What's Happening?
Deterra Royalties has announced the sale of its non-core La Preciosa silver assets located in Mexico to Avino Silver & Gold Mines for a total of US$22 million. This transaction marks the end of Deterra's royalty interests in the project and eliminates its obligation to a contingent milestone payment. Avino will pay US$13.25 million upon completion of the deal and an additional US$8.75 million in cash after 12 months. Deterra acquired the precious metals portfolio from Trident Royalties a year ago for US$14.8 million, which included a 1.25% net smelter return royalty and a 2% gross value returns royalty. CEO Julian Andrews stated that precious metals are not central to Deterra's strategic focus, which is primarily on base, bulk, and battery commodities. The company expects to realize a pre-tax profit of over US$6 million from this asset disposal, reflecting a 31% pre-tax internal rate of return.
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Why It's Important?
The divestment of La Preciosa silver assets by Deterra Royalties is significant as it aligns with the company's strategy to focus on core commodities such as base, bulk, and battery materials. This move allows Deterra to streamline its portfolio and capitalize on non-core assets, potentially enhancing its financial performance. The transaction also highlights the strong demand for silver, driven by a global output increase and favorable market conditions. Avino Silver & Gold Mines stands to benefit from acquiring these assets, especially given the robust silver price environment. This deal could influence other companies in the mining sector to reassess their asset portfolios and strategic focuses.
What's Next?
Following the completion of the sale, Deterra will pay Coeur Mining a deferred consideration of US$1 million within the first five business days of the contingent milestone payment or on the first anniversary of the project's first silver production. Avino Silver & Gold Mines will continue to develop the La Preciosa project, potentially leveraging the strong silver market to maximize returns. The transaction may prompt other mining companies to evaluate similar opportunities for divesting non-core assets, particularly in the context of fluctuating commodity prices and strategic realignments.
Beyond the Headlines
The sale of La Preciosa assets underscores the broader trend of mining companies focusing on strategic core commodities amid changing market dynamics. This shift may lead to increased investment in battery and electrification materials, reflecting the growing demand for sustainable energy solutions. Additionally, the transaction highlights the importance of aligning business models with market conditions to optimize asset value and shareholder returns.
