LAC - Precious Metals Royalty And Streaming Companies: The February Report

2023-03-09 04:15:00 ET

Summary

• The Precious Metals R&S Index declined by 10.37% in February.
• The Precious Metals R&S Equally Weighted Index declined by 5.63%.
• The best performance was recorded by Empress Royalty; its share price grew by 4.17%.
• The biggest decline was experienced by Sandstorm Gold; its share price declined by 15.03%.

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 (extended) .

When comparing the ranking of the precious metals R&S companies by market capitalization as of the end of February to the previous month, only one change occurred. Trident Royalties ( TDTRF ) outgrew Elemental Altus Royalties ( ELEMF ). All the other companies maintained their rankings. At the top of the list remains Franco-Nevada with a market capitalization of nearly $24.5 billion, followed by Wheaton Precious Metals ($18.8 billion) and Royal Gold ($7.8 billion). At the bottom of the list remains Star Royalties ( STRFF ) with a market capitalization of only slightly above $20.5 million.

Following very positive January, February delivered much less positive results. Only two companies recorded a share price growth, two remained flat, and the remaining thirteen ended the month in red numbers. The biggest gains were recorded by Empress Royalty ( EMPYF ). Its share price grew by 4.17% without any company-specific news. The positive performance may be only a technical correction of the 20% decline recorded in January. Trident Royalties recorded 1.54% gains, despite a very good start to the month fueled by very positive news regarding the Thacker Pass lithium project. However, the steep decline in lithium prices erased a major portion of the early gains. The biggest share price decline was recorded by Sandstorm Gold. The decline started in late January and lasted until the release of the Q4 financial results on February 21.

Both gold and silver experienced a pretty bad month. The share price of the SPDR Gold Trust ETF ( GLD ) declined by 5.37%, and the iShares Silver Trust ETF ( SLV ) declined by 11.96%. The precious metals miners did even worse, as the VanEck Vectors Gold Miners ETF ( GDX ) and the VanEck Vectors Junior Gold Miners ETF ( GDXJ ) lost 14.08% and 13.25% respectively. The precious metals R&S companies did better. The Precious Metals R&S Index declined by 10.37% and the Precious Metals R&S Equally Weighted Index declined by 5.63%.

The February News

In February, the number of news releases increased significantly. However, the majority of news was related to Q4 operational and financial results. The most active was Trident Royalties, which announced several major developments at the Thacker Pass lithium project.

Franco-Nevada made two updates regarding the current status of the Cobre Panama mine. On February 6 , the company announced that at Cobre Panama port, the loading operations have been suspended. And on February 23 , it announced that the negotiations between the Panamanian government and First Quantum Minerals still continue. This situation has a negative impact on Franco-Nevada, as Cobre Panama used to generate around 17% of Franco's revenues, as explained in this article .

Wheaton Precious Metals reported 2022 attributable production of 286,985 toz gold, 23,979,000 toz silver, 15,485 toz palladium, and 724,000 lb cobalt, or 638,048 toz of gold equivalent. It is slightly below the guidance of 640,000-680,000 toz of gold equivalent. For 2023, Wheaton forecasts 600,000-660,000 toz of gold equivalent (320,000-350,000 toz gold, 20,000,000-22,000,000 toz silver, and palladium and cobalt amounting to 22,000-25,000 toz of gold equivalent). At the same time, the company envisions average annual attributable production of 810,000 toz of gold equivalent between 2023 and 2027, and 850,000 toz of gold equivalent between 2023 and 2032. The company will release its Q4 financial results on March 9, after the market close.

Royal Gold released its Q4 financial results. The company recorded attributable production of 335,100 toz of gold equivalent, which is close to the upper boundary of the production guidance (315,000-340,000 toz of gold equivalent). The revenues amounted to $160.7 million, operating cash flow to $101 million, and net income to $56.4 million. All three numbers have improved notably compared to the previous quarter, but they have worsened compared to the same quarter of the previous year. Royal Gold ended the year with cash of $118.6 million and net debt of $459.2 million. The 2023 production guidance should be released in April.

Triple Flag Precious Metals ( TFPM ) reported Q4 sales of 25,428 toz of gold equivalent (44% gold, 50% silver, 6% other), resulting in revenues of $43.9 million, operating cash flow of $36.7 million, and net income of $15.5 million. The revenues, as well as operating cash flow, set a new record high. The company ended 2022 with cash of 76.5 million and net debt of -$74.6 million. In 2023, Triple Flag expects sales of 100,000-115,000 toz of gold equivalent. Between 2023 and 2028, the average annual sales should equal 140,000 toz of gold equivalent.

The company also declared a Q1 dividend of $0.05 payable on March 15 to shareholders of record as of March 3.

Osisko Gold Royalties reported Q1 financial results too. The attributable production reached a new record high at 25,023 toz of gold equivalent. The revenues amounted to $45.7 million, operating cash flow to $35.8 million, and net income to $16.6 million. Both operating cash flow and net income set new record highs. Osisko held cash of $66.9 million, and its net debt amounted to $48 million as of the end of 2023. For 2023, the company envisions attributable production of 95,000-105,000 toz of gold equivalent. This volume should grow to 130,000-140,000 toz of gold equivalent by 2027.

