Transcript: Maverix Metals (MMX) - Cash Generative Deals & Organic Growth

Morgan Leighton
December 14, 2021

Maverix provides upfront payments to mine operators in need of capital in return for a percentage of the future revenue generated from the mine (a royalty), or the right to either purchase all, or a fixed percentage of, future precious metal production for a pre-determined price (a stream). These royalty and streaming agreements provide exposure to precious metals price appreciation, fixed operating costs and exploration and expansion upside without the associated capital, operating and environmental costs. In five years Maverix has acquired 5 major royalty portfolios from senior mining companies and along with a number of additional bolt on acquisitions has grown its portfolio to over 100 total royalties and streams. With its experienced and knowledgeable leadership team, support from key stakeholders and track record of adding value through acquisitions, Maverix is well positioned to continue its growth.

Maverix was founded in 2016 by Geoff Burns and Daniel O’Flaherty with the sole purpose of becoming a successful mining royalty and streaming company. In July 2016, Maverix acquired a package of 13 royalties and precious metal streams from Pan American Silver and began trading on the TSX Venture Exchange shortly after.

We Discuss:

00:00 – Company Overview

00:28 – Previous Year, Equity, Lack of Interest in Precious Metals

02:15 – 2022: Growth Story or Consolidation Story, Liquidity Issues, & Company Makeup

06:13 – Credit, Available Capital, Expectations, Ambitions & Looking Beyond Jurisdictions

10:12 – Game Plan, Consolidation od Spaces, Risk Profiles, Share Price Graph

12:29 – Differentiation from Competition, Valuations, Market Cap & Growth Potential

15:53 – Focusing on Advantageous Areas, Relationships in Market, & Transactions

19:05 – Insights on Miners Coming to MMX for Money

21:15 – Outro

Ryan McIntyre: Hi, my name is Ryan McIntyre. I'm the president of Maverix Metals. Maverix is a precious metals royalty and streaming company. We currently have 122 royalties and streams. We expect record revenue in 2021 of approximately USD$55M. We have a USD$790M mark up and we are dual listed on the Toronto and New York. Stock Exchange under the symbol MMX.

Matthew Gordon: Good to see you again, Ryan. We saw Dan recently, we haven't seen you for a while. How has your year been? 

Ryan McIntyre: Very good, actually. I think it was July when we last spoke. 

Matthew Gordon: It has been a funny old year in the market. Obviously, you guys have been affected by the equities coming off a bit. How are you reading the sentiment?

Ryan McIntyre: It's interesting; I think most parties have done quite well this year. Gold has struggled a little bit, I think, really just due to the FED, in terms of them possibly tapering more aggressively than previously thought. Our view on the gold price is very strong. That's obviously the focus of our business: to try to get exposure from that.

Matthew Gordon: It is. The gold price is fantastic, and if you're a producer, you're making money and you're fine. If it was like this for the next 10 years, you'd be happy. But the equities have come off. There's been something of a disinterest in precious metals across the board, and you as a royalty company have not been immune to that either. Again, do you have a sense of what's happening there? 

Ryan McIntyre: Yes, I think it's people just taking a look at the different risk categories in relation to any sort of FED taper. Gold equities, whether it's Royalty companies or gold mining stocks, they are obviously more sensitive to changes in gold price than gold. To me, it makes a lot of sense that some risk-off is happening, particularly on the junior side, I would say, because that's obviously the riskier category. Then you go to the larger producers, the royalty companies and then to gold itself, that is the risk-off sequence of events. 

Matthew Gordon: You need to keep telling the growth story. You have between a USD$650M-$700M market cap. You've got 122 royalties and streams, you've got 14 paying royalties, but you've got to keep pushing that growth story in the marketplace. Is 2022 lined up to be a growth story or is it more of a consolidation story? 

Ryan McIntyre: Yes, for Maverix itself, we definitely expect to have higher revenue in 2022 than 2021. There are a few different things happening there. We obviously made positions toward the end of 2021 that will be 100% represented next year. We've got a 2% royalty on the Camino-Rojo project which comes on this quarter and that will add about 6%-7% to our revenue base as well. There are also a few expansions that already exist in our portfolio. We've got a 4.5% royalty on the Beta Hunt mine, which is undergoing a doubling in terms of underground throughput. That will add over 10% to our revenue base. Then you've got the potential expansion at the Hope Bay Mine by Agnico Eagle. It'll add probably another 6%-7% over the next couple of years. 

