VOXR - Vox Royalty: Where Growth Meets Value
2024-06-27 12:09:48 ET
Summary
- Vox Royalty Corporation has a competitive advantage in the royalty space with a unique business model and a proprietary database for sourcing deals.
- The company has a growing portfolio of royalty assets, including the game-changing acquisition of the Red Hill royalty, which could nearly double revenue alone.
- With a strong cash position, no debt & trading at a significant undervaluation relative to peers, I see Vox Royalty as one of the most attractive smaller-cap names out there.
It's been a tough past month for the Gold Juniors Index ( GDXJ ) with the index suffering a near 15% correction. However, one name, Vox Royalty Corp. ( VOXR ), has bucked this trend thus far and has added to its gains in June, likely stemming from its improving investment thesis and significant undervaluation vs. peers. In this update, we'll dig into what makes the stock unique, why the company has a very bright future and a closer look at its undervaluation vs. peers and its royalty portfolio.
All figures are in United States Dollars unless otherwise noted with an A$ for Australian Dollars and based on a constant 0.65/1.00 AUD/USD exchange rate.
The Current Environment
We've seen a significant increase in entrants in the royalty/streaming space over the past five years, which made the space more competitive with more companies fighting for deals and ultimately driving returns on these deals lower. Fortunately, this hasn't affected the big-3 royalty/streaming companies too much, as they are in a league of their own in terms of deal size. In addition, mid-tiers and the big-three obviously benefit from a lower cost of capital than their junior royalty peers, making it extremely hard for the junior royalty names to grow and often leading to the junior royalty companies stooping to lower IRR deals simply to achieve growth for growth's sake.
Unfortunately, this means that while some of the junior royalty companies have decent growth and have built a path to the 20,000 gold-equivalent ounce [GEO] level longer-term as new assets come online, they've paid the price for these deals on a per-share basis. In addition, there's no clear path to growing from 10,000 to 40,000-50,000 GEOs because they're now competing with the majors that are bidding on smaller royalty assets as things get more competitive for bigger assets and the juniors can't win bids unless they overpay because they lack:
- The brand name and “seal of approval” on their asset for the seller who comes from selling a royalty with the top-5 companies
- A much lower cost of capital
- The liquidity to make a run at $20+ million deals, which often means transacting on lower-quality assets with weaker operators and/or mostly development assets and getting the proverbial leftovers that the majors didn't want