CSCCF - Precious Metals Royalty And Streaming Companies: The July Report

2023-08-08 01:28:52 ET

Summary

• The Precious Metals R&S Index grew by 2.88% in July.
• The Precious Metals R&S Equally Weighted Index grew by 3.13%.
• The best performance was recorded by Sailfish Royalty; its share price grew by 24.19%.
• The biggest decline was experienced by Star Royalties; its share price declined by 7.41%.

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 , July 2021 , August 2021 , September 2021 (extended) , October 2021 (extended) , November 2021 (extended) , December 2021 (extended) , January 2022 (extended), February 2022 (extended) , March 2022 (extended) , April 2022 (extended) , May 2022 (extended) , June 2022 , June 2022 (extended) , July 2022, July 2022 (extended) , August 2022 , August 2022 (extended) , September 2022 , September 2022 (extended) , October 2022 , October 2022 (extended) , November 2022 , November 2022 (extended) , December 2022 , December 2022 (extended) , January 2023 , January 2023 (extended) , February 2023 , February 2023 (extended) , March 2023 , March 2023 (extended) , April 2023 , April 2023 (extended) , May 2023 , May 2023 (extended) , June 2023 , June 2023 (extended) , July 2023 (extended) .

The table above shows that there were no major changes in the structure of the precious metals R&S industry in July. The three biggest companies are franco-Nevada, Wheaton Precious Metals, and Royal Gold. A small change occurred just below the top three, as Triple Flag Precious Metals (TFPM) outgrew Osisko Gold Royalties. Osisko suffered due to the negative reactions induced by the abrupt changes in its leadership. All the other companies maintained their positions. The smallest player in this industry remains Star Royalties ( STRFF ), with a market capitalization of only slightly more than $18 million.

In July, the best performance recorded Sailfish Royalty ( SROYF ). Its share price grew by more than 24%. The growth continued for the whole month, supported by some positive company-related news. Very nice gains, higher than 10%, were recorded also by Orogen Royalties (OGNRF). However, without any major company-specific news. There were also three companies that recorded share price declines in July. Osisko Royalties was able to erase the majority of losses and ended in only a 3.58% loss. Shares of Star Royalties lost 7.41% on no news.

The whole precious metals complex did well in July. The share price of the SPDR Gold Trust ETF ( GLD ) and the share price of the iShares Silver Trust ETF ( SLV ) grew by 2.24% and 7.93% respectively. This provided support to the precious metals miners. The VanEck Vectors Gold Miners ETF ( GDX ) grew by 4.14% and the VanEck Vectors Junior Gold Miners ETF ( GDXJ ) grew by 5.31%. The precious metals R&S companies did only slightly worse, as the Precious Metals R&S Index grew by 2.88% and the Precious Metals R&S Equally Weighted Index grew by 3.13%.

The July News

The main July news was the sudden departure of Osisko Gold Royalties' CEO. But its reasons haven't been communicated by the company and it remains a source for speculations. The majority of July news was related to preliminary Q2 operating results and announcements of the Q2 financial results release dates. Only several tiny deals took place.

Franco-Nevada ( FNV ) announced that it will release the Q2 financial results on August 8, after the market close.

Wheaton Precious Metals ( WPM ) announced that it will release the Q2 financial results on August 10, after the market close.

Royal Gold ( RGLD ) reported Q2 sales of approximately 53,700 toz of gold equivalent, consisting of 40,500 toz gold, 800,900 toz silver, and 800 tonnes of copper. The average realized prices amounted to $1,983/toz gold, $24.01/toz silver, and $8,720/t copper. Royal Gold released its Q2 financial results on August 2 .

Triple Flag Precious Metals ( TFPM ) recorded sales of 26,616 toz of gold equivalent (64% gold, 31% silver, 5% others) in Q2. The preliminary revenues reached a new record high of C$60.5 million ($45.2 million). The company will release its Q2 financial results on August 8, after the market close. The earnings call was rescheduled to August 9, 11:00 ET.

Osisko Gold Royalties ( OR ) abruptly announced the departure of CEO Sandeep Singh and the appointment of Paul Martin as interim CEO. Not much information was provided and it seems like the old CEO was fired due to a dispute with the Board. A more detailed article about this event can be found here .

On July 6 , Osisko announced that it earned 24,645 toz gold in Q2. The preliminary revenues amounted to $60.5 million. Osisko will release the Q2 financial results on August 9, after the market close.

Sandstorm Gold ( SAND ) reported Q2 sales of approximately 24,500 toz of gold equivalent and preliminary revenues of $49.8 million. The company also purchased and canceled 2.6 million shares (weighted average acquisition price of C$6.92) during the quarter. Sandstorm released its Q2 financial results on August 3 .

