FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022
This Management's Discussion and Analysis ("MD&A") is intended to help the reader understand the significant factors that have affected the performance of Maverix Metals Inc. and its subsidiaries (collectively "Maverix", "we", "us", "our" or the "Company") and such factors that may affect its future performance. This MD&A should be read in conjunction with the Company's unaudited condensed interim consolidated financial statements for the three and six months ended June 30, 2022 and related notes thereto which have been prepared in accordance with International Financial Reporting Standards ("IFRS"), applicable to preparation of interim financial statements including International Accounting Standard 34-Interim Financial Reporting, as issued by the International Accounting Standards Board ("IASB"). Readers are encouraged to consult the Company's audited consolidated financial statements for the year ended December 31, 2021 and related notes thereto, which are available under Maverix's profile on SEDAR at www.sedar.com or EDGAR at www.sec.gov. All amounts are in U.S. dollars unless otherwise indicated.
Readers are cautioned that the MD&A contains forward-looking statements and that actual events may vary from management's expectations. Readers are encouraged to read the "Forward-Looking Statements" at the end of this MD&A and to consult Maverix's unaudited condensed interim consolidated financial statements for the three and six months ended June 30, 2022 and related notes thereto which are available on SEDAR at www.sedar.com and on Form 6-K filed with the United States Securities and Exchange Commission on EDGAR at www.sec.gov.
Additional information, including the primary risk factors affecting Maverix, are included on our Annual Information Form ("AIF") and Form 40-F available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov, respectively. These documents contain descriptions of certain of Maverix's royalty, stream and other interests, as well as a description of risk factors affecting the Company.
Maverix is a resource-based company that seeks to acquire and manage royalties and metal purchase agreements (a "Stream" or "Streams") on projects that are in an advanced stage of development or on operating mines producing precious or other metals. Royalty interests ("Royalty" or collectively, "Royalties") are non-operating interests in mining projects that provide Maverix with the right to a percentage of the gross revenue from the metals produced from the project (a "Gross Revenue Royalty" or "GRR") or the net revenue after the deduction of specified costs (a "Net Smelter Returns Royalty" or "NSR" royalty). Under a Stream interest, Maverix makes an upfront payment to acquire the Stream and then receives the right to purchase, at a fixed or variable price per unit based on the spot price of the precious or other metal, a percentage of the life of mine production or a specified time period.
The Company's business strategy is to acquire existing Royalty and Stream interests, or to finance production, development, or in some circumstances, exploration stage projects in exchange for Royalty or Stream interests. In the ordinary course of business, Maverix engages in a continual review of opportunities to acquire existing Royalty or Stream interests, or to create new Royalties or Streams on operating mines, development projects and exploration projects. The Company currently has over 120 royalties, stream and other interests, of which 14 of the underlying interests are paying, excluding royalty payments from industrial minerals and power assets.
Acquisition of Gold Royalties in Nevada
In March 2022, the Company acquired three royalties on gold projects located in Nevada in exchange for a $5.0 million cash payment. The royalties include:
1 Refer to section on non-IFRS and other measures of this MD&A.
In January 2022, the Company entered into a prepaid gold interest agreement with Elevation Gold Mining ("Elevation"). The Company made a cash payment of $6.0 million to Elevation and in return Elevation will provide the Company six quarterly deliveries of certain amounts of gold plus the equivalent amount of gold equal to $1.0 million beginning in March 2022 (the "Elevation Prepaid Gold Interest"). The Company will make ongoing cash payments equal to 5% of the spot gold price for each gold ounce delivered.
On August 11, 2022, the Board of Directors of the Company declared a quarterly dividend of $0.0125 per common share payable on September 15, 2022 to shareholders of record as of the close of business on August 31, 2022.
Given the ongoing uncertainty relating to the Company's Omolon royalty, Maverix is excluding attributable Omolon GEOs from its outlook for the second half of 2022. Excluding any contribution from the Omolon royalty in the second half, we expect 28,000 to 31,000 attributable GEOs2 for 2022, which compares to the previously announced outlook of 32,000 to 35,000 attributable GEOs2 for 2022, inclusive of the attributable GEOs from the Omolon royalty.
On July 21, 2022, Polymetal International plc ("Polymetal") announced that production targets were achieved for the second quarter. In Q2, the Omolon mine produced approximately 43,000 ounces of gold and 100,000 ounces of silver. However, international sanctions against Russia continue to have a material impact on sales, procurement and logistics. Restrictions in the second quarter forced Polymetal to reduce shipments of gold creating a gap between sales and production. Maverix reports revenue and GEOs based on ounces sold and not produced and, therefore, recognized almost none of the approximately 1,100 attributable GEOs produced in the second quarter. Polymetal has noted the gap between sales and production will likely be closed in the third quarter as Polymetal ramps up export sales to various Asian markets, but the exact timing is difficult to judge. Polymetal has reiterated its production guidance for the year, however, it did note a risk of underperformance given persistent lockdowns in Asia. Maverix understands that proactive contingency planning has been initiated by Polymetal to maintain business continuity in the event of adverse developments, but no assurances can be made in this regard. The conflict between Russia and Ukraine and any restrictive actions that have or may be taken in response thereto, such as sanctions, export and or currency controls, have caused and could have further negative impacts on Polymetal's ability to continue operation of Omolon and could further inhibit Polymetal's ability to make payments to the Company. Maverix continues to work with Polymetal to effect payment of royalties from Omolon in a way that does not breach any relevant sanctions.
