Sailfish Royalty (FISH) - Entrepreneurial Use of Money

Sailfish Royalty Corp. is a precious metals royalty and streaming company based in the Americas focused on imminent cash flow. The company's major assets include the San Albino Gold Mine in North Nicaragua, and the Spring Valley Gold Project in Pershing County, Nevada.

Matt Gordon caught up with Cesar Gonzalez, Co-founder, CEO, and Director, Sailfish Royalty. He previously served as the Director and Vice President of Corporate Development at Marlin Gold Mining Ltd. He also serves as the Vice President of Corporate Development at Mako Mining, Executive Chairman at Bonterra Resources Inc., and as a consultant at Wexford Capital LP. His educational credentials include a B.S. in Business Administration from the University of Southern California. 

Company Overview

Sailfish Royalty is a British Virgin Islands-based precious metals royalty and streaming company founded in 2014. The company is listed on the Toronto Stock Exchange (TSX-V: FISH) and the OTC Markets (OTCQX: SROYF). Western Standard Metals USA, Inc., and Terraco Gold Corp. are the company's subsidiaries. 

Sailfish Royalty's 2 major assets are located in Nicaragua that features a 3% stream and a 2% NSR (Net Smelter Return) surrounding San Albino, one of the highest-grade open-pit gold mines in the world. The company also has a 3% NSR on Spring Valley, a large undeveloped gold project in Nevada along with royalties in Mexico. 

The company also has a gold-linked loan outstanding with Mako Mining Corp, the owner of the San Albino Gold Mine. Sailfish Royalty is paying dividends that are the highest yield of any precious metals royalty company. Currently, the company is in the process of buying back its shares from the market. 

The Wexford Association

Wexford Capital is the largest and controlling shareholder of Sailfish Royalty and Mako Mining. Chuck Davidson, CEO, Wexford Capital has had a 13-year working relationship with Cesar Gonzalez. During the acquisition of the Spring Valley and Waterton projects, Wexford helped close the deal through a $12M convertible loan. 

Wexford Capital was responsible for writing off the debt owed to Marlin, Mako Mining's predecessor. Wexford acquired Commonwealth Silver-Gold Project in exchange for extinguishing the debt that accrued $75M in interest. 

The market valuation for Swordfish Silver is expected around $25M, this includes both Commonwealth and Gavilanes projects. Wexford has played a major role in ensuring that the companies keep advancing projects while staying public. 

The Gavilanes Silver Property

The Gavilanes Silver Property was originally a part of Sailfish Royalty. However, the company decided to spin out the project into Swordfish Silver, its new company. This was done as Sailfish Royalty was going through a restructuring. Buying back stock and paying dividends wouldn't be possible to execute while simultaneously investing money into drilling operations for Gavilanes. 

The transition of Gavilanes from Sailfish Royalty to Swordfish Silver had a TSX-V requirement mandating Swordfish to raise 18-months equivalent budget, about $5M to fund the drilling, sampling, CSAMT study. This requirement mandated that the capital raised by Swordfish Silver must be raised externally without the support of either Sailfish Royalty or Wexford Capital. This was due to the fact that Wexford owns 22% of Sailfish Royalty. 

Sailfish Royalty is currently carrying out an evaluation pre-money of around $25M against its 48Moz silver equivalent, making the silver equivalent in the $0.50-$0.52 range. Meanwhile, the silver market is trading closer to $0.85-$0.90, historically trading closer to $1. 

As part of the deal, Sailfish shareholders are expected to gain 22% dividends pre-money. Meanwhile, Wexford through the Commonwealth project will gain 68% dividends. This deal has enabled Sailfish Royalty to save time and resources that would have been spent on conducting a formal IPO.

The Gavilanes project is a polymetallic deposit that consists of 85% silver along with copper, lead, zinc, and gold. Meanwhile, the Commonwealth project features gold and silver. The Commonwealth project was originally planned for a heap leach operation, however, due to the presence of silver, it didn't do well. Once Commonwealth grows in size, Sailfish Royalty is looking to drill and scale up the project followed by engineering work for circuit installation that will allow the recovery of more silver. 

It is important to note that the Commonwealth consists of more gold than silver with little-to-no base metals. Meanwhile, Gavilanes features silver with base metals and gold. The company is demonstrating a combined resource from both Commonwealth and Gavilanes as a 48Moz silver equivalent. 

Swordfish Silver's New Appointees

According to a March 15 press release, Sailfish Royalty announced the appointment of Paolo Lostritto as the Vice President of corporate development. Paolo has previously worked as a banker and a research analyst. A rock mechanics engineer, Paulo has been involved in the mining industry from a very young age. He is currently the Chairman at Signature Resources. 

Paulo was responsible for bringing the Tocantinzinho royalty to Sailfish Royalty which was bought and later sold, acting as a catalyst for the company going public. He has also directly worked on a host of the company's projects including Trinidad, San Albino, Commonwealth, and Gavilanes. 

Swordfish Silver has plans to appoint Paulo Lostritto as the CEO of the company. Bryan McKenzie, CFO, Sailfish Royalty and will take the role as the CFO at Swordfish Silver. 

The Mako Mining Loan

Back in August, Sailfish Royalty entered a gold-linked loan agreement with Mako Mining Corp. where the company agreed to provide $8M in an unsecured gold-linked term loan. As per the terms of the loan, Sailfish Royalty is entitled to a cash compensation based on 205 ounces of gold multiplied by the average gold price within the $1750 - $2000 range. This loan is expected to yield between an 8%-22% rate of return. This loan helped the share prices of both companies and received a positive response from the market.

The gold-linked loan has enabled Sailfish Royalty to attain a yield on cash that is supplemented by the cash flow generated at San Albino. The strong alliance between Sailfish Royalty and Mako Mining enabled a quick execution of the loan, whereas, in the case of a third party, it would have taken months to conclude. 

Outstanding Payables

Sailfish Royalty's priority is to pay off the Wexford loan at the earliest and proceed to buy back shares. The company has forged strong relationships with mining contractors and suppliers which provide the flexibility of upfront payments and payments of delivery of supplies. This has allowed the company to further optimize its balance sheet. 

Sailfish Royalty opted for an $8M loan at $1750 gold for an 8% IRR (Internal Rate of Return) with Wexford. The company has already made the first payment in September at an average gold price of $1770. Since the gold price cap is at $2000 presently, the IRR for the company is closer to 22%. Mako Mining has agreed to pay the spillover debt to Wexford to assist in quicker debt clearance.

Paying Dividends

Presently, Sailfish Royalty's stocks are trading at a 52-weeks high. The company believes that dividends are a key component of a royalty business model. When the company first announced dividends, it was over 5% and is currently in the low-4s. This component is crucial for shareholders along with cash generation that makes dividends possible.

Sailfish Royalty's priority is towards gold and silver in the Americas. The company isn't looking for bigger deals at the moment but at the same time, its stock prices have provided the flexibility to utilize shares for acquisitions. The company follows Wexford's philosophy of 'independent thinking, opportunistic investing'.

M&A Considerations

The company is open to a potential M&A (Merger and Acquisition) in the near future. It is specifically seeking an opportunity to partner with an entity that enables it to reach scale while being in the GDXJ (VanEck Junior Gold Miners ETF) index, leading to increased liquidity and a broader shareholder base.

To find out more, go to the Sailfish Royalty Website