Roy-co execs in any business, not just mining, are in tough.
Royalty-seekers lust for triple-lifetime payoffs, whether they’re in diamonds, oil-gas, casinos, the royal Tower of London jewels, branding rights, real estate leases, guns, video games … and minerals.
In mining, the royalty chase is badass, dog-eat-dog cutthroat. Oil & gas royalties have built kingdoms in the Middle East, in Texas, Oklahoma, in Thailand. Scan the list here.
Picky CEOs and corporate strategists look to see who bought what royalty in which fingers-crossed gold or silver or copper or uranium or platinum or fill-in-the-blank deposit.
Or to track which pub-co royalty companies, and metals stream reapers, are merging. Or who is developing their own fingers-crossed royalties (known often as net smelter returns). Or is abandoning a once-hopeful property. I could go on.
TCRs, want to skip the preamble here?
Skip down 7 paragraphs then, please.
I never cognated the term royalty with the kings, queens, princes, emirs, sultans who own the richest, seemingly never-ending ones in the world.
Both lifetime mining royalty collector Glenn Mullan of now-sold Abitibi Royalties (Québec’s Malartic gold mine) and Dave Cole of Colorado-headquartered EMX Royalty (Serbia’s Timok copper-gold royalty; copper-molybdenum Caserones in Chile; etc.) reminded me of the noble etymology.
To make it in the royalty biz, you need be beyond clever, beyond organized, beyond mathematically calculating. This is because even just one paying gold or silver or copper or platinum royalty, let’s say a mere 0,5%, of the take, might keep you, your shareholders and your families enthroned for a generation or three.
The ballyhooed example is usually the Goldstrike gold mine royalty in Nevada — bought in 1983 and eventually the crown jewel of Franco-Nevada FNV, one of the world’s largest mining roy-cos.
They say if you bought Franco-Nevada shares back then, in 20 years your stock multiplied 125 times. Barrick Gold‘s Carlin Trend discovery there started what was a Goldstrike deposit that produced 44 million gold ounces. I could say the same about Wheaton Precious Metals WHM, which makes money by channeling money to mine developers that need cash to build their A-frames, then eventually receiving streams of precious metals in return.
Both Wheaton and Franco-Nevada are above $30 billion market caps.
Brett Heath at a Majestic Silver mine. His Metalla Royalty & Streaming notched an approx. $11.38 USD high share price in December 2021 and are down to $3.30 now.
I think I told TCRs the other day that I started a small stake in Metalla Royalty & Streaming MTA.
The stock right now is starting to act (in the post-market especially) as if hedge funds and others are accumulating the shares.
In the day, I owned the 8-year-old roy-co’s shares briefly, and turned a small profit just as the $1.12 USD stock in January 2016 began its climb to $11.38 in January 2021.
I decided at the time that I owned too many resources-cos. I was (and still am) accumulating EMX Royalty; and eventual takeover Abitibi Royalties and sister-co Golden Valley Mines.
Back in 2o16, I spent time in person and on the pre-Zoom horn with Brett Heath, a young Californian who originally had a company called High Stream.
Brett was shooting for so-called longer-dated projects, obscure ones with 0.5 times net asset values, and much cheaper.
“The idea is to start with the ones that are too small or too ignored for the big companies to care about,” Brett said at the time.
Bigger companies “risk-weight” long-dated projects from a spreadsheet at 1 times NAV.
Brett sold High Stream to a stock shell called Excalibur, then name-changed to Metalla Royalty & Streaming. He rolled back the penny shares 3-for-one, eventually listed on the NYSE as MTA, bought some Timmins, Ontario, non-producing NSRs, a package of small Coeur Mining CDE silver hopefuls, and in 2018 began paying a fractional dividend to shareholders.
Assertive as ever, with mining contacts from his High Stream, Brett kept it up, buying royalties in South America, in the U.S., Tanzania, in Canada. Most recently, Metalla landed 20 or so copper royalties from its purchase of Nova Royalty, late last year 2023. The NAV purchase price of Nova was 0.5 times.
