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Nomad Royalty looking for re-rating as it continues to boost portfolio with quality streams and royalties

Snapshot

The company purchases rights to a percentage of the gold or silver produced from a mine for its life

Nomad Royalty -

Quick facts: Nomad Royalty

Price: 1.23 CAD

TSX:NSR
Market: TSX
Market Cap: $645.08 m
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  • New generation royalty firm
  • Focused on free cash flow
  • Already has dividend policy

What Nomad Nomad Royalty does:

Nomad Royalty Company Ltd (TSE:NSR) (OTCQX:NSRXF) called itself a "new generation" royalty firm when its shares began trading on the Toronto stock exchange in May this year. 

The group purchases rights to a percentage of the gold or silver produced from a mine for its life.

The Montreal-based firm began trading in Toronto after a reverse takeover, which saw it acquire the royalty portfolio of Yamana Gold and streaming assets from Orion Resource Partners, via two vend-in deals.

Nomad acquired six stream and gold loan assets from the Orion Group for US$268 million and three royalties and a contingent payment on the start of commercial production of one project from the Yamana Group for US$65 million.

It currently boasts a portfolio of 11 royalty, stream and gold loan assets, of which five are for currently producing mines, so it has immediate cashflow.

The company is focused on already producing assets or highly de-risked ones. It aims to have the lowest G&A (general and administrative) costs in the sector.

Nomad plans to grow and diversify its low-cost production profile through the acquisition of additional producing and near-term producing gold and silver streams and royalties.

How is it doing:

On August 7 this year, Nomad posted very impressive inaugural second-quarter results, which showed US$6 million in revenue from its growing portfolio of assets

For the three months to end June 2020, the firm posted a net income of US$2.3 million and a cash operating margin of US$5.8 million or 96%.

Its portfolio delivered 4,136 ounces attributable to Nomad including revenues from the Bonikro gold stream that began in January. Silver ounces earned came in at 56,254 for the quarter.

The firm noted that it had recently acquired a 1% royalty on the nearly 5 million gold equivalent ounce Troilus gold project in Québec operated by Troilus Gold Corp and snagged a US$50 million revolving credit facility to fund future acquisitions.

Then, on August 24, the group said it would buy Coral Gold Resources Ltd (CVE: CLH) for around US$45.8 million, giving it a sliding scale net smelter return (NSR) royalty on a top tier mining complex in Nevada, USA.

The NSR royalty on Corals' main asset, the Nevada Gold Mines' Robertson property - part of the greater Cortez & Pipeline mining complex - is between 1% to 2.25%. Based on the current gold spot price of over US$1,940 per ounce, the applicable NSR royalty rate currently would be 2%.

The project boasts a historical inferred resource of over 2.7 million ounces of gold in total oxide and sulphide materials, based on a 2012 NI 43-101 preliminary economic assessment.

On the same day, Nomad unveiled a deal to acquire for about US$7.6 million all the shares in Valkyrie Royalty Inc, a private royalty company that owns a net smelter return royalty on the Moss Gold mine in Arizona.

The Moss mine, operated by Northern Vertex Mining, has been producing since 2018 and is an open pit gold-silver operation. It is targeting production of 55,000 to 65,000 gold equivalent ounces per year and recently the group reported record monthly production of 4,218 gold ounces and 37,171 silver ounces produced, a fourth consecutive monthly production increase.

Northern Vertex is also currently conducting a 60,000 foot-drilling program and is aiming to increase the mine life past 10 years.

On August 26, the firm outlined its dividend policy and declared a first quarterly payment of C$0.005 per share which will be payable on October 15 this year to Nomad shareholders of record as of the close of business on September 30. The group said its board has adopted an annual dividend policy of C$0.02 per share, to be paid quarterly.

On September 24, Nomad said it was providing itself with greater financial flexibility in the future as it filed a preliminary short form base shelf prospectus with regulators in Canada, which would allow it to make offerings up to a maximum of US$300 million over 25 months.

The offerings could be for common shares, preference shares, subscription receipts, warrants, debt securities, units or a combination of these, the firm said.

Inflection points:

  • More royalty acquisitions
  • Precious metal price moves

What the broker says:

Industrial Alliance Securities analyst Puneet Singh thinks Nomad Royalty possesses a business model that is "high margin, safe and proven at providing returns."

Singh began coverage on Nomad in September with a "buy" rating and $2.30 share target.

He said: "The royalty/streaming business model is tried, tested, and confirmed to generate value over time. Royalty firms are the best allocation for those looking for safer gold exposure because they don't face the capital and operating cost risks a traditional miner incurs, and have higher safety margins on ROI (return on investment).

"These companies have garnered the highest multiples, not only in a bull gold market but even in a bear gold market because the volume of royalty deals rises during that time as miners have difficulty accessing capital. Over time, most royalty firms have been able to return in excess of 25% CAGR (compound annual growth rate) since their inception."

"We would expect Nomad to continue to remain active trying to source new deals," Singh concluded.

What the boss says:

Speaking to Proactive following the Coral Gold Resources and Valkyrie Royalty transactions in August, Nomad chief executive Vincent Metcalf explained the group's strategy.

"We believe that by bringing more assets under our management we will be able to re-rate the Nomad story to the multiples that are closer to the senior multiples in the royalty sector."

He said the latest two assets "really added" to the group's portfolio and fitted its criteria, such as minimizing volatility and jurisdictional risk, which are important factors for the royalty investor.

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on 21/9/20

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