Matthew Gordon: You have to set yourself up for this, but one of the issues that you are going to have to deal with, as well as telling the growth story for next year, which does sound impressive, is that Newmont, Pan American, Kinross are now major shareholders. You've got a couple of mid-sized institutional guys in there. 75%-80% of this is held by institutions. Retail guys can't get a look-in. You need liquidity to drive that price. What are you going to do about it? 

Ryan McIntyre: Yes, it's an interesting question. We've got 3 large shareholders: Newmont, Pan-American and Kinross, owning over 50% of the business. Management itself owns about 8%, so we're obviously fully aligned with everybody. I think you're absolutely right; I think the biggest question that we have against Maverix is liquidity. We trade at about USD$1.5M a day between the Toronto and New York Stock Exchange listing. That has improved dramatically over the last several years, but it is still below the threshold, I would say, of a lot of people, given that float is pretty limited. I think there are some advantages, obviously, to having great strong shareholders, but on the other hand, there is certainly a need for additional liquidity to encourage new investors into the stock.

Matthew Gordon: But where's it going to come from? You guys are throwing off cash. You will have a better year next year than this year in terms of cash generation revenues, you have 3 big shareholders who don't need the cash right now, so there's no chance of more shares coming into the market, and whether you look at it positively or negatively as an overhang is down to you. You need to give the retail guys access to more shares. Is that something you can do? Is it something you can control or is it just that we need to accept that's the makeup of your company? 

Ryan McIntyre: We're cognizant that that's one of the issues prohibiting new investors from coming into the stock. That being said, we're not going to just do an equity issue, and certainly not at these prices. Hopefully over time, a couple of things will happen. We've averaged about 3-4 deals a year since Maverix has been in existence and we hope for that continue. With that, there might be a situation large enough where we do an equity deal, but that'll be a great scenario for existing Maverick shareholders and obviously allows new shareholders to possibly come onto the register as well. We've got a few options but it will take a little time. 

Matthew Gordon: It will take a little time, but you've also got massive credit facilities in place, so it needs to be a pretty big deal. That's rarefied air and the competition is a little bit stronger up there. Do you think that's something that you've got a line of sight to now? Or is it a case of as and when? 

Ryan McIntyre: We're certainly well-funded in terms of available capital now. We have over USD$160M available to us. We're net cash positive and we continue to generate significant cash every quarter. On the other hand, we are looking at some pretty large things and we'll see how things progress over the next year or so. But we'd look at everything from large to small, and you never really know when the sequence of new transactions is going to come our way, but we certainly want to be prepared and there could be an opportunity at some point for some type of equity issue in the future. 

Matthew Gordon: No line of sight yet, but it could happen. What is the ambition here? If I look at the Newmont, Pan America, Kinross, what's their expectation of you? This is a big deal for them. A worst-case scenario for them would be for you to go and sell to another big royalty company, right? There's some upside there, and it's a relatively easy, quick, simple thing to do, presumably. Or do they want you to go out and make big acquisitions and get some liquidity in this, because it's in their interest to drive the share price up as well, isn't it? 

Ryan McIntyre: Yes, exactly. I think for all the deals we've done with the large corporates, including Pan American, GoldFields, Kinross and Newmont, I think for all 4 of them, the primary objective was daylight value. They have these latent royalties in their portfolio that weren't getting recognized in the market. That was step 1, but the second part was probably even more of a selling point because they could have sold those royalties to any other royalty company, but the key differentiator for us is that we're planning, and we have done. We basically try to get a higher multiple along the way as we've increased scale and quality based over time. therefore, there is that re-rate factor that you have as a junior royalty company, moving towards a multiple of a senior royalty company, which we've done part way, but we still have a long way to go. As you point out, if we can't do that and also add some value per share from new acquisitions, I think that is absolutely correct that they'll probably just sell out to a larger player in the space. 

Matthew Gordon: It's interesting, and quite a nice problem to have. You've explained some of the organic growth that is going to come through next year, and the quantum there. In terms of acquisitions, you are fairly global now. You are very well versed in North and South America. You've mentioned Beta Hunt there with Karora in Australia, there are a couple of others as well. Are you starting to have to look beyond jurisdictions that you would normally feel comfortable in? You've got a couple of projects in Africa, are you finding that you are looking there more and more at the moment? 

