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Nomad Royalty Company executing plan for strong organic portfolio growth in 2021

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  • A new generation royalty firm
  • Generating strong free cash flow
  • Already has dividend policy

What Nomad Nomad Royalty does:

Nomad Royalty Company Ltd (TSE:NSR) (OTCQX:NSRXF) called itself a “new generation” royalty firm when its shares began trading on the Toronto Stock Exchange in May last year. 

The group purchases rights to a percentage of the gold or silver produced from a mine for its life.

The Montreal-based firm began trading in Toronto after a reverse takeover, which saw it acquire the royalty portfolio of Yamana Gold and streaming assets from Orion Resource Partners, via two vend-in deals.

Nomad acquired six stream and gold loan assets from the Orion Group for US$268 million and three royalties and a contingent payment on the start of commercial production of one project from the Yamana Group for US$65 million.

In total, the company now holds a portfolio of 14 royalty, stream, and gold loan assets, of which seven are on currently producing mines.

The company is focused on already producing assets or highly de-risked ones. It aims to have the lowest G&A (general and administrative) costs in the sector.

Nomad plans to grow and diversify its low-cost production profile through the acquisition of additional producing and near-term producing gold and silver streams and royalties.

How is it doing:

In June, Nomad Royalty completed its acquisition of an indirect interest in a 0.28% net smelter return (NSR) royalty on the producing Caserones mine in the Atacama region of Chile. 

The transaction adds a new revenue stream while providing the company with measured exposure to copper, a key metal powering the world’s transition to a clean energy economy. 

In consideration for the transaction, Nomad will pay Appian Capital Chile SpA US$23 million in cash plus two million common share purchase warrants, with each warrant entitling the holder to buy one Nomad common share at a price equal to US$1.085 per share for a period of 36 months following the date of the agreement. 

As part of the transaction, the company will acquire a 30% ownership interest in Compania Minera Caserones (CMC), a private Chilean contractual mining company that holds the payment rights to 32.5% of a 2.88% net smelter return royalty on the Caserones mine. Thus, the deal will provide Nomad with two-thirds of the 2Q dividend payment from CMC, which is expected during the third quarter of this year.

The Caserones mine is owned and operated by Minera Lumina Copper Chile, which is indirectly owned by JX Nippon Mining & Metals Corporation. In 2019, Caserones produced 146,000 tonnes of copper and 2,778 tonnes of molybdenum.

Nomad also announced the consolidation of its shares on the basis of one post-consolidation share for every 10 pre-consolidation shares issued and outstanding as of the close of business on May 31.

Meanwhile in May, Nomad reported record first quarter revenue and said a record 5,575 gold equivalent ounces (GEOs) were delivered in the three month period and 5,575 GEOs were sold, up from 3,817 ounces in the first quarter of 2020.

Nomad Royalty‘s revenue came in at US$9.7 million for the first quarter, up from US$6.4 million in the same period a year earlier, while adjusted net income was US$1.9 million, down from US$4.1 million a year earlier. The cash operating margin for 1Q came in at US$7.9 million, up from US$5.9 million in 1Q, 2021. The company ended its first quarter with US$25.3 million in cash, compared to US$4.6 million on March 31, 2020.

The company noted that at its Moss gold mine royalty in Arizona, Northern Vertex Mining Corp, was now conducting an aggressive exploration program with three drill rigs to expand the resource in a bid to extend the mine life and test district-scale targets.

At the Troilus Gold royalty in Quebec, Troilus earlier in 2021 reported positive results on the Southwest zone, including a 200-metre step-out hole, which intersected high-grade gold-bearing mineralization between 50m and 450m from surface, and located outside of the NI 43-101 mineral resource envelope and the open pit proposed in the August 2020 Preliminary Economic Assessment (PEA).

In January 2021, the company said it had acquired a 0.21% net smelter return (NSR) royalty on the near ‘shovel-ready’ Blackwater gold project in British Columbia for around US$3 million in cash and shares. The Blackwater operation continues to head towards production, Nomad said, with financing in place and a definitive feasibility study planned for 2021 and anticipated production earmarked for 2024.

The initial capital needed for the first phase — the first five years of a 23-year mine life — was pegged by the pre-feasibility study (PFS) at C$592 million, with average annual gold output of 248,000 ounces at all-in-sustaining-costs (AISC) of US$508 an ounce.

Inflection points:

  • More royalty/stream acquisitions
  • Precious metal price moves
  • Pre-feasibility study at Blackwater gold project

What the broker says:

In a note to clients on June 8, Stifel GMP analysts re-adjusted their target price on Nomad Royalty (NSR) to C$20 per share to reflect the company’s 10-for-1 share consolidation that became effective June 3. There was no change to their investment thesis.

“We believe NSR is set to display rising scale and one of the strongest growth rates in attributable revenue GEOs (gold equivalent ounces) , relative to peers, resulting in strong cash flow generation in the near-term,” the analysts wrote.

They project a compound annual growth rate (CAGR) in GEO revenue of 24% from 2020 to 2024 for Nomad, as compared with CAGRs ranging between 3% and 14% for its royalty peers (excluding Sandstorm) in Stifel’s coverage.

“We expect that as NSR builds a track record of performance and continues to grow its core revenue-generating portfolio, it should justify correspondingly higher valuation multiples,” they added.

The Stifel GMP analysts said Nomad Royalty is building a diversified precious metals-focused portfolio with strong organic growth and steady cash flow. 

What the boss says:

“Our portfolio delivered a strong first quarter of gold and silver production and represents a great start to the year,” CEO Vincent Metcalfe said in a statement accompanying its latest results.

“Our focus ahead is on maintaining this positive momentum by delivering on our stated goal of delivering value through further deployment of capital in new opportunities across the globe, which coupled with the strong organic growth of our current portfolio will allow Nomad to continue to generate strong free cash flow and support further growth and returns to shareholders.”

Contact Sean at [email protected]

Story by ProactiveInvestors


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