The Precious Metals R&S Index increased by 16.77% in July.
The Precious Metals R&S Equally Weighted Index increased by 14.37%.
The best performance was recorded by Metalla Royalty and Streaming; its share price grew by 49.81%.
The biggest decline was experienced by Vox Royalty; its share price declined by 14%.
A new company, Vox Royalty, was included in the indices (valid as of June, therefore the June index values were recalculated).
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 13, by adding Nomad Royalty and Vox Royalty). Later, based on the inquiries of readers, I also introduced an equal-weighted version of the index. Both indices include the same companies and are calculated back to January 2019.
In July, another company, Vox Royalty (OTC:VOXCF) was added to the indices (valid back to June). However, it represents only 0.1% of the market capitalization-weighted index. It will have a much stronger impact on the equal-weighted index. Vox is a young company focused on Australia (more than 75% of assets). It has two producing royalties: Koolyanobbing – 2% FOB royalty (iron ore), Graphmada – 2.5% Gross Concentrate Sales Royalty (graphite). As can be seen, the producing royalties are not precious metals-focused. However, the majority of Vox’s non-producing assets are precious metals-focused, therefore it was included in these indices.
Besides the Vox Royalty inclusion, no major changes occurred. The industry is still dominated by the big-three consisting of Franco-Nevada (FNV), Wheaton Precious Metals (WPM), and Royal Gold (RGLD). Their combined weight increased to 91.39% (from 91.01% last month).
In July, the precious metals did great. And so did the precious metals royalty and streaming companies. Or at least the majority of them. The highest gains were recorded by Metalla Royalty and Streaming (MTA). Its share price increased by almost 50%. The growth was fuelled not only by growing gold and silver prices but also by an interesting new acquisition and credit facility expansion. EMX Royalty (EMX) and Sailfish Royalty (OTCQX:SROYF) grew by nearly 40%. Also the heavyweights recorded significant gains, as Wheaton Precious Metals share price grew by more than 23%, Franco-Nevada’s share price grew by 14.5% and Royal Gold’s share price grew by more than 12.5%. On the other hand, Sandstorm Gold (SAND) remained flat, Abitibi Royalties (OTC:ATBYF) recorded a more than 6% decline, and the newly-added Vox Royalty even a 14% decline.
In July, gold did great. But silver did even greater. While the SPDR Gold Trust ETF (GLD) recorded 10.79% growth, the iShares Silver Trust ETF (SLV) grew by a whopping 33.16%. These numbers had a significant positive impact on the whole gold and silver mining sector. Therefore, the share price of the VanEck Vectors Gold Miners ETF (GDX) increased by 17.07% and the share price of the VanEck Vectors Junior Gold Miners ETF (GDXJ) increased even by 21.9%. In July, SLV, GDX, and also GDXJ outperformed the precious metals royalty and streaming sector. The Precious Metals R&S Index grew by 16.77% and the Precious Metals R&S Equally Weighted Index grew by 14.37%.
The July News
In July, the news flow was relatively weak. The majority of companies only announced the Q2 operational results. The Q2 financial results were reported only by Sandstorm Gold. No major deals took place.
Royal Gold announced that in Q2 (Royal Gold’s Q4), it sold 51,000 toz of gold equivalent, consisting of 44,000 toz gold, 450,000 toz silver, and 800 tonnes copper. The average realized prices increased to $1,686/toz gold, $15.77/toz silver, and $5,235/tonne copper. The company will release its Q2 financial results on August 5, after the market close.
Osisko Gold Royalties (OR) announced that in Q2, it received 12,300 toz of gold equivalent and recorded preliminary revenues of C$40.8 million. Also Osisko will release its Q2 financial results on August 5, after the market close.
On July 30, Osisko announced that at the Canadian Malartic mine, an underground portal and ramp development will start in August. The owners of Canadian Malartic, Agnico Eagle Mines (AEM) and Yamana Gold (AUY) identified over 10 million toz gold, in various underground mineralized zones. Osisko Gold Royalties owns 5% NSR royalty on Canadian Malartic.
