An interview with Matt Fargey, Chief Financial Officer, Maverix Metals Inc. Part of our Junior Mine 2018 series.
Only two years into its existence, Maverix Metals Inc. became the most valuable mining company on the TSX Venture Exchange in 2018.
With a performance like that, Maverix might be a household name today if it had the higher profile of a technology start-up. Instead, the Vancouver-based company is rapidly building a reputation in the mining sector as a successful precious metals royalty and streaming partner with ambitious plans.
Maverix was founded in 2016 by Geoff Burns and Daniel O’Flaherty with the acquisition of a package of 13 royalties and precious metal streams from Pan American Silver Corp. Burns, the Chairman, had previously led Pan American as president and CEO. O’Flaherty, Maverix’s CEO, had worked as an investment banker and mining executive.
Using its common shares as currency, the company quickly acquired 11 more royalties in a geographically diverse portfolio from Johannesburg-based Gold Fields Ltd.
“Within a remarkably short period of six months, the company had more than a hundred-million-dollar market cap, which is nothing short of impressive,” says Matt Fargey, Maverix’s Chief Financial Officer. “We went from a start-up in 2016 to revenue of $19.5 million in 2017, to $25 million in the first nine months of 2018.”
In its search for new royalties and streams, management is focusing on assets that have a clear path to production, offer exploration upside and provide near-term cash flow (Maverix reported cash from operations of $11.7 million in the nine months ended September 30). It also looks for properties in politically friendly mining jurisdictions.
In July, Maverix completed the acquisition of 51 more royalties from Newmont Mining Corp. A number of the assets are generating cash flow today, and Maverix is also seeing some organic growth from the portfolio as more production comes online, Fargey says.
Strong cash flow was instrumental in the company’s ability to secure a revolving credit agreement for up to US$50 million from two Canadian banks in June. It was one of the biggest debt financings of the year among junior mining companies.
Maverix has also benefited from good timing. With the industry still in the early stages of recovery, many junior miners continue to find themselves shut out of the equity market. As an alternative, they’re turning to streaming and royalty companies.
“We're getting approached more and more every day for financing, where historically maybe you were going out and aggressively pursuing business,” Fargey says.
The company is able to draw on the expertise of its biggest partners as it considers new investments. Pan American, for example, has two members on Maverix’s board of directors, while Newmont has one. This network adds insight and experience to Maverix’s decision-making process. There’s an open dialogue with each partner, says Fargey. “All of our interests are aligned, which is a direct benefit to all of our shareholders. They want us to do well, because that helps them do well. And so it's been a good fit for all parties.”
Savvy deal-making helped propel Maverix’s market capitalization up by more than 75% during the year ended June 30, 2018. But Maverix has also benefited from general investor sentiment that has favoured royalty investments over pure-play exploration, development and production companies.
Fargey points to several characteristics of the streaming business model that are now in favour with the market. Royalty companies, for instance, can have dozens of assets around the world producing a variety of revenue streams, a diversification that reduces investors’ exposure to operational risks. These businesses also pay for their royalties up front and receive a steady income stream right away, as long as the underlying mine is producing.
“That gives you effectively almost guaranteed margins, and I think that’s appealing to a lot of investors,” says Fargey.
The streaming model also offers upside potential from any additional revenue generated by successful exploration and development.
Over the next few years, Maverix hopes to take this upbeat story to a broader investor base and move its shares to the Toronto Stock Exchange, potentially securing a U.S. listing in the future. The company also foresees a time when it will follow the lead of larger royalty and streaming players and introduce a regular dividend.
“We’re relatively lightly-traded, but we don’t have a significant retail or institutional base right now,” Fargey says. “A natural path we need to take to increase that liquidity is to promote ourselves and go up to the big board.”
If Maverix executes these steps effectively, it could eventually find itself on one of the key market indices, creating additional demand for its shares. While the company manages its business to reduce exposure to a downturn in precious metal prices, it is leveraged to the price of gold, which means a rise for that commodity would be good for Maverix and the industry as a whole. While there’s uncertainty in the near term, Fargey is optimistic about the long-term prospects for gold prices.
“The debt burden on a global basis right now is unprecedented,” he says. “The only way to repay it is for governments to start printing money. And if that happens, we’re going to see inflation and, hopefully, an increase in the gold price.”
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