Royalty companies have long held an important role in the mining sector. Developing a mine to start producing gold or other precious metals is an expensive and time-consuming process, potentially taking years and costing many millions of dollars. So, the royalty company serves as a financier to help fund the construction of, or expansion of existing mines and can even finance earlier stage exploration projects.
In return for making an upfront payment (the mine or project funding), Maverix would receive a royalty on the underlying precious metal sold by the operator, or in the case of a precious metal stream, the right to purchase an agreed-upon amount of gold, silver or other precious metal, at a significant discount to the spot commodity price. Such royalty and streaming agreements provide Maverix with exposure to price appreciation of precious metals and the exploration upside of the mine or project without any additional capital outlay, while also fixing the ongoing costs of acquiring the precious metals in the case of a stream.
Founded in 2016 by Chairman Geoff Burns and CEO Daniel O’Flaherty, Maverix’s sole aim is to deliver shareholder returns through building an attractive precious metals royalty and streaming portfolio. It now has 79 royalties and streams to its name (mainly focused on gold), of which 12 of the royalties and streams are on mines that are currently producing. These 79 royalties span 15 countries, but the vast majority are in mining friendly jurisdictions.
Investors are typically drawn to companies like Maverix because they: 1) provide meaningful leverage to the future gold price; 2) offer asset diversification within their portfolios; and, 3) deliver low fixed operating costs. Additionally, the high margins and positive free cash flow profile provides downside protection for investors.
Newmont royalty portfolio acquisition was a game-changer
A transformational deal in June last year was the purchase agreement struck with Newmont Mining Corp (NYSE:NEM) -- one of the globe's biggest gold diggers to acquire a large portfolio of royalties.
Maverix issued 60 million shares, 10 million warrants and paid US$17.0 million in cash to complete the purchase. The warrants are exercisable for five years at US$1.64 per share.
Maverix got its hands on 51 royalties in 11 different countries and received total proceeds of US$17 million in cash from the right of first refusal exercises. Newmont is also the company's largest shareholder with a 28% interest.
Benefits of the Newmont deal
The Newmont deal nearly tripled the number of royalties Maverix had and brought immediate cash flow and growth potential.
Maverix says it now estimates cash flow of between C$6 million and C$8 million from the Newmont portfolio the potential to grow cash flow in the future to more than C$20 million per year.
The Newmont portfolio is mainly gold and adds more than 340,000 ounces of attributable gold in measured and indicated resources to the Maverix portfolio, about double Maverix’s portfolio at the time of acquisition. It also contains royalties on a number of assets in Nevada, a world-class mining jurisdiction.
History of the company
Since its founding in 2016, the company has acquired three major royalty portfolios.
In July of 2016 it acquired the Pan American Silver portfolio and then in December 2016, it bought the transformational Gold Fields portfolio of royalty assets.
The game-changing Newmont portfolio was bought last year when the Company also settled a new US$50 million credit facility.
A look at the most recent earnings report for the three and nine months ending in September 2018 showed a company in good shape and growing.
Total revenue and net income for the three and nine months ended September 30th were C$9.8 million and C$25.0 million and C$0.8 million and C$1.6 million, respectively.
There was also record operating cash flow for the three and nine months of C$4.8 million and C$11.7 million, respectively, and record total attributable gold equivalent ounces sold of 6,195 ounces and 15,236 ounces, respectively, not including around 2,447 ounces of gold produced but not yet payable from the company's La Colorada gold stream.
Based on the company’s existing streams and royalties, Maverix says it expects to exceed its previously forecasted attributable gold equivalent production for its fiscal year 2018 of between 18,000 and 19,000 ounces.
Approximately 95% of total revenue is expected to be derived from gold and silver.
So things are shaping up nicely for this royalty company and it looks like investors can expect more good news to come in 2019.
The share price seemingly underscores investor confidence in the company, as the stock has added around 30%, to $2.27 since last August.