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Precious metals Royalty and power companies: June report

Precious metals Royalty and power companies: June report

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Precious metal royalty and streaming company logo

Source: Own treatment

Precious metal royalties and power companies represent a very interesting sub-industry of the precious metal mining industry. They give a certain influence to the growing metal prices, similar to the typical mining companies; but they are smaller risky in relation to them. Their income comes from royalty and power agreements. Under a metal flow agreement, the electricity company provides an advance payment to acquire the right to future deliveries of a predefined percentage of the metal production to a mining operation.

The electricity company also pays some current payments which are usually well below the market price of the metal. They can be set as a fixed sum (eg $ 300 / tos gold) or as a percentage (eg 20% ​​of the current gold price), or a combination of both (eg the lower of a) $ 300 / tos gold and b) 20% of the current gold price). Royalties usually apply to a small fraction of the mining project’s production (usually 1-3%), and they are not linked to current payments. They can take various forms, but the most common is a small percentage of net smelter return (“NSR”). NSR is calculated as income from the sale of the extracted products minus transport and refining costs.

To better track the overall performance of the entire sub-industry, I created a capitalization-weighted index (Precious Metals Royalty and Streaming Index) consisting of 11 companies (in June 2020 expanded to 15). Later, based on inquiries from readers, I also introduced a balanced version of the index. Until March 2021, both indices included the same companies and were calculated back to January 2019.

However, some major changes occurred in April 2021. Due to the boom in the royalty and streaming industry and the emergence of many new companies, the indices experienced two major changes. First of all, the market value-weighted index was modified to include only the 5 largest companies: Franco-Nevada (FNV), Wheaton Precious Metals (WPM), Royal Gold (RGLD), Osisko Gold Royalties (OR) and Sandstorm Gold (SAND). The total weight of these 5 companies on the old index was around 95%, therefore the small companies had only a negligible impact on their results. The values ​​of the index were recalculated back to January 2019, and between January 2019 and March 2021, the difference in the total performance of the old and the new index was only 2.29 percentage points. The second change is related to the equilibrium index, which was expanded to 20 companies.

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The previous editions of the monthly report can be found here: May 2019, June 2019, July 2019, August 2019, September 2019, October 2019, November 2019, December 2019, January 2020, February 2020, March 2020, April 2020, April 2020, April 2020, June 2020 , July 2020, August 2020, September 2020, October 2020, November 2020, December 2020, January 2021, February 2021, March 2021, April 2021, May 2021, June 2021, June 2021, September 1, 2020 September, 2020 September 2021 (extended), October 2021, October 2021 (extended), November 2021, November 2021 (extended), December 2021, December 2021 (extended), January 2022 (extended), February 2022, February 2022, March 202, extended March 2022 ( extended), April 2022, April 2022 (extended), May 2022, May 2022 (extended), June 2022 (extended).

composition

Source: Own treatment

The market values ​​of the R & S companies for precious metals continued to fall in June. However, the big three (Franco-Nevada, Wheaton Precious Metals, Royal Gold) maintained more than 94% of the industry’s total market value. There are not many things worth mentioning in the table above. Only Triple Flag Precious Metals grew out of Osisko Gold Royalties and became the fourth largest R&S company for precious metals by market value. The smallest of the companies is still Empress Royalty (OTCQB: EMPYF), but as I wrote here, cash flows are ready for rapid growth during the rest of this year, which should also begin to be reflected in the share price and market value. .

June performance of precious metal royalty and streaming companies

Source: Own treatment

Only one company ended the month of May in green numbers. From this point of view, June was a little more successful, with two companies ending the month with green numbers. Triple Flag recorded a growth of 3.16% and Maverix Metals (MMX) 0.93% growth. Altus Strategies (OTCQX: ALTUF) ended the month it began. All the remaining companies had losses. The smallest was experienced by Royal Gold (-5.57%) and the largest by Gold Royalty (GROY) (-24.75%). Gold Royalty’s stock price peaked at $ 7.08 on June 25, 2021. Since then, it has fallen by 66.95%.

diagram

Source: Own treatment

In June, the share price of SPDR Gold Trust ETF (GLD) fell by 2.15%, and the share price of iShares Silver Trust ETF (SLV) fell by 6.05%. This, together with the broader weakness in the stock market, also weighed on the mining industry. The shares of VanEck Vectors Gold Miners ETF (GDX) and VanEck Vectors Junior Gold Miners ETF (GDXJ) fell by 13.71% and 18.39%, respectively. Compared to the precious metal miners, the R&S companies did relatively well. The Precious Metals R&S Index fell 9.09% and the Precious Metals R&S Equally Weighted Index fell 9.3%. The diagram above also shows that since December 2018, the R&S companies have performed significantly better than the miners, and also both precious metals. However, the gap between R&S companies and precious metals has tightened considerably in recent months.

