Pueblo Viejo JV with Newmont in the Dominican Republic. Together, these produce about 2Moz/y of gold. Barrick will retain a majority interest in the newco.
The spin-out will leave the Barrick mothership with the bad-bunny assets, which carry all the country- and political-risk in Pakistan, Mali, Papua New Guinea, Tanzania, and the DRC, and produce about 1.5Moz/y.
If a pre-development stage copper and silver project in Poland is 3x oversubscribed, the demand for a producing North American IPO is likely to be off the charts. This has not gone unnoticed by Ross Beaty, Chuck Jeannes and Pierre Lassonde, key figures in the Equinox Gold (NYSE-A:EQX) and Orla Mining (NYSE-A:ORLA) deal announced May 13 to create a 1.1Moz/y North American gold producer with a development pathway to 1.9Moz/y.
Final thoughts
These two companies, whilst very different, share many commonalities: they are both in established, historical mining districts, close to infrastructure, and driven by teams with proven success in the businesses they are advancing. And they both promise a prize of a size worth having.
Royalty M&A
Not an IPO, but a quick mention and congratulations to two Rule Symposium companies getting together: Elemental Royalty (TSX:ELE) is to acquire Vizsla Royalties (TSXV:VROY) in a US$239M transaction with a 31% premium to add a royalty on Vizsla Silver’s (TSX:VZLA) Panuco silver-gold development project in Jalisco, Mexico. VROY is forecast to generate 7,500oz/y AuEq once Panuco is in production. VROY shareholders can receive 0.15 of an ELE share, C$4.13 in cash, or a combination thereof. Panuco has a 2025 FS detailing 17.4Moz/y AgEq production over an initial 9.4-year mine life, with Vizsla Silver fully financed for construction, pending permits.
This is ELEs largest ever transaction and adds to its portfolio of over 200 royalties, with 18 producing, cash-flowing royalties, and 28 at the advanced development stage. It produced 4,983oz in 1Q25 and reported net earnings of $1.1M on revenues of $24.3M, ending the quarter with $69.1M in cash. It declared an inaugural 4c-per-share-per-quarter dividend and increased liquidity through a $150M RCF with a $50M accordion feature.