Discovery Silver (DSV:TSX) have announced they are buying the Porcupine gold camp in Timmins, Canada from Newmont Mining (NEM:NYSE) with 2024 production of 280,000 ounces of gold.
At a $2650/ounce gold price Discovery is paying US$425 million or 0.2X the US$2.3 billion Net Present Value for the heart of the 70 million ounce Timmins gold camp - Canada's largest. Franco Nevada are contributing US$300 million of royalty and $100 million of debt finance and Discovery Silver are raising US$173 million of new equity to buy Porcupine. US$200 million of the purchase price is up front cash, $150 million is deferred cash and $75 million is equity in Discovery.
Discovery Silver will have over US$200 million of spare cash to give the Porcupine assets the investment deserved of a Tier One gold camp. Discovery Silver are unquestionably the right management team for the Porcupine assets with over a century of collective experience working in the Timmins gold camp.
This is like Four Seasons Hotel buying the Holiday Inn in Mayfair from an absentee landlord with the balance sheet and expertise to renovate it into a five star property.
We have never before seen a Tier One gold camp on sale at cents in the dollar with a chance to back a management team that have proven themselves multiple times. Discovery Silver is the same team that made investors handsome returns developing gold mines for Lake Shore Gold (2008-2016) and Kirkland Lake Gold (2016-2022) in the same neighbourhood as the Porcupine gold mines they are today buying from Newmont.
Paul Brink, CEO of Franco Nevada (FNV:TSX), the largest gold royalty company in the world and source of most of the funding for Discovery's purchase of Porcupine says Discovery CEO Tony Makuch is "extremely rare".
"Tony is not only a proven mine builder, he is one of a very small group that want to build mines. To add to that, Tony’s experience uniquely qualifies him to operate in the Timmins camp.”
Franco Nevada are well qualified to comment as Tony Makuch build the Midas gold mine for Franco in the 1990's.
Buying gold mines from Newmont has worked out well for shareholders of the three other public companies that bought Newmont gold mines in 2024. Orla Mining (OLA:TSX) , Greatland Gold (GGP:LSE) and SSR Mining (SSRM:TSX) each bought gold mines from Newmont between September and December 2024. Their share prices have rallied an average of 50% (+250% annualised) since announcing the purchase of Newmont's Musselwhite, Haveiron and Cripple Creek Mines respectively.
In the 7 days since announcement of the Porcupine acquisition on the 27th of January, Discovery has rallied 67% pointing to the scale of Porcupine, management capability and remarkable opportunity Newmont have offered Discovery shareholders. The Porcupine gold assets are larger than any of the other gold mines recently sold by Newmont and half the price measured on an Enterprise Value (EV) per ounce of 2024 production, reserves and almost 90% cheaper per ounce of resource.
*Reserve and Resources taken from Newmont 2023 reserve and resource report except for Porcupine Resources from Discovery Silver 28th January 2025
What is a Tier One Gold Mine?
Newmont defines a Tier One gold mine as greater than 500,000 ounces of annual production per year, at least ten years of mine life, the bottom half of the industry cost curve, robust free cashflow and a stable mining friendly jurisdiction.
We recently visited the Timmins gold camp with Tony Makuch and his team and can confirm Timmins is about as friendly as mining jurisdictions get - it's been a mining town since a gold rush in 1910 discovered Canada's largest gold endowment including the Dome and Hollinger mines included in the Porcupine assets.
Timmins is Discovery CEO Tony Makuch's home town and the politicians and locals we met were very enthusiastic for Tony and his team to get to work. Newmont senior management never made the trip to Timmins.
Arlington are Discovery Silver advisors and shareholders and fully expect that Tony and his team will turn the Porcupine gold camp into a Tier One gold asset as defined by Newmont in the medium term. Discovery Silver also owns the largest silver reserve not owned by a major - its 300 million reserve ounce Cordero Project in Mexico worth US$2 billion at $30 per ounce silver. We would argue that Cordero is worth more today because Discovery Silver now has the balance sheet to unlock Cordero's value. Recently Mexico's new Sheinbaum administration have started to issue mining permits to mining companies after a hiatus under the former President. Discovery's Cordero Project should be fully permitted later in 2025.
It is very rare to see Tier One gold camps on sale at cents in the dollar with best in class management and financial backers.
Discovery Silver have the assets, the capability and the balance sheet to be producing 500,000 to 1,000,000 ounces of annual gold equivalent production within five years which implies at least five times return from current Discovery Silver share prices over the next five years.
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