Sandstorm Gold released its Q2 financial results. The company sold 10,920 toz of gold equivalent, generating revenues of $18.7 million, operating cash flow of $12.4 million, and net income of $7.1 million. One of the most interesting Q2 events was the drill interception of 85.3 meters grading 84.3 g/t gold and 6.8% copper, made at Sandstorm Gold’s 30%-owned Hod Maden project. Although the Q2 results were significantly affected by COVID-19-related production disruptions, the company is seeking for further growth options. An article about Sandstorm Gold’s Q2 results can be found here.
On July 13, Nomad announced that it qualified for trading on OTCQX. On July 15, the company announced that it secured a $50 million credit facility (with an option to increase to $75 million). And on July 27, the acquisition of a 1% NSR royalty on Troilus Gold’s (OTCQB:CHXMF) Troilus Gold Project was announced. Nomad paid $7.5 million for the royalty. According to the recently announced updated resource estimate, the project contains 8.11 million toz gold, and a PEA is underway (an article about Troilus Gold can be found here).
Maverix Metals (MMX) hasn’t announced anything. But Karora Resources (OTCQX:KRRGF) announced that as a compensation for the reduction of the Beta Hunt mine royalty, Maverix will not receive shares, as announced on June 30, but a cash consideration.
Metalla Royalty and Streaming made an interesting deal, as it acquired an existing 2.5% NSR royalty on Kirkland Lake Gold’s (KL) Fosterville mine from Nuenergy Gas (OTC:NNRGF), for A$6 million ($4.28 million) (A$2 million in cash, A$4 million in shares). Last year, Fosterville produced 619,366 toz gold. In Q2 2020, it produced 155,106 toz gold. The mine had reserves of 2.1 million toz gold, as of the end of 2019. The royalty covers an area of northern and southern extensions of the high-grade gold deposits. Although it probably won’t generate cash flow anytime soon, it provides exciting longer-term potential.
On July 29, Metalla announced some changes to its convertible credit facility. The original one will be increased by $20 million.
EMX Royalty announced the purchase of a portfolio of royalty and property interests consisting of more than 60 properties. The option payments related to the portfolio will generate revenues of C$2.5 million and share-based payments worth approximately C$800,000, over the next 3.5 years. EMX paid only C$3 million for the portfolio.
On July 28, EMX announced that Rawhide Acquisition Holding LLC (19.9%-owned by EMX), sold 11,159 toz gold and 85,034 toz silver, and generated revenues of $17.7 million in H1 2020.
On July 29, EMX provided an update about its growing portfolio of Scandinavian assets.
Abitibi Royalties issued a Q2 royalty and corporate update. The most important information is that the Canadian Malartic expansion and exploration continue, the share count decreased by 14,200, to 12,448,810 shares outstanding, the company has no debt, and as of July 24, it held cash and securities worth C$63.5 million. The monthly dividend remains unchanged, at C$0.0125 per share.
On July 22, ELY congratulated Blackrock Gold (OTCPK:BKRRF) on the drill results from the Tonopah West Project. ELY optioned the project to Blackrock back in April. For some reason, ELY’s news release doesn’t mention the actual drill results. But according to Blackrock’s July 20 news release, it was 3.04 meters grading 11.518 g/t gold and 1,046.06 g/t gold, or 2,197.9 g/t of silver equivalent.
Vox Royalty announced the acquisition of a 1.5% NSR royalty on the construction-stage Segilola Gold Project for C$900,000 (C$650,000 in cash, C$250,000 in share). The Nigerian mine is under construction with the first production expected in Q2 2021. It should produce 80,000 toz gold per year, over its 5-year mine life. The royalty payments are capped at $3.5 million.
On July 13, Vox Royalty announced the completion of its continuance from Ontario to the Cayman Islands.
Sailfish Royalty announced a normal course issuer bid under which it can repurchase 2,089,799 common shares (approximately 5% of Sailfish’s issued and outstanding shares). The normal course issuer bid is valid until July 6, 2021. However, on July 27, the company announced rights offering to raise up to C$18 million.
The August Outlook
The month of August should be much busier for the PR departments of the precious metals royalty and streaming companies. The main phase of the earnings season will take place. Franco-Nevada, Royal Gold, and Osisko Gold Royalties will release their Q2 financial results on August 5. Wheaton Precious Metals will follow on August 12. The results, as well as the gold and silver price development, should be the main driving forces in August.
Disclosure: I am/we are long KRRGF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.