For more information, please refer to polymetalinternational.comand see the news releases dated July 21, 2022, June 23, 2022 and April 25, 2022.
Portfolio of Royalty, Stream and Other Interests Owned by Maverix
The Company owns over 120 Royalties, Streams and other interests. Maverix has 14 Royalties and Streams that are currently paying, including three in Australia, three in the United States, three in Mexico, two in Canada, and one in each of Honduras, Burkina Faso and Russia. In addition, the Company owns a number of Royalties and Streams on development and exploration/evaluation stage projects in North America, South America, and Australia, amongst others. The Company uses "evaluation stage" to describe exploration stage properties that contain mineralized material and on which operators are engaged in the search for reserves. We do not conduct mining operations on the properties in which we hold Royalty and Stream interests, and we are not required to contribute to capital costs, exploration costs, environmental costs or other operating costs on those properties.
1 Statements made in this section contain forward-looking information. Reference should be made to the "Cautionary Statement on Forward-Looking Information" section at the end of this MD&A. For a description of material factors that could cause our actual results to differ materially from the forward-looking statements, please see the "Risk Factors" section in the most recent AIF and Form 40-F available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov, respectively.
2 Refer to section on non-IFRS and other measures of this MD&A.
The following table summarizes Maverix's principal Stream and other interests:
(1) Amount of gold that is equivalent to all dividends distributed by Auramet International LLC on 2% of its shares.
(2) After 3.5 million ounces of silver are delivered, Maverix's silver purchase entitlement will be 50% of the remaining life of mine silver production.
The following table summarizes Maverix's principal Royalty interests:
(1) Royalty is on oxide and transitional ore only.
(2) Royalty covers a portion of the existing mineral resource.
(3) NSR royalty covers a portion of the existing resource and decreases to a 1.0% NSR Royalty after CAD$10 million in royalties have been paid.
(4) Royalty applies to the Gemfield deposit.
(5) Royalty applies to 85.5% of total production.
(6) NSR royalty not payable until after a recoupment period.
(7) 2.0% of the NSR royalty only covers a portion of the deposit.
(8) Royalty applies to the Touquoy deposit.
(9) Royalty applies to 25% of gross revenues from all metals sold from Cerro Casale and Quebrada Seca. Payment commences after $10.0 million is payable under the agreement.
(10) In June 2022, Orla Mining Ltd. ("Orla") and Gold Standard announced they had entered into a definitive agreement whereby Orla will acquire all of the issued and outstanding shares of Gold Standard.
(11) Royalty applies to the Taviche Oeste concessions.
Portfolio Updates - Paying and Operating Assets:
Polymetal announced operations in Russia continue undisrupted and reiterated its full-year production guidance, with a risk of underperformance given persistent logistical constraints and the impact of sanctions. Sales of gold bullion from Russian mines to diverse Asian markets returned to regular schedule after a significant slowdown in April and May. Sales logistics continue to experience significant challenges due to certain restrictions and the impact of sanctions, leading to slower inventory turnover and higher costs. The gap between production and sales is likely to be closed during the third quarter as Polymetal ramps up export sales to various Asian markets, but the exact timing is difficult to judge.
Polymetal's procurement initiatives continue to adapt to the current environment with orderly replacement of sanctioned equipment, consumables and supplies with alternatives from Russia, and other countries. Recently, Japan joined western countries and imposed additional sanctions against Russia prohibiting exports of industrial goods and technologies. The majority of existing contracts with foreign suppliers continue to be honoured and Polymetal maintains a significant inventory of critical consumables and spares.
Polymetal has stated that sanctions announced between March 9, 2022, and June 23, 2022, did not have a material impact on its business and it complies rigorously with all relevant legislation and is implementing comprehensive measures to observe all applicable international sanctions. Polymetal has cautioned the scope and impact of any new potential sanctions or counter sanctions are yet unknown and contingency planning has been initiated to maintain business continuity. Polymetal believes that targeted sanctions on the company remain unlikely but are not impossible.
For more information, please refer to polymetalinternational.comand see the news releases dated June 23, 2022, July 19, 2022, and July 21, 2022.
Orla declared commercial production at its Camino Rojo oxide mine effective April 1, 2022, after a successful commissioning period which included the ramp up of mining and processing to sustained throughput levels. In the second quarter, Camino Rojo had record quarterly gold production of 25,672. Camino Rojo's processing throughput for the quarter averaged 18,245 tonnes per day, exceeding nameplate capacity of 18,000 tonnes per day.
