Vox Royalty's Focused Play on Near-Term Producing Assets with Strong Growth Potential

• Vox Royalty is a mining royalty investment company focused on delivering risk-adjusted returns, with a portfolio heavily weighted towards Australia, the US, and Canada.
• The company has tripled revenue in the last 3 years and is now generating free cash flow, with a focus on near-term producing assets within 6 months to 3 years of first production.
• Vox recently acquired a portfolio of Australian gold royalties, including the Castle Hill project being developed by Evolution Mining, expected to start production in early 2026.
• The company faces some challenges in getting full value attributed to its Australian assets by North American investors and analysts, who are less familiar with major Australian operators.
• Vox is exploring opportunities for further acquisitions and organic growth, expecting to increase from 6 to over 10 producing assets in the next 18 months.

About Vox Royalty

In the world of mining investments, royalty companies have emerged as an attractive option for investors seeking exposure to the sector without directly bearing the operational risks associated with mine development and production. Among these, Vox Royalty (TSX:VOXR) stands out as a compelling investment opportunity, offering a unique blend of focus, growth, and risk management.

Vox is a returns-focused mining royalty company established in 2014, with a diverse portfolio of over 60 royalties across seven jurisdictions. The company has built a reputation for targeting high-return royalty acquisitions in the mining sector, leveraging its unique intellectual property, technically focused transactional team, and global sourcing network. Since early 2020, Vox has engaged in more than 25 separate transactions to expand its portfolio. Predominantly weighted towards precious metals (over 70% by NAV), Vox's royalties also provide exposure to base, battery, and bulk commodities. While the portfolio spans four continents, it is heavily concentrated in Australia and North America, which account for over 80% of its assets. Vox has demonstrated a knack for acquiring assets with significant near-term growth and development potential. The company's experienced team, boasting over 50 years of royalty-specific deal expertise and involvement in more than $1 billion worth of royalty transactions, is complemented by a proprietary database of over 8,500 global royalties. This extensive database, developed over nearly a decade, provides Vox with a competitive edge in identifying and securing profitable royalty opportunities in the mining sector.

Interview with Chief Investment Officer, Spencer Cole

Focused Play on Mining Royalties with Strong Growth Potential

Vox Royalty has positioned itself as a returns-focused mining royalty investment group. Listed on both the NASDAQ and TSX main boards, the company's primary objective is to deliver the highest return on invested capital in the mining royalty sector. This goal is pursued through a carefully crafted strategy that emphasizes risk-adjusted returns and a focus on stable jurisdictions.

Spencer Cole, Chief Investment Officer of Vox Royalty, explains the company's approach:

"We choose each of those words carefully. I mean return on capital is pretty straightforward, but there's a lot of capital allocated in the mining industry in a very risky fashion. So when we say risk-adjusted returns, we truly mean what's the revenue we're going to get out of these royalties and then adjusted per unit of risk we're taking up."

This strategy translates into a portfolio heavily weighted towards assets in Australia, the United States, and Canada, which account for approximately 80% of Vox's holdings. The company's focus on these jurisdictions is driven by their stable political environments, well-established mining industries, and favorable regulatory frameworks.

Portfolio & Recent Acquisitions

Vox Royalty's portfolio currently consists of 71 royalties, with a particular emphasis on near-term producing assets. The company targets projects that are expected to begin production within six months to three years, a strategy that aims to minimize the time between investment and cash flow generation.

A recent and significant addition to Vox's portfolio is a group of Australian gold royalties, including the Castle Hill project. This acquisition exemplifies the company's strategic approach.

As Cole describes, "Castle Hill is just outside of Kalgoorlie - an abundant labor force, well-capitalized operator. We think the deposit ultimately has potential to be expanded, and first production in early 2026."

The Castle Hill project, being developed by Evolution Mining, one of Australia's top three gold producers, is expected to contribute significantly to Vox's revenue stream from 2026 onwards. This acquisition not only enhances Vox's exposure to major Australian gold miners but also aligns with the company's focus on near-term producing assets in stable jurisdictions.

Growth Trajectory & Financial Performance

Vox Royalty has demonstrated impressive growth in recent years, with revenue tripling over the past three years. This growth trajectory is expected to continue, driven by both organic growth from existing assets and strategic acquisitions.

The company's focus on near-term producing assets is beginning to bear fruit, with several projects in the portfolio either in construction or expected to commence mining in the next 18 months.

As Cole notes, "That will take us from six producing assets to north of 10 producing assets. That's without any future acquisitions, that's just based on how these assets are maturing within our portfolio."

This organic growth, combined with the potential for further acquisitions, positions Vox for continued revenue expansion and increased cash flow generation in the coming years.

Market Perception & Valuation

Despite its strong growth and strategic positioning, Vox Royalty faces some challenges in terms of market perception, particularly among North American investors. The company's significant exposure to Australian assets has, somewhat paradoxically, led to a valuation disconnect in the North American market.

Cole highlights this issue: "I think one thing that has held us back, and this might sound a bit strange, is our exposure to Australian royalty assets and ASX listed operators. I think a lot of the street views some of our Australian assets with some suspicion until they start generating cash flow."

This perception gap presents both a challenge and an opportunity for Vox. As the company continues to educate the market and as more of its assets come online and generate cash flow, there is potential for a significant re-rating of the stock.

