Precious Metals Royalty And Streaming Companies: The July Report

Summary

• The Precious Metals R&S Index increased by 7.21% in July.
• The Precious Metals R&S Equally Weighted Index declined by 0.19%.
• The best performance was recorded by Great Bear Royalties; its share price grew by 24.68%.
• The biggest decline was experienced by Nomad Royalty; its share price declined by 14.71%.

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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). Later, based on the inquiries of readers, I also introduced an equal-weighted version of the index. Until March 2021, both indices included the same companies and were calculated back to January 2019.

However, some major changes occurred in April 2021. Due to the boom of the royalty and streaming industry and the emergence of many new companies, the indices experienced two major changes. First of all, the market capitalization-weighted index was modified to include only the 5 biggest companies: Franco-Nevada (FNV), Wheaton Precious Metals (WPM), Royal Gold (RGLD), Osisko Gold Royalties (OR), and Sandstorm Gold (SAND). The combined weight of these 5 companies on the old index was around 95%, therefore, the small companies had only a negligible impact on their performance. The values of the index were re-calculated back to January 2019, and between January 2019 and March 2021, the difference in the overall performance of the old and the new index was only 2.29 percentage points. The second change is related to the equally weighted index that was expanded to 20 companies.

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, February 2021, March 2021, April 2021, May 2021, June 2021.

Source: Own processing

The three biggest precious metals royalty and streaming companies, Franco-Nevada, Wheaton Precious Metals, and Royal Gold, did well in July and their share on the total market capitalization of the industry increased. The industry is still dominated by Franco-Nevada with a market capitalization of more than $30.5 billion. On the other hand, the two smallest companies, Empress Royalty and Star Royalties are valued at around $30 million each.

Source: Own processing

The industry showed very mixed results in July. Out of the 20 followed companies, 8 recorded share price growth, 11 recorded share price decline, and Empress Royalty remained flat. The biggest gains were recorded by Great Bear Royalties. Its share price grew by nearly 25%, however, without any company-related news. Double-digit gains were recorded also by Vox Royalty, following the doubling of the 2021 revenues guidance, and Franco-Nevada, although without any company-related news. On the other hand, the worst performance was experienced by Nomad Royalty. Its share price declined by nearly 15%.

Source: Own processing

While the gold price increased, the silver price decreased in July. The share price of the SPDR Gold Trust ETF (GLD) increased by 2.53%, while the share price of the iShares Silver Trust ETF (SLV) decreased by 2.44%. Also, the precious metals miners provided mixed results. The share price of the VanEck Vectors Gold Miners ETF (GDX) grew by 2.77% but the share price of the VanEck Vectors Junior Gold Miners ETF (GDXJ) declined by 1.97%. Big differences were also in the performance of the Precious Metals R&S Index and the Precious Metals R&S Equally Weighted Index. The Precious Metals R&S Index experienced 7.21% growth, as the biggest players from the industry did well in July. On the other hand, the Precious Metals R&S Equally Weighted Index experienced a 0.19% decline, as the negative performance of the smaller players outweighed the positive performance of the bigger ones.

The July News

In July, the most interesting news was related to EMX Royalty that made a major acquisition with potential for a significant near-term cash flow boost, and Vox Royalty that more than doubled its 2021 revenues guidance.

Royal Gold (RGLD) announced that it sold 50,500 toz gold, 319,000 toz silver, and 1,500 tonnes copper in Q2 (Royal Gold's fiscal Q4). More details will be provided on August 11, when the Q2 financial results should be released.

Osisko Gold Royalties (OR) reported that its attributable gold equivalent production amounted to 20,178 toz in Q2. The preliminary revenues equaled C$57.2 million ($45.8 million). The company will release its Q2 financial results on August 9.

On July 26, Osisko announced that it will purchase a 2.75% NSR royalty on Eldorado Gold's (EGO) Tocantinzinho project. Osisko will pay Sailfish Royalty $10 million for this asset.

Sandstorm Gold (SAND) recorded attributable production of 18,000 toz of gold equivalent in Q2. The preliminary revenues equaled $32.4 million. Sandstorm will release its Q2 financial results on August 5.

Triple Flag Precious Metals sold 22,537 toz of gold equivalent in Q2. The revenues amounted to $40.9 million. The company will release its Q2 financial results on August 11.

Maverix Metals (MMX) provided a portfolio update. The most important news is that Karora Resources (OTCQX:KRRGF) plans to double the production at the Beta Hunt mine by 2024 (more information can be found in this article). Maverix owns a 4.75% gold and 1.5% nickel NSR royalty on the Beta Hunt mine.

Nomad Royalty (NSRXF) received 2,577 toz of gold equivalent in Q2. It included 2,154 toz gold, and 28,848 toz silver. The revenues amounted to $4.6 million. Although the net income equaled $0.3 million, the adjusted net income equaled -$1 million. The company held cash of $25.4 million as of the end of Q2. Nomad also declared the Q3 dividend. It was set at C$0.05 ($0.04) per share and it will be paid on October 15, to shareholders of record as of September 30.

EMX Royalty (EMX) announced the execution of the agreement to sell the Swedish Svardsjo project to District Metals. As a result, EMX's equity interest in District Metals (OTCPK:MKVNF) increased to 9.9%. Moreover, EMX retained a 2.5% NSR royalty on the property.

