BTG - Precious Metals Royalty And Streaming Companies: The September Report

2023-10-09 05:34:32 ET

Summary

• The Precious Metals R&S Index declined by 7.9% in September.
• The Precious Metals R&S Equally Weighted Index declined by 8.91%.
• The best performance was recorded by EMX Royalty; its share price grew by 3.49%.
• The biggest decline was experienced by Metalla Royalty and Streaming; its share price declined by 27.66%.

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 (extended) .

No changes occurred at the top of the list of precious metals R&S companies ordered by market capitalization. Franco-Nevada remains on top, followed by Wheaton Precious Metals, Royal Gold, Triple Flag Precious Metals, Osisko Gold Royalties, and Sandstorm Gold. However, below the top 6, some major changes occurred. Gold Royalty ( GROY ) was outgrown by Euro Ressources ( OTC:ERRSF ) as well as EMX Royalty ( EMX ). Metalla Royalty & Streaming ( MTA ) was outgrown even by Elemental Altus Royalties. The remaining companies maintained their positions. At the very bottom of the list remains Star Royalties ( OTCQX:STRFF ).

For the precious metals R&S companies, September meant an even bigger bloodbath than August. Only EMX ended in green numbers, as it grew by 3.49%. EMX was saved by the long-awaited resolution of the Timok royalty dispute. Orogen Royalties ( OTCQX:OGNRF ) remained flat, and all the other companies recorded losses, some of them pretty high double-digit ones. The heaviest losses recorded Metalla. A major portion of the decline occurred shortly after Metalla announced the acquisition of Nova Royalty ( OTCQB:NOVRF ). The acquisition of the copper-focused R&S company hasn't been accepted by the investors well.

The September bloodbath was caused by the decline in precious metals prices. The share price of the SPDR Gold Trust ETF ( GLD ) and the share price of the iShares Silver Trust ETF ( SLV ) declined by 5% and 10.08% respectively. As a result, the share prices of the VanEck Vectors Gold Miners ETF ( GDX ) and the VanEck Vectors Junior Gold Miners ETF ( GDXJ ) declined by 8.73% and 11.67% respectively. The precious metals R&S companies did only slightly better, as the Precious Metals R&S Index declined by 7.9% and the Precious Metals R&S Equally Weighted Index declined by 8.91%.

The September News

The volume of news releases declined considerably compared to August, just like expected. The biggest news was Metalla's acquisition of Nova Royalty. But also some smaller deals took place. Especially Trident's acquisition of the 2.5% NSR royalty on the Paradox Basin project, and Vox's acquisition of the royalty portfolio look very promising. And EMX finally resolved the dispute with Zijin Mining regarding the Timok royalty.

Royal Gold ( RGLD ) announced that ACG Acquisition Company Ltd. will not acquire the royalties on Brazilian Serrote and Santa Rita mines from Appian Capital Advisory LLP. This transaction was the condition for Royal Gold acquiring royalties on the two mines (deal announced back in June ).

Sandstorm Gold ( SAND ) declared a dividend of C$0.02 ($0.015) per share. It will be paid on October 27, to shareholders of record as of October 17. Sandstorm also announced that it renewed the $625 million revolving credit facility through September 2027. The CEO stated that the company is focused on debt repayments and intends to sell non-core assets worth $40-100 million by the end of 2024.

The company also agreed with Bear Creek Mining's ( OTCQX:BCEKF ) plan to restructure the Mercedes mine stream. According to the new terms, Sandstorm will be entitled to fixed deliveries of 275 toz gold per month through April 2028, and 4.4% of gold production at ongoing payments equal to 25% of the prevailing gold spot price thereafter. The silver stream on the Mercedes mine will be suspended until April 2028. Thereafter, Sandstorm will be entitled to 100% of silver production, at ongoing payments equal to 25% of the prevailing silver spot price. For accepting the new terms, Sandstorm will be awarded a 1% NSR royalty on Bear Creek's fully permitted world-class Corani project. for accepting the new conditions. Sandstorm also agreed to restructure its debt interests in Bear Creek Mining worth $31.5 million into 5-year convertible notes bearing an interest of 7% p.a., with a maturity on September 22, 2028. The strike price was set at C$0.73 per share.

Metalla Royalty and Streaming announced the acquisition of Nova Royalty, an industrial metals R&S company focused on industrial metals, mainly copper. Metalla will acquire all of the issued and outstanding shares of Nova, at a price of 0.36 Metalla shares per Nova share. Based on Metalla's last pre-announcement share price of C$5.29 ($3.9), the transaction values Nova's shares at C$1.9 ($1.4). It represents a 25% premium to the last pre-announcement closing price. The combined company will be approximately 60%-owned by Metalla's shareholders, and 40%-owned by Nova's shareholders. A detailed article about this deal can be found here .

