CA - Precious Metals Royalty And Streaming Companies: The March Report

2023-04-10 08:50:51 ET

Summary

• The Precious Metals R&S Index grew by 14.5% in March.
• The Precious Metals R&S Equally Weighted Index grew by 8.53%.
• The best performance was recorded by Vox Royalty; its share price grew by 29.74%.
• The biggest decline was experienced by Empress Royalty; its share price declined by 16%.

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 (extended) .

No movements occurred in the ranking of the precious metals R&S companies by market capitalization. However, the market capitalizations, especially those of the big players, increased notably in March. The biggest of the companies remains Franco-Nevada with a market capitalization of nearly $28 billion. Franco-Nevada is followed by Wheaton Precious Metals ($21.8 billion) and Royal Gold ($8.5 billion). At the bottom of the ranking is positioned Star Royalties with a market capitalization of slightly above $21 million.

The month of March was really good for this stock market segment. Out of the 17 companies, only two recorded a share price decline and one remained flat. All the remaining companies ended the month in green numbers. The highest gains were recorded by Vox Royalty ( VOXR ). Its share price grew by nearly 30%. The growth trend started in the middle of the month, following the positive Q4 financial results and announcement of an increased dividend. Metalla Royalty & Streaming ( MTA ) grew by nearly 25%. The growth started when Metalla announced the completion of the royalty on Barrick Gold's ( GOLD ) Lama complex. However, this announcement coincided with the start of a bullish gold market trend that elevated the price of the yellow metal from the $1,800/toz area above the $2,000/toz level. On the other hand, the biggest decline, by 16%, experienced Empress Royalty ( EMPYF ). However, this decline occurred on no news. Trident Royalties' ( TDTRF ) 4.5% share price decline is attributable mainly to the continuing lithium market weakness, as the company has major exposure to this battery metal.

In March, the share price of the SPDR Gold Trust ETF ( GLD ) grew by 7.92% and the share price of the iShares Silver Trust ETF ( SLV ) grew even by 15.09%. The strong growth in gold and silver prices supported also the share prices of the mining companies. Therefore, the VanEck Vectors Gold Miners ETF ( GDX ) and the VanEck Vectors Junior Gold Miners ETF ( GDXJ ) grew by 17.59% and 16.9% respectively. The precious metals R&S companies, especially the big ones included in the Precious Metals R&S Index, experienced a 14.5% growth. The Precious Metals R&S Equally Weighted Index grew only by 8.53%, due to the weaker performance of the smaller companies.

The March News

The news flow improved in March, mainly due to the ongoing earnings season. But the biggest impact in share prices had the revived gold bull that chased the gold price back to the $2,000/toz level.

Franco-Nevada ( FNV ) reported its Q4 financial results. The company generated revenues of $320.4 million (55.6% gold, 10.2% silver, 4.8% PGM, 25.8% fossil fuels, and 3.6% others), which is in line with the same period of the previous year. Also the operating cash flow of $165 million is in line with the same period of the previous year, however, the net income declined by 25% to $165 million. Franco-Nevada ended 2022 debt-free, with cash of nearly $1.2 billion. For 2023, Franco-Nevada projects sales of 640,000-700,000 toz of gold equivalent. It is less than the 2022 sales of 729,960 toz, as the company expects lower oil and natural gas prices. The long-term outlook envisions sales of 760,000-820,000 toz of gold equivalent in 2027.

The company also announced that First Quantum Minerals ( FQVLF ) has agreed and finalized the draft of a concession contract with the Government of Panama for the Cobre Panama mine. The concession will last for 20 years, with an option for a 20-year extension. Following this agreement, the mining operations at Cobre Panama should return back to normal.

Wheaton Precious Metals ( WPM ) reported the Q4 financial results too. The company sold 142,190 toz of gold equivalent (68,996 toz gold, 4.935 million toz silver, 3,396 toz palladium, 187,000 lb cobalt), generating revenues of $236.1 million. Compared to the same period of the previous year, the gold equivalent sales declined by 9.7%, and the revenues declined by 15.1%, mainly due to the 21% decline in the Salobo mine production, caused by lower throughput volumes and head grades. The operating cash flow declined by 12% to $172 million, and net income by 43.1% to $166.1 million. Wheaton ended the year with cash on hand amounting to $696.1 million and no debt. In 2023, Wheaton expects attributable production of 600,000-660,000 toz of gold equivalent (320,000-350,000 toz gold, 20-22 million toz silver, and palladium and cobalt worth 22,000-25,000 toz of gold equivalent). Between 2023-2027, the annual attributable production should average 810,000 toz of gold equivalent, growing to 850,000 toz for the 2023-2032 period.

The company also declared the Q1 dividend. It will amount to $0.15 per share and it will be paid on April 6, to shareholders of record as of March 24.

Royal Gold ( RGLD ) declared a Q2 dividend of $0.375 per share. It will be paid on April 21, to shareholders of record as of April 6.

Sandstorm Gold ( SAND ) declared a dividend of C$0.02 ($0.015) per share. It will be paid on April 28, to shareholders of record as of April 18.

