EQX - Precious Metals Royalty And Streaming Companies: The August Report

2023-09-08 12:07:04 ET

Summary

• The Precious Metals R&S Index declined by 2.97% in August.
• The Precious Metals R&S Equally Weighted Index declined by 2.66%.
• The best performance was recorded by Sailfish Royalty; its share price grew by 31.17%.
• The biggest decline was experienced by Gold Royalty; its share price declined by 17.51%.

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 , July 2023 (extended) , August 2023 (extended) .

Metalla Royalty and Streaming ( MTA ) outgrew Gold Royalty ( GROY ) and Elemental Altus Royalties ( ALTUF ) outgrew Trident Royalties ( TDTRF ). All the other companies maintained their position in the ranking of precious metals R&S companies by market capitalization. At the top of the ranking remains Franco-Nevada with a market capitalization of $27.6 billion. At the very bottom is positioned Star Royalties ( STRFF ) with a market capitalization of less than $17.6 million.

The month of August was pretty bad for the precious metals R&S companies. Only three of them ended in green numbers, while fourteen ended in red ones. The highest gains were recorded by Sailfish Royalty ( SROYF ). Its share price jumped up by more than 30%. Sailfish remained on the positive wave that began back in July when its share price grew by more than 24%. On the other hand, the biggest decline was recorded by Gold Royalty. Its share price declined by more than 17.5%. The decline continued for the whole month. The underperformance is hard to explain. Although the Q2 financial results were worse than expected, Gold Royalty reiterated its 2023 guidance of $5.5-6.5 million. Vox Royalty lost more than 10%. Its loss was much worse, however, following the announcement of the receipt of the initial royalty revenue from Kookynie, a part of the losses was recovered.

The precious metals prices declined in August. The share price of the SPDR Gold Trust ETF ( GLD ) and the share price of the iShares Silver Trust ETF ( SLV ) declined by 1.29% and 1.34% respectively. As a result, share prices of the VanEck Vectors Gold Miners ETF ( GDX ) and the VanEck Vectors Junior Gold Miners ETF ( GDXJ ) declined by 7.35% and 4.64% respectively. The precious metals R&S companies did only slightly better. The Precious Metals R&S Index declined by 2.97% and the Precious Metals R&S Equally Weighted Index declined by 2.66%.

The August News

The majority of August news was focused on the Q2 financial results. No major deals took place, however, some interesting developments occurred at some of the assets held in the portfolios.

Franco-Nevada ( FNV ) reported its Q2 financial results. The revenues grew to $329.3 million which is 19.4% more compared to Q1. The reason is the return of Cobre Panama and Antapaccay mines to normal production rates. The operating cash flow grew to $261.9 million and net income to $184.5 million which means quarterly growth of 24.8% and 17.9% respectively. Franco-Nevada ended Q2 with cash of $1.295 billion and debt-free. The company declared a dividend of $0.34 per share. It will be paid on September 28, to shareholders of record as of September 14.

Wheaton Precious Metals ( WPM ) released its Q2 financial results. The revenues grew to $265 million, which is the highest level since Q2 2022. Compared to the previous quarter, the revenues grew by 23.5%. The operating cash flow grew even by 49.8%, to $202.4 million. The net income grew by 26.9%, to $141.4 million. Wheaton ended the quarter with cash of $828.8 million and debt of $6.5 million.

Royal Gold ( RGLD ) released the Q2 financial results too. The company reported revenues of $142.8 million, which is 15.2% less than in Q1. On the other hand, the operating cash flow of $107.9 million is in line with Q1. Just like the net income of $63.4 million. Royal Gold ended the quarter with cash of $106.2 million and debt of $404.6 million. Royal Gold also declared a quarterly dividend of $0.375. It will be paid on October 20, to shareholders of record as of October 6.

The company also provided an update regarding the acquisition of royalties on Serrote and Santa Rita mines announced back in June . On August 10 , Royal Gold announced that ACG Acquisition Company still hasn't reached the final agreement with the seller. On August 21 , Royal Gold announced that the deal still hasn't been closed. As the deadline of August 18 has already passed, the acquisition agreement may be terminated at any time. However, the termination hasn't been announced yet. So the future of the deal remains highly questionable.

