The royalty and streaming business model has become an increasingly popular investment vehicle for those looking to gain exposure to the mining sector without the risks associated with directly taking a position in mining companies. Royalty and stream financings have moved from what were once deemed as alternative financing instruments into the mainstream where it is now commonplace to see royalty transactions form part of a finance package in what was traditionally reserved for equity or debt finance.
What makes royalty and streaming companies an attractive investment opportunity?
Exposure to a portfolio of projects
Investing in miner’s can often mean single-asset risk. Vox provides exposure to a diverse portfolio of royalty and streaming assets over multiple mining properties and jurisdictions, with a heavy weighting towards precious metals assets.
Protection from risk associated with owning mining companies
Shareholders in mining companies often find themselves exposed to capital calls as project development or sustaining CAPEX budgets blow-out. Additionally, miners are also under constant operating cost pressures. Royalty and streaming companies do not fund ongoing operations, nor are they exposed to pre-production or sustaining CAPEX calls; instead we largely operate with fixed margins which mitigates shareholders from potential downside risks.
Exceptional operating margins
Operating margins of royalty and streaming companies are substantially higher than those of the miners, typically 3-4x greater.
Exploration and production upside built-in
Despite not funding further exploration, Vox typically receives unlimited exploration upside on the properties which we hold royalties over. Additionally, where our counterparty decides to increase production throughput we benefit as a royalty or stream holder. Several of Vox’s royalty investment have gone on to realize 50-100+% increases in resource and/or reserve size post-investment.
Trade at a significant premium to mining companies
Given the attractive nature of the business model, royalty and streaming companies have consistently traded at a premium of 15-30x EBIDTA and 1.25-2.0x NAV.
Opportunity for win-win transactions
Existing royalties held by mining companies are often hidden from the market (i.e. they are non-core to the mining companies’ portfolio) and don’t typically add value to their market valuation. Where mining companies choose to transact with Vox and vend their royalties into our portfolio, they remove what is typically a single-royalty (or small royalty portfolio) risk and gain exposure to a diverse portfolio of royalty interests in a pure-play royalty and streaming vehicle that trades at a premium valuation. This arbitrage opportunity and the re-rate in terms of how the royalties are valued in the context of a pure-play royalty company allows Vox to structure win-win transactions with the counterparties that we purchase royalties from.