Welcome back to another update reviewing the opportunities in the mid-tier and junior royalty companies. In the first 3 articles in this series, we established the key value drivers, diversification advantages, risk mitigation advantages, and large net asset value per employee found in the royalty and streaming companies. We also broke down the general definitions and deal mechanics around royalties and streams. Additionally, we highlighted the first 3 companies in this category;Sandstorm Gold (SSL.TO) (SAND), Metalla Royalty & Streaming (TSX.V:MTA – NYSE:MTA), and Elemental Altus Royalties Corp. (TSXV: ELE) (OTCQX: ELEMF).
Here is a link to [Part 1]:
https://excelsiorprosperity.substack.com/p/opportunities-with-mid-tier-and-junior
Here is a link to [Part 2]:
https://excelsiorprosperity.substack.com/p/opportunities-with-mid-tier-and-junior-6b8
Here is a link to [Part 3]:
https://excelsiorprosperity.substack.com/p/opportunities-with-mid-tier-and-junior-f34
Here in [Part 4] of this series we’ll be taking a deeper look into company number 4 –Vox Royalty Corp. (TSX:VOXR) (NASDAQ:VOXR).
Personally, I have been investing in and position-trading around a core position in Vox Royalty since first being introduced to the company and management in early March of 2022. Over that time, I’ve sold some shares into rips and bought some shares into dips, and for a few brief periods exited the position completely, before reestablishing a new trade. My most recent position was started in September of 2023 last year, and I see it as a longer-term value investing position that I just plan to hold onto moving forward. I see the precious metals bull market (and overall commodities bull market) as being technically and fundamentally in a solid leg higher for the next couple of years; and sleep easy at night knowing that a portion of my resource portfolio is stashed inside of royalty companies for longer term steady growth. One doesn’t need to stay vigilant or fret about royalty companies with the same intensity that one does with individual mining stocks; due to the business model’s diversified risk mitigation that we’ve discussed in prior articles.
Vox is now a perpetual accumulation position in my personal portfolio, like most of the royalty companies we are discussing in this series will be moving forward. (not investing advice, just sharing what I’m doing in my own investing journey). I actually just added a little bit to my (VOXR) position earlier this week with a funds harvested from recent gains in silver and gold producers that had made big moves. Personally, I still see a significant opportunity for Vox Royalty to be rerated higher, just to get it more in alignment with other peer royalty company valuations. The Company’s organic growth profile within it’s existing royalty portfolio is another value driver, as is the propensity of the management team to continue making accretive acquisitions.
So let’s get into it…
Maybe it’s a bit non-traditional, but before going into the general summation of the business and royalty portfolio metrics, I’m just going to jump straight to a graphic table that shows the rerating potential in relation to peers that the company highlights on their slide deck as it relates to it’s Enterprise Value (EV) divided by it’s royalty revenue. While this is just one metric for consideration and just one angle to compare companies on, it is a compelling point as to how much more royalty revenue Vox has in relation to it’s current EV, giving it the smaller multiplier. The larger the number highlights less revenue in proportion to current EV, and that is worthy of consideration for where other companies are valued. The caveat being that this is a moving target, and some peer companies are going to see a large pickup in their royalty revenues as large projects come online or existing projects expand operations, thus their royalty revenue to enterprise value ratios will come down in tandem. Still, in the here and now… Vox does appear to have the best revenue to EV metrics, and so this could represent one area for a rerating higher, as it appears to be punching above it’s weight class.
Another area the company highlights in their slide deck, and the CEO of Vox Royalty, Kyle Floyd, often points out in interviews and presentations, is that Vox has had a very high return on invested capital. For the capital deployed thus far, the revenues generated in proportion to that invested capital has yielded superior returns. In the table below in 2023, Vox generated $12.3 Million in revenue in relation to the overall $55 Million in capital invested, giving them a revenue/capital invested ratio of 22%. That is substantially higher than peer companies shown and not shown, and is another feather in the cap of the management team at VOX Royalty.
The reason I kicked things off with those peer comparisons was 2-fold.
