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

2024-01-14 06:52:13 ET

Summary

• The Precious Metals R&S Index declined by 0.29% in December.
• The Precious Metals R&S Equally Weighted Index grew by 0.87%.
• The best performance was recorded by Star Royalties; its share price grew by 50%.
• The biggest decline was experienced by Sailfish Royalty; its share price declined by 15.79%.

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 , October 2021 , November 2021 , December 2021 , January 2022 , February 2022 , March 2022 , April 2022 , May 2022 , June 2022 , July 2022, August 2022 , September 2022 , October 2022 , November 2022 , December 2022 , January 2023 , February 2023 , March 2023 , April 2023 , May 2023 , June 2023 , July 2023 , August 2023 , September 2023 , October 2023 , November 2023 .

As of the end of December, Wheaton Precious Metals maintained its place at the top of the list of precious metals R&S companies ordered by market capitalization. With a market capitalization of $22.35 billion, it was slightly bigger than second-placed Franco-Nevada with a market capitalization of $21.28 billion. The biggest change occurred slightly lower in the table, when Metalla, following the acquisition of Nova Royalty, jumped from the 10th to the 7th place with a market capitalization of $278 million. At the very bottom of the table remains Star Royalties, with a market capitalization of slightly less than $18 million.

In December, the majority of precious metals R&S companies recorded negative returns. The biggest decline, by more than 15%, was recorded by Sailfish Royalty. The decline started on December 1, however, there was no company-specific news to be blamed. On the other hand, the highest gains were recorded by Star Royalties ( OTCQX:STRFF ). Its share price grew by 50%, as a reaction to the sale of 25.9% equity interest in Green Star Royalties for C$21.2 million ($15.87 million), which attributes to its remaining 45.9% stake value higher than the market capitalization of the whole company. Als, Euro Ressources ( OTC:ERRSF ) did well. Its share price grew by more than 7%, supported by IAMGOLD's ( IAG ) buy-out offer.

In December, gold prices remained strong, and the share price of the SPDR Gold Trust ETF ( GLD ) grew by 1.27%. On the other hand, the share price of the iShares Silver Trust ETF ( SLV ) declined by 6.2%. Similarly, the VanEck Vectors Gold Miners ETF ( GDX ) and the VanEck Vectors Junior Gold Miners ETF ( GDXJ ) recorded declines of 1% and 1.64% respectively. The precious metals R&S companies remained nearly flat. The Precious Metals R&S Index declined by 0.27%, while the Precious Metals R&S Equally Weighted Index grew by 0.87%.

The December News

The news flow was quite weak in December. The most interesting news was Gold Royalty's acquisition of the Borborema royalty and the C$21.2 million sale of a stake in Green Star Royalties to Cenovus Energy.

Franco-Nevada ( FNV ) announced its intention to initiate an arbitration against the government of Panama regarding the Cobre Panama mine. On November 23, the company noticed about the intention the Ministry of Commerce and Industry of Panama. On December 22 , Franco-Nevada noticed its investors that First Quantum Minerals ( OTCPK:FQVLF ) intends to maintain responsible environmental stewardship of the Cobre Panama mine site, as well as to pursue all appropriate legal avenues to protect its investment and rights.

Osisko Gold Royalties ( OR ) sold 50,023,569 shares of Osisko Mining ( OTCPK:OBNNF ) for gross proceeds of approximately C$132 million ($98.7 million). This transaction reduced its equity stake in Osisko Mining to zero, however, it maintains a 2-3% NSR royalty on the Windfall project. This transaction strengthened Osisko Gold Royalties' balance sheet, moreover, the company is a purer R&S play now.

On December 8 , Osisko Gold Royalties announced the approval for renewal of its normal course issuer bid. Until December 11, 2024, Osisko can repurchase up to 9,258,298 shares which is approximately 5% of its issued and outstanding shares.

Triple Flag Precious Metals ( TFPM ) congratulated Evolution Mining ( OTCPK:CAHPF ) on its proposed acquisition of an 80% interest in the Northparkes copper-gold mine. Triple Flag holds a 54% gold stream and an 80% silver stream on payable production from Northparkes.

