Maverix Metals (MMX) - Royalty Company Continues Rapid Growth

On April 18th 2016, Pan American Silver and MacMillan Minerals entered into a reverse takeover arrangement agreement with Maverix Metals (founded in 2010) to launch Maverix as a new publicly traded royalty and streaming company. Since then, Maverix Metals has been on the rise, with early investors receiving more than a seven-fold return on their investments. The most exciting thing is that Maverix Metals is only just getting started; it is still a relative minnow compared to the might of some North American royalty players, and the management team is targeting accelerated growth. Is the company shaping up to be well-positioned for a takeout by a major?

Matthew Gordon talks to Ryan McIntyre, July 2020

Maverix is entirely gold-focussed. It defines itself as an 'emerging gold royalty and streaming company.' We always make an effort to emphasise the strength of royalties as an investment class because they provide investors with access to the excitement of mining and exploration with much less of the risk. At Maverix, the level of investor risk is significantly reduced by the company's globally diversified portfolio with upside exploration optionality on over 100 royalties and streams. Over the last 15-or-so years, the royalty market has grown from US$5B to US$60B.

Since it formed in 2016, Maverix has completed a total of 10 transactions to acquire these royalties and streams, 13 of which are currently providing cash flow, with 92 following up behind. The company's revenue is c. US$40M. There are some big names involved in this story: Ross Beaty, Eric Sprott, Newmont, Kinross Gold, Goldfields and Pan American Silver.

With such strong connections to some of the world's larger gold and silver players, Maverix has access to much more competitive royalty deals than most. There is a member from both Pan American and Newmont on the company's board, and this should aid negotiations, allowing Maverix to ask technical questions and receive expert answers. The company is targeting some more transactions for the portfolios of major gold and silver players to consolidate the 4 it has already carried out.

For now, Maverix is at the size where "a new royalty and stream is meaningful to (the company)," needs to be ≥US$50M to have an impact. There are plenty of these deals to be had, while there are few "billion-dollar deals." Maverix will need to continue balancing major portfolio royalties with smaller deals. McIntyre is aware that as the company grows larger, it will no longer be the case that smaller deals can create accretive value for shareholders. He'll cross that bridge once he comes to it because there is a long way to go yet. Maverix will continue to shrink the value differential between itself and the larger royalty players, aiming to increase value on a per-share basis.

We were also keen to touch on Maverix Metals' renegotiation with Karora Resources (TSX: KRR) (formerly RNC Minerals) for the royalty on Beta Hunt, which represents half of the Higginsville complex. Maverix originally had a 7.5% gold royalty on Beta Hunt, a term that Karora Resources CEO, Paul Huet, clearly recognised as unsatisfactory for his shareholders. It had been negotiated at a time when Karora Resources was a nickel-focussed player, and gold was nothing more than a by-product. Since Huet brought about a new gold focus to his company, it became obvious it was a very high royalty. In fact, Maverix has already recouped 120% of this royalty in cash flow to date. The company has now sold a third of the royalty to Karora for US$18M, retaining a 4.75% royalty on gold. Maverix is hoping this will re-incentivise Karora to start pushing hard at Beta Haunt. McIntyre talks up the exploration side of things.

A year ago, liquidity was a real issue for Maverix, and the company traded "very thinly." Since then, the company graduated from the CVE to the TSX, and this has clearly had an impact on trading volumes. The company has also listed on the NYSE, which had an additional notable impact of trading liquidity. The key to creating volume sufficient for institutions to become a major part of the Maverix story came from the Pan American secondary offering. The company is not currently listed on any index because of an historical lack of liquidity, but now the company does meet the trading liquidity requirements for the GDXJ amongst others. It takes 3 consecutive quarters of this performance level, and Maverix expects by the first half of 2021 that it will be included in "one or two" indices and ETFs.

The key advantages Maverix offers over the smaller royalty players with slightly more leverage is the quality of the management team, the access to majors and its position in the development curve "sweet spot": not too large that new smaller royalties aren't impactful, not so small that it can't compete against others. It still has growth potential.

Company Website: https://maverixmetals.com/