1) My personal investing thesis was swayed enough to stay positioned and recently even add to my personal position after considering how undervalued Vox Royalty appears in relation to peers on those metrics. This was more important to my personal decision making to get a position started a couple years back and has only increased my confidence in buying VOXR while it is undervalued, more so than any particular royalty or royalties that the company holds. I like their royalties a great deal too, but was just highlighting what got me to take action personally.
There are of course many more considerations than just those metrics when comparing royalty companies. One must also consider the size and scope of royalty portfolios / the quality of project operators on the properties the royalties cover / the cost quartile of those operators / the mine life of projects hosting the royalty assets / jurisdictional diversification or exposure to riskier jurisdictions / the overall pipeline of development projects moving towards production / the size of deals they acquire based on revenues and any revolving credit facility, etc…. It’s a complicated stew of factors for considering and weighting that will be unique for each investors unique risk/reward preferences.
Regardless of the myriad of factors for consideration, in a nutshell, VOXR just seems really undervalued in relation to the sector valuation means, and my thesis is that eventually the market will value the company higher more in alignment with peers.
2) The other reason for starting off showcasing the high return on invested capital, plays to the Vox Royalty strength and distinguishing factor of sourcing unique royalty transactions from non-traditional 3rd party royalty holders. Vox highlights their proprietary database of royalties as a competitive advantage.
I remember when Vox first came on the scene in a bigger way, and that it was surprising to me that many retail investors, (and even supposed experts or pros in the resource sector) scoffed at and dismissed this proprietary database, or they rolled their eyes about it as being nothing more than a marketing gimmick. However, when I pressed those same folks to see if they’d actually reviewed some of the deep value royalty deals that the Vox team had sourced, I found that they had rarely dug into the details on the capital deployed versus the expected returns. If those critics had done more homework on the deals generated from this database, then they would have turned those eye rolls into raised eyebrows of interest.
It is now pretty obvious that this database of royalties has already proven it’s worth. The Company was able to source valuable royalty deals from a hearing aid company, a telecommunications company, a doctor in West Africa, and from a family estate, just to name a few examples. Again, those are non-traditional holders of mining royalties.
This means these royalties are often sitting unrecognized or underappreciated by other types of companies or families that are not following the mining sector as closely, and frankly have little interest in mining. These royalties are also not typically being shopped with several competitive offers by other royalty companies; so the Vox team is journeying on the road less traveled. This has and likely still will allow the Vox team to scoop up incredible value that will then become more evident to the market over time.
Alright… with some of those key points out of the way on the undervaluation and a key competitive advantage in the royalty space, now let’s finally dig into the portfolio of 67 royalties held by Vox Royalty, of which 6 are producing, and there is near-term production potential from another half dozen development-stage assets nearing production or production in a part of a deposit germane to the royalty in place.
It should be noted that slide above is already out of date, due to recent news out earlier this week, of another acquisition of 4 more royalties, and the rights to one production-linked milestone payment. So, 71 royalties now… and growing.
Vox Completes Acquisition of Strategic Australian Royalty Portfolio - May 14, 2024
Spencer Cole, Chief Investment Officer of Vox stated: “We are excited to complete this Australian royalty portfolio investment and we expect meaningful revenue from Castle Hill from early 2026 onwards. Of note, this transaction increases our large-cap operator portfolio weighting to over 65%, adding 3 assets operated by Australian gold producer Evolution Mining, who produced over 650,000 gold ounces and meaningful amounts of copper in the 2023 fiscal year. This portfolio also provides Vox investors with added copper, cobalt and rare earth metals exposure across the Halls Creek and Broken Hill royalties. Vox now owns over 50 separate Australian assets, the majority of which are benefiting from the ‘rising tide’ of record high AUD-denominated gold and copper prices.”
https://voxroyalty.com/_resources/news/nr-20240514.pdf
So this brings up 2 more key points about Vox Royalty.
