Precious Metals Royalty And Streaming Companies: The March Report

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: Author’s own processing)

Not too much has changed in the composition of the market capitalization-weighted index. Franco-Nevada Corp. (FNV), Wheaton Precious Metals (WPM) and Royal Gold (RGLD) are still the giants of the industry with a combined weight of 92.79%. The smallest of the followed companies remains Sailfish Royalty Corp. (OTCQX:SROYF).

(Source: Author’s own processing)

It is probably no surprise that all of the precious metals royalty and streaming companies ended in red numbers in March. However, the extent of losses varied quite notably. Shares of Metalla Royalty & Streaming Ltd. (MTA) did relatively well, losing only 1.63%. Also, Wheaton Precious Metals and ELY Gold Royalties (ELY) recorded losses smaller than 5% each. On the other hand, shares of Sandstorm Gold (SAND) declined by 15.51%, shares of Maverix Metals (MMX) declined by 17.98% and shares of Sailfish Royalty Corp. declined even by 23.61%. For Maverix, it was the second horrible monthly performance in a row, as in February, its shares lost 21.47%.

(Source: Author’s own processing)

Although the gold price experienced a pretty wild ride in March, it ended the month almost flat. The share price of the SPDR Gold Trust ETF (GLD) decreased by 0.22%. On the other hand, gold’s smaller brother, silver, did much worse. The share price of the iShares Silver Trust ETF (SLV) decreased by nearly 16%. Also the gold and silver miners had a pretty rough month when the VanEck Vectors Gold Miners ETF (GDX) declined by 12.13% and the VanEck Vectors Junior Gold Miners ETF (GDXJ) declined even by 22%. The precious metals royalty and streaming companies did better, but not too much better. The Precious Metals R&S Index declined by 6.61% and the Precious Metals R&S Equally Weighted Index declined even by 10.69%.

The March News

The main driving force in March was the coronavirus. The stock markets experienced a steep decline followed by a quick rebound, only to start declining again. The gold price collapsed; however, after the fears of future inflation started to emerge due to the huge stimulus packages, it returned back to the $1,600/toz level. Although the precious metals royalty and streaming companies kept on reporting good financial results and also kept on making some new deals, the investors paid much more attention to the stock market sentiment and to the news about closures of mining operations in some regions of the world. Unfortunately, a similar picture should also be expected in April.

Franco-Nevada reported its Q4 2019 financial results. The numbers didn’t disappoint – quite the contrary. Franco-Nevada sold 153,396 toz of gold equivalent in Q4 2019, setting a new record high. Also, the operating cash flow and net income reached new record highs of $184.6 million and $113.3 million respectively. According to the 2020 guidance, the company should reach attributable gold equivalent production of 50,000-580,000 toz gold and the energy-related revenues should amount to $80-95 million (however, this number will be probably much lower given the current oil prices). An article about Franco-Nevada’s Q4 can be found here.

Wheaton Precious Metals reported its Q4 2019 financial results too. The company sold 152,389 toz of gold equivalent and generated revenues of $223.2 million, operating cash flow of $131.9 million, and net income of $77.5 million. Wheaton also announced an 11% increase in its quarterly dividends. Right now, it stands at $0.1. An article about Wheaton Precious Metals’ Q4 can be found here.

Royal Gold declared its quarterly dividend of $0.28 per share. It is payable on April 17. On March 26, the company also released some less-positive news. The updated technical report for Centerra Gold’s (OTCPK:CAGDF) Mount Milligan mine (Royal Gold owns a 35% gold and 18.75% copper stream) resulted in a reduction of gold reserves from 4.5 million to 2.4 million toz gold and a reduction of copper reserves from 1.74 billion to 959 million lb. However, despite this huge decline, Royal Gold doesn’t intend to make an impairment of its stream. More negative near-term impacts on Royal Gold will be imposed by the coronavirus, as the Voisey’s Bay, Rainy River, Canadian Malartic, La Ronde, and El Limon mines had to interrupt their operations.