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June news

The month of June was pretty bad with news. Several smaller agreements took place and several companies provided portfolio updates. Probably the most important June news is the merger of Elemental Royalties and Altus Strategies.

Sandstorm Gold (SAND) declared a quarterly dividend of C $ 0.02 ($ 0.016). It will be paid out on 29 July to shareholders registered on 19 July.

EMX Royalty (EMX) announced that its 0.7335% NSR royalty on the Caserones mine generated $ 2.7 million in the first quarter. The company also announced the purchase of 7,924,106 shares in Norra Metals (OTC: NRRMF). This acquisition increased the ownership interest in the company to 12.53%.

On June 21, EMX reported drilling results obtained by South32 (OTCPK: SOUHY) on the Hardshell property. The best crosses include 1.52% copper over 76.5 meters and 1.06% copper over 73.8 meters. Very good is also cutting 0.69% copper, 12.2% zinc, 8.2% lead and 77 g / h silver over 9.8 meters. EMX owns a 2% NSR royalty on Hardshell.

Vox Royalty (OTCQX: VOXCF) announced the acquisition of 3 Canadian royalties. A 1% NSR royalty over part of Treasury Metals (OTCQX: TSRMF) Goldlund project, an effective 0.6% NSR royalty over Goldseek Resources (OTC: GSKKF) Beschefer project, and 1.5% NSR royalty over Torogolds Gold River occurrence. Vox agreed to pay up to C $ 1.8 million for this royalty package.

According to the portfolio update, the estimated ore tonnages in the gold expansion project Binduli North increased by 1/3. Another good news is that with the Sulfur Spring project, large drilling crosses were made, including 3.5% copper equivalent over 65.1 meters or 6.7% copper equivalent over 27.8 meters.

Elementary royalty (OTCQX: ELEMF) and Altus Strategies have announced a merger of equivalents. You can find an analysis of this agreement here. Altus shareholders will receive 0.594 Elemental shares for each Altus share. Following the completion of the agreement, Elemental shareholders will own 52.9% and Altus shareholders 47.1% of the new company, which will be named Elemental Altus Royalties.

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Altus Strategies (OTCQX: ALTUF), in addition to the above merger, also reported that its 0.418% Caserones NSR royalty generated $ 1.54 million in pre-tax revenue in Q1. In addition, based on the latest reserve update, the life of the mines was extended from 17 to 28 years.

In its Egyptian projects, Altus Strategies made several high-quality gold discoveries. The findings were made through reconnaissance sampling on all 4 Altus’ Egyptian projects covering an area of ​​1,914 km2.

Sailfish Royalty (OTCQX: SROYF) announced that Mako Mining made a high-quality gold find on the property Las Conchitas North, 750 meters north of the San Albino mine. The best cross included 51.8 g / h gold and 29.8 g / h silver over 0.9 meters. Sailfish owns a 3% NSR royalty on San Albino and 2% NSR royalty on Las Conchitas. Later this month, Sailfish Royalty announced that Mako Mining was significantly expanding the SW Pit zone at the San Albino mine.

Orogen Royalties (OTCQX: OGNRF) announced the acquisition of 3% NSR royalty on three projects located in western Kenya. In exchange for the royalties, Orogen will pay Advance Lithium Corp. $ 120,000 and it will transfer its stake in Sarape Gold. Orogen will only retain a 1.5% NSR royalty on Sarape.

Empress Royalty (OTCQB: EMPYF) announced that the Manica mine had reached the pre-production stage. This is the second of Empress Royal’s assets to reach pre-production in the last month. Empress owns 3.375% royalty on Manica. A detailed article on Empress Royal’s short-term growth prospects can be found here.

The outlook for July

The first trading day in July was positive. But June also started positively, only to turn into a new bloodbath. The gold market and broader stock market sentiment are still the most important driving forces for the R & S companies for precious metals in the short term. But sooner or later, investors will realize that R&S companies should take advantage of inflationary pressures, as their costs are more or less fixed, while being free to enjoy higher metal prices.

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