Triple Flag Precious Metals ( TFPM ) released the Q2 financial results. The company reported record-high revenues of $52.6 million. It is 4.6% more than in Q1 and 44.1% more than in Q2 2022. The operating cash flow grew to $40.9 million, setting a new record high too. The net income amounted to $16 million which is in line with the previous quarters. Triple Flag ended Q2 with cash of $16.4 million and debt of $67.3 million. The net debt declined by 16.2% in Q2.

The company also increased the dividend from $0.05 to $0.0525 per share. The next dividend will be paid on September 15, to shareholders of record as of August 31.

Osisko Gold Royalties ( OR ) generated revenues of $45.7 million in Q2. It is in line with the previous two quarters. The operating cash flow amounted to $35.8 million and net income to $13.6 million. Also these two numbers are in line with the previous quarters, without any major deviations. Osisko ended Q2 with cash of $55.7 million and debt of $247.7 million.

The company declared a dividend of C$0.06 ($0.044). It will be paid on October 16, to shareholders of record as of September 29.

On August 1 , Osisko announced that Patriot Battery Metals ( PMETF ) released a maiden resource estimate for the Corvette project. It contains 3.85 million tonnes of lithium carbonate equivalent. Osisko estimated that 80-95% of the resources are located in the area covered by its 2% NSR royalty.

Sandstorm Gold ( SAND ) generated record-high revenues of $49.8 million in Q2. It is 13.2% more than in Q1 and 38.3% more than in Q2 2022. The operating cash flow grew to a new record-high too ($42.1 million). However, the net income amounted only to $2.7 million. Sandstorm ended the quarter with cash of $25 million and debt of $469 million. During Q2, Sandstorm repurchased and canceled 2.8 million shares worth $14.2 million. Probably the most important Q2 event was the completion of the Antamina NPI sale and the whole Horizon Copper ( RYTTF ) transaction.

Metalla Royalty & Streaming ( MTA ) released the Q2 financial results. The company recorded attributable production of 856 toz of gold equivalent. The revenues amounted to $1 million which is in line with Q1. The operating cash flow grew rapidly, to $0.8 million. The net loss was reduced from $1.4 million to $0.5 million. Metalla ended Q2 with cash of $11.7 million and debt of $8.2 million

Gold Royalty ( GROY ) released the Q2 financial results. The revenues declined to $468,000, compared to $767,000 in the previous quarter. The main reason was lower production at the Canadian Malartic mine. However, the mine should get back on track in H2 and Gold Royalty expects the 2023 guidance of $5.5-6.5 million to be met. The company also expects to start generating positive net operating cash flow next year. The Q2 operating cash flow amounted to -$1.3 million and net income to -$2.5 million. The company ended Q2 with cash of $5.8 million and debt of $10.1 million.

At the very end of the month , Gold Royalty announced that it had closed the $7.5 million acquisition of the 1% NSR royalty on the producing Cozamin mine, announced back in late July.

EURO Ressources ( ERRSF ) released its Q2 financial results. The company generated revenues of $8.4 million, an operating cash flow of $6.7 million, and a net income of $6.9 million. Although the revenues declined slightly, both operating cash flow and net income increased slightly compared to the previous quarter. The company ended Q2 with cash of $18.7 million and debt-free.

EMX Royalty ( EMX ) released the Q2 financial results too. The revenues amounted to $3.41 million, which is 26% more than in Q1. The operating cash flow improved as well, however, it remained negative at -$1.2 million. The net loss grew from -$3.7 million in Q1 to -$4.7 million in Q2. EMX held cash of $19.5 million and debt of $43.1 million as of the end of Q2.

The company also sold the Mjovattnet and Njuggtragsliden nickel-copper-cobalt-PGM projects to Kendrick Resources for 15 million stock options with a strike price of 1.3 GBX and 60-month maturity. EMX will also retain a 3% NSR royalty on the properties.

And EMX also closed an agreement with Franco-Nevada, according to which, they will make the future royalty acquisitions on a 50:50 basis (paid 55% by Franco-Nevada and 45% by EMX).

