Precious Metals Royalty And Streaming Companies: The February Report
Summary
- The Precious Metals R&S Index declined by 10.02% in February.
- The Precious Metals R&S Equally Weighted Index decreased by 7.32%.
- The best performance was recorded by Vox Royalty; its share price remained flat.
- The biggest decline was experienced by Metalla Royalty & Streaming; its share price declined by 19.16%.
Precious metals royalty and streaming companies represent a very interesting sub-industry of the precious metals mining industry. They provide some leverage to the growing metals prices, similar to the typical mining companies; however, they are less risky in comparison to them. Their incomes are derived from royalty and streaming agreements. Under a metal streaming agreement, the streaming company provides an upfront payment to acquire the right to future deliveries of a predefined percentage of metal production of a mining operation.
The streaming company also pays some ongoing payments that are usually well below the market price of the metal. They can be set as a fixed sum (e.g., $300/toz gold) or as a percentage (e.g., 20% of the prevailing gold price), or a combination of both (e.g., the lower of a) $300/toz gold and b) 20% of the prevailing gold price). The royalties usually apply to a small fraction of the mining project production (usually 1-3%), and they are not connected with ongoing payments. They can have various forms, but the most common is a small percentage of the net smelter return ("NSR"). The NSR is calculated as revenues from the sale of the mined products minus transportation and refining costs.
To better track the overall performance of the whole sub-industry, I created a capitalization-weighted index (the Precious Metals Royalty and Streaming Index) consisting of 11 companies (in June 2020, expanded to 15, by adding Nomad Royalty (OTCQX:NSRXF), Vox Royalty (OTC:VOXCF), Elemental Royalties (OTCQX:ELEMF), and Orogen Royalties (OTCPK:EMRRF)). Later, based on the inquiries of readers, I also introduced an equal-weighted version of the index. Both indices include the same companies and are calculated back to January 2019.
The previous editions of the monthly report can be found here: May 2019, June 2019, July 2019, August 2019, September 2019, October 2019, November 2019, December 2019, January 2020, February 2020, March 2020, April 2020, May 2020, June 2020, July 2020, August 2020, September 2020, October 2020, November 2020, December 2020, January 2021.
Source: Own processing
Despite poor share price performance, Franco-Nevada (FNV), Wheaton Precious Metals (WPM), and Royal Gold (RGLD) maintain a nearly 90% share on the overall market capitalization of the companies included in the Precious Metals Royalty and Streaming indices. The ranking of the companies by market capitalization experienced only several changes when Nomad Royalty (NSRXF) skipped over Metalla Royalty & Streaming (MTA), and Elemental Royalties skipped over Vox Royalty and Sailfish Royalty (OTCQX:SROYF). However, in all the cases, the changes didn't occur due to one company growing quicker than the other, but due to one company falling slower than the other.
Source: Own processing
As can be seen in the chart above, in February, only Vox Royalty somehow avoided losses, when its share price remained flat. All the remaining 14 companies recorded negative returns. The worst one was Metalla that lost 19.16% of its share price. Metalla was the worst-performing company also in January when it lost 14.41%. The two months of losses followed the great December performance when Metalla recorded 44.5% gains. But February was a poor month also for the majors. While Royal Gold lost only 2.97%, Franco-Nevada's share price declined by 10.32% and Wheaton Precious Metal's share price declined by nearly 13%.
Source: Own processing
While the silver price remained relatively flat when the iShares Silver Trust ETF (SLV) lost only 1.32%, the gold price did much worse and the share price of the SPDR Gold Trust ETF (GLD) declined by 6.26%. The mining shares did even worse. The share price of the VanEck Vectors Gold Miners ETF (GDX) decreased by 9.79% and the share price of the VanEck Vectors Junior Gold Miners ETF (GDXJ) decreased by 8.63%. Similar results were recorded also by the precious metals royalty and streaming companies. The value of the Precious Metals R&S Index decreased by 10.02% and the value of the Precious Metals R&S Equally Weighted Index decreased by 7.32%.
The February News
The precious metals royalty and streaming companies were pretty active in February. However, the news was mostly limited to announcements of financial results and portfolio updates. Only several tiny deals took place.
Franco-Nevada declared a quarterly dividend of $0.26. It will be paid on March 25, with a record date of March 11. After annualizing, the dividend yield equals 0.95%.
