Summary
The Precious Metals R&S Index declined by 3.87% in October.
The Precious Metals R&S Equally Weighted Index declined by 6.86%.
The best performance was recorded by Elemental Royalties; its share price grew by 4.76%.
The biggest decline was experienced by Nomad Royalty; its share price declined by 20.69%.
November has been very good for the precious metals royalty and streaming companies so far.
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, by adding Nomad Royalty (OTCQX:NSRXF), Vox Royalty (OTC:VOXCF), Elemental Royalties (OTCQX:ELEMF), and Orogen Royalties (OTCPK:EMRRF)). 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.
Market capitalizations of the majority of precious metals royalty and streaming companies declined in October. But no major changes occurred in the ranking of the companies by market capitalization (table above). Only EMX Royalty Corporation (EMX) outgrew Abitibi Royalties (OTC:ATBYF). The remaining companies maintained their positions. The industry is still dominated by Franco-Nevada (FNV), Wheaton Precious Metals (WPM), and Royal Gold (RGLD). The combined weight of the three companies is 90.73%, compared to 90.41% as of the end of September.
October wasn’t good for the precious metals royalty and streaming industry. Only three of the 15 companies recorded positive share price performance. The remaining 12 companies ended the month in red numbers. The best results were recorded by Elemental Royalties (OTCQX:ELEMF), Maverix Metals (MMX), and EMX Royalty Corporation. Their share prices increased by 4.76%, 1.75%, and 1.52% respectively. The worst results were achieved by Nomad Royalty (OTCQX:NSRXF). Its share price declined by 20.69%. The decline started in early October, without any specific company-related news, and lasted for the whole month. VOX Royalty (OTC:VOXCF) recorded a 17.73% share price decline. The decline started in late September after the company announced the filing of a preliminary short form base shelf prospectus that will enable it to issue new shares worth up to C$200 million ($151 million).
The gold and silver prices remained relatively flat in October. The share price of SPDR Gold Trust ETF (GLD) declined by 0.52%, and the share price of the iShares Silver Trust ETF (SLV) increased by 1.62%. The precious metals miners did worse, as the negative stock market sentiment drove their share prices down during the second half of the month. Therefore, the share price of the VanEck Vectors Gold Miners ETF (GDX) declined by 4.26%, and the share price of the VanEck Vectors Junior Gold Miners ETF (GDXJ) declined by 3.88%. The Precious Metals R&S Index recorded a very similar result, declining by 3.87%. The Precious Metals R&S Equally Weighted Index declined more, by 6.86%. In October, both R&S indices declined for the third straight month.
The October News
Several smaller deals took place in October. Some companies managed to report the Q3 2020 financial results, although the majority of big names will be reporting (or already reported) in November.
Franco-Nevada released its Q3 2020 financial results (although the release was made on November 4). Franco-Nevada sold 134,817 toz of gold equivalent. The revenues, operating cash flow, and net income reached new record highs. Moreover, the net debt declined to -$466.8 million. (an article about Franco-Nevada’s Q3 can be found here)
Wheaton Precious Metals shares started trading on the main market of the London Stock Exchange on October 28. Wheaton will release its Q3 2020 financial results on November 9.
Royal Gold reported the completion of the separation of the Wassa and Prestea/Bogoso stream agreement into two separate stream agreements with Golden Star Resources (GSS). The new Wassa stream will entitle Royal Gold to purchase 10.5% of gold produced at the Wassa mine, at a purchase price equal to 20% of the prevailing spot gold price. After 240,000 toz gold is delivered, the ongoing payments will increase to 30% of the prevailing spot gold price. Approximately 129,500 toz gold remain to be delivered before this threshold is reached. The new Prestea/Bogoso stream will enable Royal Gold to purchase 5.5% of gold produced at the mine, at a price equal to 30% of the prevailing spot price.
After the end of October, on November 4, Royal Gold announced its Q3 2020 (fiscal Q1 2021) financial results. The company sold 76,900 toz of gold equivalent and achieved a record-high net income of $106.9 million. Its net debt declined to -$138.1 million (an article about Royal Gold’s Q1 can be found here).
Osisko Gold Royalties (OR) was very active during the month of October. On October 1, the company released a partnership with Regulus Resources (OTCQX:RGLSF). According to the terms of the partnership, if Regulus acquires any existing royalties within the current AntaKori project area or within a 1 km area of interest surrounding the project on claims owned 100% by Regulus, Osisko will have the option to acquire 50% of the acquired royalty by paying 75% of Regulus’ purchase price for the royalty. Under this partnership, Osisko has already acquired a 0.75-1.5% NSR royalty on a part of the project. AntaKori contains resources of 2.6 billion lb copper, 2.2 million toz gold, and 67 million toz silver.
On October 5, Osisko announced its intention to spin-out its exploration assets, especially the Cariboo Gold Project, into a new company named Osisko Development (an article focused on this spin-out can be found here).
