Maverix Metals (MMX) - Cash Generative Deals & Organic Growth
Maverix Metals Inc. is a gold royalty and streaming company based out of Vancouver, BC that provides investment opportunities through a portfolio of more than 120 royalties and streams across 18 countries. 14 of the company's royalties are currently generating a healthy cash flow. The company's business model provides investors with lower risk exposure to gold with upside optionality.
Matt Gordon caught up with Ryan McIntyre, President, Maverix Metals. Ryan has over 15 years of experience in the mining and mining investment industry. He previously served as a Co-Portfolio Manager at Tocqueville Gold Strategy and Tocqueville Gold Fund. His educational credentials include a Bachelor of Commerce (majoring in finance) from Dalhousie University and an MBA from the Yale School of Management.
Maverix Metals Inc. is a gold royalty and streaming company that provides investors with opportunities through a portfolio of more than 120 royalties and streams with major operations spread throughout the Americas, Australia, and Mexico. The company is listed on the Toronto Stock Exchange (TSX: MMX) and the New York Stock Exchange (NYSE: MMX). Founded in 2008, the company is headquartered in Vancouver, Canada.
Maverix Metals has 122 royalties and streams in its portfolio. The company has a $690M market cap. It expects to generate a record $55M in revenue for 2021.
The gold market has a sluggish run in the market. As per the company, this is backed by the tapering done by the Federal Reserve, which was more aggressive than initially anticipated. Gold mining stocks and royalty companies are more sensitive to changes in the market pricing, making it a riskier category for investment.
The company has 14 paying royalties and is expecting to post higher revenue numbers in 2022 than the previous year. The company has a 2% royalty of the Camino-Rojo project which will add 6-7% to its revenue base in the current quarter. The company also has a 4.5% royalty on the Beta Hunt mine, which is under the process of doubling in terms of underground throughput. This royalty is expected to add 10% to the company's revenue base. The Hope Bay Mine by Agnico Eagle is under potential expansion, adding another 6%-7% to the revenue over the next 2 years.
The company's major shareholders consist of Newmont Corp., Pan-American Silver, and Kinross Gold Corp. These entities collectively hold over 50% of the business. About 75%-80% of the company's stake is held by institutional investors, while the company's management holds an 8% stake. Maverix Metals is currently trading about $1.5M daily between the Toronto Stock Exchange and the New York Stock Exchange listing. Although the trading volumes have increased drastically in the past few years, the company believes that it is still below the desired threshold. Additional liquidity is needed to encourage new investors into the stock.
Maverix Metals is looking to remove the barriers that prohibit new investors into the stock. The company has had an average of 3-4 deals per year even since its inception. The company plans to eventually carry out an equity deal. It is currently assessing various options to bring new investors on board.
The company is well-funded with $160M in capital. It is net cash positive and continues to generate significant revenue each quarter. The company is preparing for an equity issue in the future.
The deals carried out by Maverix Metals with Pan American Silver, G2 Goldfields, Kinross Gold Corp., and Newmont Corp. were based on daylight value. This enabled the recognition of the latent royalties in the corporates' portfolios.
Although the corporates had the option to sell to another royalty company, they chose Maverix Metals as it planned to achieve a higher multiple through increased scale and quality. This strategy provides Maverix Metals, a junior mining company, a re-rate factor as it moves towards a multiple of a senior royalty company.
Organic Growth Strategy
Maverix Metals is exploring new jurisdictions for potential opportunities. The company's strategy is to maintain a balanced portfolio. To consider adding an asset from a riskier region, the company will weigh in the operator, the mine potential, and other factors to ensure a positive reception within the country along with an ability to conduct a successful operation.
The company strives to strike a balance between various aspects for its ongoing projects including current cash flow, near-term, and mid-term growth along with long-term optionality. Maverix Metals is in a unique position where the addition of projects or mines in different countries has a minimal impact on its overall portfolio.
The company's primary goal is to function within the gold space as much as possible. It is not looking to enter the renewables or battery metals market in the future. It is open to various corporate and one-of royalties or royalty portfolios as long as it fits the company's balance on risk-return.
The differentiating factor for Maverix Metals is the company ownership. The 3 major corporates along with the management retain 60% ownership. This provides the company with a wide network with significant flexibility.
No single asset within the portfolio makes up more than 10% of the company's value. A well-diversified portfolio helps the company maintain its position in a dynamic global market. This works in the company's favor as an inflation hedge.
Maverix Metals is directly impacted by the rising inflation, a positive factor for the shareholders. A higher gold price is accompanied by additional capital going into the interest where the company has a royalty on an asset or an exploration project. This generates additional value for the company's shareholders at no extra cost.
Gold Market Projections
Although the gold market's movement is unpredictable over the next 1-2 years, Maverix Metals is 100% bullish on gold price over the medium-to-long term. This is backed by the fact that governments around the world are increasing the rate of money supply in the market and the continued value appreciation for gold companies.
Maverix Metals is looking to generate $40M in free cash flow in 2022, which is an add-on to the existing $690M market cap. The investors will get an inflation-protected 1% dividend yield.
Maverix Metals has entered deals in regions where it has a natural advantage over the competition within the royalty space. The company currently has $150M worth of deals in place. This includes a deal with Bob Newmont, where the company added another royalty portfolio.
A second royalty portfolio deal was made with Pan American Silver along with a deal with Auramet Capital Partners LP. These 2 deals added immediate cash flow to Maverix Metals. The company deployed $7M, leading to the generation of 10% annual returns on the current spot prices. These deals have led to a reduction in the company's capital cost while also balancing the risk factor. These deals were made possible as the company had pre-existing relations with all the counterparties.
Maverix Metals recently conducted a transaction with Auramet where it paid the company $50M upfront in exchange for 5,000 GTOs (Gold Troy Ounces) annually, paying an ongoing cost of 16% on the spot gold price.
Royalties and streams have become mainstream in terms of financing along with equity and debt. As the equity prices and gold space have been under pressure in the past year, running operations has been much more expensive than it was 1-1.5 years ago. Maverix Metals' business model helps the companies generate cash or advance existing projects. This places the counterparty and the operator at an advantage by providing access to capital without extreme dilution.