Capital Allocation & Shareholder Value

Vox Royalty's management team, which owns a significant portion of the company (10% by management alone, and close to 20% including the board), is strongly aligned with shareholder interests. This alignment is reflected in the company's approach to capital allocation and growth.

The company recently secured a $25 million credit facility, providing access to capital at a much lower cost than equity financing. This facility allows Vox to pursue growth opportunities without diluting existing shareholders, a key consideration for the management team.

Cole emphasizes this point: "We don't want any further equity dilution. So the North Star for us is trying to reuse the credit facility as much as possible so that we can scale credibly without bloating our share count."

Gold Market Dynamics & Macro Environment

As a company primarily focused on precious metals, particularly gold, Vox Royalty's prospects are inherently tied to the gold market. The current macro environment appears favorable for gold, with factors such as central bank buying, geopolitical tensions, and the upcoming U.S. election potentially supporting gold prices.

Moreover, the strength of the Australian dollar gold price (currently between AUD 3,600 and 3,700 per ounce) is particularly beneficial for Vox, given its significant exposure to Australian assets.

This favorable pricing environment not only benefits Vox's existing portfolio but also creates opportunities for potential acquisitions, as more projects become economically viable at these price levels.

Competitive Landscape & M&A Potential

The mining royalty sector is highly competitive, with numerous companies vying for attractive assets. Vox differentiates itself through its focus on proprietary deal sourcing and its emphasis on risk-adjusted returns.

Cole explains the company's edge: "If you don't have an edge, frankly, if you're sitting back in your boardroom waiting to be fed deals by bankers, yeah, you're paying top dollar."

The competitive nature of the industry is also driving increased interest in corporate M&A activity. While Vox remains focused on organic growth and individual asset acquisitions, the potential for larger, corporate-level transactions in the sector could create additional opportunities or challenges for the company.

Conclusion

Vox Royalty presents an intriguing investment opportunity in the mining royalty sector. The company's focus on risk-adjusted returns, its growing portfolio of near-term producing assets, and its exposure to favorable jurisdictions position it well for future growth. While challenges exist, particularly in terms of market perception of its Australian assets, these also present potential upside as the company continues to execute on its strategy and bring more assets into production.

The current macro environment, with strong gold prices and increasing interest in hard assets, provides a supportive backdrop for Vox's business model. As the company continues to grow both organically and through acquisitions, it has the potential to deliver significant value to shareholders. However, as with any investment in the mining sector, investors should carefully consider the risks, including commodity price volatility and operational challenges at underlying mining projects.

The Investment Thesis for Vox Royalty

• Strong Focus on Risk-Adjusted Returns: Vox's strategy of targeting assets in stable jurisdictions with near-term production potential offers a balanced approach to growth and risk management.
• Proven Growth Track Record: The company has demonstrated its ability to grow rapidly, tripling revenue in three years, with a clear path to further growth.
• Undervalued Australian Exposure: The market's current underappreciation of Vox's Australian assets presents a potential opportunity for value realization as these assets come online.
• Aligned Management with Significant Ownership: With management and the board owning up to 20% of the company, investor interests are well-aligned with leadership.
• Macro Tailwinds: The current gold price environment, particularly in Australian dollar terms, provides a favorable backdrop for Vox's portfolio and growth strategy.
• Consider initiating a position in Vox Royalty as a way to gain exposure to the mining sector with a focus on risk-adjusted returns.
• Monitor the company's progress in bringing new assets into production over the next 18 months, as this could be a significant driver of value.
• Pay attention to any corporate M&A activity in the royalty sector, as this could impact Vox's competitive position or present new opportunities.
• Keep an eye on the gold price, particularly in Australian dollar terms, as this is a key driver for many of Vox's assets.
• Consider Vox as part of a diversified portfolio approach to the mining sector, complementing direct investments in mining companies with this royalty-focused play.

Macro Thematic Analysis

The macro environment for gold and mining royalty companies like Vox Royalty is currently favorable, driven by several key factors:

1. Central Bank Buying: Continued strong demand for gold from central banks, particularly in emerging markets, is providing support for gold prices.
2. Geopolitical Tensions: Ongoing global conflicts and trade disputes are enhancing gold's appeal as a safe-haven asset.
3. Upcoming U.S. Election: The uncertainty surrounding the 2024 U.S. presidential election is likely to contribute to market volatility, potentially benefiting gold.
4. Currency Dynamics: The strength of the Australian dollar gold price is particularly beneficial for companies with significant Australian exposure, like Vox Royalty.
5. Shift from Tech to Hard Assets: There's an emerging trend of investors looking to diversify away from tech stocks and into hard assets, benefiting the mining sector.
6. ESG Considerations: Royalty companies offer exposure to the mining sector with a potentially lower ESG risk profile compared to operating mining companies.
7. Inflationary Concerns: Persistent inflation fears continue to support gold as an inflation hedge.

"If you're producing any gold, or basically if you can spell the word gold in Western Australia, chances are you're making free cash flow right now."

These macro factors create a supportive environment for gold and, by extension, for well-positioned mining royalty companies. However, it's important to note that the gold market can be volatile and is influenced by a wide range of factors, including monetary policy decisions, economic data, and shifts in investor sentiment. This succinctly captures the current favorable environment for gold producers and royalty companies, particularly those with exposure to the Australian market.

Vox Royalty represents an intriguing option for investors seeking exposure to the mining sector with a focus on managed risk and growth potential. As the company continues to execute its strategy and bring more assets into production, it has the potential to deliver significant value to shareholders.