Gold Royalty ( GROY ) announced that it generated revenues and option proceeds of $1.1 million in Q4. The operating cash flow amounted to -$2.3 million and the net income to -$2.2 million. The company ended 2023 with cash and short-term investments of nearly $9.7 million. In 2023, Gold Royalty expects to generate revenues and option proceeds of $5.5-6.5 million.

Metalla Royalty & Streaming ( MTA ) reported that in 2022, it received attributable production of 2,681 toz of gold equivalent. Its revenues amounted to $2.4 million, and a net loss of $10.9 million. The company held cash of $4.56 million as of the end of 2022, and the debt amounted to $5.3 million.

On March 9 , Metalla announced the completion of the acquisition of royalties on Barrick Gold's ( GOLD ) Lama complex, announced back in December.

EMX Royalty ( EMX ) generated revenues of $18.28 million in 2022. The operating cash flow amounted to $16.73 million and the net income to $3.35 million. EMX ended 2022 with cash and short-term investments of $25.9 million, and debt of $40.5 million. Important information is that EMX expects to execute a modified royalty agreement on Zijin Mining's ( ZIJMF ) Timok mine this year.

On March 1 , EMX announced the sale of the Swedish Akerberg and Rismyrliden projects to Copperhead Minneral AB, for a 9.9% equity interest in Copperhead and a 2.5% NSR royalty on the properties, and some advance royalty and contingent payments.

On March 6 , EMX announced the sale of the Norwegian Rana battery metal project to Kingsrose Mining ( KRMMF ) for a 2.5% NSR royalty and some advance royalty and contingent payments.

On March 8 , EMX announced the creation of Scout Discoveries. It will hold 14 exploration properties in Idaho, and EMX's core drilling subsidiary. EMX will receive a 19.9% equity interest in Scout Discoveries and a 3.25% NSR royalty on each of the 14 properties, as well as annual advance royalty payments and contingent payments related to the properties and to the drilling subsidiary.

Vox Royalty ( VOXR ) recorded revenues of $2.1 million, an operating cash flow of $1.7 million, and a net income of $52,000 in Q4. The company held cash of $4.2 million as of the end of December. Vox also declared a quarterly dividend of $0.011 (a 10% increase), payable on April 14, to shareholders of record as of March 31.

The company also provided a portfolio update. The biggest progress was achieved at the Goldlund project (Vox holds a 1% NSR royalty), where the PFS presented an improved production profile. Treasury Metals' ( TSRMF ) CEO expects the mine to get into production by 2026. Moreover, Alamos Gold's ( AGI ) Lynn Lake project (Vox holds a 2% NSR royalty) reached a major permitting milestone.

Trident Royalties ( TDTRF ) announced that Lithium Americas ( LAC ) started the construction of the Thacker Pass lithium mine. The Phase 1 operation with an annual production capacity of 40,000 tonnes of lithium carbonate should get into production by the end of 2026. After all the expected buy-backs are completed, Trident should be holding a 1.05% gross revenue royalty on Thacker Pass.

Sailfish Royalty ( SROYF ) announced a $4 million convertible debenture financing to finance a $6 million acquisition of a 24-month silver stream from Mako Mining's ( MAKOD ) San Albino mine. Sailfish will have also an option to extend the life of the royalty until the end of the San Albino mining operations by paying another $1 million. The debt will bear an interest of 10% p.a., it will mature in 24 months and the conversion price will be C$1.35 per share. The stream should be generating around 13,500 toz silver per month.

On March 2 , Sailfish announced that Mako Mining will satisfy the gold-linked loan repayments in silver. There are 7 monthly payments remaining. The payments equal 205 toz gold, valued at $1,750-2,000/toz.

On March 14 , Sailfish declared a quarterly dividend of $0.0125 per share, payable on April 17, to shareholders of record as of March 31.

Orogen Royalties ( OGNRF ) reported 2022 revenues of $2.77 million, an operating cash flow of $508,000, and a net income of $622,000. The company held cash, short-term investments, and marketable securities worth $8.41 million, and no debt.

The company sold the Ball Creek West property to P2 Gold ( PGLDF ) for $1 million in shares and a 1% NSR royalty. Orogen also optioned the Ball Creek East property to Kingfisher Metals ( KGFMF ). Kingfisher will be able to acquire 100% of the property by issuing shares worth $3.5 million to Orogen, and expending $7.5 million on the property over the next 4 years. Orogen will retain a 1% NSR royalty on the property. Moreover, Orogen will have the option to acquire an additional 1% NSR royalty on both properties.

Elemental Altus Royalties ( ELEMF ) announced an acquisition of a further 0.025% effective NSR royalty on the Caserones mine for $2 million. This acquisition increased its NSR on the mine to 0.443%.

The company also provided a portfolio update. The most important news includes a 33% increase in Endeavour Mining's ( EDVMF ) Wahgnion gold mine 2023 production guidance, and a 49% increase in Bear Creek Mining's ( BCEKF ) Mercedes gold mine production guidance.

The April Outlook

The first days of April have been positive. The gold price has been holding above the $2,000/toz level, and silver approached the $25/toz level. If the precious metals prices remain at the current levels, April should be another positive month for the precious metals R&S companies.

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