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

2023-05-08 11:49:04 ET

Summary

• The Precious Metals R&S Index grew by 3.11% in April.
• The Precious Metals R&S Equally Weighted Index grew by 1.85%.
• The best performance was recorded by Empress Royalty; its share price grew by 19.05%.
• The biggest decline was experienced by Metalla Royalty & Streaming; its share price declined by 11.09%.

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 (extended) .

A quick look at the list of the precious metals R&S companies ordered by their market capitalization shows that not many changes occurred during April. Only Elemental Altus Royalties ( ELEMF ) outgrew Trident Royalties ( TDTRF ), all the other companies maintained their old ranking. At the top of the list remains Franco-Nevada with a market capitalization of more than $29 billion, followed by Wheaton Precious Metals ($22 billion). At the very bottom is positioned Star Royalties ( STRFF ) with a market capitalization of less than $22 million.

The month of April delivered some mixed results. Out of the 17 companies, 10 ended the month in green numbers and 7 ended it in red numbers. The highest gains were recorded by Empress Royalty ( EMPYF ). Its share price grew by more than 19%. The movement occurred on no news, as the company made the last news release on January 11, and then only on May 2, which was after the end of April. However, due to Empress' low market capitalization and also low share price (around $0.25), relatively wild price movements are not uncommon. Also the second highest April gain, Orogen Royalties' ( OGNRF ) 10.53% growth, was recorded on no news. And the biggest decline was recorded by Metalla Royalty and Streaming ( MTA ) whose share price declined by 11.09%. And, also in this case, there was no company-specific news that could be blamed.

April was quite good for precious metals and the precious metals miners, although the results remained far behind the spectacular March numbers. The share price of the SPDR Gold Trust ETF ( GLD ) grew by 0.86% and the share price of iShares Silver Trust ETF ( SLV ) grew by 3.98%. Similarly, the VanEck Vectors Gold Miners ETF ( GDX ) and the VanEck Vectors Junior Gold Miners ETF ( GDXJ ) grew by 3.8% and 0.63% respectively. The precious metals R&S industry recorded similar performance. The Precious Metals R&S Index grew by 3.11% and the Precious Metals R&S Equally Weighted Index grew by 1.85%.

The April News

The news flow was poor in April. The majority of news was related to preliminary Q1 production results. There haven't been any major deals in the precious metals R&S industry over the recent months. But in April, also the small ones disappeared. The positive news is that in recent news releases, several companies indicated that they are in advanced negotiations regarding some new deals. However, their extent is only to be seen.

Franco-Nevada ( FNV ) released its 2023 ESG Report and Asset Handbook. The documents can be found here and here .

Royal Gold ( RGLD ) reported that in Q1, its gold equivalent sales amounted to approximately 60,800 toz (42,100 toz gold, 808,100 toz silver, 4.4 million lb copper). The company also provided the 2023 sales guidance. Royal Gold expects that it will sell 320,000 - 345,000 to of gold equivalent, including 235,000-250,000 toz gold.

Triple Flag Precious Metals ( TFPM ) announced that its Q1 sales amounted to 26,599 toz of gold equivalent (52.7% gold, 42.8% silver, 4.5% other). The company will release its Q1 financial results on May 9.

Osisko Gold Royalties ( OR ) received 23,111 toz of gold equivalent in Q1. The preliminary revenues amounted to C$59.6 million ($44 million). Osisko also repaid C$15 million under the revolving credit facility and its cash balance grew to C$119.1 million ($88 million). Osisko will release its Q1 financial result on May 10.

Sandstorm Gold Royalties ( SAND ) announced that it sold approximately 28,400 toz of gold equivalent in Q1. The preliminary revenue amounted to C$54 million ($39.9 million) which is a new record high. Sandstorm also announced the renewal of its normal course issuer bid under which up to 8% of outstanding shares can be repurchased until April 10, 2024.

The company will release its Q1 financial results on May 10, after the market close.

Vox Royalty ( VOXR ) reported preliminary Q1 revenues of $3.58 million which is a new record high, which is 143% more than in Q1 2022. The 2023 guidance envisions revenues of $11-13 million.

On April 18, Vox released its inaugural letter to shareholders. It can be found here . The company also announced that Silver Mines' ( SLVMF ) Bowdens Silver Project received the final permits needed to start the mine construction. Silver Mines' is preparing an updated feasibility study now. Only recently, a new resource estimate was released. It outlined measured and indicated resources of 323 million toz of silver equivalent and inferred resources of 73 million toz of silver equivalent. Vox owns a 0.85% Gross Revenue Royalty on the project.

Trident Royalties ( TDTRF ) started trading on OTCQX on April 5. On April 28, Trident announced The Alberta Court of Appeal overturned, on appeal, a judgment that had summarily dismissed the action brought by Bacanora Minerals against the Estate of Ian Colin Orr-Ewing on the basis that it was time-barred under the statute of limitations. The case will be referred back to the Court of King's Bench of Alberta to consider the merits of the claim and they will determine the timetable for this process and the timing for future hearings. This is negative news as it brings more uncertainty to the table.

Sailfish Royalty ( SROYF ) reported its Q4 2022 financial results. The revenues amounted to $676,299 and the net income to -$134,855. The overall 2022 attributable production amounted to 1,476 toz gold, revenues amounted to $2.65 million, and net income amounted to -$1.21 million.

Elemental Altus Royalties ( ELEMF ) reported the Q4 financial results. The attributable production amounted to 1,621 toz of gold equivalent, and revenues amounted to $2.6 million. The company recorded a net loss of $11.5 million, mainly due to an impairment charge and an award of stock options to directors and employees. Elemental's cash position increased to $17.5 million. The overall 2022 attributable production amounted to 5,834 toz of gold equivalent, and the revenues amounted to $9.6 million. The 2023 guidance envisions 9,000-10,200 toz of gold equivalent which is nearly double the 2022 amount.

Star Royalties ( STRFF ) reported its FY 2022 financial results too. The revenues amounted to $1.42 million, operating cash flow to -$767,679, and net income to $17.3 million. The company ended 2022 with cash of $2.5 million and no debt.

The May Outlook

In April, the news flow declined significantly. The situation should improve in May, due to the ongoing Q1 earnings season. However, it is hard to say whether also some new deals of an impactful size will be announced. some of the companies have already released the Q1 financial results over the first days of May. Namely Franco-Nevada , Wheaton Precious Metals , and Royal Gold .

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