Vox Royalty (VOX) - Disciplined Anti-Inflationary Investing!

By
Morgan Leighton
·
October 14, 2021

Vox Royalty is a growth and precious metals-focused royalty and streaming company. The company has a portfolio of more than 50 royalties and streams spanning nine jurisdictions. A technically focused transactional team and a global sourcing network have allowed it to become the fastest-growing company in the royalty sector. 

Matt Gordon caught up with Kyle Floyd, CEO, and Chairman, Vox Royalty. Kyle has built the team and raised the capital required to commence the company's operations as a metal royalty and streaming company. His operational and strategic direction has helped the company become one of the fastest-growing mining royalty businesses in the past 2 years. He served as a business development executive for all mining transactions, leading to the financing and advising of $1Bn over more than 60 transactions across M&A assignments, private placements, IPOs, and follow-on offerings. 

Company Overview

Vox Royalty is a royalty and streaming company founded in 2014. The company is headquartered in the Cayman Islands. Vox Royalty Australia Pty Ltd and Mineral Royalties Online Pty Ltd. are the company's subsidiaries. The company is listed on the Toronto Stock Exchange (TSX-V: VOX). 

Vox Royalty is a purchaser of third-party royalties. The company aggregates these royalties into a portfolio for its shareholders. The company's major focus is on precious metals and assets that are between 1-3 years out of production. It focused on a disciplined capital allocation in the royalty sector to generate commodity exposure. 

Q3 2021 has been a productive quarter for Vox Royalty, the company has seen significant organic growth on its assets through operating partners. This has led to value creation without needing additional transactions. 

Vox Royalty's Philosophy

The company places a strong emphasis on discipline. Its business model and management team have been through multiple cycles, providing them a deeper insight into the market movements. The company has passed on several deals that appear overvalued in terms of outstanding assets. It has concluded multiple transactions featuring surface value which in turn generates expected returns for the investors. 

When it comes to the gold sector, Vox Royalty prices its deals on the basis of a drop in gold market pricing. The company's investment decisions are based on the assumption that gold will likely decline in value. This helps the company make well-informed investment decisions leading to an appreciation of shareholder value. 

Challenges in the Royalty Sector

According to Vox Royalty, a large portion of royalty sector companies lack the competitive advantage to seek out good value and assets. The added ease of shopped royalties through banks leads the companies to acquire royalties that are overvalued in terms of price paid. 

Sourcing deals and building a business on strong value norms can help remedy these challenges, leading to a profitable acquisition with a competitive edge in the market. Compared to the majors, the junior space has faced significant challenges when it comes to exploration work. Investing in the junior space can be tricky as it's hard to discern between good and bad opportunities. 

An Ideal Royalty Model

Vox Royalty understands that a royalty model should generate equity within 2 aspects. It should encompass the current value of the asset along with the potential mineable supply available in the ground. 

A lot of royalty companies end up paying a premium for the asset with an added premium on the NAV (Net Asset Value) anticipating future discoveries, increases in resources, and an appreciation of metal prices. However, if these predictions don't work out as expected, the company ends up paying a lot more for the asset than its true value, losing significant money for investors. 

A better model is to generate profitability on well-studied acquisitions along with option value. This shields the royalty company from the possibility of losing significant money on assets. 

A Portfolio-Driven Approach

Vox Royalty employs a portfolio approach towards purchases, generating exceptional exposure for investors. The company currently has 35Moz gold equivalent in royalties along with 5 production-stage assets that are expected to expand to 10 assets. Optionality on these projects helps the company and its investors drive leverage in the royalties domain. The company looks at the invested capital on existing assets and closely monitors the return on invested capital to avoid diminishing returns. 

Vox Royalty's business model is centered around producing the highest return, share price, and growth for the business and stakeholders.  The company's business model consists of generating an ROI (Return-On-Investment) based on metal prices that are lower than the market prices. This helps support the risk-adjusted benefits of owning a royalty company. It also helps diminish the potential risk that each project carries. 

M&A as an Exit Strategy

A lot of companies invest in a portfolio of assets with varying value propositions and end up struggling due to market uncertainties. More often than not, the companies rely on either M&A (Merger and Acquisition) to provide a decent return for shareholders or wait for a growth in market pricing to cover losses. 

While the majors are highly disciplined when it comes to royalties acquisition, the mid-tier and junior companies often take an aggressive approach towards M&A to bail out bad investment decisions. The companies also look for higher metal pricing to facilitate a graceful exit from the venture. 

Vox Royalty cautions against investing in royalty companies that base its value on spot prices, relying heavily on resource and reserve conversation. This is an industry-wide issue that leads to companies bailing out of projects for a much higher commodity price, which leads to a struggle when trying to turn a decent profit.

Royalty companies should be comfortable asking difficult questions from the decision-makers and company representatives in terms of track record, experience, and previous investments. This is the ideal way to gain a deeper insight into the company before making a major investment decision. 

Recent Developments

Vox Royalty released its revenue guidance a few months back. A bull run in iron led to prices reaching an all-time high. This guidance is being closely monitored by the company across its assets. 

In 2021, the company has multiple assets entering production. This includes Segilola, operated by Thor Explorations, which announced its first gold pour into commercial production. The Bulong gold asset in Western Australia is expected to enter production by mid-2022. The company has several other projects which are due to enter production next year. These developments enable the company to generate healthy revenue growth while continuing efficient capital deployment. 

Vox Royalty was founded as an outlet for retail and foreign investors looking to gain commodity exposure. It provides an investment platform for lower-risk assets to generate value for the company's shareholders and investors. 

To find out more, go to the West Vault Mining Website

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