197 (10.06.18)


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M&A

Maverix Pushes Royalty Deals Through $22bn

Revenue and dividends in the royalty & streaming sector have risen to record levels, leaving companies cashed-up for further transactions

Unheard of a decade ago, the royalty and streaming sector has done over $22bn of deals, following a $100m agreement announced last week by Vancouver-based Maverix Metals, its seventh acquisition in two years.
    Maverix has bought a portfolio of royalties off gold giant Newmont, including claims over two gold mines in Canada and several projects in Nevada, nearly doubling Maverix's revenue, tripling the number of royalties in its portfolio and continuing a breathless run of transactions by chief executive Dan O'Flaherty.
    “We are not stopping here,” said O'Flaherty, who previously worked as a banker to the streaming sector, joining Maverix when it launched in 2016. The company's shares have since risen fivefold. “We intend to continue to grow.”
    Maverix is one of several new players to break into the royalty and streaming niche in recent years, paying upfront for a chunk of a mine's future metal.
    Led by the sector's two largest players, Franco-Nevada and Wheaton Precious, royalty and streaming groups closed over $6bn of deals when mining markets tanked in 2015 and 2016, turning the model from a fringe form of financing into one of the industry's best sources of capital.
    That deal binge is now feeding through into record revenue and rising cash levels, according to data compiled by Global Mining Observer. Revenue has grown from $298m to $2.3bn in ten years and the peer group is sitting on over $1bn of cash. It is also paying out record dividends, kicking-back $338m to investors in the last 12

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months, up 24 per cent from the year before.
    Royalties are going to be “one of the key tools of any CFO in the industry from hereon,” says Stanley Dempsey, who founded Royal Gold, the sector's third-largest player. “There's plenty of runway, but I see it as becoming a conventional approach, not something novel.”
    As the model becomes more widespread, private equity players are moving in on the niche. New York-based Orion, which began as a copper trader, recently sold a royalty package to Montreal-based Osisko, another new royalty player, for C$1.13bn ($839m), but immediately re-entered the space, signing a $150m lithium stream last month.
    New York-based hedge fund Elliott has also launched a $1bn streaming vehicle, Triple Flag, investing $700m in five deals in two years, prompting concerns that the sector is now highly competitive. “As more players join the fray, probably a bit of efficient market hypothesis comes in here,” one senior banker says. “It's going to trim away the returns.”
    “There is always some form of competition and the royalty sector is no different,” says O'Flaherty, 35. Mining companies have “embraced” the model, he says, as a way to share risk. “We are in a unique size range, where we can complete acquisitions that are meaningful to us, but may not necessarily move the needle for larger companies.”
    Revenue in the sector is meanwhile rising faster than its combined market cap of $33bn, suggesting multiples are stable, whilst deal yields remain high: Triple Flag is generating around $45m of cash flow, rising to $70m in the next three years, with metal on its key agreements coming in 16 per cent above forecasts.
    Streaming and royalty groups are providing “much needed growth and balance-sheet-repair capital at a time when traditional markets are not reliably available,” says Triple Flag's chief executive Shaun Usmar. “There seems to be a misplaced fear that additional entrants are driving up pricing, but the bigger picture is that the market is large. We are seeing a lot of deal flow.”
    Usmar was previously finance director of Barrick, the world's largest gold producer, and says “greater choice” gives CFOs “a mature and deep alternative” when it comes to financing assets and deals.
    “Everyone's generating new royalties, so I actually see the universe for us continuing to expand,” says David Harquail, CEO of Franco-Nevada, which invented the model in the 1980s. “When the gold industry starts building again we're going to be an even bigger source of capital for building the next wave of mines.”

 

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A decade of deals:

$22bn

Royalty & streaming groups have done $22bn of deals in ten years; with another $1bn in cash, they look primed for further transactions

$2.3bn

The ten largest royalty groups generated $2.3bn of revenue last year, up nearly tenfold from $298m in 2007 when the peer group first emerged

$1.9bn

The sector has paid-out $1.9bn in dividends. Franco-Nevada, Wheaton Precious and coal royalty group Anglo Pacific have been the biggest payers