Following two successive months of sustained gains, April was a different beast as the mining royalty sector entered a free-fall, with the average share price down 5.2%, the biggest negative movement in the sector since October 2020.
During April-22 over 84% of mining royalty and streaming companies experienced negative share price movements, in what was an absolutely disastrous month for investors in the sector.
All subsets of the sector showed negative price movements, the least-worst subset was the Mid-Tiers, which was down 0.7% on average. The Juniors were down 4.7% on average, Majors were down 6.8%, and the Large-Tiers down 10.2%.
It’s important to point out that this isn’t a royalty sector focused event, as the wider market has also been affected with the S&P 500 down 8.8% and the Dow industrials down 5% in April, the worst monthly performance for the indices since March 2020. Since the start of the year, the S&P 500 has fallen 13%, which is its worst start to a year since 1939.
The reason behind these falls is likely to result from the perfect storm of events during April with concerns around the US Federal Reserve’s pace of monetary tightening to counter the highest inflation in decades, combined with the ongoing war in Ukraine and a Covid-19 outbreak in China both of which threaten to further increase commodity prices. These events combined with low bond prices and higher bond yields are starting to make equities look less attractive.
Majors
Franco-Nevada Corporation (TSX:FNV) was the best performing Major this month after being the worst performer last month, down 5.7% (↑13.7% 3-months) despite no news flow. Franco will publish its first-quarter (Q1) 2022 results this week and it will be interesting to see how the stock reacts if the update is positive.
Royal Gold, Inc. (TSX:RGL) was the worst-performing Major during April after being the best performing Major for the fourth month in a row. Royal Gold was down 7.8% on the month (↑28.3% 3-months).
During the month, the company announced its guidance for the calendar year ended December 31, 2022, with total gold equivalent ounces (GEOs) of 315,000 to 340,000, which was lower than 2021’s actual performance, which appears to have disappointed investors. But it’s worth noting that 2021 was an exceptional year for Royal Gold, with the three highest quarterly GEO volumes in the company’s history, due to strong performance from several key assets across the portfolio, and this was unlikely to be repeated in the following year.
Royal Gold also gave an update on its Q1 2022 results, with 56,500 GEOs sold, comprised of approximately 41,600 gold ounces, 489,200 silver ounces and 1,600 tonnes of copper, during the three-month period ended March 31, 2022. This was slightly above the previous guidance range of 50,000 to 55,000 GEOs, due to the timing of shipments.
Large-Tiers
Deterra Royalties Limited was the best performing Large-Tier, down 0.6% on the previous month, following BHP’s (ASX: BHP) quarterly operational review.
Deterra has an ongoing quarterly royalty payment of 1.232% of Australian denominated revenue from the MAC Royalty Area; and a series of one-off payments of AUD$1 million per million dry tonne increase in the annual production level from the MAC Royalty Area during any 12-month period ending 30 June, above the previous highest annual production level. The current demonstrated annual capacity level is set at 59Mdmt
During the March 2022 quarter, MAC achieved production of 29.3 million wet metric tonnes (Mwmt) (100% basis), this represents a 9% increase compared to the prior quarter. South Flank’s ramp-up to a stated annual full production capacity of an additional 80 Mwmt, on a 100% basis, over three years remains unchanged. An average rate of 58 Mwmt per annum was achieved in the March 2022 quarter.
Labrador Iron Ore Royalty Corp was the worst-performing Large-Tier this month for the second month in a row, down 17.4% (↓11.9% 3-months), after Rio Tinto released its quarterly operational report for the first quarter ending March 31, 2022, which included Iron Ore Company of Canada (IOC) production and sales information.
During Q1 2022, IOC had total iron ore sales in the first quarter of 2022 of 3.43 million tonnes, comprised of 2.41 million tonnes of pellets and 1.02 million tonnes of CFS. Rio Tinto also announced that IOC 2022 production guidance (pellets and CFS) of 17.0 to 18.7 million tonnes remains unchanged. Labrador will be releasing its Q1 2022 results this week.
