Non-Dilutive Capital Secured for Major Spanish Mining Project

Source: Streetwise Reports 08/19/2024

Emerita Resources Corp. EMOTF has secured a loan financing agreement with Nebari Natural Resources Credit Fund II LP, providing up to US$15 million in non-dilutive capital. The loan will be disbursed in three tranches: US$6 million, US$4.5 million, and US$4.5 million. This financial support is aimed at advancing Emerita's wholly owned Iberian Belt West (IBW) project, allowing the company to maintain momentum despite challenging equity market conditions. The first tranche is mandatory, while the subsequent tranches are at the company's discretion and contingent on satisfying the applicable conditions.

David Gower, CEO of Emerita, emphasized the importance of this transaction, stating in the company news release, "This transaction with Nebari gives Emerita access to up to US$15 million of non-dilutive capital in a challenging equity environment for resource companies and allows the company to maintain the momentum in developing its ongoing Spanish projects." The funds will be allocated toward exploration, geological drilling, environmental permitting, and general administrative costs associated with the IBW project.

The loan carries a floating interest rate, with the term Secured Overnight Financing Rate (SOFR) plus 11.50% per annum, ensuring flexibility in repayment, which can occur before the loan's maturity date. Additionally, Emerita will issue common share purchase warrants as part of the agreement, with the specific terms tied to the Canadian equivalent of each tranche.

Digging Into The Mining and Resources Sector

The mining sector plays a crucial role in the global economy, serving as a foundational industry that supports numerous other sectors. According to a report by PwC published on June 27, "mining occupies a unique role among global industries" providing essential materials for infrastructure development, consumer needs, and the transition to a low-carbon future. This highlights the significant contribution of mining companies like Emerita Resources, which are involved in the exploration and development of key mineral resources.

Clarus Securities analyst Varun Arora concluded that ongoing infill and expansion drilling at IBW with six rigs active could further enhance the project's value.

The Financial Review noted on June 2 that "headwinds are starting to turn into tailwinds for the mining sector" suggesting a positive shift in the industry's outlook.

Commodity prices, particularly for copper, gold, and critical transition materials such as lithium and nickel, showed signs of recovery. This improvement in commodity prices could bolster the financial health of resource companies, allowing them to maintain strong balance sheets and focus on delivering returns to shareholders.

Statista, in a May 22 report, emphasized the importance of the mining sector, stating that "the mining sector is pivotal to the world's economy." The report also noted that in 2022, the revenue of the top 40 global mining companies reached a record US$943 billion, underscoring the sector's economic significance.

As the industry continues to evolve, PwC observed that mining companies are "reinventing the role that they can play in the global economy — by mobilizing the resources needed for sustainable growth." This transformation is particularly relevant for companies like Emerita Resources, which are poised to benefit from the ongoing demand for mineral commodities driven by urbanization, infrastructure development, and the global energy transition.

The sector's positive outlook is further supported by PwC's assertion that "strong structural trends continue to buttress powerful long-term demand for commodities" indicating a stable and growing market for the resources that companies like Emerita are focused on extracting.

Emerita's Catalysts

The loan agreement with Nebari positions Emerita Resources for significant advancement in its IBW project, a crucial step forward given the ongoing legal cases surrounding the Aznalcollar project. The financial backing ensures that Emerita can continue its project development without the need for equity dilution, a notable advantage in the current market environment.

Steven Bowles, Managing Director at Nebari, expressed confidence in Emerita's potential, noting, "Nebari is extremely excited to partner with Emerita Resources as it advances the IBW project. We are impressed with the experience and professionalism of the Emerita and IBW teams and have the utmost confidence in their ability to continue to unlock value at IBW and beyond."

This financing also strengthens Emerita's position ahead of expected milestones in 2025, including the resolution of the Aznalcollar cases. The structured tranches allow Emerita the flexibility to draw funds as needed, aligning with the company's project timelines and anticipated developments, thus providing additional security and potential value for shareholders.

What Analysts Are Saying About Emerita

Clarus Securities analyst Varun Arora provided a detailed analysis of Emerita Resources Corp. following the release of a maiden resource estimate on its Iberian Belt West (IBW) project in Spain. In a research note dated June 24, Arora highlighted the significant potential of the IBW project, stating that it "puts it in the league of high-quality projects advancing toward production." Based on this resource estimate, Clarus Securities gave the company a target price for Emerita of CA$3.75, which is an over 400% increase from the price at the time of this article. Arora also maintained a "Speculative Buy" rating.

Arora emphasized the robust nature of the resource, noting, "We believe the maiden resource confirms our view that IBW will be a mine with our estimated CA$730 million (CA$730M) net present value." He also pointed out that the resource is "comparable in size and grade to current advanced stage polymetallic projects that are trading at seven-plus times Emerita's CA$110M market cap."

Arora also discussed the resource's composition, reporting that the global resource at IBW, including Measured and Indicated (M&I) plus Inferred resources, is 18.8 million tons (18.8 Mt) of about 8% zinc equivalent. He remarked, "With about 75% of the resource in the Measured and Indicated (M&I) category, we believe this is a robust resource."

In addition, Arora pointed out the potential for further resource expansion at Romanera and Infanta, which remain open for exploration, as well as at the El Cura deposit, where drilling recently commenced. He concluded that ongoing infill and expansion drilling at IBW with six rigs active could further enhance the project's value.

Ownership and Share Structure

Reuters provided a breakdown of the company's ownership and share structure, where management and insiders own approximately 5.13% of the company.

According to Reuters, Michael Lawrence Guy owns 1.54% of the company, David Patrick Gower owns 1.12%, Joaquin Merino-Marquez owns 0.84%, Catherine Stretch owns 0.65%, and Marilia Bento owns 0.4%.

Institutions own 1.19% of the company, Reuters reported, including Merk Investments LLC with 1.11%.

According to Refinitiv, there are 247.39 million shares outstanding with 234.7 million free float traded shares, while the company has a market cap of CA$180.54 million and trades in a 52-week range of CA$0.23 and CA$0.78.

Important Disclosures:

1. Emerita Resources Corp. is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$4,000 and US$5,000.
2. James Guttman wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
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