Gold Royalty ( GROY ) announced a $7.5 million acquisition of a 1% NSR royalty over Capstone Copper's ( CSCCF ) producing Cozamin copper-silver mine. Cozamin should be producing around 1.7 million toz silver and 53 million lb copper per year, between 2023 and 2027. At this production rate and the current metals prices, Gold Royalty should be entitled to approximately $2.4 million per year. The mine life is projected to end in 2030. At the same time, Gold Royalty announced the decision to suspend its dividend payments, in order to focus on growth.

The company also announced that it will release the Q2 financial results on August 10, after the market close.

Metalla Royalty & Streaming ( MTA ) sold the Pine Valley property to Barrick Gold's ( GOLD ) and Newmont's ( NEM ) Nevada Gold Mines. Metalla received $5 million and retained a 3% NSR royalty on the property.

EMX Royalty ( EMX ) optioned the Norwegian Flat and Bamble nickel projects to London Nickel. The initial payment by London Nickel is only A$30,000 ($19,800) and the company will have 7 months to pay another A$20,000 ($13,200) to gain control over the two projects. However, there are also contingent payments related to the maiden resource estimate and feasibility study for each project and to London Nickel's IPO. At the same time, EMX will retain a 2.5% NSR royalty and annual advance royalty payments of A$30,000-75,000 ($19,800-$49,000) on both projects.

Trident Royalties ( TDTRF ) reporte d Q2 receipts of $2.34 million (18% compared to the same period of last year). As of July 28, Trident held cash of $29 million. In July , after the end of Q2, the 9 ^th U.S. Circuit Court of Appeals rejected the appeal seeking to overturn the federal land managers' approval of the Thacker Pass lithium project. The court ruled that the U.S. Bureau of Land Management, which approved Thacker Pass, had acted "reasonably and in good faith".

Elemental Altus Royalties ( ELEMF ) announced that it acquired an additional NSR royalty on the Caserones copper mine. The effective royalty held by the company increased by 0.03% to 0.473%. Elemental paid $2.6 million for this addition. Only several days later, Lundin Mining ( LUNMF ) completed the acquisition of a 51% interest in the Caserones mine for $950 million.

On July 20 , Elemental announced the sale of the Diba gold project to Allied Gold Corporation for up to $6 million. Elemental will also retain a 3% NSR royalty on the first 226,000 toz gold produced, and a 2% NSR royalty on the remaining gold production. What is important, the Diba project contains also the Korali-Sud deposit (inferred and indicated resources of 674,000 toz gold) that should be incorporated into the mine plan of Allied Gold's nearby Sadiola Gold mine. As a result, the royalties should start generating cash flows as soon as in 2024 or 2025.

On July 25 , Elemental announced the sale of a 95% interest in Ethiopian Daro and Zager projects to ANS Exploration. Elemental will receive $200,000 in cash, and milestone payments of up to $1 million. It will also retain a 2.5% royalty and a 5% equity interest in the projects. Upon the IPO of ANS Exploration, it will receive a 5% interest in the newly listed company.

Vox Royalty ( VOXR ) announced preliminary Q2 revenues of $2.22 million (25% compared to the same period of last year). Vox also announced that it entered an agreement to purchase a portfolio of royalties for up to A$8 million ($5.3 million). However, the final extent of the portfolio and the final sum paid for it is not known yet, as some of the royalties are subject to a right of first refusal, a right of first offer, or consent to assignment rights. The deal should be completed this quarter.

The company also announced that in connection with the primary underwritten public offering announced earlier, the underwriters exercised their over-allotment option to purchase additional 453,750 shares for $2.4 per share. The total additional gross proceeds amount to $1.09 million.

Orogen Royalties ( OGNRF ) provide d a portfolio update. The company expects 28,000 meters of partner-funded drilling to take place this year. Four out of the eight planned drill programs are underway.

Sailfish Royalty ( SROYF ) announced that the U.S. Bureau of Land Management acknowledged receipt of a Plan of Operations and Nevada Reclamation Permit Application for the Spring Valley mine project and confirmed that it is technically complete under the terms of the relevant permitting statutes. According to Sailfish's CEO, the project is more advanced than originally contemplated. Sailfish holds a 0.5%-3% NSR royalty over the proposed open-pit mine.

The company also announced a normal course issuer bid. Between July 18, 2023, and July 17, 2024, Sailfish is entitled to repurchase up to 3,547,390 shares (5% of the currently outstanding shares).

Empress Royalty ( EMPYF ) announced that at Luca Mining's ( LUCMF ) Tahuehueto mine (Empress holds a 100% silver stream), a throughput rate of 500 tpd was reached. By the end of this year, it should increase to 1,000 tpd. At the same time, at the Manica gold mine, the operations are improving steadily. Empress also announced that it amended its Manica royalty agreement so that it will be receiving monthly payments of 3.375% on gold sales until 95,000 toz gold produced at Manica are sold, and 1.125% of gold sales thereafter.

The August Outlook

In August, the earnings season will be fully underway. Any surprises, positive or negative, should be the main driving forces unless the gold prices or the broader stock market start sinking. The deal activity that picked up in May and June diminished again, but it may be caused only by the summer holiday season - we will see in September.

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