Now, as my roy-co contacts tell me, Metalla must “hunker down,” keep costs relatively low and let the portfolio grow in value over time as those long-dated projects get closer to production.
“I like Metalla’s value-focused approach to finding opportunities — Avoiding most processes and doing the work themselves. I also think they have a lot of optionality to gold and copper prices in the portfolio over the longer term.” — Fred Bell, Elemental-Altus Royalties (below please)
Metalla, not wanting to run up expenses, thus far has not developed its royalties “organically” as potential sales to explorers. My two favorites, EMX and Elemental-Altus Royalties ELE ELEMF, do. Both EMX and ELE both buy royalties and develop properties they sell to miners in exchange for cash or stock or both, and of course, they always get an NSR or a stream of minerals payout via the transaction.
Metalla map: click to enlarge please
Brett, now 40 and living half-time in Puerto Rico with his family, is up on his roy-co stats.
Royalty companies’ pub-co market cap as a segment has expanded by roughly 2.2x from 2010 to 2022, with the number of publicly listed companies expanding to 24, he says. “The sector has slowly become saturated at the junior level – which has led to consolidation.”
Roy-co comps
I go at length here, alas, TCRs, because I happen to consider royalty companies even cheaper these days than miners and explorers that are enjoying a vibrant 2024 rebound in values.
I am still learning about royalty operators, I must say, since 2011 or so, when I first met Glenn Mullan, now at Val-d’Or Mining VZZ VDOMF, and EMX’s Dave Cole. A few other roy-co-execs, Frederick Bell at Elemental Resources in London, Kyle Floyd at VOX Royalty VOXR in Colorado, also educate me about an array of stats, projections, jurisdictions, financial hurdles, potential and legal quagmires and spread-sheeted, fingers-crossed returns from their 0.0375% to 4% royalties.
I own EMX, ELE, MTA and VZZ (the first and last in that list held since 2012 or so). SeeEMX/Dave Cole The Calandra Report review please.
Metalla MTA shares — NYSE
Brett Heath says any young roy-co must rely on individual shareholders, small ones, to build market cap and groom the revolving loans and transactions that banks will support. Accumulating royalties requires cash, and better-than-penny-a-share stock, and those banking relationships.
Metalla’s “retail” investors flocked to MTA shares after hearing Brett proclaim at dozens of investments shows about the company’s intention to issue dividends, which is rare for a relatively new roy-co.
Metalla also got mileage from successful Youtube intros and “webinars” with newsletter writers. They included Lawrence Roulston, a west coast Canadian; and E. B. Tucker, an east coast American. Both served on Metalla’s board.
Having board members explain strategy via interviews and video can be a big plus in the congested scrum of metals investing. Those two alone garnered more than 1.3 million “page views” on the Internet.
“I think Metalla did an excellent job of promoting the stock with retail investors and then using that liquidity and their valuation to grow the portfolio,” young Frederick Bell, co-founder and CEO of Elemental-Altus Royalties ELE, says.
Imminent are Brett’s hopes to start drawing larger investors, gold fund managers and so on.
“We are just on the other side of transitioning our share register to more institutional from heavily retail,” Brett says.
Brett Heath — click for entire image please
TCRs, I will not go through the individual NSRs; or Metalla cash flow projections (except to say I’d like to start seeing meaningful sequential gaios, quarter to quarter). You can review numbers, maps, timelines, all online and in the presentation and MDA discussion (SEC.gov); and in the year-end 2023 statement; on the web site; in a December 2023 “catalysts” schedule; etc.
I will say after our lengthy chat the other day that Brett is especially keen on Gosselin, which is next to Iamgold-Sumitomo’s Coté Project in Ontario.
