Mike Hansen
YCharts
Here's the latest on EMX Royalty Corporation (NYSE:EMX), a global royalty and prospect generator boasting a portfolio of over 250 projects. As of May 25, I classified the stock as a HOLD when it was trading at $1.81. Since then, it has dropped 3.3%, underperforming the S&P 500, which has risen nearly 8%. I mentioned that, despite its positive trajectory over the past year and increased cash flow from several royalties, EMX had not seen significant stock price appreciation.
However, I also highlighted that any price below $1.80 would offer a good entry point for long-term investors willing to be patient.
I believe that the stock's underperformance is likely a result of its ongoing Timok royalty dispute, which is not yet settled (by nearing a resolution), and potential concerns over falling copper prices in 2024, should a U.S. recession materialize. EMX holds numerous copper royalties, including a significant one on the Caserones mine in Chile.
That said, the stock is becoming increasingly attractive, particularly in light of recent positive developments. These include promising exploration results from partner AbraSilver; an early $2.5 million payment from Aftermath Silver; and a royalty partnership with Franco-Nevada (FNV).
Given these positive signals, I am updating EMX Royalty's status to BUY, as further elaborated below.
AbraSilver Keeps Hitting it Big at Diablillos
AbraSilver
AbraSilver, a mining exploration company, is aggressively developing its wholly-owned Diablillos silver-gold project in Argentina's mining-friendly Salta province. EMX has a 1% Net Smelter Return (NSR) royalty on all metals produced from this project.
Initially a side note in the portfolio acquisition from SSR Mining (SSRM), this royalty is shaping up to be a valuable asset for EMX, and perhaps its strongest developmental royalty.
Here's why: Diablillos is an already considerable silver-gold resource that's poised to become a profitable, producing mine. Its current estimates point to 90 million ounces of silver and 1 million ounces of gold (measured and indicated).
However, recent discoveries in the new "JAC Zone" suggest the possibility of an even larger and higher-grade resource.
According to AbraSilver, "The newly discovered JAC zone adds an exciting new layer to the Diablillos project and significantly expands its silver resource potential."
Recent drilling data support this optimistic outlook:
A record-breaking silver intercept of 127 meters at 646 g/t AgEq, 506.2 g/t Ag, and 1.99 g/t Au.
Other noteworthy results this year include 1,042 g/t silver over 12 meters and 19 meters at 253 g/t Ag. These are among the most impressive drill holes year-to-date in the silver industry.
These high-grade findings, starting close to the surface, indicate the potential for cost-effective open-pit mining.
While it's still a relatively early-stage project, investors can look forward to further exploration results, plus updated technical studies that will likely confirm this as a top-tier asset.
Aftermath Silver Pays EMX Early
In a favorable turn of events, Aftermath Silver has paid EMX Royalty an early $2.5 million, well ahead of the originally scheduled due date in November 2023.
Aftermath holds the option to acquire the Berenguela project in Peru, an arrangement that EMX inherited when it purchased the royalty on Berenguela from SSR Mining Inc.
In recognition of the early payment, EMX has reciprocated by agreeing to postpone the next due payment of $3 million-originally scheduled for November 2024-until May 2025.
Aftermath's President and CEO stated that the revised terms will enable the company to concentrate on ongoing metallurgical tests on Berenguela's silver-copper-manganese mineralization. Additionally, it will allow time to focus on engineering studies, integrating these test results into a forthcoming Preliminary Economic Assessment (PEA).
Moreover, EMX is set to receive another $3.25 million cash payment on the sixth anniversary of the initial closing date, which falls in November 2026.
EMX retains a sliding-scale NSR royalty on all future mineral production from the Berenguela project. This royalty structure is as follows:
A 1% NSR when silver prices trade up to $25 per ounce.
A 1.25% NSR royalty when silver exceeds $25 per ounce and when the copper market price is above $2 per pound.
This early payment is a win-win scenario for both EMX and Aftermath Silver. For EMX, it means immediate cash to bolster its financials.
For Aftermath, it provides the opportunity to expedite engineering and metallurgical work in preparation for the initial PEA, benefiting all stakeholders in the long run.
Franco and EMX partnership: Great News
In a strategic move that should excite investors, EMX Royalty and Franco-Nevada have broadened their partnership with a new royalty acquisition agreement. As a brief reminder, Franco-Nevada became a significant shareholder in EMX last year, investing $10 million in the company's shares.
EMX Royalty
Now, the relationship is set to grow stronger. According to the new agreement, both companies will jointly acquire newly created precious metals and copper royalties sourced by EMX. Franco-Nevada will contribute up to $5.5 million (or 55%) towards these acquisitions, while EMX will chip in up to $4.5 million (or 45%).
Once acquired, the resulting royalty interests will be evenly split between the two parties, 50/50. The initial term for this collaboration is three years from the signing date, or until the total contributions from both companies reach $10 million, according to the news release.
This joint venture is particularly promising for EMX's long-term growth. According to the company, it allows EMX to "channel a larger portion of its capital towards new royalty acquisitions, either through exploration royalty financing or other innovative avenues."
What makes this alliance even more noteworthy is Franco-Nevada's size and industry reputation. It is not just any company but is the world's largest, and perhaps most respected, royalty and streaming firm.
While it's speculative at this stage, the strengthening relationship could well set the stage for even greater investment in EMX by Franco-Nevada, if not an outright acquisition. This is merely speculation on my end, but investors should take this potential scenario into consideration.
Either way, this partnership looks like another step in the right direction for EMX.
EMX Royalty: The Bottom Line
The compelling valuation of EMX Royalty, combined with a string of recent positive developments, has led me to upgrade the stock's rating to BUY at this juncture. Although an entry point below $1.70 would be even more attractive, the stock is trading close enough to that level to warrant serious consideration.
EMX's global royalty portfolio remains significantly undervalued by the market, despite substantial progress in its development and exploration royalties this year. While risks do exist-such as the uncertainty surrounding the Timok royalty dispute, potential dips in copper prices, and other unforeseen developments-the stock's proximity to its 52-week lows makes it increasingly appealing.
Moreover, the company's near-term profitability prospects are encouraging. With the early Berenguela payment, the possibility of a Timok dispute resolution (which would give EMX a royalty payment from existing production dating back over a year), and continued cash flow from its existing royalties, EMX is poised for profitability in the upcoming quarters.
In summary, despite some near-term risks to the stock price, the current valuation and the slate of positive news make EMX Royalty a stock worth considering for commodity bulls looking for exposure to a diversified, global portfolio of royalties.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
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