EMX Royalty ( EMX ) finally ended the dispute with Zijin Mining ( OTCPK:ZIJMF ) regarding the Timok royalty. The two companies agreed to reduce the 0.5% Timok royalty to 0.3625%. EMX is entitled to $1.59 million for the July-December 2021 production, $3.2 million for the 2022 production, and $1.89 million for the H1 2023 production. It means $6.68 million in total. Starting in Q3 2023, EMX will be receiving the royalty payments from Zijin on a quarterly basis. A detailed article about this deal can be found here . Only a week later, EMX reported the receipt of the abovementioned $6.68 million payment.

The company also announced that it optioned the Copperhole Creek polymetallic project located in Australian Queensland to Lumira Energy. Lumira agreed to pay $50,000 in cash, $100,000 in shares (upon its listing on ASX), and further 500,000 shares 12 months following the listing. EMX will also receive 500,000 stock options with a strike price of $0.3 per share and 24-month maturity, and 500,000 stock options with a strike price of $0.4 per share and 36-month maturity. EMX will be also entitled to a 2.5% NSR royalty over Copperhole Creek, and to advance royalty payments of $30,000-75,000 per year. And there are also milestone payments worth up to $2 million.

Elemental Altus Royalties paid $10 million in shares (11,111,111 newly issued shares) to acquire a 0.68% NSR royalty on Arizona Sonoran Copper Company's ( OTCQX:ASCUF ) Cactus project, and 0.5% Gros Revenue Royalty on Armada Metals' Nyanga copper-nickel project located in Gabon.

The company also announced that Allied Gold ( AAUC:CA ) approved the development of the Diba gold project, near its flagship Sadiola gold mine in Mali. Diba should get into production next year, and Elemental Altus Royalties expects to receive 6,000 toz of gold equivalent and $6 million in milestone payments over the 2024-2025 period.

Trident Royalties ( OTCQX:TDTRF ) released its H1 2023 financial results. The company generated revenues of $4.6 million, which is in line with H2 2022, and 44% more than in H1 2022. The operating cash flow amounted to $4.4 million and net income to $3.8 million. Trident held cash of $25.4 million and net debt of $16.6 million as of the end of H1.

The company also announced that the General Directorate of Mines in Mexico canceled Ganfeng Lithium's ( OTCPK:GNENY ) Sonora lithium project concessions. According to Ganfeng Lithium, the cancelation is a violation of Mexican as well as international law. Trident holds an option to acquire an effective 1.5% Gross Revenue Royalty on Sonora. For now, the company decided to maintain its rights.

On September 4 , Trident announced the completion of the $6.25 million acquisition of the effective 1% NSR royalty on B2Gold's ( BTG ) Dandoko gold project in Mali, announced back in August .

On September 4 , Trident announced also the acquisition of a 2.5% NSR royalty on Anson Resources' ( OTCQB:ANSNF ) Paradox Basin project located in Utah. According to the 2022 feasibility study, the Paradox mine should be able to produce 13,074 tonnes of lithium carbonate per year, over the initial 10 years of the 23-year mine life. However, there are sufficient resources for a much bigger operation. The final investment decision is expected by the end of this year. The royalty should generate $11 million per year at the current lithium carbonate price of approximately $35,000/t. Should Anson sell the property, Trident will be entitled to 2% of the net sales proceeds and the royalty will be terminated. Trident agreed to pay up to $10 million in cash and shares for this royalty.

On September 21 , Trident announced that Anson Resources increased the production rates at the demonstration plant, in order to prepare more supply for potential offtake partners.

Vox Royalty ( VOXR ) completed the acquisition of 9 royalties for A$6.75 million ($4.33 million). The package includes also the 4% Gross Revenue Royalty on Northern Star Resources' ( OTCPK:NESRF ) Red Hill project, and the 3% NSR royalty on Horseshoe Metals' Horseshoe Lights project. This acquisition looks like a steal, as you can read here .

Orogen Royalties ( OTCQX:OGNRF ) sold the Gilbert South gold project in Nevada to Eminent Gold ( OTCQB:EMGDF ) for 200,000 shares and a 2.25% NSR royalty.

Sailfish Royalty ( OTCQX:SROYF ) reported that Mako Mining ( OTCQX:MAKOF ) drilled 23.47 g/t gold and 32.6 g/t silver over 11 meters at its San Albino mine. Sailfish holds a 2% NSR royalty on San Albino. The company also declared a dividend of $0.0125 that will be paid on October 16, to shareholders of record as of September 30.

The October Outlook

The month of October hasn't started well. The gold and silver market weakness prevails which is not good for the precious metals R&S companies. The development of precious metals prices should be the main driving force for the remainder of October, as the majority of companies will release the Q3 financial results only in November.

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