Ryan McIntyre: Yes, we sort of look at everything, as a broad comment. Part of our strategy is to have a balanced portfolio. If we do add an asset from a riskier place, it'll probably have to be a better mine or project or a better, operator operating those, because that makes a huge difference in terms of its reception within the country and its ability to operate successfully. We always do try to create a balance, and that goes with projects as well; we strive to balance out our current cash flow, near term, midterm growth, which we have, and then long-term optionality, which we also have. 

One great thing about our portfolio today is that we are so well balanced that we could add some new projects or interests in projects or mines in different countries around the world without too much impact on the rest of the portfolio. 

Matthew Gordon: Are you at all tempted to get slightly out of your comfort zone? There's a strong thematic coming through in the market around net zero carbon initiatives, and we've seen lots of green royalty companies try and start up. Are you going to tip your hat towards any of that or are you going to stick to your knitting and do what you know best? 

Ryan McIntyre: I think the game plan for us is to stick to our knitting. We certainly recognize that a lot of people have moved towards battery metals and the carbon credit type streaming, etc. And frankly, that's not our expertise, nor is that what our shareholders want. I think there are some great opportunities for our shareholders to look at other companies to do that. But for us, trying to maintain ourselves as pure a play in the gold space as possible, is our primary goal and something that we do pretty well in. 

Matthew Gordon: Yes, and you're happy with the rate of growth with your organic strategy. When we talk to people it seems that consolidation of spaces is inevitable. We've talked about your worst-case scenario where someone comes in and takes you guys out at a premium. Are you looking at some of these smaller players who are perhaps struggling, either through being cash constrained or their ability to purchase, for whatever reason? 

Ryan McIntyre: We're looking at everything. A lot of people come to us with new ideas about various things, and we come up with our own ideas as well. For us, it's always a balance on risk-return. With everything that we do, we ask if it fits our strategy, then what's the risk return here on the opportunity? We would absolutely look at various corporate opportunities as well, in addition to one-off royalties or royalty portfolios. We'll look at everything. 

Matthew Gordon: Your share price has been fairly erratic this year, in a reflection of what was going on in the market for sure, but if you were saying to investors outside of your industry and market/institutional guys, if you're saying to people, this is how you should value us, this is how you should value a royalty company, what would you have people look at which differentiates you from the other royalty companies that come on and tell their story? 

Ryan McIntyre: The one thing that differentiates us is the ownership of the company. That's obviously a huge part of it, and we talked about how 2-3 large corporates and management take up over 60% of the ownership. I think you've got a great group of people with a wide network who can look at a variety of different things. The beautiful thing right now is that our portfolio is really well balanced between existing cash flow, near term growth and long-term optionality. It is so diversified that no 1 asset makes up more than 10% of the value of the company. Given everything that's going on in the world, I think it is important to have a well-diversified portfolio. When I think about it, as an investor myself, I think about it as being a great inflation hedge. If you want exposure to gold, particularly gold-mining equities, which give you more leverage, I would say we're even better than that, in the sense that we are directly impacted by rising inflation, which is great for our shareholders. But the great thing about a higher gold price comes in with the additional capital sunk into the interest where we've got projects and exploration things in the background where we have a royalty. And as they move forward, extra value is created at no extra cost to Maverix shareholders, and that's exactly what we want, and that's exactly what you get with us. You can sleep at night knowing that you've got a lot of groups that are well-aligned with shareholders. I would think that would be a good combination. 

Matthew Gordon: Given the nature of the market this year, you've got to have a view on what gold is going to do next year, and I'd love to hear what you've got to say, because I have no clue. The normal rules seem to have gone out of the window slightly with the gold price being where it is, and in relation to what was going on with the equities. Does your company have a view on what 2022 holds for people investing in the gold market? 

Ryan McIntyre: Well, you never know what's is going to happen in the next year or so. I don't think anyone would have predicted anything like the last few years we've had. I will say that we are absolutely 100% bullish on gold price over the medium to long term. There's no question in our minds. If you look at the rate of money supply increases from all the governments around the world, you look at the uncertainty and then you look at the fundamentals, then you look at the valuation of these companies. 