Wheaton Precious Metals announced that in 2020, its attributable production equaled 368,044 toz gold, 22.915 million toz silver, and 22,187 toz palladium. In 2021, it expects to receive 370,000 - 400,000 toz gold, 22.5 - 24 million toz silver, and 40,000 - 45,000 gold equivalent ounces of palladium and cobalt.
Royal Gold reported the Q4 2020 (Royal Gold's financial Q2 2021) financial results. The gold equivalent sales amounted to 84,500 toz. The revenues and operating cash flow increased to $158.4 million and $99.9 million, respectively. The revenues set a new record high. A more detailed article about Royal Gold's Q2 can be found here.
Osisko Gold Royalties (OR) announced that Agnico Eagle Mines (AEM) and Yamana Gold (AUY) approved the development of the Odyssey underground operation at the Canadian Malartic mine. This will extend the mine life from 2028 at least until 2039. Moreover, compared to the original projections, the underground production should amount to 545,000 toz gold per year, instead of 400,000-450,000 toz. Osisko owns a 3-5% NSR royalty from the underground mine. The underground royalty payments should start in 2023.
The company also reported that the attributable Q4 production equaled 18,829 toz. The revenues increased to $51.6 million, but the operating cash flow declined to $26.1 million and the net income decreased to $3.7 million. Osisko also declared a quarterly dividend of $0.04. After annualizing, the dividend yield equals 1.49%. A more detailed article about Osisko Gold Royalties' Q4 can be found here.
Sandstorm Gold (SAND) reported the Q4 2020 financial results too. It sold 15,795 toz of gold equivalent, recorded revenues of $29.7 million, operating cash flow of $22.5 million, and net income of $10.5 million. The overall 2021 gold equivalent sales amounted to 52,176 toz. This volume should increase to 52,000-62,000 toz in 2021, according to the guidance.
On February 19, Sandstorm announced that its equity stake in Entree Resources (EGI) increased from 20.4% to 21.9% (22.6% if all warrants are exercised).
Maverix Metals (MMX) provided an asset update. The main news includes Agnico Eagle Mines' decision to repurchase 1.5% of Maverix's 2.5% NSR royalty on the Hope Bay mine. Orla Mining (ORLA) announced the results of an updated feasibility study for its Camino Rojo mine, which should get into production by the end of this year. Maverix owns a 2% NSR royalty on the mine with an expected annual production of 94,000 toz gold. Good news came also from Australia, where Karora Resources (OTCQX:KRRGF) keeps on growing gold and nickel reserves and resources at the Beta Hunt mine, where Maverix owns a 4.75% gold and 1.5% nickel NSR royalty.
The company also announced that the attributable gold equivalent sales equaled 8,836 toz in Q4. The overall 2020 sales equaled 28,916 toz of gold equivalent. In 2021, the sales should be around 27,000-30,000 toz. Maverix declared a quarterly dividend of $0.01, payable on March 15, to shareholders of record as of February 26. After annualizing, the dividend yield equals 0.88%.
Nomad Royalty reported the Q4 2020 financial results. The attributable production included 2,746 toz gold and 64,568 toz silver. The revenues equaled $6.8 million and net income $11.3 million (adjusted net income of $1.3 million). As of the end of Q4, the company held cash of $22.5 million. Nomad also declared a C$0.005 ($0.004) dividend, payable on April 15, with a record date on March 31. After annualizing, the dividend yield equals 2.1%.
EMX Royalty (EMX) announced that Martin Laboratories EMG Limited decided to exercise their option to acquire 5 Scandinavian battery metals projects. EMX will receive $50,000 and a 5% equity stake in Martin Laboratories EMG. Moreover, after some requirements are met, EMX will be eligible to receive an additional equity interest of up to 9.9%. EMX will also maintain a 2.5% NSR royalty on the properties.
EMX also provided an update regarding its U.S. royalty portfolio and announced that Esan Eczacibaşi Endüstriyel Hammaddeler San. ve Tic. A.Ş. started the Balya lead-zinc-silver mine construction. EMX owns a 4% NSR royalty on the Turkish mine that should reach commercial production by the end of this year.
Abitibi Royalties (OTCPK:ATBYF) announced that it generated a cash flow of C$4.8 million ($3.8 million) in Q4. Its cash position improved to C$64.8 million ($51.2 million). The most important news was the approval of the development of the Odyssey underground operation at the Canadian Malartic mine. Abitibi owns NSR royalties ranging from 1.5% to 3% on various portions of the mining complex.
