VANCOUVER (miningweekly.com) – Maverix Metals, a relatively newly TSX-V-listed royalty vehicle created last July, when Canadian miner Pan American Silver spun out its royalty portfolio, populating it with some of its management, is positioned to grow output and leverage rising precious metals prices over the coming years.
The Vancouver-based royalties and precious metals streaming firm expects to lift attributable gold-equivalent ounces by 60% by 2018, expanding its platform to continue its aggressive growth path.
The Pan American assets were not realising satisfactory value as they were, prompting the company to spin them out to Maverix with a portfolio of 13 streams and royalties, including one that was producing and one development-stage property, in Mexico, as well as 11 net smelter return (NSR) royalties and payment agreement interests in Mexico, Canada, Peru and Argentina.
Since then, the Maverix portfolio has grown to 25 royalties in ten jurisdictions, after the company in December acquired a transformational portfolio of 11 existing producing and nonproducing royalties from NYSE- and JSE-listed major Gold Fields.
“This transaction was a significant growth step for Maverix. We realised an immediate meaningful increase in annual cash flow, an increase in scale, and geographic and counterparty diversification,” Maverix president and CEO Dan O’Flaherty told Mining Weekly Online in an interview.
The transaction also bolstered the company’s longer-term access to capital markets, liquidity and market profile, he pointed out.
Another recent transaction entailed the acquisition of two NSR royalty contracts on the Florida Canyon and Beta Hunt mines from Resource Income Fund, a wholly-owned subsidiary of Auramet Trading.
O’Flaherty said the transaction, completed in February, provided immediate additional leverage to gold prices and, to a lesser extent, nickel prices, from mines that are currently in production and have been making quarterly royalty payments.
Operated by Rye Patch Gold and RNC Minerals, respectively, O’Flaherty pointed out that the operators of the underlying mines have been increasing resources and ramping up output, which should provide growing cash flows over the extended mine lives.
The acquisition further diversified Maverix’s geographic footprint, providing the company with increased exposure to attractive mining jurisdictions in Australia and the US.
O’Flaherty pointed out that Maverix enjoys the support of major qualified industry players, with Pan American holding a 37% stake in Maverix, and Gold Fields holding about 30% of the issued and outstanding common shares.
Maverix now owns eight cash flowing royalties that are expected to bring in more than 13 000 oz of gold equivalent in 2017. Complementing its operating portfolio are five advanced-stage assets, which provide additional near-term upside.
Maverix’s royalty business model entails making an upfront payment to a miner in return for a fixed percentage of the future revenue generated from the mine. On the streaming side of the business, Maverix makes upfront payments to miners in return for the right to buy a fixed percentage of the future precious metals output from a mine, at a predetermined price.
The company then sells the precious metals at market prices, which, less the ongoing payment, equals Maverix's profit margin. This allows the company to take advantage of price arbitrage, as the same attributable metals sell for different prices in various currencies.
“Royalty and streaming companies get the upside benefits of the mine with limited downside risks,” O’Flaherty stated, noting that streaming/royalty firms by far outperformed traditional miners, bullion and exchange-traded funds in the 2008 to 2011 bull market.
The model provides greater upside in bull markets and less downside risk in bear markets. This can be ascribed to royalty/streaming companies having fixed costs, no capital costs, exploration upside without exploration costs and the ability to grow without increased management structures, he suggested.
The company expects total attributable gold-equivalent output ranging between 13 375 oz and 15 000 oz in 2017, which should result in total revenue of C$20.5-million to C$23-million, or C$17.5-million to C$20-million after deducting gold stream payments at La Colorada, and assuming a gold price of $1 225/oz.
O’Flaherty noted that about 93% of revenue is expected to be derived from gold sales, with silver accounting for about 5% and nickel 2%. The company has guided for total estimated general and administrative cash expenses of C$2.5-million this year, excluding stock-based compensation and transaction costs related to acquisition activities.
O’Flaherty highlighted Maverix’s portfolio highlights, including the Beta Hunt mine in Australia, where it holds a 6% gold gross revenue royalty, a 1.5% gold NSR royalty and a 1.5% nickel NSR royalty. Counterparty RNC Minerals has reported that, throughput continues to increase at Beta Hunt and the operation is expected to deliver full-year 2017 gold output of 65 000 oz to 70 000 oz.
At Pan American’s La Colorada mine, in Mexico, Maverix holds a 100% gold stream. The mine is currently being expanded from 1 250 t/d to 1 800 t/d, which is expected to be completed on schedule later this year. The mine is expected to produce between 3 300 oz and 3 500 oz of gold this year.
Maverix also has a 2.5% NSR royalty on Evolution Mining’s Mt Carlton mine, in north-east Australia. The operation is forecast to produce 90 000 oz to 100 000 oz of gold for the 2017 fiscal year.
Further, Ramelius Resources reported output of 16 524 oz of gold at its Vivien mine, in Western Australia, for the quarter ended December, an increase of 108% over the previous quarter. Ramelius also updated the Vivien resource estimate in January, adding 24% to the mineral resource to 854 000 t grading 7.2 g/t gold, for 198 000 oz, after accounting for depletion. Maverix holds a 3.5% NSR royalty on the Vivien mine.
Meanwhile, Rye Patch has announced that the projected ramp-up to 600 000 t/m at its Florida Canyon mine is on track for April. A March 2016 preliminary economic assessment expects average output of about 75 000 oz/y of gold for eight years. Maverix holds a 3.25% NSR royalty on the mine.
Maverix also looks to benefit from the 1.5% NSR on the Taviche Oeste deposit, which is part of Fortuna Silver Mines’ San Jose mine, in Mexico. The company has completed an expansion from 2 000 t/d to 3 000 t/d in July 2016, and 2017 will be the first full year at the expanded throughput.
O’Flaherty also highlighted Atlantic Gold’s Moose River Consolidated project, in Nova Scotia, on which the company holds a 3% NSR royalty on the Touquoy deposit. Atlantic Gold announced that construction at the Moose River Consolidated project is progressing as planned and that the project completion reached 40% at the end of January. Atlantic Gold is working to achieve full production by year-end 2017.
“Having demonstrated our ability to grow, the Maverix team is focused on further opportunities for 2017 and beyond,” O’Flaherty said, adding that the company's "snack bracket" is generally in the $20-million to $50-million range right now. "We are actively looking to close acquisitions in this range right now and, combined with about C$5-million of cash on hand, the addition of a revolving credit facility and even a market raise if warranted, places us in a strong position to execute on our strategy."
Maverix has gained about 47% in value on the TSX-V since early December, to trade at C$1.40 a share on Friday.