Going back to Maverix for a moment, if you look at our company, we're going to generate over USD$40M of free cash flow next year. Our market cap is only USD$700M, plus we have all this growth to come in addition to that. And while you're waiting, you get paid over a 1% dividend yield, which is well in excess of anything you can get on a bank account, and the beautiful thing is it's inflation protected. Therefore, we've got a lot of those right elements together, particularly in today's environment where I would say, it's pretty frothy in most asset classes, except for gold equities. 

Matthew Gordon: It's interesting you say that, because when companies come on and talk about the dividend game, you've got to get the balance between equity growth and the dividend game, because banging out 1% is better than nothing, but there will be industries, like coal, they will be paying out dividends, high single digit in some cases, low slow double-digit type stuff. So your game has to be more about showing the growth component and what you do with your cash that you're generating to continue to be able to prove up your ambition. What will you be doing with this cash, because if you are dishing out 1% dividends, it's clearly not giving all of it back to shareholders. You want to do something with it, you've got something in mind. So what is it? 

Ryan McIntyre: Yes, the last couple of deals that we've done since we last spoke in July are a good illustration of what we will be doing with it. One of the things we have focused on in the past year or so is to focus on areas where we've got a natural advantage over other competitors in the royalty space. We've got about USD$150M worth of deals. We've done a deal with Bob Newmont, acquiring another royalty portfolio from them. Second portfolio royalties from Pan American, and then in the past quarter or so, we've done a deal with Auramet. The last 2 are probably the most interesting in the fact that those deals are adding immediate cash flow to Maverix. If you look at the returns on both of those transactions that we deployed of just over USD$7M, they generate 10% annual returns at today's spot prices. Doing a deal just to do a deal is not a great business model, but doing a deal that reduces your cost of capital is always a great thing to do when you balance off the risk as well. I think you can look for more of that from Maverix going forward. I wouldn't imagine too much change there. 

Matthew Gordon: Did it surprise you, being able to do deals like that in this market? Producers are making money, well, most of them are. Why are they coming to you for money? 

Ryan McIntyre: I think it goes back to the point of having a natural advantage. With those 4 transactions we had pre-existing relationships with each one of those counterparties. We've done deals with all them before. And especially on the case with Auramet, we've actually purchased royalties from them before and we've actually tried to team up on a few things as well in the past. We hadn't gotten anything across the line successfully in conjunction with them, but we really formalized that relationship with the transaction we've done recently, where we basically gave them USD$50M up front and we'll be getting 5,000 GTOs a year, paying an ongoing cost of 16% of the spot gold price. That's illustrative of the types of things that we're doing: we're working with people to make everyone better off. I think that's a great illustration of how things work: 1 +1, and in terms of teamwork, you can get more than 2. 

Matthew Gordon: Yes, that's interesting. I'm just wondering how in markets like this, what's happening with the cost of money for miners in terms of their access to debt products? Obviously, no one wants to be raising equity in markets like this, so you become more appealing, I guess, as an option. Can you give us an insight as to some of the things that the miners are battling against, or nervous of, which makes them come to companies like you for the cash instead?. 

Ryan McIntyre: For one, I think royalties and streams have become more mainstream in terms of one component of financing condition, in addition to equity and debt. With the equity prices and the gold space being severely under pressure over the past year or so, it has made doing that much more expensive than it was 1 year/ 1.5 years ago, and because of that, I think the great thing about, particularly how the way Maverix is set up is that we do have the ability to help people out when they're in need, just given our existing cash flow base and our ability to do basically anything, whether it's cash generative, or some project that's going to be coming in down the road. I think the great thing for the counterparty, the operator, is that they get current capital without diluting their shareholders to an extreme level. Again, we'll work with the operator to figure out the right mix of cost of capital and we hopefully get 1+1= more than 2. 

Matthew Gordon: That's the name of the game. It was good to catch up with you. That was a nice of summary of the year and a look towards what you hope to be able to do in 2022 in terms of revenue. We will stay in touch, we follow you very closely. You are one of the standout royalty companies in the space, doing things the right way. Stay in touch and let us know how you get on.

Ryan McIntyre: Excellent. Thanks a lot and we'll chat soon.

To find out more, go to the Maverix Metals website