Hour 2 – Royalty Roundtable – What you need to know when investing in royalty companies
This is the recording of the Royalty Roundtable webinar I hosted on Wednesday April 28th. I was joined by some of the best mid-tier royalty companies to help explain the royalty model and what to consider when investing in the royalty companies. Guests include:
- Brett Heath, President and CEO of Metalla Royalties and Streaming (TSX.V:MTA – NYSE:MTA)
- Vincent Metcalf, CEO of Nomad Royalty (TSX:NSR – OTCQX:NSRXF)
- Dan O’Flaherty, CEO of Maverix Metals (TSX:MMX – NYSE:MMX)
- Fredrick Bell, President and CEO of Elemental Royalties (TSX.V:ELE – OTCQX:ELEMF)
- Alex Tsukernick, President and CEO of Nova Royalty Corp. (TSX.V:NOVR)
Please let me know what you think of the Roundtable. I want to know how you think we can make this format better and what you would like to see in future webinar roundtables. My email is Fleck@kereport.com
We are working on the video recording. There was an issue with the recording. Hopefully Zoom can figure out what went wrong and recover the video. In the meantime I hope you enjoy the audio recording.
I had actually gone on a rant last on last weekend’s blog and it may be worth reposting that here, talking about the strengths and risks of the royalty model.
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Exploring the Strengths & Weaknesses To Investing In Royalty & Streaming Companies
> Strengths:
– Streams allow for a purchase of commodity at a fixed price (providing leverage to rising metals prices)
– Royalties are either Gross Revenue Royalties or Net Smelter Royalties and are essentially the cream off the top, without taking all the other mining/operational risks
– Diversified basket of royalty & streaming assets (often dozens to hundreds of assets in a portfolio), so there is not a single or even 2-3 asset risk, like with individual miners
– Diversified across multiple jurisdictions, reducing risks of being over concentrated in one jurisdiction (Ely Gold is an exception in that they are focused on just Nevada, but it’s a Tier 1 jurisdiction)
– Partner companies assume the lion’s share of the risks to mining, employees, community relations, environmental, and operational and do all the capital raises and dilutive financings
– As larger miners takeover smaller miners, this can lead to stronger operations partners and better investments into a project(s), at no extra cost to the royalty & streaming company
– Small personnel in royalty & streaming companies compared to traditional mining companies, that in contrast have hundreds or even thousands of employees in comparison
– Enterprise Value per employee is much higher than with individual miners, or in comparison to most industries for that matter
– Price/Earnings (PE) ratio is much higher for royalty and streaming companies, with senior royalty companies in the 30-150 PE range, compared to individual miners with senior producers in the 10-30 PE range
– Margins are not impacted as dramatically as individual miners in a falling metals price environment
– Ability to grow a pipeline of incoming revenue incrementally, with leverage to resource upgrades from operational partners at minimized risks
– More likely to pay a regular dividend to investors, as it is easier to predict incoming cash flows
> Weaknesses:
– Not as much leverage on a single asset revaluation, as there is with an individual miner, so there is less upside torque in a re-rating scenario. In a bull market, many individual miners will out-perform the more diversified royalty companies in a substantial way
– Margins are not impacted as dramatically in a positive way on a percentage basis, as individual miners will experience in a rising metals price environment
– Royalty and streaming companies are still exposed to risks from their operational partners if those producers, developers, or explorers encounter issues with their projects, which impact either the timelines, operational production metrics, environmental/permitting approvals or challenges, community relation challenges, or financial duress of a partner mining company
– Risk of longer term mine life calculations not panning out as initially projected, so there is the risk of overpaying for a stream or royalty
– Leaning too heavily on price to NAV calculations when acquiring assets (where the Net Asset Value may not pan out as projected)
Thanks Cory.
Of my Royalty companies Wheaton and Metalla have done pretty well. However Metalla’s dividend has dried up. Ex can you or Cory help please? A
Hi Andrew de Berry. I’m in the Royalty companies (including Metalla) for slow and steady growth of their operating partners as more assets come into production, as production grows at producing mines, and as the metals prices rise higher. However, for a dividend paying royalty company, I believe Nomad offers a solid one at 2%.
Thanks Ex. I just wonder why Metalla cancelled its dividend. Stay safe, A
I found this interesting, the killing of Dion O’Banion, leader of a gang who menaced Capone’s reign in Chicago in 1925. He was a gangster at night and a florist during the day. O’ Banion had a first class funeral, twenty six truckloads of flowers, and among them a basket of flowers which bore the inscription, “From Big Al.” DT
Great panel segment from Cory and 5 royalty companies. I had checked out the live webinar last Wednesday, and felt all involved did a solid job of unpacking the benefits of the royalty business model, and talking to the strengths of their company’s unique position and approach to acquiring royalties. Nicely done!