But what is even more important, on July 29, EMX announced the acquisition of a royalty portfolio from SSR Mining (SSRM). EMX will pay up to $100 million for a portfolio of 18 royalties, 2 of which should start generating meaningful cash flows soon. The deal will provide a significant boost to EMX's cash flows which should help to push its share price higher. My article focused on this "game-changing" acquisition can be found here.

Ely Gold Royalties (OTCQX:ELYGF) announced that a special meeting of shareholders in connection with the contemplated acquisition by Gold Royalty will be held on August 17. My article focused on this deal can be found here.

Gold Royalty (GROY) announced the acquisition of 5 royalties on properties held by Monarch Mining (OTCQB:GBARF). The package includes a C$2.5/t royalty on material processed through Monarch's Beacon mill originating from the Beaufor mine, a 2.5% NSR royalty on Croinor Gold, McKenzie Break, and Swanson properties, and a 1% NSR royalty on the Beaufor property. The price for this royalty package is C$15 million ($12 million).

On July 29, Gold Royalty announced that according to the new resource estimate, the Beaufor mine has measured and indicated resources of 219,200 toz gold, and inferred resources of 122,500 toz gold.

Vox Royalty (VOXCF) completed the sale of two graphite royalties to Electric Royalties (OTCQB:ELECF) for C$2.85 million ($2.29 million). On the other hand, Vox acquired four Peruvian gold, silver, and copper royalties for $1 million. On July 19, Vox announced that Thor Explorations (OTCPK:THXPF) started commissioning the processing plant at the Segilola gold mine in Nigeria. Vox owns a 1.5% NSR royalty on the project. On July 22, Vox provided some more updates regarding its royalty portfolio.

But the most interesting news was released on July 27. Vox announced that in Q2, it realized preliminary revenues of C$1.63 million ($1.31 million). The results were much better than originally projected, not only due to the acquisition of the Janet Ivy gold royalty but also by improved performance at some of the other mines in its royalty portfolio. As a result, Vox increased the 2021 revenue guidance from C$1.7-2.5 million to C$4-5 million, or by more than 100%.

Trident Royalties (OTCQX:TDTRF) negotiated a $10 million secured loan facility. However, it has quite strict terms. It must be drawn within 6 weeks following the signing of the documents, it must be repaid in 12 months (extendable to 12 months), it bears interest of 10%, and if it is not drawn within 6 weeks, Trident will have to pay a 2% break fee. Moreover, on the drawdown, Trident will have to grant the loan provider options to purchase 3.5 million shares at a strike price of £0.5166.

Elemental Royalties (OTCQX:ELEMF) announced that the Karlawinda gold mine poured the first gold. Elemental owns a 2% NSR royalty on the mine. Karlawinda should be producing 110,000-125,000 toz gold per year after fully ramped-up. It means that the royalty should entitle Elemental to 2,200-2,500 toz gold per year on average.

Sailfish Royalty (OTCQX:SROYF) announced a normal course issuer bid that entitles the company to purchase and cancel up to 3,686,576 (approximately 5% of issued and outstanding shares) until July 13, 2022. Only two days later, Sailfish announced that Mako Mining declared commercial production at its San Albino mine, where Sailfish owns a 3% NSR royalty.

On July 26, Sailfish announced the sale of the 2.75% NSR royalty on Eldorado Gold's (EGO) Tocantinzinho project to Osisko Gold Royalties for $10 million.

Orogen Royalties (OTCQX:OGNRF) optioned the Spring Peak gold project to Headwater Gold (OTCQB:HWAUF). Headwater can acquire 100% of the property by paying $10,000 in cash, $250,000 in cash or shares, and expending $250,000 on exploration over the next 24 months. Orogen will retain a 0.5% NSR royalty and it will have an option to purchase an additional 0.5% NSR royalty for $1 million.

Orogen optioned also the Kalium Canyon project. Badger Minerals will have an option to acquire 100% of the project by paying Orogen $1.75 million and expending $5 million over the next 5 years. Orogen will retain a 2% NSR royalty, but Badger will have an option to purchase 0.5% for $2 million.

Empress Royalty (OTCQX:EMPYF) announced that it completed the final payment for the Tahuehueto silver stream. The company also announced that Endeavour Financial Ltd. will assist with the identification, evaluation, and implementation of funding options including possible debt facilities, as well as, corporate mergers and acquisitions or similar business combinations.

On July 28, Empress announced the acquisition of a 4.5% gold stream on Sierra Sun Group's Sierra Antapite gold mine. Empress will pay $10 million and ongoing payments equal to 20% of the spot gold price. After the stream generates 11,000 toz gold for Empress, it will be reduced from 4.5% to 1%. Empress expects attributable production of 1,559 toz gold per year. The mine is already in production, therefore this will become Empress's first cash-flowing asset.

My article focused on Empress Royalty can be found here.

Star Royalties (OTCQX:STRFF) acquired a 13.5% gross revenue royalty on Elizabeth Metis Settlement's share of revenues generated from the creation and sale of emission reduction benefits from forested lands located in Elizabeth Metis Settlement. Star Royalties paid C$300,000 ($240,000) for this asset.

My article focused on Star Royalties can be found here.

The August Outlook

Besides gold and silver prices, the earnings season should be the main driving force for the precious metals royalty and streaming industry in August. Out of the biggest players, Sandstorm Gold will release its financial results on August 5, Osisko Gold Royalties on August 9, Franco-Nevada and Royal Gold on August 11, and Wheaton Precious Metals on August 12.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of EMPYF either through stock ownership, options, or other derivatives. 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.