Vox Royalty (VOX) - Let's Focus on Rate of Return & Organic Growth

Vox Royalty Corp. is a high-growth, 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. Since 2019, the company has announced over 20 separate transactions to acquire more than 45 royalties.

Matt Gordon caught up with Spencer Cole, Chief Investment Officer, Vox Royalty. Spencer is the Co-Founder of Mineral Royalties Online that was acquired by Vox Royalty. He is a mining engineer and a former investment banker. He has over a decade of experience with BHP (M&A, Feasibility Studies), South32 (Hermosa Project, Boddington Bauxite Mine, Corporate), and UBS Investment Bank. Spencer has been historically involved in over $1Bn of royalty transactions. His educational credentials include a Bachelor's of Commerce degree in finance and a mining engineering degree. 

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. It is listed on the Toronto Stock Exchange (TSX-V: VOX). The company aggregates its royalties into a portfolio for shareholders. The company's major focus is on precious metals and assets that are between 1-3 years out of production. 

Vox Royalty is a mining royalty and streaming company differentiated by its intellectual property, a technical management team, and a royalty portfolio with a very low geopolitical risk. 

The company recently published a press release highlighting operator updates. 4 of the company's key operating partners have published strong drill results. One of the results features a resource update, while the other 3 have updates on resources that are planned for release in the coming months. As promised, The company has been successful in delivering huge organic growth across the exploration properties, development properties, and producing royalty properties.

Vox Royalty has placed a significant focus on organic growth. This is because organic growth is achieved with capital that has already been invested. On the contrary, M&A (Mergers and Acquisitions) driven growth needs additional capital deployment. This enables the company to gain additional value from past investments. 

The company observed a 30% jump in its share price in 2021. The company anticipates that 2022 will be a strong year as the quality and health of its royalty portfolio have never been stronger. Although short-term volatility is expected to continue next year, the company believes that its share price will appreciate as long as the assets continue to perform as per expectations. 

Equity Investments vs Royalties

In a recent investor presentation, Vox Royalty did a side-by-side comparison between owning equity in a mining company and owning a royalty. This presentation looked at the case study for Franco-Nevada Corp.'s investment in Ghana 10 years ago. The study highlighted that the leverage and torque attained through royalty are far superior to owning equity in a mining company. 

This divide further widens when the volume of discoveries is taken into account. Furthermore, the risk profile is significantly reduced. As the company holds multiple assets in its royalty portfolio, new discoveries and project advancements on a monthly basis help maintain sustained investor interest. 

Franco-Nevada entered a royalty deal on Perseus Edikan mine in June 2011 for $35M. This provided the company with a 1.5% revenue royalty on the mine. Compared to purchasing the same amount of stock, royalty doesn't suffer from potential dilution and can serve as a huge revenue multiplier. The company still holds 1.5% of the mining revenue and has received over $40M in royalty so far. On the other hand, had the company been an equity investor, it would have been diluted from 3% to 1.1%, minimizing the dividend income. 

Royalty Updates

Vox Royalty's Bowden Silver Project is the largest primary silver project in Australia. The operating company's Managing Director recently quoted on Bloomberg that the deposit has the potential to triple in size. Alongside, the operator also commissioned an underground study that would add production to the proposed open pit. This royalty was bought by Vox Royalty in 2020 for $1M and has an annual revenue potential of $2M-$3M for 16-20 years. As the project advances through drilling and studies, the prospects appreciate in both appeal and potential. 

The 3x growth in the resource will lead to an increase in the mine life, while the underground operations would increase production by year 3 of operations. Vox Royalty is focused on increasing the cash flow to the royalty while also bringing forward cash to its investors quickly. 

The company is focused on setting realistic and achievable targets, especially since it isn't directly operating the assets. The information shared with the investors varies between each royalty. Though the company regularly coordinates with the management teams to ensure that the guidance provided to the market is as accurate as possible. 

Vox Royalty has been adding new royalties to its portfolio. In the past 2 months, the company has worked on multiple deals where the rate of return for investors would have been unachievable in the previous year. The company claims that 2021 has been the most active year for investment bankers selling royalties and royalty portfolios. The company has been cautious with capital allocation. It seeks to strike a balance between investment and potential revenue generation. 

M&A Activity

Vox Royalty believes that an increase in large-scale M&A activities, such as the acquisition of Great Bear Resources by Kinross is a huge positive for the sector as a whole. This is because such investments demonstrate the presence of a large amount of capital in the industry committed to project advancement. Being in a cyclical industry, investors should tread carefully when choosing assets and allocating capital. 

Vox Royalty believes that deals should be based on the asset potential rather than a minimum investment size. For instance, the company recently acquired a gold royalty in Western Australia. The company paid $50,000 for the royalty of a restarted mine. The revenue potential for the asset is expected between $3M-$4M. The company focuses on the multiplier effect that royalties offer on capital returns. 

The company's major ROI (Return-on-Investment) comes from larger deals. The company seeks to price deals aggressively in its favor, leading to added value creation for the investors. The company also seeks unique royalties that offer superior long-term ROI. 

Vox Royalty also analyzes the price-to-book value as an additional indicator for potential investments. This metric measures the royalty company's market reward for each dollar of capital invested. For instance, Vox Royalty has invested $30M to generate $140M in market value. The growth is comparable to Franco-Nevada in terms of efficiency and adding a capital multiplier to its investments. 

The company is currently focusing on lesser-known companies to expand its royalty portfolio. It seeks to strike a balance between projects with high returns and lower rates to create a compelling portfolio in order to chase and deliver value for investors. 

Cash Position

Vox Royalty recently started share buybacks from the market. As the shares were being offered at a heavy discount, the company considered it as an opportunity to acquire shares at a lower price. The company's philosophy is to attain the highest rate of return for each dollar of capital deployed. This is done through buying new royalties or buying back its own stock. 

The company currently has $9M in working capital. It has sufficient capital to carry out additional deals. The company does not plan to raise additional equity at the moment. 

Vox Royalty is open to the possibility of M&A in a scenario where the deal reflects a meaningful premium along with a fair value for the company. It is open to discussions for potential acquisition in favor of generating maximum shareholder value.

The company's 2021 revenue guidance was $4-$5M in top-line revenue. The company is on track to achieve these numbers. In 2022, it seeks to achieve $6M-$8M in top-line revenue followed by $8-$10M in 2023. A formal Management Revenue Guidance is set to publish in early 2022.

To find out more, go to the Vox Royalty Website