1) They are a diversified royalty company across a number of metals, but with 70% being focused on precious metals
2) They really have a knack and knowledge for sourcing deals in Australia
In their recent Letter To Shareholders from last month, CEO Kyle Floyd, had a section in there about their competitive advantage in Australia. (see below)
Why we put ‘down under’ on top
“Acknowledging the risk of sounding like a ‘broken record’ on the merits of Australia as the premier global mining jurisdiction, we’d like to share some less obvious facts that support our strongly held internal view that our ~70% royalty weighting to Australia will ultimately trade at a premium.”
“The Fraser Institute ranked Western Australia 2nd for global mining investment attractiveness in their most recent 2022 survey2 just behind Nevada, falling from the top position in 2021. However, on a country-level, the survey confirmed that ‘considering both policy and mineral potential, Australia continues to be the most attractive region in the world for mining investment’.”
“Permitting timeframes for greenfields projects continue to be the fastest in the world in Western Australia (3 – 5 years from greenfields discovery to full development) versus North American jurisdictions, such as, Nevada (5 – 10 years typically) and Ontario (10 – 15 years typically).”
It goes on from there to make more points in Australia’s favor as a jurisdiction. Anyone interested can read the rest on the Vox April 25th, 2024 “Letter To Shareholders” linked below.
https://voxroyalty.com/_resources/reports/Vox_2024_Shareholder_Letter.pdf
Over at the KE Report a couple weeks ago, we interviewed Kyle Floyd, CEO and Chairman of Vox Royalty, and much of the impetus to connect again and record a call together came from that recent letter sent out to shareholders. We reviewed their growth strategy for 2024, after a record 2023 in operational results, revenues, and cash flows on a per share basis from their portfolio of royalties. We also outline a few partner project updates that represent deep longer-term value in their royalty portfolio, and look forward to future acquisitions.
We lead off with some of the points that Kyle made in their investor letter, released on April 25 titled “On the Path of Totality.”
“…In the last few months, more and more people have gotten caught up in the mania and paid a higher price for late planning and forecasting. In my personal life, career, and especially at Vox, I have always attempted to forecast and plan ahead. It’s something that our executive team also innately embraces and focuses on. Much more time is spent talking about tomorrow versus today because the returns generated today were paved by yesterday’s hard work. As a result, sometimes we have been early on our corporate strategy without immediate reward for what, similar to a total eclipse, can be readily calculated and expected well in advance. This is the phenomenon that I believe we are experiencing with our portfolio of royalties in Australia. The value that is readily apparent to us and can be forecasted with high confidence is not being valued appropriately at present, resulting in an opportunity for those willing to do the math in advance and make appropriate preparations.”
Expanding upon this premise, we have Kyle outline one of the assets in the Vox Royalty portfolio that was acquired last year that they see on this pathway to clear value – the royalty on Northern Star’s Red Hill mine. Recent news released by Northern Star highlights a significant exploration and development update for the Red Hill gold project in Western Australia, with a 58% resource upgrade, a maiden reserve declaration, and further disclosure around development assumptions. Vox management estimates that this Red Hill gold royalty has the potential to generate approximately US$10 millionin initial annual revenues, over a potential mine life that is still to be determined by Northern Star.
Vox Royalty – 2024 Strategy For Growth – On The Path Of Totality – May 6, 2024
{BTW - that was a very dated headshot of Kyle used in the YouTube still, because at the time that is all I could find online, but I scraped this photo off a recent video with Kyle to show that his hair has grown in, just like Vox’s asset portfolio has grown in. :-) }
To put a visual on the Vox organic revenue growth, they break down some royalties on developing projects getting near production in the next 2-3 years, and then the next batch after that 3-5 years out. So in addition to the re-rating potential at Vox just in relation to peer valuations, there is all this organic growth on tap, and then on top of that more growth through acquisitions (as noted above with 4 more royalties coming into the fold this week).
For folks that would like to dig in more granularly to all the royalties in the Vox portfolio, there is a wealth of information inside their Asset Handbook:
https://www.voxroyalty.com/_resources/handbooks/VOX-Asset-Handbook.pdf?v=2
That’s it for this [Part 4] in this evolving series on junior and mid-tier royalty and streaming companies, and there will be a number more of these articles on this topic in the weeks and months ahead.
As always, thanks for reading and may you have prosperity in your trading and in life!
- Shad