On October 5, Osisko announced also the discovery of new high-grade gold zones on the Cariboo property. And on October 13, Osisko signed an agreement with the Lhtako Dene Nation regarding the Cariboo project development.
On October 20, Osisko announced that in Q3 2020, it received 16,700 toz of gold equivalent. The preliminary revenues amounted to C$55.7 million ($42.77 million). It compares favorably to the revenues of $30.7 million recorded in Q2. Osisko will release its Q3 2020 financial results on November 9.
On October 28, Osisko announced the completion of the abovementioned spin-out of the exploration assets. On October 29, also the C$100 million bought deal private placement was completed.
Sandstorm Gold (SAND) released its Q3 2020 financial results. The company recorded a gold equivalent production of 12,068 toz. The revenues and operating cash flow increased, however, the net income decreased. Sandstorm’s net debt decreased to -$71.7 million (an article about Sandstorm Gold’s Q3 can be found here).
Maverix Metals successfully completed the acquisition of a royalty portfolio from Newmont (NEM). The portfolio includes 11 gold royalties (1 project in the construction phase, 4 projects in the development phase, and 6 projects in the exploration phase), and it was acquired for an upfront payment of $75 million and contingent payments of up to $15 million.
Nomad Royalty filed the final base shelf prospectus that enables it to issue preferred shares, subscription receipts, warrants, and debt securities worth up to $300 million. The prospectus is valid for the next 25 months.
Nomad also announced that it received 3,769 toz of gold equivalent during Q3 2020. The preliminary gold equivalent sales equaled 3,933 toz.
Metalla Royalty & Streaming (MTA) reported the financial results for a 3-month period ended on August 31. Metalla sold 252 toz of gold equivalent and recorded revenues of C$0.5 million ($0.38 million) and a net loss of C$1.9 million ($1.46 million).
On October 13, Metalla completed the acquisition of the 27.5% price participation royalty interest on Karora Resources’ (OTCQX:KRRGF) Higginsville Gold Operations. Metalla paid Morgan Stanley Capital Group (NYSE:MS) $6.5 million for this asset.
On October 22, Metalla exercised its option to acquire a 1% NSR royalty on Minera Alamos’ (OTCQX:MAIFF) La Fortuna Project.
EMX Royalty provided very important information. Zijin Mining (OTCPK:ZIJMF) expects the Timok Upper Zone mine to start production in Q2 2021. This is important news for EMX that holds a 0.5% NSR royalty on the property. According to the 2018 PFS, Timok should produce approximately 350 million lb copper and 350,000 toz gold during the first year of full production (probably in 2022). At a gold price of $1,900/toz and a copper price of $3/lb, the revenues should equal approximately $1.7 billion. EMX should receive $8.5 million.
ELY Gold Royalties (OTCQX:ELYGF) optioned the Aurora West Property to Goldcliff Resources (OTCPK:GCFFF). Goldcliff will be able to acquire the property for a total consideration of $425,000. ELY will retain a 2% NSR royalty on the property.
ELY announced also the acquisition of a 0.3% NSR royalty on 52 unpatented Trenton Canyon claims. The property covers an area of 7,350 hectares and it is being drilled by SSR Mining (SSRM) right now. Recent drill results include 7.27 g/t gold over 30.5 meters. ELY will pay $300,000 and 1 million common stock warrants (2 years, C$1.36).
Sailfish Royalty (OTCQX:SROYF) announced an increase in its normal course issuer bid. The volume of shares that can be repurchased will grow from 2,089,799 to 2,963,322.
In late October, Sailfish announced several board and management changes. The new executive chairman is Akiba Leisman, the new CEO is Cesar Gonzalez, and the new CFO is Bryan McKenzie.
Elemental Royalties announced that Panoramic Resources (OTCPK:PANRF) agreed to sell the Panton PGM project to Dubai 2020 Limited. Elemental owns a 0.5% NSR royalty on the project that contains resources of 2.2 million toz of platinum, palladium, and gold.
Orogen Royalties optioned two projects in October. On October 8, it optioned the Baby Doe gold project to Premier Gold Mines (OTCPK:PIRGF). Premier will have the option to acquire 100% by paying Orogen $1 million and spending $10 million on exploration over the next 8 years. Orogen will retain a 3% NSR royalty on the project.
On October 13, Orogen optioned the TREK-31 gold property to Pacific Imperial Mines (OTC:PCIMF). Pacific will be able to acquire the property by paying Orogen $1.3 million and spending $3 million on exploration over the next 5 years. Orogen will retain a 3% NSR royalty.
The November Outlook
Although October wasn’t good for the precious metals royalty and streaming companies, as the metals prices remained more or less stagnant and the broader stock market was weak, November seems to be shaping up much more positively. Following the U.S. presidential elections, the gold and silver prices jumped up and also the broader stock market experienced a bull run. The positive sentiment affected also the precious metals royalty and streaming companies. If the current trends prevail, the final November results will be very good.