I caught up with royalty specialist John Budreski recently for an update on Morien Resources, a small resource royalty play with two long-life assets in Nova Scotia.
The shares had recently slumped below 20 cents from a 52-week high of 28 cents, and I took a position.
Budreski, Morien’s president and CEO, didn’t seem too concerned in the short phone interview and emphasized catalysts expected in the coming months.
“Our company, like many in the sector, is stuck in the small-cap malaise,” he said of Morien, which owns royalties on the (private) Cline group's Donkin coal mine and Vulcan Associates' Black Point aggregates deposit.
Expected catalysts for Morien in the first half of 2016 include:
- coal production at Donkin (where Morien has a 2%-4% production royalty), which will trigger a $2-million milestone payment;
- announcement of test burn by Nova Scotia Power;
- first export sales of Donkin coal, triggering a further $1.5-million payment;
- successful environmental permitting of the Black Point aggregate project, triggering an $800,000 payment from Vulcan Associates.
That’s $4.3 million in milestone payments that should land in the first half of the year. Add on $4-6 million in royalty payments during Donkin’s first year of production, and a further $750,000 in annual royalty payments once Black Point is producing.
With 55.9 million shares outstanding, Morien is currently trading at a market capitalization of about $12 million. It has $3 million in working capital.
Coal has been among the worst-performing commodities, but coal prices in Europe - the likely destination for much of Donkin's coal - have actually been in an uptrend for the past 6 months.
A Flash Update with more information was sent out to Resource Opportunities subscribers on Monday night.
Morien, a spinout from Mongolia gold explorer Erdene Resource Development Corp., is probably the least-known of the companies Budreski is involved with.
He’s also a director at Calgary-based dividend payer Alaris Royalty and Sandstorm Gold, the gold streaming company helmed by Nolan Watson.
Alaris provides capital to private businesses and has been a strong performer - 2014 was the sixth consecutive year the stock has returned double digits. But shares are down about 30% year-to-date and trading near 52-week lows, despite another dividend increase in June (it currently yields 6.4%).
Sandstorm has also had its ups and downs along with the broader resource market. But the streamer recently inked a US$152-million deal with Yamana Gold for up to 5 gold and base-metal streams on Yamana assets.
Budreski described the deal as a “signal to shareholders” that Sandstorm will secure cash-flowing assets while it develops its portfolio of earlier-stage assets.
Budreski, a longtime investment banker, knows a thing or two about deal flow. He was previously a managing director and vice-chairman with Cormark Securities from 2009 to 2012 and previously, president and CEO of Orion Securities (2005 to 2007).
Another interesting play he’s involved with is EnWave Corp., where Budreski is executive chairman. EnWave emerged out of the University of B.C. and has developed dehydration technology for the food and pharmaceutical industries.
EnWave recently renewed a distribution deal with a “major global coffee chain” (yes, it’s Starbucks) that will see its Moon Cheese snacks sold in 7,500 corporate stores, after a successful 3,400-store trial promotion.
He is also on the board of Input Capital (INP-V), which took streaming into the agriculture space (canola) but was recently hit hard after cancelling three of its contracts with farmers.
Disclosure: I own shares of Morien Resources and Erdene Resource Development. This is not investment advice and is presented for information purposes only. All investors need to do their own due diligence.
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