In an Oct. 21 research note, analyst Trevor Turnbull reported that Scotiabank initiated coverage on Nomad Royalty Company Ltd. (NSR:TSX;NSRXF:OTCQX) with a Sector Outperform rating "because of its best-in-class cash flow and production growth." Scotiabank's one-year target price on the company is CA$2 per share, which compares to about CA$1.23 per share currently.
Turnbull provided his investment thesis for this newly formed royalty and streaming company.
Montreal-headquartered Nomad owns five precious metal streams, four gold royalties and one gold loan. Its assets are located in eight jurisdictions in Australia, Africa and North America.
With its business model, the mining company offers investors leverage to rising bullion prices without the costs and risks associated with building and operating mines, the analyst noted. The company also offers upside from increases to production, mine lives, resources and exploration without having to make additional investments. Nomad pays a quarterly dividend of CA$0.02 per share.
With 74%, or eight, of its assets expected to generate cash flow in 2020, Nomad has more active projects than three of its peers, Maverix, Osisko and Sandstorm. Of this group, Nomad has the highest projected 2020–2023 cash flow and production CAGR, of 31% and 29%, respectively.
"We have a high degree of confidence in these numbers and our valuation," Turnbull commented.
He highlighted that Nomad's projected production growth through 2023 and beyond "stands out," and will result from the ramp-up of existing assets and further royalty/streaming acquisitions. For example, the Blyvoor mine in South Africa is scheduled to pour gold by year-end and ramp up in 2021. The Woodlawn mine in Australia is expected to increase production in 2022. The Robertson property in Nevada is anticipated to start generating cash flow in 2027.
Nomad is well positioned financially to make more deals as it has a growing cash balance, available liquidity and no debt.
"We estimate that the company is able to deploy approximately $100 million from cash and up to a $75 million revolving line of credit," noted Turnbull. Scotiabank estimates Nomad will have $25 million in cash at the end of this year.
Another positive to the Nomad story is that its three co-founders and executives, Vincent Metcalfe (CEO), Joseph de la Plante (chief investment officer) and Elif Levesque (chief financial officer), previously worked together, in the royalty/streaming space, for many years.
"We believe this is a valuable benefit that greatly reduces the learning curve," Turnbull wrote.
As for Nomad's stock, corporate partners Orion Mine Finance and Yamana Gold, along with Nomad management and directors, own about 90% of it.
Looking forward, Turnbull indicated that upcoming catalysts for Nomad include production announcements, such as Blyvoor's first gold by year-end 2020; development milestones, including the finalization of the Woodlawn strategic process and subsequent restart plans; and asset derisking, namely completion of technical reports and detailed mine plans for Blyvoor, Bonikro and Woodlawn.
[NLINSERT]Disclosure:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
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Disclosures from Scotiabank, Nomad Royalty Company Ltd., October 21, 2020
The Research Analyst(s) responsible for the preparation of this document may interact with trading desk personnel, sales
personnel and other parties for the purpose of gathering, applying and interpreting market information.
In the normal course of offering investment and banking products and services to clients, Scotiabank may act in several capacities (including issuer, market maker, underwriter, distributor, index sponsor, swap counterparty, and calculation agent) simultaneously with respect to a product, giving rise to potential conflicts of interest. Scotiabank uses controls such as information barriers to manage conflicts should they arise. Scotiabank and its affiliates, officers, directors, and employees may have long or short positions (including hedging and trading positions), trade as principal and buy and sell in instruments or
derivatives identified herein; such transactions or positions may be inconsistent with the opinions expressed in this document.
Recipients of this document should expect that Scotiabank will from time to time perform services (including investment banking or capital market services) in connection with the services and activities described in this document and that they may perform services for and engage in transactions with other market participants, including the issuers of certain of the investments underlying the transactions herein.
I, Trevor Turnbull, certify that (1) the views expressed in this report in connection with securities or issuers that I analyze accurately reflect my personal views and (2) no part of my compensation was, is, or will be directly or indirectly, related to the specific recommendations or views expressed by me in this report.
Research Analyst compensation is not based on investment or corporate banking revenues; however, compensation may relate to the revenues of Scotiabank as a whole, of which investment banking, corporate banking, sales and trading are a part.
