Precious Metals Royalty And Streaming Companies: The May Report

Precious Metals Royalty And Streaming Companies: The May Report

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The Precious Metals R&S Index increased by 9.36% in May.

The Precious Metals R&S Equally Weighted Index increased by 16.7%.

The best performance was recorded by Ely Gold Royalties; its share price grew by 91.8%.

Share prices of all of the 11 companies included in the indices recorded positive gains in April.

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. Later, based on the inquiries following the June report, I also introduced an equal-weighted version of the index. Both indices include the same companies and are calculated back to January 2019.

Source: own processing

The whole precious metals royalty and streaming market segment is still dominated by the big three consisting of Franco-Nevada (FNV), Wheaton Precious Metals (WPM) and Royal Gold (RGLD). Their current combined weight is 92.34%. In comparison to the previous month, no major changes occurred in the ranking of the companies by market capitalization. Only Ely Gold Royalties (OTCQX:ELYGF) outgrew EMX Royalty Corporation (EMX) and moved from the 10th to the 9th position. At the very bottom remains Sailfish Royalty Corp. (OTCQX:SROYF).

Source: own processing

After extremely good April performance, the share prices of the royalty and streaming companies grew at a much slower pace in May. But once again, all of them recorded positive gains; moreover, several companies recorded double-digit gains. The absolute star of the month is Ely Gold Royalties that experienced a 91.8% share price growth. However, it is hard to identify a single event standing behind this huge outperformance, as ELYGF was pretty busy in May and multiple events occurred.

Source: own processing

Gold as well as silver prices grew in May. However, this time, silver did much, much better. The gold price represented by the SPDR Gold Trust ETF (GLD), recorded a 2.59% gain, while silver represented by the iShares Silver Trust ETF (SLV) recorded a 19.17% gain. The gold and silver miners did very well too. The share price of the VanEck Vectors Gold Miners ETF (GDX) grew by 6.39% and the share price of the VanEck Vectors Junior Gold Miners ETF (GDXJ) grew even by 14.17%. The precious metals royalty and streaming segment recorded similar results, when the Precious Metals R&S Index grew by 9.36% and the Precious Metals R&S Equally Weighted Index grew by 16.7%.

The May News

The news flow was rich during the month of May. It was caused especially by the Q1 2020 earnings season. But some of the companies were also pretty busy closing new deals. From this viewpoint, Ely Gold Royalties was the most active one.

Franco-Nevada reported its Q1 2020 financial results. The company sold 134,941 toz of gold equivalent. The revenues amounted to $240.5 million, operating cash flow to $195.2 million and net income to -$98.8 million, due to impairment charges attributable to the energy assets. An article focused on Franco-Nevada’s Q1 can be found here.

On May 11, Franco-Nevada announced the acquisition of 1% NSR on SolGold’s (OTCPK:SLGGF) world-class Alpala copper-gold project. The acquisition should cost $100 million. Moreover, Franco-Nevada announced an at-the-market program that enables it to issue new shares worth up to $300 million. Although it will lead to some share dilution, selling some shares at the current very generous valuations seems like a good idea.

Wheaton Precious Metals reported its Q1 financial results too. In Q1, it recorded gold equivalent sales of 166,121 toz, generating revenues of $254.8 million, operating cash flow of $177.6 million, and net income of $94.9 million. The net debt declined to $588.8 million. An article about Wheaton’s Q1 results can be found here.

Royal Gold recorded sales of 86,200 toz of gold equivalent in Q1 2020. Its revenues climbed to $136 million and operating cash flow almost to $100 million. However, net income decreased to $38.6 million. The net debt decreased to $6.5 million. An article focused on Royal Gold’s Q1 can be found here.

On May 26, Royal Gold announced its Q3 (calendar Q1 is Royal Gold’s financial Q3) dividend of $0.28 per share. The dividend remains unchanged. It will be payable on July 16.