Ely Gold Royalties (OTCQX:ELYGF) acquired an additional 25% interest in the Hog Ranch property from Platoro West Inc. ELY now holds a 75.1% interest in the leased mining claims and a 2.25% NSR royalty. ELY also announced sampling results from its El Campo heavy rare-earths project in California, near the Mountain Pass mine. The best samples graded 8.6% REO. And in late February, ELY optioned the Cimarron property to Crestview Exploration. ELY will receive $200,000 and a 2.5% NSR royalty.
Vox Royalty announced updates related to its asset portfolio. Some positive drill interceptions were made at the Bowden (0.85% gross revenue silver royalty) and Pitombeiras (1% NSR royalty) projects. The warrant holders voted in favor of the compulsory call option removal and maturity extension. According to the 2021 outlook, the number of producing assets should increase from 4 to 6. However, no specific figure regarding the volume of attributable production was provided.
On February 22, Vox announced the acquisition of a royalty portfolio from Gibb River Diamonds (OTCPK:GIBBF). The portfolio includes 1% NSR royalty on Norwest Minerals' Bulgera Gold Project, 1% NSR royalty on Accelerate Resources' Comet Gold Project, and 1% NSR royalty on Accelerate's Mount Monger Gold Project. Vox will pay Gibb River Diamonds A$325,000 ($249,000).
Sailfish Royalty provided an update about its portfolio. Sailfish intends to prepare a new resource estimate for its 100%-owned Gavilanes silver project. The historical estimate includes indicated resources of 6.143 million toz of silver equivalent and inferred resources of 28.294 million toz of silver equivalent. At the San Albino mine (Sailfish owns a 3% NSR royalty), Mako Mining (OTCQX:MAKOF) expects the commercial production to start in early Q2. Moreover, Mako announced a 50,000 meters drill-campaign.
Elemental Royalties completed the acquisition of the royalty portfolio from South32 (OTCPK:SOUHY) announced in November. The Karlawinda mine 2% NSR royalty alone should almost double Elemental's current revenues. Further assets should get into production over the following years. Elemental paid South32 $40 million and 13,065,100 shares.
On February 25, Elemental announced the Q4 financial results. The company received 770 toz of gold equivalent and generated revenues of $1.5 million. The overall 2020 attributable production equaled 2,900 toz of gold equivalent. But it should increase to 4,000-4,400 toz in 2021.
Orogen Royalties announced a $2.7 million private placement on February 10, only to cancel it on February 16. Orogen also provided a quarterly update regarding its assets portfolio. Some progress was recorded especially at First Majestic Silver's (AG) Ermitano project, where gold and silver production should start by the end of this year. Orogen owns a 2% NSR royalty on the project.
The March Outlook
The February performance of the industry was weak and for now, March doesn't look any better. The gold price weakness is weighing negatively on the share prices of the companies. The precious metals royalty and streaming companies will hardly be able to start recovering sooner than the gold price stabilizes.
This article was written by
Peter Arendas is an associate professor at the University of Economics in Bratislava. He has over 15 years of investing experience. Peter specializes in covering small and mid-cap companies in the resource sector with an in-depth insight into the precious and industrial metals royalty & streaming industry.
Peter is the leader of the investing group Royalty & Streaming Corner where he offers in-depth analysis of long-only investment ideas, actionable research, model portfolios, discussions of the latest news, and direct access for questions in chat. Learn More.
Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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Comments (31)
Since SA changed the terms and conditions, this forum has lost a lot of level, at least that's my impression. It would be very sad if you stop your report, so an important anchor would be gone.
I agree with @Goldjunge , you should include Empress Royalty $EMPYF and Star Royalties in the report. They are already undervalued compared to Orogen and next year at the latest they will be competing with Vox and Sailfish.
@iacmw
Did you see Maverix $MMX is about to be included in the $GDXJ ?
pbs.twimg.com/...
Best regards to all!
Yes I am very busy to buy all the cheap R/S companies, it`s unbelieveable. LOL
www.visualcapitalist.com/...
Historically, the gold miners have led the bullion market in price direction, and right now, the equities are suggesting a rebound in price is underway, said Pierre Lassonde, chairman emeritus of Franco-Nevada
www.youtube.com/...
All the best!
I would like to add Empress Royalty Corp. and Star Royalties Ltd.
Is there a possibility of this?
No, I publish only here on Seeking Alpha.
I have held Goldmining since it was known as Brazil Resources.