Mid-Tiers
Nomad Royalty (TSX:NSR) company Ltd was the best-performing Mid-Tier up 12.0% on the month (↑27.0% 3-months, after announcing a friendly acquisition by Sandstorm Gold. At the start of the year, we highlighted that we expected to see ongoing consolidation in the mining royalty sector during 2022, and this latest transition continues to support this.
Nomad’s principal shareholders, Orion Mine Finance Fund II LP and Orion Mine Finance Fund III LP have both entered into irrevocable voting support agreements with Sandstorm, representing in total 61% of the Nomad shares on a fully diluted basis. Directors and officers of Nomad, hold an additional 5% of the company’s shares and have also agreed to vote in favour of the transaction. So, the deal would seem to be almost certain to proceed. At the closing of the Transaction, Sandstorm’s resulting portfolio will total 260 streams and royalties, of which 39 are cash flowing.
Nomad’s shares have been in a downtrend since its IPO in May 2020, and while the pricing of this deal may not have been what Nomad’s shareholders would have hoped for when the company IPO’ed, they will benefit from improved trading liquidity and capital markets exposure as part of Sandstorm.
Anglo Pacific Group PLC (LSE:APF, TSX:APY, OTC:AGPIF)'s was one of only four mining royalty companies in the sector to experience a positive share price performance during April, up 6.4% on the month (↑35.3% 3-months).
During the month Anglo Pacific received a favourable judgment with respect to its legal dispute with Quasar Resources Pty Ltd, the owner and operator of the Four Mile Uranium Mine over which the company has a 1% net smelter return royalty. Anglo Pacific calculates from the start of production to the date of the decision the amount owed to it is c. A$6m (interest and legal costs to be determined).
The company also announced its Q1 2022 results, with a record portfolio contribution of US$43.6m, (Q1 2021: US$4m), a third consecutive quarterly record, up 14.4% on the previous quarter record of US$38.3m in Q4 2021. Pro-forma net debt at 30 April 2022 is expected to be c. US$45m, with Q2 2022 cash flow expected to drive rapid deleveraging. Anglo Pacific is well positioned to finance further growth initiatives with US$120m of liquidity available.
Altius Minerals Corporation (TSX:ALS) was the worst-performing Mid-Tier for the month, down 13.3% on the month (↑18.4% 3-months) despite achieving a new quarterly record in its Q1 2022 results with attributable royalty revenue of US$25.4 million, which compares to $17.8 million in Q1 2021. The market value of its public junior equities portfolio has also increased to $67.3 million, as of March 31, 2022, compared to $55.5 million at December 31, 2021.
Also, Fairfax Financial Holdings (TSX:FFH) Limited, exercised 6,670,000 common share purchase warrants in Altius at a price of C$15 per common share, for gross proceeds of C$100 million, which represented 13.94% of the company’s shares. This cash injection will further strengthen Altius balance sheet.
Juniors
Star Royalties Ltd (TSX-V:STRR) was the best performing Junior and the best performing mining royalty company overall this month, up 35.4% on the month (↑20.4% 3-months) following the publication of its FY 2021 results. Revenue increased to US$691,621 in 2021 compared to US$9,801 in 2020 and net loss increased to US$2,669,282 in 2021 from US$799,892 in 2020.
The company also announced a fourfold expansion of its agreement with Blue Source, LLC, to create premium, verified carbon offset credits that will reward the adoption of regenerative agriculture practices by North American farmers. The company expects the expanded programme to start generating credits for the 2023 growing season, with Locus AG beginning farmer enrolment within the coming months. The enlarged programme is expected to generate over 2 million premium carbon offset credits per annum on average, which will be available for sale in the voluntary carbon marketplace.
Nova Royalty Corp. (TSX-V:NOVR) was the worst-performing Junior during the month, down 18.8% (↓13.0% 3-months) after announcing its FY 2021 results. Revenue increased to US$703,044 in 2021 compared to US$2,063 in 2020 and net loss increased to US$9,424,264 in 2021 from US$3,420,989 in 2020. In 2021, Nova nearly doubled its royalty exposure on Taca Taca (First Quantum) and added royalties on West Wall (Anglo American and Glencore), Vizcachitas (Los Andes Copper), and Copper World and Rosemont (Hudbay).