Elemental Altus Royalties ( ELEMF ) generated revenues of $2.6 million in Q2. It is in line with the previous two quarters. The operating cash flow improved from -$0.6 million in Q1 to $0.7 million in Q2. The net income improved from -$1.9 million to -$1.6 million during the same period. Elemental finished Q2 with cash of $10.8 million and debt of $30.1 million. The company reiterated its 2023 guidance of 9,000-10,200 toz of gold equivalent.

On August 23 , Elemental announced the acquisition of a 0.68% NSR royalty on the Cactus project in Arizona, and a 0.5% Gross Revenue Royalty on the Nyanga project in Gabon, for a total consideration of $10 million in shares (Elemental will issue 11,111,111 new shares).

On August 28 , Elemental announced a transaction under which it will receive a 1.5% NSR royalty on several Egyptian exploration projects, cash of up to $6.5 million, and 19.9% equity interest in Akh Gold, the developer of the Egyptian projects.

Trident Royalties ( TDTRF ) provided a portfolio update. The most important news is that Lithium Americas ( LAC ) announced its decision to divide into Lithium Americas (Argentina) and Lithium Americas. The Thacker Pass project (Trident owns an efficient 1.05% Gross Revenue Royalty) will be held by Lithium Americas. This change in corporate structure will enable Lithium Americas to start drawing the $330 million credit facility from General Motors ( GM ). Moreover, Equinox Gold's ( EQX ) Greenstone mine (Trident holds an off-take agreement) is 85% complete, with production start-up expected in H1 2024.

The company also announced the acquisition of an efficient 1% NSR royalty on B2Gold's ( BTG ) Dandoko mine. Dandoko contains resources of 423,000 toz gold, and B2Gold intends to process the material from Dandoko at its nearby Fekola mine facilities. Trident agreed to pay $3 million in cash and $750,000 in shares for this royalty. Moreover, there are also contingent payments of up to $2.5 million.

Vox Royalty ( VOXR ) generated revenues of $2.2 million in Q2. Compared to the previous quarter, the revenues declined by nearly 40%, however, they are 22% up compared to the same period of last year. The operating cash flow increased to $1.1 million and net income amounted to -$48,443. Vox held cash of $11.3 million and no debt as of the end of Q2. The company also declared a dividend of $0.011 per share, payable on October 13, to shareholders of record as of September 29.

The company also provided a portfolio update. The main news is the maiden reserves estimate for the Kookynie gold project that triggered an A$2 million ($1.28 million) milestone payment.

Orogen Royalties ( OGNRF ) reported Q2 revenues of $0.9 million which is slightly less than in Q1. The operating cash flow declined to $0.3 million and net income to $0.1 million. The company ended Q2 with cash of $12.7 million and nearly debt-free.

The company also announced that AngloGold Ashanti ( AU ) envisions a 6-8 million toz gold potential at its Merlin exploration target. Merlin is a part of the Silicon-Merlin project upon which Orogen holds a 1% NSR royalty.

Sailfish Royalty ( SROYF ) reported its Q2 financial results. The revenues declined to $0.5 million, while the cash flow and net income slightly improved, to -$0.4 million both. Sailfish ended Q2 with cash of $1.3 million and debt of $4 million. The company also announced that at the San Albino mine, in the Las Conchitas area, Mako Mining ( MAKOF ) drilled several interesting intervals of gold mineralization, including 12.09 g/t gold and 23.5 g/t silver over 14 meters. Sailfish holds an equivalent of 2% NSR royalty on Las Conchitas.

Star Royalties ( STRFF ) released its Q2 financial results. Due to the timing of deliveries, the revenues declined to $188,000, or by more than 30% compared to the previous quarter. The operating cash flow amounted to -$547,000, and net loss to $1 million. The loss is attributable mainly to currency losses related to 61.9%-owned Green Star Royalties. The company ended Q2 with cash of $1.9 million and no debt.

The September Outlook

The earnings season is over and the September news flow will be probably slower. The summer season is over and the question is whether the deal activity returns back to the spring levels.

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