GROY - Precious Metals Royalty And Streaming Companies: The December Report

Summary

• The Precious Metals R&S Index decreased by 3.3% in December.
• The Precious Metals R&S Equally Weighted Index increased by 3.69%.
• The best performance was recorded by Sailfish Royalty; its share price grew by 64.71%.
• The biggest decline was experienced by Gold Royalty; its share price declined by 12.41%.

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 (extended) .

Although market capitalizations of the majority of companies experienced relatively notable changes in December, the ranking of the companies by market capitalization remained almost unchanged. The industry remains dominated by Franco-Nevada, Wheaton Precious Metals, and Royal Gold. A market capitalization of over $1 billion have also Osisko Gold Royalties, Triple Flag Precious Metals ( TFPM ), and Sandstorm Gold. On the other hand, the smallest of the companies, Star Royalties ( STRFF ), has a market capitalization below $20 million.

Relatively mixed results were reached in December. Out of the 18 companies, 8 ended in green numbers, 7 in red numbers, and 3 remained flat or nearly flat. The highest gains were recorded by Sailfish Royalty ( SROYF ). Its share price grew by 64.71%. The main growth phase started shortly after the announcement of the quarterly dividend and AGM results. However, this news can hardly explain the strong bullish trend. A more than 20% share price growth was recorded also by Orogen Royalties ( OGNRF ). However, Orogen didn't release any news in December, so the gains are even harder to explain. The biggest loss was recorded by Gold Royalty ( GROY ). But the share price decline occurred in the middle of the month when no news was released. A double-digit loss was recorded also by Star Royalties and Metalla ( MTA ).

The precious metals did well in December. The share price of the SPDR Gold Trust ETF ( GLD ) grew by 2.93%, and the share price of the iShares Silver Trust ETF ( SLV ) grew by 7.78%. The gains were lower than in November, but still nice. On the other hand, the stock market didn't do well, which affected also the gold mining industry. The VanEck Vectors Gold Miners ETF ( GDX ) declined by 1.34%, and the VanEck Vectors Junior Gold Miners ETF ( GDXJ ) declined by 0.2%. The precious metals R&S industry showed mixed results, as the Precious Metals R&S Index declined by 3.3%, and the Precious Metals R&S Equally Weighted Index grew by 3.69%.

The December News

The month of December was poor in news. Several deals were announced, but they were only small, well below $100 million.

Franco-Nevada ( FNV ) announced that at Cobre Panama, the mining activities will cease, due to some missing permits. An article focused on the potential impacts on Franco Nevada can be found here . Two weeks later, Franco-Nevada announced that the negotiations between First Quantum Minerals ( FQVLF ) and the government of Panama have resumed .

Osisko Gold Royalties ( OR ) announced that the renewal of its normal course issuer bid was approved. Until December 11, 2023, Osisko will be entitled to purchase and cancel up to 18,293,240 common shares which equals 10% of the overall amount of issued and outstanding shares of the company.

On December 28 , Osisko Gold Royalties announced some amendments to the CSA silver stream acquisition (a more detailed article can be found here ). The upfront payment was reduced from $90 million to $75 million.

Triple Flag Precious Metals ( TFPM ) acquired a 2.5% NSR royalty on Clean Air Metals' ( CLRMF ) Thunder Bay North project for C$15 million ($11 million). Clean Air will have a 3-year option to reduce the royalty to 1.5% by paying Triple Flag C$10.5 million ($7.7 million).

Sandstorm Gold ( SAND ) declared Q1 2023 dividend of C$0.02 ($0.015) per share. It will be paid on January 27, to shareholders of record as of January 17.

Maverix Metals ( MMX ) announced that it received an interim order that authorizes the company to organize a special meeting of shareholders on January 12. The shareholders should vote about the proposed acquisition by Triple Flag Precious Metals.

Gold Royalty ( GROY ) announced the divestment of 12 projects (Bogside, Bogside NW, Cheechoo B East, Island 27, Matachewan, Munro, North Contact, Recession Larder, Riverside, Sharks, Smokehead, and Titanic) to Val-d’Or Mining ( VDOMF ). Gold Royalty will retain 0.5%-1% NSR royalties on the properties.

