Valuing Royalty Companies - Nomad

Back in February I introduced a framework for doing a rough valuation on royalty companies and took a look at Sailfish using that framework.  

Then looking at the impact of indexation (GDX and GDXJ) on Twitter Nomad Royalty popped up on my radar again.  Today I'm going to look at their assets in more detail.

This is a good time to mention that despite the name "Latin Mines" I invest in many jurisdictions, I just find that Central and South America often have the best combination of risk/reward.  

Nomad has 8 producing assets and 15 assets total.

Note that projects with $0 have value but my estimate is less than $1m USD.  Projects with $0* probably have value too, but I can find no information even to make an educated guess as to their value.

Investment Discussion

Nomad's recent market cap was around $415m.  So my bottoms up asset valuation of $458m came in awfully close.  I do think they'll get a slight re-rate as they get a NYSE American (AMEX) listing that opens up more US based investment.  I think they'll get another bump when they get added to the GDXJ index.

That said, I'm not investing today.  One of the benefits of this type of analysis is that you can see which projects matter and which don't.  If you look at RDM for example you could take the value to $0 or double the value and the overall change isn't substantial.  

However, Blyvoor is ascribed 43% of the valuation, and it's just not a project I'm in love with.  Complicated stream structure, not really upside to it, the operating company doesn't have a lot of transparency, it's not a jurisdiction I'm in love with, etc.  

I also don't like the lack of transparency in Nomad's disclosures.  I think they did a reverse stock split, I didn't see a press release.  I see limited maps of what their royalties cover on projects so I don't know what of the current resource is really covered and what of the potential exploration upside there is.  Also on Woodlawn they list the status as "temporary care and maintenance" with no mention of the financial risk of the operator or that the whole stream could be at risk.  In their financials I don't see asset level revenue breakdown and they only have 8 producing assets.

I do think they have some nice development assets.  Suruca, Blackwater, Robertson, & Trolius are clean NSRs on great projects.  I've also probably given them less of a discount than most analysts would give to development projects at similar stages.

The Royalties

For all these we'll use gold spot price of $1778.33/oz and silver at $26.03/oz.  Using US dollars.

Riaco Dos Machados (RDM)

RDM is producing so we value it based on royalty ounces of reserves plus resources but excluding inferred.
1% NSR on reserve+resource of 1,259,000 oz Au = 12,590 royalty oz Au.  $22.38 million USD.

The extra 470k in Inferred gives us peace of mind, but we won't put a value on it.

Chapada Suruca Gold

2% NSR on reserve+resources 2,500,000 oz Au.  50,000 royalty oz Au.  $89M USD if in production.

This project has a final feasability study and is in the hands of Lundin Mining, which has an active mill 7km away where they would process the material and where they are currently processing copper/gold material.  The oxide portion would be heap/leached and the Sulphide could either be run through the Chapada flowsheet towards end of mine life or a seperate CIL plant could be built.  Lundin Mining has plenty of capital.  I'll give it an75% chance of becoming a mine.

Discounted down to $67M with the 75% probability.

Blackwater

0.21% NSR on reserves+resources 11,672,000 oz Au, 122,381,000 oz Ag.  $57m if in production.

Have environmental assesment approval and first nations agreement.  Aiming to start of construction Q2 2022.  I'll give it a 75% chance of becoming a mine.

Discounted down to $43M with the 75% probability.

Mercedes

It's a complicated stream, but appears to be capped at 9k oz of gold and has been in production for 10 years, so I am assuming that there are no future gold deliveries.  I'm also assuming we are past the 100% silver stream and into the 30% silver stream.  Thus  the 20% payment on the 30% stream I'm converting to a 0.24% NSR Equivalent.  I'm happy for clarification on the stream payments.

5,042,000 oz Ag.  0.24% NSR(Eq) = $315k

Blyvoor

This is another complicated stream, and is also capped.  So I hate it.  The whole point of royalties is to participate in the upside exploration.  It also doesn't have a 43-101 report despite having 20Moz of gold (report due soon).  But let's try anyway.

$572/oz stream payment is like getting $1208/oz at current prices.  So we can treat stream ounces as 67% NSR ounces

300k oz Au * $1780* 0.67 = $362m.  

Thats on the first 3Moz-6Moz produced depending on timing.  Followed by another 0.5% stream up to 10.32Moz produced.  So another 4-7Moz * 0.5% * 67% = 134k-234k oz Au royalty(Eq).  Or $228m-$400m

First pour ramping up to full production.

