Mining Royalties vs Streams | The Acquirer's Multiple®

During his recent interview on The Acquirers Podcast with Tobias, Spencer Cole, CIO at Vox Royalty discussed Mining Royalties vs Streams. Here’s an excerpt from the interview:

Tobias: When you first contacted me, I saw your Vox Royalty and Streaming, and I didn’t initially think that that was going [crosstalk] to be a mining royalty. What’s the basis for the terms, royalty and streaming? What’s the difference between those two things?

Spencer: They’re two different investments, but I guess related cousins. A royalty is typically an upfront percentage of future revenue or profit. You make a one-off investment to acquire the royalty, and then, you sit back and you get checks as production occurs. A metal stream is a different type of commodity-linked investment. With a metal stream, typically, you’ll pay a certain amount upfront to acquire the stream, but then, on an ongoing basis, you’ll get paid a certain percentage of that metal being produced out of that mine, and then, you’ll also refund them a percentage of their operating costs.

What’s very common is for example, if you’ve got a copper mine that might produce, let’s say, $100 million of copper a year, and then, it produces $10 million of gold a year as a byproduct metal. Often, that company will come along, and they’ll say, “I want to buy 50% of all the future gold that comes out of your copper mine.” That company might buy the metal streaming contract for say, $20 million today, and then, with every ounce that’s mined, they get 50% of all the ounces, and they might pay a pre-agreed percentage of operating costs, so 20% of their operating costs. It’s I guess a related cousin to royalties, but the key difference is, there’s an ongoing OPEX reimbursement, whereas with royalties, your upfront investment is your last investment.

Tobias: What was the experience going from being a startup, basically, operating an online database to being acquired by a listed company in the States? Sorry, in Canada, rather?

Spencer: It was interesting journey, to be perfectly frank, we were using that database as market makers or creating a marketplace for mining royalties. Then, we’d been approached by a number of different investment funds and principal investors to basically acquire our business and our intellectual property. When we first met the Vox team back in mid-2018, there was an alignment of values and alignment of vision as to how both the commodity and mining industries were evolving, and then also, the implications that would have for the royalty industry. We saw the value of what we’d created in our intellectual property, and we wanted to ensure that we were basically unlocking the maximum amount of value out of that by choosing the right partner to vend that intellectual property into. The Vox team, they’re a fun group of people, and we saw the world through similar lens.

But we started working together initially sourcing opportunities, and then, once we realized that, we could work really well together, then, we entered into an agreement to basically, formally, vending our intellectual property for equity. Importantly, my partner and I, Riaan, we didn’t want to take a single dollar off the table when we solve that intellectual property. We see the value of what this database, and what within Vox can create. We said, we only want to take equity, and moreover, we want to invest more into the IPO when we went public May of last year.

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