In a Sept. 23 research note, analyst Puneet Singh reported that iA Securities initiated coverage on Nomad Royalty Company Ltd. (NSR:TSX; NSRXF:OTCQX) with a Buy rating and a CA$2.30 per share target price. In comparison, Nomad is trading at about CA$1.24 per share.
Singh explained why Nomad offers a ground floor investment opportunity for potentially immense rewards.
First, the business model of this Quebec-headquartered company is "high margin, safe and proven at providing returns," the analyst indicated. Royalty firms offer safer gold exposure because they lack the capital and cost risks of traditional mining businesses.
"Over time, most royalty firms have been able to return in excess of 25% CAGR since their inception," Singh noted.
Second, producing or near producing assets already comprise the bulk of Nomad's net asset value (NAV). Producing assets account for 32% of NAV and include the Mercedes/South Arturo silver stream, the gold prepay loan, the Bonikro gold stream and the Riacho dos Machados royalty. Another 46% of NAV consists of near-term production assets, which include the Blyvoor gold stream and the Woodlawn silver stream. Those are scheduled to ramp up in 2021-2022.
"By 2022, we estimate that Nomad will produce about 32,000 ounces of gold equivalent (i.e.,) up 87% on 2020E," Singh wrote.
Third, Nomad has been "aggressively looking for new deals to add, from the onset," indicated Singh. Since going public in May, Nomad announced three deals. They are a 1% net smelter returns (NSR) royalty on the Troilus mine in Québec, a 1–3% NSR royalty on the operating Moss gold mine in Arizona and a 1–2.25% NSR royalty on the Robertson deposit in Nevada's Cortez Trend.
"We would expect Nomad to continue to remain active trying to source new deals," Singh commented.
Fourth, Nomad has the benefit of a management team that is experienced and adept at initiating, executing and closing royalty/streaming transactions. The company's three co-founders previously worked at Osisko Royalties and while there, expanded the entity from a single non-smelter returns royalty to where it is today.
"Given management's track record and what they've done at Nomad so far, we think the team is well equipped and well versed to be competitive in a growing field of peers," noted Singh.
He concluded his report with the recommendation that investors buy into Nomad now before it re-rates higher. History shows that those who bought a royalty company in its early days, Singh added, always got an excellent return on their investment. Already Nomad has initiated an annual dividend of C$0.02 per share.
"As assets are added, diversification increases, and float (in top shareholders' best interest) and liquidity expand, Nomad will rerate higher," he purported.
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Disclosures from iA Securities, Nomad Royalty Company Ltd., Initiating Coverage, September 23, 2020
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