Vox lines up accretive royalty deal in Nevada
Vox Royalty (CVE:VOX) has entered into a binding agreement to acquire an effective aggregate 0.633% net smelter returns royalty on part of Gold Standard Ventures Corp's (CVE.GSV) Railroad-Pinion Gold Project.
The Railroad-Pinion Gold Project is located on the prolific Carlin Trend in Elko County, Nevada. The Carlin Trend has historically produced >80Moz of gold historically. Vox is acquiring the royalty from a legacy family of ranchers for a total cash consideration of US$1.98mln.
Vox is expected to begin realising revenue immediately after the close of the transaction, due June 30, as the royalty has associated advance minimum royalty payments of over C$120,000 per annum.
This advanced payment will continue until production commences at the South Railroad portion of the Railroad-Pinion Gold Project, at which point we expect the potential cash flow from the royalty to increase.
Gold Standard Ventures has already received a term sheet for a US$200mln financing package from an internationally recognised mining investment management firm, to cover the construction of a heap leach operation at the South Railroad portion of the Project. Having this package in place reduces the development risk associated with the royalty Vox is planning to acquire.
Valuation changes
Based on our forecasts the addition of the South Railroad royalty has the potential to add at least an additional US$5.5mln (Figure 1) in revenue over the life of the royalty based on a gold price of US$1,700/oz.
Assuming the transaction closes the South Railroad royalty adds US$3.6mln to our valuation of Vox Royalties, updating our net asset valuation (NAV) of Vox Royalty to C$153.5mln.
Our net asset value (NAV) per share value for Vox now totals C$4.01/share. This results in a low price (P)/NAV ratio of 0.63.
Within its peer group, royalty companies currently trade at P/NAV ratios (using book NAVs) between 1.7 and 7.0, with an average of 4.3.
Applying the lower-bound peer P/NAV ratio of 1.7x would result in Vox's target share price being around C$6.82/share. Applying the average P/NAV ratios would result in Vox's share price being around C$17.22/share.
Figure 1 - Revenue Forecasts (PE Ratio above each bar)
Source: Metals and Mining Research Corporation
South Railroad 0.633% Gold Royalty
The Railroad-Pinion Gold Project is located on the Carlin Trend in Elko County, Nevada. The project is owned and operated by Gold Standard Ventures Corp.
The Railroad-Pinion Project has two adjacent parts: The North Railroad portion, which includes the POD, Sweet Hollow and North Bullion deposits and the South Railroad portion, which includes the Dark Star deposit, the Pinion deposit and the Jasperoid Wash deposit.
The proposed royalty acquisition covers large portions of the Dark Star, Pinion and Jasperoid Wash deposits at South Railroad, as well as portions of the POD and Bald Mountain zones in the North Railroad portion of the Project (Figure 2).
Figure 2 - Railroad-Pinion Gold Project
Source: Gold Standard Ventures
The South Railroad portion has a total NI 43-101 compliant mineral resource estimate of 1.9 mln ounces of gold (Au) and 5.3 mln ounces of silver (Ag) at a grade of 0.7 g/t Au and 4.1 g/t Ag. The royalty Vox intends to acquire covers around 35% of this resource estimate.
Figure 3 - South Railroad Pits
Source: Gold Standard Ventures
Figure 4 - Dark Star Deposit
Source: Gold Standard Ventures
Figure 5 - Pinion Deposit
Source: Gold Standard Ventures
Gold Standard Ventures Corp. completed an updated preliminary feasibility study (PFS) on the Dark Star (Figure 4) and Pinion (Figure 5) deposits at South Railroad (Figure 3) in March 2020. The PFS has defined total production of 923,000 ounces of gold over an eight-year mine life, with higher production levels of 146,000 ounces of gold over the first five years of mine life.
The Railroad-Pinion Gold Project is envisioned to be a heap-leach open pit gold mine, with an initial capex of US$133 mln and an all-in sustaining cost (AISC) of US$707/ounce.
Gold Standard Ventures Corp is in the process of completing a feasibility study on the project by the end of the year, a significant de-risking event for both the project and royalty, as the company has a term-sheet in place for a US$200mln financing agreement to construct the gold mine (subject to certain milestones).
The proposed financing agreement comes from a very credible partner, Orion Mine Finance, a global alternative investment management firm with approximately US$6.3 billion under management.
Under the royalty agreement, once acquired, Vox will receive immediate annual payments of approximately C$120,000 in advance minimum royalty payments. In the medium-term the royalty has the potential to generate royalty revenue of approximately C$250,000–C$750,000 per annum averaged across the life of mine based on the PFS.
In our valuation, we assume that the advanced royalty payment of C$120,000 is received during 2021, 2022 and 2023. We tentatively assume that operations at South Railroad commences in 2024, generating revenue due to Vox of US$180,000 in 2024, rising to US$280,000 in 2025 and reaching a high of US$1.3 mln in 2030.