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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:

On August 19, Nomad announced it had boosted its royalty on the producing Caserones copper mine in Chile for US$27.25 million in cash.

The Montreal-based company said it had entered into an agreement with private vendors to acquire an effective 0.351% net smelter return (NSR) royalty on the operation, which is located in the prolific Atacama region.

The acquisition is in addition to the effective 0.28% NSR royalty on Caserones that Nomad purchased in May 2021.

On July 29, Nomad revealed that its portfolio continued to show strength in the second quarter to June 30, 2021, as the precious metals royalty and streaming group posted revenue of US$4.6 million and declared a quarterly dividend. 

The firm said the three-month period saw its revenue come from the sale of 2,577 gold equivalent ounces. Nomad also noted that 62% of its revenue in the quarter came from the Americas and 38% from Africa.

Gross profit was US$1.25 million compared to US$215,000 in the year-earlier quarter, while net income came in at US$260,000 (2020: US$7.2 million). Nomad ended the period with US$25.4 million, more than double the figure of US$12.2 million reported in 2Q, 2020.

The company declared a quarterly dividend of C$0.05 per share, payable on October 15 this year.

In June 2021, 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.

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 published August 20, Stifel GMP estimated that the Caserones royalty adds almost 2,500 gold equivalent ounces (GEO) to NSR revenue

The increase represents approximately 6% to more to the research firm’s GEO estimates.

“Nomad is the most inexpensive royalty company in our coverage and our view remains that NSR offers investors the opportunity to participate in the growth and re-rate of this emerging royalty company,” Stifel analysts wrote.

“Separately, we have taken the opportunity to revise our expectation for the Woodlawn stream as the mine continues under care and maintenance.”

The firm is maintaining its Buy rating and C$20 target price on the stock.

What the boss says:

Reporting second-quarter 2021 results on July 29, CEO Vincent Metcalfe told investors in a statement: “Nomad’s portfolio continues to show its strength with some significant developments at our key assets during the quarter.

“In particular, we expect strong growth over the coming years as the ramp-up at the Blyvoor gold mine continues to gain momentum and as Nevada Gold Mines moves towards the development of the Robertson property.

“We are also pleased to have announced the acquisition of a new royalty on the Caserones mine, located in Chile. Our cash flow-focused portfolio continues to differentiate our company from the rest of its junior and intermediate royalty peers.”

Contact Angela at [email protected]

Follow her on Twitter @AHarmantas

Story by ProactiveInvestors


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