Proposed Transaction Boosts our Valuation
Vox Royalty (CVE:VOX) continues to take advantage of its first-mover position in Australia by further extending the size of its Australian portfolio with the proposed acquisition of the Janet Ivy A$0.5/tonne (t) Gold Royalty and the Otto Bore 2.5% Gold net smelter royalty (NSR) for total consideration of A$7mln (US$5.32mln). Once closed, Vox's Australian royalty portfolio will contain 33 royalties.
Vox will pay A$4mln (US$3.06mln) upfront in cash to the vendor, Horizon Minerals Ltd (ASX:HRZ), with the balance contingent upon Vox receiving cumulative royalty payments in excess of A$750,000 from the Janet Ivy Mine. The balance is payable in cash or shares, at Vox’s sole discretion.
This acquisition would give Vox exposure to another production stage project through the royalty on the Janet Ivy Gold Mine, which also has significant near-term production expansion potential and exploration upside potential. It also gives Vox exposure to the near-term development project, the Otto Bore Gold Project.
The transaction is expected to close in the second quarter of this year, and is subject to satisfaction of customary conditions. Vox will use current cash on hand to fund the upfront payment of the transaction.
Valuation Changes
Based on our forecasts the addition of the Janet Ivy and Otto Bore royalties have the potential to add at least an additional US$11.5mln (Figure 1) in revenue over the lives of the royalties. Assuming the transaction closes the Janet Ivy and Otto Bore royalties add an additional US$8.7mln to our valuation of Vox Royalties.
In addition, the recently closed C$16.85mln placing further boosts the company's treasury, having a net positive effect on our valuation.
These combined changes increase our net asset valuation of Vox Royalty to C$160.4mln from C$141.9mln previously. Our net asset value (NAV) per share value for Vox now totals C$4.19/share.
This results in a low price (P)/NAV ratio of 0.65. Within its peer group, royalty companies currently trade at P/NAV ratios between 1.5 and 5.9, with an average of 3.8. Applying the range of P/NAV ratios received by Vox's peers to our NAV, would result in Vox's share price being between C$6.28/share and C$24.70/share. Applying the average P/NAV ratios would result in Vox's share price being between C$15.91/share.
Figure 1 - Revenue Forecasts (PE Ratio above each bar)
Source: Mining and Metals Research Corporation
Janet Ivy A$0.5/t Gold Royalty
The Janet Ivy Gold Mine is located in Western Australia, 10 kilometres (km) southwest of Kalgoorlie (Figure 2). The project is owned and operated by Zijin Mining Group. Vox's royalty covers the mining licence M26/446 (outlined in white Figure 3).
Figure 2 - Location of the Janet Ivy Mine
Source: Bonzle
Figure 3 - M26/446
Source: Vox Royalty
Figure 4 - Cross Section
Source: Vox Royalty
The open-pit operation has been intermittently mined since 2017 and used to supplement baseload ore feed from the Enterprise Gold Mine for the Zijin-owned Paddington Mill.
The Mine has a total Indicated and inferred mineral resource estimate of 19.5 million tonnes (Mt) at a grade of 0.89 grams per tonne (g/t) gold (Au) containing 561,000 ounces (oz) Au and remaining probable ore reserve estimate of 1.75 Mt at a grade of 1.06 g/t Au for 59,800oz Au. Mineralisation at Janet Ivy remains open at depth (Figure 4) and additional drilling may extend the size of the deposit.
Zijin has approved the construction of the Binduli 15Mt per annum heap leaching project and the first production is expected to commence in March 2022. Janet Ivy is located in proximity to Binduli and Vox's management anticipate that additional ore from Janet Ivy will be processed at the Binduli plant.
In our valuation, we assume that 500,000t of ore is extracted from Janet Ivy in 2021, increasing to 1,000,000t in 2022 and 2,500,000t in 2023, we assume production continues at this level until 2029. Note that these numbers are estimates as no guidance has been given by Zijin, and there could be material variation.
Based on these production level assumptions we have modelled Vox's royalty revenues from the project increasing from c. US$142,500 in 2021, to US$275,000 in 2022 and US$687,500 thereafter.
Figure 5 - Otto Bore Location
Source: Vox Royalty
Otto Bore 2.5% Gold NSR
The Otto Bore Gold Project is located 25 km southeast of Leinster in Western Australia, the project is owned and operated by Northern Star Resources Ltd (ASX:NST). Vox's royalty tenure surrounds Northern Star’s Thunderbox operations on the northern and eastern sides (Figure 5). The royalty is a 2.5% NSR royalty and applicable to production between 42,000oz Au and 100,00oz Au.
The mine has a total indicated and inferred mineral resource estimate of 2.6 Mt at a grade of 2.0 g/t Au containing 170,000 oz Au and a probable ore reserve estimate of 1.6 Mt at a grade of 1.8 g/t Au for 91,000 oz Au.
Vox's royalty tenure covers the approximate southern half of the deposit (Figure 6), which includes the full ore reserve and an unquantified portion of the additional resource.
Figure 6 - Otto Bore Pit
Source: Vox Royalty
Northern Star plans to develop the Otto Bore open pit as part of its expansion plans for its Thunderbox operation. The expansion is scheduled for 2022 and would increase the mill capacity to 3.5mln tonnes per annum from 2.5mln tonnes per annum, using satellite open pits that contain higher-grade and/or soft oxide material, such as Otto Bore to feed the increased mill capacity.
In our valuation we assume that 28,500 oz Au is produced from Otto Bore between 2022 and 2025, decreasing to 14,240 oz Au in 2026. Note that these numbers are estimates as no guidance has been given by Northern Star, and there could be material variation.
Based on these production level assumptions we have modelled Vox's royalty revenues from the project increasing from c. US$1.2mln between 2022 and 2025, decreasing to US$0.6mln in 2026.