The Q1 dividend was set at C$0.055 ($0.04) per share. It will be paid on April 14 to shareholders of record as of March 31.

Sandstorm Gold recorded attributable production of 21,753 toz of gold equivalent in Q4. The revenues amounted to $38.4 million, operating cash flow to $26.3 million, and net income to -$2.4 million. Sandstorm ended 2022 with cash of $10.8 million and net debt of $488.7 million. In 2023, Sandstorm expects attributable production of 85,000-100,000 toz of gold equivalent. However, the volume should grow to 140,000 toz by 2025.

Gold Royalty ( GROY ) expanded its revolving credit facility from $25 million to $35 million. The company also declared the Q1 dividend of $0.01 and introduced a dividend reinvestment plan that offers a 3% discount to the average market price. The dividend will be paid on April 13 to shareholders of record as of March 31.

EMX Royalty ( EMX ) announced that it intersected 17.8 meters grading 4.01 g/t gold at its wholly owned Australian Yarrol project. The property contains coper-gold, and cobalt-manganese mineralisation, as well as heavy sand deposits, and it is available for partnership.

Metalla Royalty & Streaming ( MTA ) completed the acquisition of the royalty portfolio from Alamos Gold ( AGI ).

EURO Ressources ( ERRSF ) reported its 2022 financial results. The company recorded revenues of €22.2 million ($23.5 million) and a net income of €11.3 million ($12 million). As of the end of 2022, EURO Ressources held cash of €21.4 million ($22.7 million). Unfortunately, due to IAMGOLD's ( IAG ) sale of the Rosebel mine to Zijin Mining ( ZIJMY ), EURO Ressources hasn't been able to provide the 2023 attributable production guidance.

Trident Royalties was pretty busy in February. On February 1 , the company announced that General Motors ( GM ) agreed to make a $650 million equity investment in Lithium Americas ( LAC ) to help with the development of the Thacker Pass project. Moreover, General Motors signed a 10-year off-take agreement for lithium produced by the phase 1 operation. Trident holds an effective 1.05% GRR royalty on Thacker Pass (assuming that Lithium Americas realizes its partial buyback option, which is nearly warranted). The completion of the first $320 million tranche of the GM equity financing was announced on February 17 .

On February 8 , Trident announced a favorable ruling of the Nevada District Court, which decided that the permitting process for Thacker Pass was conducted thoroughly and responsibly. This was the last major obstacle, and the mine construction can begin now.

On February 23 , Trident announced the completion of the sale of non-core non-producing gold royalties to Franco-Nevada, announced back in December. Trident has received $14.23 million, and Franco-Nevada will pay a further $1.25 million upon the first production from the Rebecca Gold Project.

And on February 23 , also another positive news regarding Thacker Pass was released. On February 22, Lithium Americas received a letter of Substantial Completion from the U.S. Department of Energy Loan Programs Office. It confirmed that Lithium Americas' application for the Advanced Technology Vehicles Manufacturing Loan Program contains all the information necessary to conduct an eligibility assessment and can commence the process to engage in confirmatory due diligence and term sheet negotiation. If successful, Lithium Americas may obtain a loan covering up to 75% of the Thacker Pass CAPEX.

Elemental Altus Royalties announced and also closed the acquisition of a portfolio of 19 royalties from First Mining Gold ( FFMGF ) for $5 million in cash and shares. The portfolio includes a 2% NSR royalty on Auteco Minerals' ( MNXMF ) Pickle Crow project (high-grade resource of more than 2 million toz gold).

On February 17 , Elemental announced that it delivered a written notice of default to Rambler ( RBMTF ) for the non-delivery of gold under the gold stream held by Elemental.

Vox Royalty ( VOXR ) provided an exploration and development update. The most important news is that the Silver Mines' ( SLVMF ) Bowdens silver project is approaching the construction decision and that Genesis Minerals' Puzzle North deposit feasibility study remains on track for June completion.

Orogen Royalties ( OGNRF ) released a review of the 2022 developments in its project generation business segment. The partners funded exploration works of $5.6 million, including three drill campaigns consisting of 5,000 meters of drilling. Probably the most interesting results were achieved at the Spring Peak project, where Headwater Gold ( HWAUF ) drilled 2.73 g/t gold over 34.72 meters.

On February 23 , Orogen announced that AngloGold Ashanti ( AU ) increased resources at the Silicon Gold deposit to 4.2 million toz gold. A PFS is underway, and AngloGold plans to spend a further $50 million in the Silicon camp this year. Orogen holds a 1% NSR royalty on the project.

Star Royalties announced that Green Star Royalties became a member of the International Emissions Trading Association.

The March Outlook

The first trading days of March brought minor declines in share prices of the precious metals R&S companies. Although several companies will release the Q4 financial results in March, the main driving force should remain the gold price.

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