Sandstorm Gold ( SAND ) declared a Q1 2024 dividend of C$0.02 ($0.015) per share. It will be paid on January 26, to shareholders of record as of January 16.

Euro Ressources ( OTC:ERRSF ) released more details regarding IAMGOLD's ( IAG ) buy-out offer followed by a squeeze-out. IAMGOLD offers €3.5 ($3.83) per share of Euro Ressources. According to an independent committee, the offer is fair.

Gold Royalty ( GROY ) purchased a 2% NSR royalty on Aura Minerals' ( OTCQX:ORAAF ) Borborema project for $21 million. It will also provide Aura $10 million royalty-convertible gold-linked loan. After 725,000 toz gold is produced at Borborema, the royalty will be reduced to 0.5%. After 2.25 million toz gold is produced, or in 2050, Aura will have the right to repurchase the remaining 0.5% royalty for $2.5 million. Gold Royalty will be entitled to pre-production payments of 250 toz gold per quarter, until the mine achieves 75% of its projected 2 million tpa throughput rate, or for 10 years following the closing of the transaction. The $10 million loan will bear an interest of 110 toz gold per quarter and it will mature in 6 years. Upon maturity, Gold Royalty will be able to demand repayment of $10 million or repayment of $5 million + 0.5% NSR royalty on Borborema. The Borborema mine should be producing around 66,000 toz gold per year on average over the projected 11.3-year mine life, with commercial production expected in Q3 2025. To finance the transaction, Gold Royalty issued a convertible debenture worth $40 million. The debt bears an interest of 10% and matures in 5 years, with a conversion price of $1.9 per share.

On December 21 , Gold Royalty announced the completion of the acquisition of the Quebec royalty portfolio announced back in November .

Metalla Royalty & Streaming ( MTA ) completed the acquisition of Nova Royalty announced back in September . Following the transaction, Metalla gained exposure to significant copper-related assets. Based on the NPV estimates, 46% of the portfolio is focused on gold, and 42% on copper now. The company expects the annual attributable gold production to grow to approximately 30,000 toz of gold equivalent by 2030.

The company also granted to its directors, officers, consultants, etc., 587,500 restricted share units, and 922,500 stock options.

EMX Royalty ( EMX ) made a $10 million early repayment toward the principal amount of the senior secured credit facility provided by Sprott Resource Lending Corp. The remaining $34.7 million should be repaid by December 31, 2024.

Sailfish Royalty ( OTCQX:SROYF ) granted CMC Metals ( OTCQB:CMCXF ) an option to purchase all the shares of Sailfish Silver for $3.5 million, 1 million shares of CMC, and additional shares of CMC worth $1.2 million. Sailfish will also keep an NSR royalty on Sailfish Silver's properties (1.5% on unencumbered grounds and 0.5% on encumbered grounds).

The company also declared a dividend of $0.0125 per share, which will be paid on January 15, to shareholders of record as of December 31.

Elemental Altus Royalties ( OTCQX:ELEMF ) published its inaugural royalty asset handbook.

Empress Royalty ( OTCQX:EMPYF ) closed a $28.5 million accordion credit facility with Nebari Gold Fund 1, and Nebari Natural Resources Credit Fund 2 which replaced the old $15 million credit facility provided by Nebari. The debt will bear an interest of 3-month Term SOFR (3.5% floor) + 7.5% p.a., and Nebari will be entitled also to some bonus warrants, upon the drawdown of the debt.

Star Royalties ( OTCQX:STRFF ) announced that Cenovus Energy ( CVE ) acquired a 25.9% equity interest in Green Star Royalties for C$21.2 million ($15.87 million). This deal reduced Star Royalties' stake in the company to 45.9%.

The January Outlook

For now, the gold price remains relatively stable, above the $2,000 level. After an early January decline, the silver price seems to be stabilizing in the $23 area. Also the broader stock market is relatively stable. Therefore, also the share prices of precious metals R&S companies have been stable, without major movements so far. However, this may change later in the month, with the first production guidances for the year 2024. Moreover, the geopolitical situation is bad and not improving, which may push gold prices to new record highs virtually anytime.

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