ANSNF - Precious Metals Royalty And Streaming Companies: The October Report

2023-11-13 21:30:16 ET

Summary

• The Precious Metals R&S Index declined by 3.02% in October.
• The Precious Metals R&S Equally Weighted Index declined by 2.13%.
• The best performance was recorded by Sailfish Royalty; its share price grew by 17.07%.
• The biggest decline was experienced by Star Royalties; its share price declined by 17.39%.

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

When looking at the table of the precious metals R&S companies ordered by market capitalization, no major changes occurred in comparison to the previous month. Only Orogen Royalties ( OTCQX:OGNRF ) outgrew Vox Royalty ( VOXR ). At the very top of the list remains Franco-Nevada with a market capitalization of $23.3 billion, followed by Wheaton Precious Metals with a market capitalization of $19.1 billion. At the very bottom of the list remains Star Royalties ( OTCQX:STRFF ) with a market capitalization of $14.2 million.

The majority of precious metals R&S companies, 10 out of 17, recorded negative share price returns. Two companies remained flat, and 5 ended in green numbers. The highest gains, as high as 17.07%, were recorded by Sailfish Royalty ( OTCQX:SROYF ). The majority of gains were recorded over the last decade of October, however, without any company-specific news. On the other hand, the highest losses were recorded by Star Royalties. The majority of losses were recorded over the last decade of October. Similar to Sailfish, on no company-specific news. Trident Royalties ( OTCQX:TDTRF ) experienced a 16.67% share price decline. In this case, the share price kept on declining for the whole month, as a continuation of a bearish trend that began in late September. The positive news from the Anson property was not able to reverse it. Worth mentioning is also the nearly 9% decline in Franco-Nevada's share price. It is attributable mainly to the issues at Cobre Panama, Franco's main asset.

In October, gold and silver did well, mainly due to the violent events in the Israel region and subsequent reactions of the nearby Muslim countries. The share price of the SPDR Gold Trust ETF ( GLD ) and the share price of the iShares Silver Trust ETF ( SLV ) grew by 6.87% and 3.05% respectively. Also, the gold miners benefited from this growth, and the share prices of the VanEck Vectors Gold Miners ETF ( GDX ) and the VanEck Vectors Junior Gold Miners ETF ( GDXJ ) increased by 3.93% and 3.33% respectively. Therefore, the performance of the precious metals R&S companies is disappointing, as the Precious Metals R&S Index declined by 3.02% and the Precious Metals R&S Equally Weighted Index declined by 2.13%

The October News

In October, the majority of news was related to preliminary attributable production results. However, also several deals were made. Wheaton Precious Metals acquired a silver stream on the Mineral Park mine, Osisko acquired a 1% NSR royalty on the Namdini gold project, and Vox Royalty acquired a sliding-scale tonnage royalty over a portion of the Plutonic Gold Mine complex.

Franco-Nevada announced that according to First Quantum Minerals ( OTCPK:FQVLF ), the approval of the refreshed Cobre Panama mining concession contract was enacted into law in Panama. However, only several days later , the president of Panama declared that a popular consultation regarding the renewed Cobre Panama concession would be held on December 17. The situation looks confusing. And as the Cobre Panama stream is generating around $230 million per year for Franco-Nevada (in Q2 2023, it contributed 22% of its revenues), any problems at the mine are pretty bad news for Franco-Nevada.

Wheaton Precious Metals announced the acquisition of a 100% silver stream on Waterton Copper's Mineral Park mine. Wheaton will make four upfront payments totaling $115 million, and ongoing payments equal to 18% of the spot silver price (22% after the uncredited deposit is reduced to nil). The initial mine life should be 12 years, but Waterton believes that it will be expanded beyond 20 years. Wheaton should be receiving around 690,000 toz silver per year over the first 5 years and around 740,000 toz silver per year over the remainder of the mine life.

Royal Gold announced that Newmont Corporation ( NEM ) reached a preliminary deal with the Unions at the Penasquito mine. As a result, the restart of the mine, which was idled since June due to the strike, has begun. It should be back in full production by the end of this year. This is positive news for Royal Gold which holds a 2% NSR royalty on the mine.

The company also announced Q3 sales of 51,300 toz of gold equivalent, consisting of 37,500 toz gold, 613,700 toz silver, and 1,500 tonnes of copper. Royal Gold released its Q3 financial results on November 1 .

Osisko Gold Royalties reported preliminary Q3 deliveries of 23,292 toz of gold equivalent and preliminary revenues of C$62.1 million ($45.3 million). Osisko will release its Q3 financial results on November 8, after the market close.

