SBSW - Precious Metals Royalty And Streaming Companies: The May Report

2023-06-13 05:45:03 ET

Summary

• The Precious Metals R&S Index declined by 5.91% in May.
• The Precious Metals R&S Equally Weighted Index declined by 6.82%.
• The best performance was recorded by Trident Royalties; its share price grew by 5%.
• The biggest decline was experienced by Metalla Royalty and Streaming; its share price declined by 14.08%.

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 , March 2023 (extended) , April 2023 , April 2023 (extended) , May 2023 (extended) .

The biggest precious metals R&S company remains Franco Nevada with a market capitalization of nearly $28 billion. Franco-Nevada is followed by Wheaton Precious Metals ($20.5 billion) and Royal Gold ($8 billion). There are three other companies with a market capitalization of over $1 billion. However, the recent consolidation in the industry eliminated the number of mid-sized companies. There is a huge gap between Sandstorm Gold valued at $1.6 billion and Gold Royalty ( GROY ) with a market capitalization of less than $280 million. The two smallest companies, Empress Royalty ( OTCQX:EMPYF ) and Star Royalties ( OTCQX:STRFF ) have a market capitalization of less than $25 million.

In May, shares of only three companies avoided losses. Trident Royalties ( OTCQX:TDTRF ) recorded a 5% share price growth fueled especially by the announcement of a new silver stream acquisition, and positive news from Thacker Pass. Trident was followed by EURO Ressources ( OTC:ERRSF ) (1.5%) and Star Royalties (0%). The worst performance presented Metalla Royalty & Streaming ( MTA ) whose share price declined by more than 14%. The company was in a strong bearish trend since late April.

In May, the share price of the SPDR Gold Trust ETF ( GLD ) and the share price of the iShares Silver Trust ETF ( SLV ) declined by 1.34% and 6.04% respectively. The decline in metals prices pushed down also the VanEck Vectors Gold Miners ETF ( GDX ) and the VanEck Vectors Junior Gold Miners ETF ( GDXJ ). Share prices of the two ETFs declined by 7.95% and 6.57% respectively. The precious metals R&S indices recorded similar losses. The value of the Precious Metals R&S Index declined by 5.91% and the value of the Precious Metals R&S Equally Weighted Index declined by 6.82%.

The May News

After several calmer months, May was really rich in news. The majority of them were related to the Q1 2023 financial results, however, there were also several deal announcements. The biggest one of them was Wheaton Precious Metals' $300 million acquisition of a 6.6% gold stream from Lumina Gold's ( OTCQX:LMGDF ) Cangrejos copper-gold project.

Franco-Nevada released its Q1 financial results. The company sold 145,331 toz of gold equivalent, generating revenues of $276.3 million. It means a 13.6% decline compared to the previous quarter and an 18.3% decline compared to the same period of last year. The decline was attributable to lower precious metals deliveries and lower realized oil and natural gas prices. Franco's operating cash flow amounted to $209.8 million and net income to $156.5 million. Both numbers are notably lower compared to Q4 as well as Q1 2022. But Franco remains in good condition, as it ended Q1 with cash of $1.25 billion and no debt. The company also announced a quarterly dividend of $0.34 per share, payable on June 29, to shareholders of record as of June 15.

Wheaton Precious Metals released the Q1 financial results. The company generated revenues of $214 million, an operating cash flow of $135 million, and a net income of $111 million. Just like in the case of Franco, all the numbers experienced a steep decline compared to the previous quarter, as well as to the same quarter of last year. The main reason is the decline in gold equivalent sales from 159,082 toz in Q1 2022 to 117,383 toz in Q1 2023, as well as the 5% decline in average realized gold equivalent price. Wheaton ended the quarter with cash of $800 million and no debt. The company also declared a dividend of $0.15 per share, payable on June 2, to shareholders of record as of May 19.

Wheaton also announced the departure of two directors and their replacement by new ones. On May 9 , Wheaton announced the renewal of its at-the-market equity program under which shares worth up to $300 million can be issued. However, given Wheaton's robust cash pile and available credit facilities, it is improbable that the ATM will be used anytime soon.

On May 16 , Wheaton announced the acquisition of a 6.6% gold stream on Lumina Gold's Cangrejos gold-copper project. Wheaton will make an upfront payment of $300 million and ongoing payments of 18% of the prevailing spot gold price. After 700,000 toz gold is delivered, the stream will be reduced from 6.6% to 4.4%. It is expected that on average, around 24,500 toz gold per year will be attributable to Wheaton.

