Acquiring royalty on Bushveld's Brits Vanadium Project
Hot on the heels of the acquisition of a portfolio of royalties in North America earlier this month, comes Vox Royalty's (CVE:VOX) latest acquisition - a 1.75% gross sales royalty (GSR) on Bushveld Minerals Limited's (LON:BMN) Brits Vanadium Project, located within the North West Province of South Africa.
The Brits Vanadium Project is a high-grade outcropping vanadium resource, next to Bushveld Mineral's Vametco Mine, 3.5km from Bushveld's Vametco processing facility and 135km west of Bushveld's Vanchem processing facility.
Brits is expected to provide an additional ore feed both the Vametco and the Vanchem Processing Facilities, as Bushveld is in the process of increasing production levels at both operations.
The total consideration for the acquisition is US$2mln, of which, an initial payment of US$500,000 in cash and US$250,000 in Vox shares is payable on the closing of the transaction, with the balance payable on the completion of two milestones on the royalty is generating cash flow. The transaction is expected to close in December 2020.
Bushveld Minerals is an impressive operating partner for Vox to work with. Bushveld is one of only three primary vanadium producers globally and owns two of the world’s four operating primary vanadium processing facilities.
Once closed, Vox's portfolio will contain 47 royalties, and we would expect Vox to continue to be aggressive when it comes to future acquisitions.
Based on our estimates, the Brits royalty could be the second most valuable royalty in Vox's portfolio, behind the Ashburton royalty, with the potential to generate c.US$1mln to US$1.2mln per annum, for at least 20 years (Figure 1).
Assuming the acquisition closes, we value the 1.75% GSR at US$10.6mln, which increases our net asset value (NAV) per share value for Vox to C$4.27, from C$4.06 previously.
This results in a low price(P)/NAV ratio of 0.55. Within its peer group, royalty companies currently trade at P/NAV ratios between 1.0 and 6.2, with an average of 3.4. Applying the higher P/NAV ratios received by Vox's peers to our NAV would result in Vox's share price being between C$14.53/share and C$26.50/share.
Figure 1 - Revenue Forecasts (PE Ratio above each bar)
Source: Mining and Metals Research Corporation