Osisko Gold Royalties (OR) announced attributable gold equivalent production of 18,159 toz in Q1. The revenues equaled $37.5 million and operating cash flow $17 million. Osisko recorded a net loss of $9.5 million due to the impairment of its Renard mine diamond stream. An article about Osisko’s Q1 results can be found here.

The company also declared its Q2 2020 dividend that will equal to C$0.05 per share and will be payable on July 15.

Sandstorm Gold (SAND) announced that in Q1, it sold 13,393 toz of gold equivalent and recorded revenues of $21.3 million, operating cash flow of $14.4 million, and a net loss of $10.3 million. The loss is attributable especially to impairment charges related to the Diavik mine diamond royalty.

Much more interesting is the news from Turkey, where Sandstorm owns 30% of the Hod Maden copper-gold project (and also a 2% NSR). Sandstorm announced that Lidya Madencilik, the operator of the project, made an incredible interception of 85.3 meters grading 84.3 g/t gold and 6.8% copper, from a depth of 19 meters. Such a high grade over such a long interval is really exceptional. Moreover, the mineralization is close to the surface.

Sandstorm also announced the initiation of an ATM program that enables it to issue and sell shares worth up to $140 million.

Maverix Metals (MMX) recorded attributable gold equivalent production of 5,871 toz in Q1. The revenues equaled $9.3 million, operating cash flow $5.7 million and net income $860,000. Maverix also announced a quarterly dividend of $0.01 per share, payable on July 15.

On May 28, Pan American Silver (PAAS) and Maverix announced a secondary offering of 9 million shares of Maverix Metals currently held by Pan American, priced at $4.4 per share. After the shares are sold, Pan American will exercise its warrants. After the exercise, the volume of Maverix’s shares held by Pan American will equal the pre-secondary offering volume; however, the share on the overall volume of outstanding shares will decline from 23% to 21%. Maverix will receive proceeds of approximately $15.6 million.

Metalla Royalty & Streaming (MTA) completed the Cortez royalties acquisition announced in April. The company paid $2 million and 357,121 shares, to acquire a 0.5% gross overriding royalty on Nevada Gold Mine’s Anglo/Zeke claim block located on trend to the southeast of the Cortez Operations and Goldrush project owned by Barrick Gold (GOLD) and Newmont (NEM).

Abitibi Royalties (OTC:ATBYF) announced that according to the new resources estimate, the New Alger deposit contains 250,600 toz gold. Abitibi owns a 1% NSR on the property.

On May 28, Abitibi announced the acquisition of new royalties on properties right to the south of Agnico Eagle’s (AEM) and Yamana Gold’s (AUY) Canadian Malartic mine.

Ely Gold Royalties was pretty busy in May. The company made a C$17.25 million ($12.53 million) equity financing that increased its share count by 21,562,500. Along with the shares, also 10,781,250 warrants with a strike price of C$1 were issued. Moreover, Ely’s shares were uplisted from OTCQB to OTCQX.

And there were also several acquisitions. On May 13, Ely completed the purchase of a 0.5% net smelter returns royalty on the Jerritt Canyon Mine. It is Ely’s third producing royalty. On May 19, Ely completed the purchase of a portfolio of Nevada royalties, announced back in February. On May 22, Ely announced that it optioned its Olympic Gold project to Great Western Mining Corporation in an exchange for a cash payment and 3% NSR royalty. On May 28, Ely announced that it will acquire a 0.4% NSR royalty on Newmont’s Borden mine.

EMX Royalties optioned its Finnish nickel-cobalt-copper-PGM project to Sienna Resources (OTCPK:SNNAF). If Sienna decides to exercise its option, EMX will retain a 3% NSR royalty.

The June Outlook

The earnings season is over and it is possible to expect the news flow to slow down in June. But it doesn’t mean that the month will be boring. As the recent months have shown, the precious metals royalty and streaming companies can experience pretty wild moves to the upside as well as to the downside. And they have also shown that the market sentiment can be more important than the actual economic results. Right now, this market segment is pretty expensive. We will see whether the generous valuations can be maintained also in June.

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