Royal Gold reported the Q1 financial results as well. Its revenues amounted to $170.4 million, which is approximately 6% more than in Q4 as well as Q1 2022. The operating cash flow amounted to $108.7 million and the net income to $63.9 million. Both numbers show a meaningful improvement when compared to the previous quarter. The main reason for the improvement is higher attributable production and sales volumes. Royal Gold ended the quarter with cash of $127 million and total debt of $504 million. The debt was reduced by $75 million during the quarter.

On May 24 , Royal Gold declared a dividend of $0.375 per share. It will be paid on July 21, to shareholders of record as of July 7.

On May 25 , Royal Gold announced the retirement of the COO. By the end of this year, Mark Isto should be replaced by Martin Raffield.

Osisko Gold Royalties reported its Q1 financial results. Compared to the same period of last year, the volume of attributable production grew by 27%, to 23,111 toz of gold equivalent. The revenues grew by 9%, to $44.1 million, and the operating cash flow even by 78%, to $33.6 million. However, compared to the previous quarter, both numbers declined slightly. The net income amounted to $15.4 million. Osisko ended the quarter with cash of $89.3 million and net debt of $16.6 million.

The company also announced a 9.1% increase in the dividend. The next quarterly payment will amount to C$0.06 ($0.044) per share and it will be payable on July 14, to shareholders of record as of June 30.

Triple Flag Precious Metals ( TFPM ) announced record-high gold equivalent sales amounting to 26,599 toz. The revenues amounted to $50.3 million, which is 15% more than in Q4, and 33% more than in Q1 2022. The annual growth is attributable especially to the acquisition of Maverix Metals. The operating cash flow increased to $38.9 million and the net income to $16.5 million. It means a 6% and 6.5% quarterly growth. Triple Fag ended Q1 with cash of $21.7 million and net debt of $60.6 million.

The company also declared a quarterly dividend of $0.05 per share. It will be paid on June 15, to shareholders of record as of May 31.

Sandstorm Gold recorded attributable production of 28,368 toz of gold equivalent, which is a new record high. Compared to Q1 2022, the volume grew by more than 51%. The annual growth was fueled mainly by the acquisition of Nomad Royalties. The revenues reached a new record-high too. They grew to $44 million, which is nearly 15% more than in Q4. The operating cash flow grew by 52%, to $39.9 million, and net income grew from -$2.4 million to $15.7 million. Sandstorm held cash of $7.9 million, and its net debt stood at $469 million as of the end of Q1. Sandstorm also announced that SSR Mining ( SSRM ) closed the deal to acquire up to a 40% interest in Hod Maden from Lidya Madencilik. Sandstorm maintains its 2% NSR royalty, as well as an efficient 20% gold stream. The bad news is that the construction decision was delayed until 2024. This has a negative impact on Sandstrom's growth prospects. The company guides attributable production of 90,000-100,000 toz of gold equivalent in 2023, growing to 125,000 toz over the next 5 years.

Gold Royalty ( GROY ) received 406 toz of gold equivalent in Q1. The revenues amounted to $767,000, which is 20% more than in Q1 2022. The operating cash flow declined to -$2.1 million and the net income to -$3.1 million. As of the end of Q1, Gold Royalty held cash of $9.8 million, and the net debt stood at $0.4 million. Gold Royalty reiterated its 2023 revenue guidance of $7-8 million. Due to the production start-up at Odyssey (Gold Royalty holds a 3% NSR royalty) and Cote Gold (Gold Royalty holds a 0.75% NSR royalty), the company expects to turn cash-flow positive in 2024.

The company also released its inaugural Sustainability report and asset handbook. On May 23 , Gold Royalty declared a quarterly dividend of $0.01. It will be paid on June 30, to shareholders of record as of June 20.

EURO Ressources recorded record-high revenues of $8.9 million in Q1. The operating cash flow increased to $6 million and the net income to $6.6 million. The improvements are attributable mainly to a more than 60% annual growth in the Rosebel mine's production volumes. Euro Ressources held cash of $28.7 million and it was debt-free as of the end of March.

Metalla Royalty reported Q1 attributable production of 927 toz of gold equivalent. The revenues amounted to $1 million, operating cash flow to $0.2 million, and net income to -$1.4 million. The numbers improved compared to the previous period, as well as to the same period of last year. Metalla ended the quarter with cash of $4.8 million, and net debt of $5.7 million.

EMX Royalty ( EMX ) reported Q1 revenues of $2.7 million. It is less than in Q4 but nearly 60% more than in Q1 2022. The operating cash flow declined to -$2.8 million and the net income to -$3.7 million. EMX ended the quarter with $19.4 million in cash, and net debt of $23.5 million. What is important, the dispute with Zijin Mining ( OTCPK:ZIJMF ) regarding the Timok mine royalty still hasn't been resolved.

