Metalla Royalty & Streaming Ltd. (MTA:TSX.V; MTA:NYSE American) reported fourth-quarter financials basically as expected, though the year was slightly below original expectations due to delays in first contributions from new mines and costs slightly higher. But with Tocantinzinho and La Guitarra now contributing and an anticipated restart of the Eneavor Mine in Australia in the second quarter, Metalla is set for a strong 2025, with the company guiding for GEO deliveries up over 60% on last year.
Beyond that, there is material growth over the next few years as Copper World starts up and IAMGOLD Corp.'s (IMG:TSX; IAG:NYSE) Côté Mine moves into Metalla's royalty ground, before most of the long-dated copper royalties kick in next decade. The company has about $8 million cash after paying $2 million on its convertible loan facility to clear accrued interest and fees.
There is now nearly CA$15 million outstanding on the facility. We expect the company to use most of its free cash flow to reduce its debt before possibly buying back stock. Metalla has long-been though expensive on a cash-flow basis though inexpensive on the basis of NAV. As more of its major royalties approach development and production, the cash-flow multiple will come down event without any new assets.
Metalla is a Strong Buy here.
Franco's 'Secret Sauce' Pays Dividends
Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) held an "investor day" reviewing how the company approaches transactions, in addition to providing updates on some of the mines on which it holds royalties or streams. Franco emphasized that it aimed to provide high returns by careful asset selection as well as by exposure to assets with great optionality.
CEO Paul Brink emphasized growth on a per-share basis. Recognizing that resources are a highly cyclical business, Franco always looks at a base case scenario before doing deals. Gold is "always out top priority," Brink said, but the company does not want to be dogmatic, and when gold deals are expensive or not available, the company is adaptable to great assets at good entry points in other commodities. It aims to keep non-precious metals to a maximum of 30% of revenue, and within that, energy at a maximum of 20%.
It has a strong balance sheet, with $600 million in cash, after recent transactions, and no debt. Of the cash, about $100 million is held in gold bullion, which it accumulates from royalty ounces received, but is obviously immediately liquid if needed for investments. With an undrawn $1.25 billion revolver, and anticipated cash flow of $250 million plus per quarter, Franco is in a very strong financial position providing it with flexibility for future deals. Retaining that flexibility is why the company eschews debt. This goes along with another major feature of Franco's outlook: it understands well that the resource business is highly cyclical, so having maintaining financial flexibility enables the company to take advantage of opportunities at times when raising capital would be expensive. Management and the board own more than $200 million of stock, far more than among competitors. Franco has increased its dividend 18 consecutive years, with a philosophy that it wants the dividend to be sustainable.
Growth Ahead With New Mines Starting
Franco is looking to increase its GEOs about 7% this year, with gold ounces up, but other GEOs showing down because of conversion to higher gold prices. It is estimates a 25% revenue increase this year. This includes ramp up at recent mines, including Greenstone, as well as new ounces this year, including Sibanye's Western Limbs and Yanacocha. Brink said he was "extremely encouraged" by "the direction of travel" for the potential restart of Cobre Panama, Franco's largest single asset until the mine was shut down at the end of 2023. He indicated that the company would considering pausing its arbitration if requested and if doing so would further negotiations towards a mine restart.
Franco is a core holding for us, but after the recent stock price run up, which partially prices in a Cobre Panama re-start, we are holding.
TOP BUYS this week include, in addition to above, Altius Minerals Corp. (ALS:TSX) and Lara Exploration Ltd. (LRA:TSX.V).
ERRATUM In our last Bulletin, in discussing the reduction in the Federal Reserve's balance sheet, I erred on conflating the numbers for Treasury and Mortgage Backed Securities holdings. The run-off in Treasuries has been reduced from $25 billion per month to $5 billion, but the Mortgage Backed Securities holdings are considered separately, and there is no reduction in the run-off cap for them. In practice, however, the Fed has been selling only half of its MBS cap, about $17 billion a month. Powell has said recently that the Fed would like to exit MBSs. That is coming at the cost of slower reduction in Treasuries — at $5 billion a month, a blip in their $4.24 trillion of holdings. I would not be surprised if this reversed to QE before the end of the year, to aid with the Treasury debt issuance.
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- As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Metalla Royalty & Streaming, Franco-Nevada Corp., Altius Minerals Corp, and Lara Exploration Ltd.
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