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Thursday, February 02, 2017 Derek Macpherson

MMX adds Cash-Flow Generating Royalties


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Yesterday, Maverix Metals Inc. (TSXV:MMX) announced it has entered into an agreement to acquire a 3.25% NSR on Rye Patch Gold Corp’s (TSXV:RPM) Florida Canyon gold mine and an additional 1.5% gold NSR and 0.5% nickel NSR on RNC Mineral’s (TSXV:RNX) Beta Hunt mine, increasing its portfolio to 27 streams and royalties. We expect the transaction to add ~20-25% to Maverix’s current attributable production profile of 12k AuEq oz per year. Consideration for the proposed transaction is US$5.0 million cash and ~8.5 million Maverix shares, implying a total value of C$19.6 million based on Maverix’ close price on January 31, 2017 of C$1.54/sh. We view the transaction positively, as it should meaningfully add to Maverix’s near-term cash flow. We note that Maverix trades at a slight premium to peers on a NAVPS basis and significant premium on 2017e EV/CF; we believe this to be reflective of this new entrant’s growth potential both from its development stage royalties and ability to do accretive acquisitions like the one announced yesterday.


Transaction likely to increase Maverix’s 2017e cash flow. By way of the transaction, Maverix would add a 3.25% NSR on all metal production from Rye Patch’s Florida Canyon gold mine in Nevada. The mine is expected to be re-commissioned in Q1 2017 with an average annual production of 75k oz Au over eight years. Maverix also added a 1.5% NSR on all gold production and 0.5% NSR on all nickel production from certain areas of RNC Mineral’s Beta Hunt underground mine in Australia. RNC Minerals expects gold production from Beta Hunt to amount to 65-70k oz Au in 2017. Given Maverix’s previous royalty interests in the Beta Hunt mine, it now holds an aggregate royalty interest of 7.5% of gold and 1.5% of nickel production at Beta Hunt. Based on Rye Patch and RNC’s guidance for 2017, this transaction could increase Maverix’ previously announced 2017 gold-equivalent attributable production estimate of 12k oz by ~20-25%.

Valuation reflects this new royalty player’s growth potential. Maverix currently trades at a premium to peers at 1.72x NAV and 36.4x 2017E EV/CF vs peers at 1.51x NAV and 21.8x 2017E EV/CF. In our view, the company’s premium valuation is reflective of its growth both from its development stage royalties and ability to do accretive acquisitions like the one announced yesterday. Based on the company’s most recently reported cash balance and Pan American Silver’s (TSX:PAA) recent warrant exercise, we believe Maverix has the cash on hand to fund this acquisition.


Derek Macpherson | VP Mining Analysis
Sunneva Bernhardsdottir | Associate, Mining Analysis
Victoria Ellis Hayes | Associate
 
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Priced as of prior trading day's market close, EST (unless otherwise noted).
All values in USD unless otherwise noted

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Company Specific Disclosure Details
Maverix Metals Inc - TSXV:MMX - 2,4
Rye Patch Gold Corp - TSXV:RPM - None
RNC Mineral Corp - TSX:RNX - 2,4
Pan American Silver Corp - TSX:PAA - None

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