"Royalties merit a low discount rate and high multiple and are excellent assets to own, in our view. They are perpetual, not dischargeable in bankruptcy, do not have risk of operating cost and capex overruns associated with mining operations, yet provide upside exposure to gold, silver and other commodity prices and exploration," said analyst Matthew Farwell in a note.
The company, which now has a market cap of over C$560 million, has acquired 62 royalties/streams from third parties, via 20 transactions in the last four years, and can pursue transformative, accretive acquisitions.
Shares trades at a premium to its net asset value (NAV) because the market expects the company can grow by acquisition, using its stock as currency, notes the analyst.
The median market cap of the operators of Metalla's Top 18 royalty assets is US$1.7 billion, and these notable firms include Coeur Mining (NYSE:CDE), Karora Resources (TSE:KRR), Pan American Silver (NASDAQ:PAAS), Agnico Eagle (NYSE:AEM) Yamana Gold (LON:AUY) and Teck Resources (NYSE: TECK)
"Operators with financial strength reduce project timing risk, and we expect significant new revenue streams in 2024 when up to eight projects could come online. In addition to development, we expect operator exploration budgets to fund resource expansion at exploration properties," added Farwell.
He expects the group's gold-equivalent ounces (GEOs) to grow 200% by 2024 as projects that are under development are brought online, and as reserves upon which the company generates royalties are mined.
Roth initiates with a 'Neutral' stance on the shares and US$10 price target (current price: US$11.62)
"Our valuation analysis suggests the shares trade at 2.7x NAV and our $10.00 price target implies 2.34x NAV, which is appropriate given the strong history of adding value through accretive transactions over the past four years, in our opinion. Our NAV estimate is based on expectations of $1,700/oz gold and $20/oz silver from 2024 onward," the broker added.
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