Osisko Gold Royalties (OR) announced the postponement of its annual general meeting of shareholders due to the coronavirus. On March 23, the company withdrew its 2020 production guidance due to the hard-to-predict impacts of the coronavirus. On March 30, a non-brokered private placement of C$85 million was announced. Investissement Québec will acquire 7,727,273 shares at a share price of C$11 per share.

Sandstorm Gold Royalties initiated an Early Warrant Exercise Incentive Program. The holders of the warrants expiring on October 27, 2020 will have an opportunity for an early exercise between April 16 and April 27. If they decide to participate, the exercise price will be reduced from $3.5 to $3.35. This way, Sandstorm wants to raise up to $50 million that should be used to finance further growth of the company.

On March 19, Sandstorm announced that it had withdrawn its 2020 production guidance due to the hardly predictable impacts of the coronavirus crisis. More positive was the information that over the first half of March, the company repurchased 3.7 million shares. It equals approximately 2% of issued and outstanding shares.

Maverix Metals announced its Q4 2019 financial results. Its attributable gold equivalent production equaled 7,817 toz. The operating cash flow equaled $10.6 million and adjusted net income was $4 million. According to the 2020 production guidance, the attributable gold equivalent production was projected between 27,000 toz and 30,000 toz. However, on March 24, Maverix withdrew the guidance due to the coronavirus just like some of its peers.

Abitibi Royalties (OTC:ATBYF) had quite an unlucky timing. On March 23, it announced the production guidance for the 2020-2023 period. However, only two days later, the company had to announce that the Canadian Malartic mine was closed at least until April 13 due to the coronavirus. The good news is that Abitibi is earning some money by trading options on shares of Agnico Eagle Mines (AEM) and Yamana Gold (AUY).

Metalla Royalty & Streaming announced that operations at Pan American Silver Corp.’s (PAAS) COSE and Joaquin mines were suspended. As a result, the company announced that the April and May dividends will be paid as scheduled, however, the situation will be monitored and Metalla will decide whether it will be paying dividends after May.

EMX Royalty Corp. (EMX) paid Revelo Resources (OTC:INCKF) $1.162 million to acquire a portfolio of royalties on 18 Chilean properties. The royalties include not only gold and silver, but also copper and molybdenum.

On March 30, EMX announced its Q4 and FY 2019 financial results. The results alone were not too impressive. In 2019, EMX generated revenues of $5.084 million and recorded an after-tax loss of $13.82 million. What is important, the company ended the year 2019 with $75.178 million in cash. That means it has more than enough resources to keep on expanding its royalties portfolio that already includes more than 100 projects.

ELY Gold Royalties was very active. On March 13, the company announced the closing of the purchase of net profit royalty from Liberty Gold (OTCPK:LGDTF). On March 17, ELY announced the acquisition of a 3.5% net profits interest on the Ren property that creates an extension of the Goldstrike mine owned by Barrick Gold (GOLD) and Newmont Corp. (NEM). On March 27, ELY announced an early warrant exercise and incentive agreement. Under this agreement, 2176423 Ontario Ltd. will exercise its warrants before April 7. ELY will get C$842,318.10, and the warrant holder will receive 2,807,727 shares of ELY and 2,807,727 new warrants with an exercise price of C$0.74 and two-year maturity. On March 30, ELY announced the closing of the acquisition of two claims near McEwen Mining’s (MUX) Gold Bar mine.

Sailfish Royalty announced that has it completed the sale of the Almaden Gold Project to GoldMining Inc. (OTCQX:GLDLF) for C$1.15 million.

The April Outlook

The outlook for April is pretty bleak. The stock market started to decline again, and it is possible that the recent lows will be retested soon. The coronavirus starts to impact more and more gold and silver mines which will have a negative impact on the financial results of the royalty and streaming companies. If also the gold price starts to decline, we will see another bloodbath in April.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

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