I really don't know how to value this one, so let's call it $200m to discount the lack of exploration upside and weird structure.

South Arturo

It's a little dissapointing that the exploration area only has 50% silver stream while the existing areas have 100% royalty stream.  The 20% of silver price is nice on the stream.  We'll assume no exploration areas were included in the PFS and we won't give a discount for the lower stream value on exploration.  80% NSR(Eq) on existing silver resource.

5,841oz Ag * 80% NSR = 4672 royalty oz Ag.  $121k

Woodlawn

Another complicated stream.  Tiered streams based on volumes, zinc stream paid in silver.  This one on a recently open mine that then shut due to financial trouble and the start of covid.  It's not clear if this polymetalic VMS mine will reopen again someday or not.  It may take higher lead and zinc prices.

Reserve+resources 17,461,000 oz Ag.  

1,700,000 + 500,000 + 3,515,250 = 5,715,250 royalty oz Ag based on tiered royalty. $149M if in production.

714920 royalty oz Ag on the Zn stream = $18m

0.2% lead marketing fee

Let's call that $150m if in production.  

Unfortunately, it looks like the parent company is going through bankrupcy.  And in most jurisdictions and structures royalties go with the land but streams go with the company.  Value $0

Moss

The NSR is 0.5% to 3% and doesn't cover all of the claims for the mine.  M&I of 360,000 Au, 4,463,000 oz Ag.  Nomad doesn't help us understand which royalty rate applies to what part of that.  So the range is 1,800 royalty oz Au &  22,315 oz Ag to 10,800 royalty oz Au & 133,890 oz Ag.  $4 - $22M.  Or less if the mineralization is outside the royalty area.  I'll give it to them at their purchase price of $7m.

Bonkiro

Newmont sold this as non-core in 2018.  Nomad paid $47m USD(Eq) for it, much of that in shares.  There is no mineral resource estimate.  It's on the Ivory Coast, not a tier 1 jurisdiction.  It's not clear which part of the project the stream covers.  Nor does Nomad break down revenue by stream/royalty, only by continent.  

I'm putting a value of $0 on this even though it is in production and they paid a large sum of money for it, because I have no visability into a way to value it.

Robertson

Development stage asset in Tier 1 jurisdiction (Nevada, USA).  2Moz Indicated+Inferred.  Has a PEA and an environmental assesment by Nevada Gold Mines (JV between Barrick & Newmont).  If it's not in production by 2025 there is a $500k annual royalty.  Royalty is a sliding scale 1%-2.25% increasing with the price of gold.  It's also near other operating mines and near a mill.

Let's assume all those 2Moz get moved to M&I, that the royalty rate is 1.75% (based on current gold prices).  That's worth $62m USD.

I think this becomes a mine.  I'll value it at 75% of what it would be valued if it were in production.  Call it $46m.

Trolius

It's a brownfields mine restart in Canada, so permitting is less likely to be a headache.  It has lots of gold.  The 2020 PEA had 4.3Moz Au M&I, 2.7Moz Au Inferred, 6.6Moz Ag M&I, 3.9Moz Ag Inferred, 323Mlb copper M&I, 190Mlb copper Inferred.  They are expecting a 2021 PFS to be bigger.  It already has an electric substation connected to hydro power, road, tailing storage area, etc from the remnants of the previous mine.

They seem to still be growing the resource.  Let's simplify and call it 8.2Moz Au and ignore the silver and copper.  Simple 1% NSR royalty.  If this were in production we'd call it $145m USD.

I'll call it 50% discount for any potential permitting/funding issues and the time it takes to get it to production.  Call it $73m.  

Gualcamayo

Sandstorm has much better disclosure on their royalty on this project including a map of their roaylty area and breaking down production history.  Nomand should take note that this is the level of disclosure investors expect and that they don't provide.  Give us a real asset book!

Yamana sold this mine in 2018 as non-core.  They kept a royalty which is how Nomad ended up with it.  It's in San Juan, Argentina which is a great mining jurisdiction at the state level in a country that is kind of a mess.  Overall most people consider San Juan to be a stable mining jurisdiction, call it Tier 1b or 2a.

As for valuing this project who knows.  What area does Nomad have a royalty on?  What's the recent few quarters/years production?  What's the reserve/resource/inferred?  I know none of these things from any Nomad disclosure.  So I have to assign it a value of $0 because I can't make even an educated guess.