June brought significant developments to the precious metals royalty and streaming sectors, marked by intriguing mergers, noteworthy financial reports, and performance dips aligned with weaker metals prices.
Short Summary:
- Deterra acquires Trident Royalties amid declining precious metals prices.
- Weaker news flow impacts share performances of key companies.
- Mixed performance in June sets the tone for the remainder of the year.
Precious metals royalty and streaming companies represent a unique and captivating sub-industry within the broader precious metals mining space. They provide investors with the leverage to benefit from rising metal prices, akin to conventional mining firms but with significantly reduced risk. Their revenue derives from both royalty and streaming agreements, where streaming companies make upfront payments for future deliveries of a predefined percentage of metal production, usually paying ongoing prices below the market rate.
Streaming contracts vary, with ongoing payments either as fixed sums or as a percentage of the metal’s spot price. Similarly, royalties come in various forms, but a net smelter return (“NSR”)—a small percentage of the proceeds from the mined product sales, minus transportation and refining costs—is the most prevalent.
Index Developments
The past few years have seen fascinating changes within this sub-industry. To better track its performance, a capitalization-weighted index, the Precious Metals Royalty and Streaming Index, was created. Initially consisting of 11 companies, this expanded to 15 in June 2020. Reader demand later inspired an equal-weighted index, calculated from January 2019.
April 2021 marked significant shifts, driven by an industry boom and new company entries. The market cap-weighted index was trimmed to the top five: Franco-Nevada (FNV), Wheaton Precious Metals (WPM), Royal Gold (RGLD), Osisko Gold Royalties (OR), and Sandstorm Gold (SAND), which held a combined 95% of the former index. The equal-weighted index broadened to include 20 companies.
June Market Rankings
As of June’s end, Wheaton Precious Metals led the precious metals royalty and streaming companies in terms of market capitalization. However, the gap between Wheaton and second-place Franco-Nevada narrowed from $1.18 billion to $0.97 billion. While only one ranking change occurred—Trident Royalties outpaced Orogen Royalties and Elemental Altus Royalties due to an acquisition offer from Deterra Royalties—it’s expected to be short-lived as Trident’s assimilation by Deterra will likely conclude soon. Star Royalties remained at the bottom, with its valuation shrinking to $14.7 million.
Investors experienced a less favorable month after several prosperous periods. Of the 16 companies analyzed, only three saw share price growth, one remained steady, and the remaining registered declines. Vox Royalty’s shares rose nearly 25%, although the increase was unrelated to company-specific news. Conversely, Trident enjoyed a 17% boost thanks to Deterra’s acquisition proposal. Orogen Royalties experienced the steepest drop at 17.35%, likely a technical correction following a 50% surge within a month.
Precious Metal Prices and Sector Reactions
June’s minor declines in precious metal prices were as follows: the SPDR Gold Trust ETF (GLD) dipped by 0.13%, and the iShares Silver Trust ETF (SLV) fell by 4.29%. Nevertheless, the precious metals mining sector reacted strongly, with the VanEck Vectors Gold Miners ETF (GDX) and the VanEck Vectors Junior Gold Miners ETF (GDXJ) dropping by 3.88% and 6.67%, respectively. These mining sector declines contextualize the 4.31% drop in the Precious Metals R&S Index and the 2.7% decline in the Precious Metals R&S Equally Weighted Index.
June Announcements
“Investors faced weaker news flow in June with a notable deal where Trident Royalties agreed to Deterra Royalties’ acquisition offer. Unfortunately, Victoria Gold suspended operations at its Eagle gold mine due to a heap leach pad failure, impacting Osisko Gold Royalties.” Future Security
Wheaton Precious Metals (WPM) issued its 2023 Climate Change Report and secured a spot among Corporate Knights’ 2024 Best 50 Corporate Citizens in Canada.
Osisko Gold Royalties (OR) felt the strain when Victoria Gold suspended its Eagle gold mine operations, directly affecting Osisko, which holds a 5% NSR royalty on Eagle.
Triple Flag Precious Metals (TFPM) rolled out its 2023 Sustainability Report, contributing to its positive market sentiment.
Sandstorm Gold (SAND) declared a quarterly dividend and completed significant portfolio transactions, including selling a portion of its Antamina mine interest.
Gold Royalty (GROY) finalized the Vares copper stream acquisition and simultaneously published its 2023 Sustainability Report and an updated Asset Handbook.
Metalla Royalty & Streaming (MTA) renewed its base shelf prospectus, enabling the company to issue a variety of financial instruments worth up to C$300 million. Additionally, EMX Royalty (EMX) secured a $35 million loan from Franco-Nevada to settle an outstanding obligation with Sprott Private Resource Lending II.
EMX further announced a grant of 1,442,400 options among its officers, directors, employees, and consultants, alongside granting 779,000 restricted share units.
Trident Royalties’ (OTCQB: TDTRF) management supported a takeover bid from Deterra Royalties (OTCPK: DETRF), recommending shareholders accept £0.49 ($0.63) per share, valuing Trident at £144 million ($184 million).
Orogen Royalties made strategic acquisitions, including the TCS project in British Columbia.
Noteworthy dividends came from Sailfish Royalty, declaring $0.0125 per share, and were payouts scheduled for mid-July.
July Outlook
The news flow anticipates continuance of a subdued pace through July, with a spattering of earnings releases towards the month’s end. Significant financial disclosures and developments are expected to surface primarily in August, aligning with the bulk of the earnings season.
For those considering retirement investing, precious metals royalty and streaming companies present a compelling option by balancing exposure to metal prices without the associated risks of traditional mining investments. The Royalty & Streaming Corner aims to guide investors within this niche stock market, helping to navigate risks and extract potential opportunities for more informed investment decisions.
Investment Disclaimer
Editor’s Note: This article discusses one or more securities not traded on a major U.S. exchange. Be mindful of the risks associated with these stocks.