On December 28, Gold Royalty reported the financial results for its financial year 2022 which ended on September 30. However, it will modify its financial year so that it starts on January 1. In the financial year 2022, Gold Royalty received 2,156 toz of gold equivalent and recorded revenues of $3.9 million. As of September 30, Gold Royalty held cash of 14.2 million.

Metalla Royalty & Streaming ( MTA ) acquired a 2.5%-3.75% Gross Value Return royalty on gold and silver, and 0.25%-3% NSR royalty on copper and other non-precious minerals mined at the Lama project. Lama is the Argentinian portion of the giant Pascua-Lama project situated directly on the borders between Chile and Argentina. The mining operations in the Chilean part of the project have been suspended since 2013, due to various environmental concerns. Right now, Barrick Gold ( GOLD ) works on developing Lama as a stand-alone operation. If Barrick succeeds, the royalty acquired by Metalla will have a much higher value than the $7.5 million paid by Metalla.

The company also acquired a stream and three royalties from Alamos Gold for $5 million in shares (939,355 shares). The most advanced asset is the silver stream on Zacatecas Silver's ( ZCTSF ) Esperanza gold project. It will entitle Metalla to 20% of silver production at ongoing payments equal to 20% of the spot silver price. If commercial production begins before 2029, the stream is capped at delivery of 500,000 toz silver. The mine should be producing around 111,000 toz gold and 225,000 toz silver per year, A PFS should be completed in early 2023.

The company also completed the acquisition of eight royalties from First Majestic Silver, announced back in November. On December 28 , Metalla released a 2022 review.

Elemental Altus Royalties ( ELEMF ) made several operations to boost its balance sheet. It negotiated a $50 million credit facility from the National Bank of Canada ( NTIOF ) and the Canadian Imperial Bank of Commerce ( CM ), with a 3-year maturity and an interest rate equal to SOFR plus 2.50% - 3.75%. Elemental has immediately drawn down $30 million of which $25.27 million was used to repay the outstanding loan provided by Sprott Private Resources Lending II. This should help to save around $3.5 million per year on interest payments. The company also issued 5.25 million new shares for total proceeds of $5 million. And the convertible debt of $27.6 million owed to La Mancha Investments was converted into shares, which increased La Mancha's equity interest in Elemental Altus Royalties to 34.3%.

On December 20 , Elemental Altus Royalties announced the closing of the previously announced C$5.1 million private placement. The company also granted options to purchase 8.03 million shares at a price of C$1.4 per share to its officers, employees, and consultants. The options will expire on December 20, 2027. This is important information, as the company has 181 million shares outstanding right now. So the freshly granted options may cause a 4.4% share dilution.

Trident Royalties ( TDTRF ) announced the sale of pre-production royalties on the Rebecca, Spring Hill, and four other projects to Franco-Nevada for $15.8 million. Trident acquired the royalties two years ago for only $6.5 million. This deal will boost Trident's cash position to approximately $35 million. Trident also announced that it was able to restructure the existing $40 million debt facility provided by Macquarie Bank. Its maturity was extended by 1 year, until December 2025. The interest was reduced by 2%, which should save trident approximately $800,000 per year.

Vox Royalty ( VOXR ) provided a portfolio update. The most important news is that Aurenne Group's Mt. Ida project (Vox holds a 1.5% NSR royalty over a portion of the project) remains on track for production start-up by the middle of 2023. And following the acquisition of Gold Standard Ventures, Orla Mining ( ORLA ) progresses with the South Railroad project (Vox holds a 0.633% NSR royalty) that should be the key to Orla's growth plans.

Sailfish Royalty ( SROYF ) declared a Q4 dividend of $0.0125 per share. It will be paid on January 16, to shareholders of record as of December 31.

The January Outlook

Although the precious metals started the year 2023 positively, the stock market remains more or less stagnant. Under these circumstances, the precious metals R&S companies have been doing quite well so far. If the current trend prevails, January could be more positive than December. However, probably not as positive as November.

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