On October 30 , Osisko announced the acquisition of a 1% NSR royalty on Shandong Gold's ( OTC:SDGMF ) Namdini gold project in Ghana. The mine should produce 421,000 toz gold in the first full year of operations, and 1.1 million toz gold over the first three years (4,210 toz gold and 11,000 toz gold respectively, should be attributable to Osisko during this initial period). Osisko agreed to pay $35 million for this royalty.

Triple Flag Precious Metals ( TFPM ) sold 25,629 toz of gold equivalent (59% gold, 37% silver, 4% others) in Q3. The preliminary revenues amounted to $49.4 million which is 46% more than in the same period of last year.

Sandstorm Gold sold approximately 21,100 toz of gold equivalent and recorded preliminary revenues of $41.2 million in Q3.

EMX Royalty ( EMX ) announced that South32 ( OTCPK:SOUHY ) made some very good drill interceptions at the Peak prospect that is a part of its Hermosa project. The best holes intersected 139 meters grading 1.88% copper, 0.51% lead, 0.34% zinc, and 52 g/t silver. The Peak prospect is partially covered by EMX's Hardshell royalty (2% NSR royalty).

Gold Royalty ( GROY ) announced that it will release its Q3 financial results on November 14, after the market close.

Trident Royalties announced that Anson Resources ( OTCQB:ANSNF ) released a major resource upgrade for the Paradox Basin lithium property. The inferred and indicated resources grew by 46% to 1.504 million tonnes of lithium carbonate equivalent and 7.61 million tonnes of bromine. Trident acquired a 2.5% NSR royalty on Paradox Basin only in September.

Metalla Royalty & Streaming ( MTA ) negotiated an amendment to its C$25 million convertible loan from Beedie Capital to C$50 million. The amendment is concurrent to the plan of arrangement with Nova Royalty ( OTCQB:NOVRF ). The convertible loan provided by Beedie to Nova will be terminated, and Metalla will draw C$16 million from the amended facility to refinance C$4.2 million outstanding under the old credit facility and to repay C$12.2 million outstanding under Nova's credit facility. Beedie also made a C$15 million equity investment in Metalla, by purchasing 2,835,539 subscription receipts at a price of C$5.29 per receipt.

The company also reported that according to IAMGOLD ( IAG ), the Cote mine is more than 90% complete now. Metalla holds a 1.35% NSR royalty over a portion of Cote, as well as over the nearby Gosselin zone discovery. Cote should start production in early 2024.

Vox Royalty paid A$1.25 million ($0.8 million) for a sliding-scale tonnage royalty over a portion of Catalyst Metals' Plutonic Gold Mine complex. The royalty ranges from $0/t for ore with head grade below 1.5 g/t gold, through $0.39/t for ore grading 1.5-2.99 g/t gold, up to $4.29/t for ore grading 8-8.99 g/t gold. The royalty covers a better part of the Plutonic East deposit and some satellite deposits. Mining operations at the satellite deposits should start in 2024 or 2025.

On October 25 , Vox announced that it granted Perpetual RoyaltyCo, a newly established coal-focused royalty company, access to data regarding coal royalties covered by its proprietary royalty database. On the successful closing of relevant coal royalty transactions, Vox will receive up to 3% of the asset acquisition price plus potential earn-out and contingent payments.

Orogen Royalties announced that Rackla Metals ( OTCPK:RMETF ) exercised the option to acquire the Astro Gold project. As a result, Orogen received 1,705,357 shares of Rackla, and a 1% NSR royalty on the project.

Star Royalties announced the restructuring of the Copperstone gold stream. Star originally held a 6.6% gold stream that would be reduced to 2.2% after 14,000 toz gold is delivered, and to 0.8% after 18,133 toz gold is delivered). However, based on the new terms, Star will be entitled to 4% of gold production for the whole mine life. The ongoing payments remain unchanged at 25% of the spot gold price. For accepting the new terms, Sabre Gold Mines ( OTCQB:SGLDF ), the owner of the Copperstone project, will pay Star Royalties C $4.55 million ($3.3 million) in cash and shares.

The November Outlook

The majority of companies have already reported the Q3 financial results, over the first days of November ( Franco-Nevada , Wheaton Precious Metals , Royal Gold , Osisko Gold Royalties , Triple Flag Precious Metals , Sandstorm Gold , Vox Royalty ). For the remainder of the month, the gold price should be the main factor driving the share prices. Given the complex situation in the Middle East, the gold price may skyrocket virtually any day now.

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