The company also optioned its Yarrol and Mt Steadman projects to Many Peaks Gold. Besides compensations in stocks and cash, EMX also retains a 2.5% NSR royalty on precious and base metals, and a 5% gross royalty on mineral sands and other non-refined mineral products.

Trident Royalties reported Q1 royalty and stream revenues of $3.64 million, which is 63% more than in Q1 2022. As of April 28, Trident held cash of $37 million.

On May 15 , Trident announced the acquisition of royalties on Avino Silver & Gold Mines' ( ASM ) La Preciosa from Coeur Mining ( CDE ). The royalties include a 1.25% NSR royalty on the Gloria and Abundancia veins, and a 2% Gross Value Return royalty on the remainder of the La Preciosa property. There is also a $8.75 million milestone payment payable within 12 months of the first silver production at La Preciosa. For this package, Trident will pay only $7 million plus $1 million upon the receipt of the milestone payment. At this price, the acquisition is a steal. Avino should start processing stockpiled material from La Preciosa at its nearby Avino mine later this year. Processing of fresh material should start next year. The annual production rates should exceed 3 million toz silver by 2027.

On May 18 , Trident announced that at Lithium Americas' Thacker Pass lithium project, the early works are progressing well, and the major earthworks should start in H2 2023. The production should start in H2 2026.

Elemental Altus Royalties ( OTCQX:ELEMF ) reported record-high Q1 revenues of $2.8 million, a record-high volume of attributable gold equivalent ounces (2,016), and a record-high EBITDA ($2.4 million). However, the operating cash flow declined to -$0.6 million, and net income to -$1.9 million. The company ended Q1 with cash of $12.5 million, and net debt of $17.6 million.

Vox Royalty ( VOXR ) reported Q1 revenues of $3.6 million, which is 71% more than in the previous quarter and 200% more than in the same period of last year. However, the operating cash flow of $0.5 million, and net income of -$0.7 million were weaker than in Q4 2022. According to the 2023 guidance, the revenues should amount to $11-13 million. The company ended Q1 with cash of $4.2 million, and debt-free.

The company also provided some updates related to its assets portfolio. The most important news is that Sibanye Stillwater's ( SBSW ) Limpopo project contains measured, indicated, and inferred resources of more than 32 million toz of PGM, and the restart feasibility study remains on track for completion later this year. The construction decision should follow next year.

On May 29 , Vox's shares started trading on the Toronto Stock Exchange, under the ticker VOXR (the same as on Nasdaq).

Orogen Royalties ( OTCQX:OGNRF ) generated revenues of $1 million in q1, which means a new record high. The operating cash flow grew to $0.9 million and the net income to $0.5 million. Orogen held cash of $11.8 million and no debt as of the end of Q1.

The company also made two acquisitions. It acquired the Cuervo epithermal gold-silver project in British Columbia. The project was acquired through staking. The company sees some similarities between Cuervo and Artemis Gold's ( OTCPK:ARGTF ) Blackwater project. The second acquisition is a 1% NSR royalty on the La Rica copper-gold project in Colombia. Orogen agreed to pay $1.75 million plus a $5 million contingent payment.

Sailfish Royalty ( OTCQX:SROYF ) announced that it earned 360 toz gold in Q1. The revenues amounted to $0.7 million, operating cash flow of -$0.5 million, and net income of -$0.6 million. The numbers have worsened compared to the previous quarter. The company ended Q1 with cash of $1.4 million and debt-free. Sailfish also completed the acquisition of the previously announced silver stream from Mako Mining ( OTCQX:MAKOF ), as well as the $4.1 million convertible debenture private placement.

Empress Royalty provided a portfolio update. At Sierra Antapite, Tahuehueto, and Manica mines ramp-up or expansions are underway, which should mean that the attributable production volumes should keep on growing over the coming months. Moreover, the company is in advanced discussions on three new potential investments.

Star Royalties reported Q1 revenues of $0.3 million, an operating cash flow of -$0.4 million, and a net income of $0.1 million. The numbers have worsened due to lower mineral sand sales at the Keysbrook mine. The company held cash of $2.1 million, and no debt as of the end of Q1.

The June Outlook

The gold prices have been relatively stable over the first trading days of June, while the silver prices started moving up. Similarly, the stock markets started a bullish trend. All of this has been positive for the precious metals R&S companies so far. If the current trends prevail, the month of June should be successful for this stock market segment.

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