Royalty companies are becoming an increasingly popular investment vehicle for resource investors, inspired by the more than 1000% share-price appreciation from royalty giant Franco-Nevada Corporation (TSX:FNV) during the past 13 years. These companies purchase royalties, which are typically a percentage of revenue from current and/or future production of mining project, providing their investors with substantial upside potential, reduced downside risk, and a hedge against inflation.
Vox Royalty Corp (CVE:VOX) (OTCMKTS:VOXCF) stands out as being an emerging growth player in the royalty sector with its large proprietary database of royalties.
“A big competitive advantage that we hold is our database of about 8,000 royalty opportunities, many of which are proprietary meaning the competition out there can't really find these royalties,” Vox Royalty (TSX-V:VOX) CEO Kyle Floyd told Proactive recently.
Floyd noted Vox’s expansive royalty database is supplemented by the company’s technical team of mining engineers and geologists that evaluate the merits of each mining project that underlies the royalties Vox acquires.
To complement its database and technical team, Vox has built, over its eight-year history, a deal-sourcing team of agents globally that are able to reach unlisted, accretive royalty opportunities and sit down face to face with disparate owners of royalties the world over, giving the company a personal touch advantage.
Royalty businesses have numerous advantages over exploration and mining companies
Royalty businesses have numerous advantages over exploration and mining companies, including: removing the single asset risk; offering exploration and mine expansion upside at no additional cost; there’s no capex or cost overrun exposure; no exposure to rising variable costs due to inflation, there’s no limit to growth as execution risk does not rise with each acquisition and; there’s no dilution to royalty economics when operators raise equity.
Before purchasing a royalty, Floyd says Vox considers two important factors. First, the royalty should be generally set to begin production within three to 36 months. And, the project is favoured by the company’s technically-driven analysis of mining engineers and geologists, with a belief that it's going to perform better than expectations.
“There’s a few valuation strategies and methodologies we utilize to determine what price to pay for a royalty, with the biggest one being discounted cash flow where assumptions are everything,” Floyd added.
To a lesser extent, though, Vox uses benchmarking --- that being understanding what others have paid for similar royalties.
“In our decision-making analysis we're really valuing the project on a discounted cash flow probability basis, and testing under different scenarios whether it hits what we need to hit and for us to believe we're going to generate a sufficient risk adjusted return.”
Vox Royalty’s revenue has been growing “exponentially”
Since going public in May 2020, Vox Royalty’s revenue has been growing “exponentially” according to Floyd, which he said is a function of how many assets the company has coming online and going into production.
Vox recently reported second-quarter revenue that surged 144% quarter over quarter to more than C$1.6 million, which it attributed primarily to its Australian assets that included increased royalty-linked production by Mineral Resources Limited (ASX:MIN) at Koolyanobbing, increased production by Karora Resources Inc from the Hidden Secret deposit at Higginsville, and inaugural royalty revenues earned from the Janet Ivy royalty. The company also benefitted from increased production by the operator of the Brauna royalty in Brazil, South America's largest operating diamond mine.
More importantly, though, Vox significantly increased its royalty revenue guidance for 2021 to between C$4 million and C$5 million, double its previously-announced forecast from April, which is also expected to be aided by commercial production from the Segilola gold mine in Nigeria, targeted for September 2021.
The company said its 1.5% net smelter return (NSR) royalty on Segilola has the potential to generate revenue almost five times Vox's initial investment of C$900,000 within a span of three years.
Floyd noted the company currently has five production-stage assets and anticipated that number to nearly double by the end of next year.
Vox Royalty presently owns more than 50 royalties and streams in its portfolio, which continues to grow. Vox also owns royalties in several jurisdictions globally. Floyd said the company is focused on precious metals projects and tends to favour Western Australia, which is ranked as the best mining jurisdiction on the planet based on quality of the geology and mining personnel, according to the Fraser Institute. Vox, however, will also look at the “consumption metals bucket,” namely base and battery metals.
Looking ahead, Floyd said Vox Royalty’s vision is to continue to create value for its investors and become the leading, emerging growth player in the royalty sector.
Contact Sean at sean@proactiveinvestors.com