Metalla at Gosselin, still being drilled out for gold, holds a 1.35% NSR. He calls it Metalla’s Gold Strike and says it one day will rival Malartic, Canada’s second or third largest gold mine, just outside the city of Val-d’Or. Gosselin and producing Côté combined sport an estimated measured and indicated resource of 16.5 million gold ounces.
As CEO, Brett measures success by gold-equivalent ounces.
“We are going to grow from just under 4,000 ounces to 15,000 GEOs in the next 5 yrs. Buying Nova added copper to the mix.” — Brett Heath, Metalla
TCRs, I tend to take these kind of CEO forecasts with a grain of sand; maybe because I have been burned so many times by companies I was early-stage probing.
Still, Brett has yet to deflate his investors’ fundamental hopes, even with the plunge in MTA shares since 202. Sub-$25,000 investors appear to get activated attending his hard-driving pitches on the conference rounds. Reminds me of newbie reactions I have seen, and experienced, watching three or four of the best telepathic CEO presenters these past 29 years.
I believe a third of the portfolio is copper, whose prospects I adore, and the bulk of 5 of the largest 10 copper assets Metalla holds are in the Americas.
The risk to existing Metalla shareholders is and always has been the large number of shares that Metalla must “sell” in order to pay for its royalty purchases; example — $20 million of new equity it had to raise with Coeur Mining for that package of silver NSRs.
Brett notes that 2024 is MTA’s eight year, “and it will take 10 years to build a sustainable mid-tier royalty company.”
TCRs, Metalla, Elemental, EMX — they each are in the $200 million to $300 million market value range. Metalla’s is the richest with a $300 million market cap. The stock is now exchanging hands above its 200-day moving average.
The CEO and president envisions a tripling of market cap in three years.
“Gold, silver, copper — we will stick to those metals. We are heavily North America, South America and Australia,” he tells me. “Geopolitically this is where you want to be and not Africa, eastern Europe, Russia.”
As you know, EMX’S copper-gold Timok, operated by China’s ZIJIN Mining, is in Serbia and also has royalties in Turkey; Elemental-Altus specializes in Africa and in the Middle East, Egypt.
“Look, Serbia is a place that can get shaky very fast; Turkey is super risky. Saudi Arabia, well, obviously, (Robert) Friedland (Ivanhoe Electric IE) is trying to pave the way, and Barrick is trying to get in the action, but it is still really new over there.”
Yes, and these places, TCRs, and elsewhere in potential war zones, or in gritty, rebel-pitted yet emerging democracies such as DRC Congo, are what suit my own investing practices. I’ll exchange country risk for extreme gold, copper, platinum, zinc grades any trading day of the week.
Still, I understand most investors rather would sidestep the coups and rebels and government about-faces and stick with sure and steady.
Regarding the silver (and zinc and lead) among Metalla’s 103 royalties/streams, Brett expects s many as three coming on line this year or next. One of them, the Endeavor Mine (formerly Elura Mine),is in Australia‘s Cobar Basin and is coming out of mothballing. Metalla owns a 4% royalty on the mine, which started producing cinc, lead and silver in 1983 and went into care and maintenance in 2019.
Boilerplate: cash flow on operating assets came in positive by $518,000 in 2023 after a minus-$25,000 the previous year. Release here please. Beedie Capital, First Majestic Silver, Adrian Day (Maryland), Euro Pacific Capital and Alamos Gold AGI are sizeable shareholders of Metalla.
TCRs, I expect fund managers and other larger-than-le-hoi-polloiinvestors to start regarding this gold-silver-copper roy-co, (and other small ones), as capable of resuming what was through 2021 or so a populist ascent, powered by Metalla’s Main Street bullion royalty believers. Let’s keep an eye on the U.S. SEC filings for perhaps forthcoming 5% and greater stakes in the company.
Thom Calandra is a writer and an investor. Research and material are meant as editorial opinion. He is not a professional investment adviser. Please do not consider his reporting as a recommendation to buy or sell securities.