For more information, please refer to orlamining.comand see the news release dated July 11, 2022.
Beta Hunt (4.75% Gold Royalty + 1.5% Nickel Royalty)
Karora Resources Inc. ("Karora") announced the drilling of the highest grade interval to date at Beta Hunt's Larkin Zone, 29.8 grams per tonne ("g/t") gold over 7.8 metres, as part of its ongoing underground diamond drill program at Beta Hunt. Results from the drilling program support and extend the mineralization already defined by the current Larkin mineral resource and provide strong encouragement for potential high-grade mineralization to continue at depth. Work on the second decline at Beta Hunt continues to track on budget, and ahead of schedule, with an expected completion date of Q1 2023.
Karora announced an updated nickel measured and indicated resource estimate for Beta Hunt that showed an increase of 22% to 19,600 tonnes of nickel and an increase in the nickel inferred resource of 52% to 13,200 tonnes of nickel. The significant addition includes the Maiden 50C Trend resource comprising a measured and indicated resource of 153,000 tonnes at 2.8% nickel for 4,300 tonnes of nickel and an inferred mineral resource of 124,000 tonnes at 3.1% nickel for 3,800 tonnes of nickel. The 50C Trend is part of the Gamma Block Nickel mineral resource which is defined over 800 metres of strike with potential to extend a further 1.8 kilometres to 2.6 kilometres along strike. The updated mineral resource will be used to support a preliminary economic assessment of expanded nickel production at Beta Hunt.
For more information, please refer to karoraresources.com and see the news releases dated July 19, 2022, July 14, 2022, and May 11, 2022
Navarre Minerals Limited ("Navarre") announced further outstanding high-grade gold, silver and copper drilling intercepts at the Mt Carlton United ("MCU") deposit. The latest drilling results include a highlight intercept of 2 metres at 99.1 g/t gold and add to the satellite deposits defined at Telstra Hill, Delta and BV7. The results from MCU further reinforce the outstanding prospectivity of the broader Mt Carlton area and support Navarre's strategic objective of growing the mineral inventory and extending the mine life. While drilling continues in 2022 as part of an ongoing exploration program, Navarre anticipates these recent drilling results will inform an updated resource estimate for MCU, which is expected to be published in Q4 of this year.
For more information, please refer to navarre.com.auand see the news release dated July 25, 2022.
On June 2, 2022, Silver X Mining Corp. ("Silver X") announced the results of a new Technical Report for the Nueva Recuperada silver-polymetallic project ("Recuperada") in Huancavelica, Peru. The report included an updated mineral resource estimate for Recuperada which almost tripled the size of the measured, indicated and inferred silver equivalent resource and provides Silver X with a clear road map to further expand production. Measured and indicated mineral resources now total 0.8 Mt at 118.5 g/t Ag, 2.85% Pb, and 2.16% Zn. Inferred mineral resources total 14.9 Mt at 162.65 g/t Ag, 2.54% Pb, and 2.50% Zn.
For more information, please refer to silverxmining.comand see the news release dated June 2, 2022.
Endeavour Mining plc ("Endeavour") announced that it had closed the sale of its 90% interest in its Karma mine to Néré Mining. Néré Mining is a Burkina Faso based consortium led by a board member of both Karma and a subsidiary of Endeavour that holds the mining license for the Endeavour Group's Mana mine. In early June, mine operations were suspended to focus on securing the site following a security incident at the mine.
For more information, please refer to endeavourmining.comand see the news release dated March 11, 2022.
Significant Portfolio Updates - Development and Exploration Assets:
Gold Standard and Orla announced they entered into a definitive agreement whereby Orla will acquire all of the issued and outstanding shares of Gold Standard. Gold Standard's primary asset is the 100% owned South Railroad project located in the prolific Carlin trend in Nevada. Gold Standard previously released the results of a robust feasibility study on the South Railroad project which outlines a 10.5-year mine life with total gold production of over one million ounces and average gold production of 152,000 ounces over the first four years.
For more information, please refer to goldstandardv.comand see the news releases dated February 23, 2022, and June 13, 2022.
Agnico Eagle Mines Ltd. ("Agnico Eagle") announced that drilling continued to ramp-up in Q2 2022, completing 30,761 metres (46,658 metres year to date) with three drill rigs now operating underground at Doris, three drill rigs targeting deep extension at Doris and a seventh drill rig operating at Madrid. Drill results continue to show excellent potential at Doris at depth highlighted by 12.2 g/t gold over 7.1 metres at 456 metres depth from BTD Connector and 20.9 g/t gold over 2.3 metres at 344 metres depth from BTD Extension. In 2022, Agnico Eagle originally expected to complete 80,000 metres of drilling in a $32.2 million exploration program that will include $17.9 million to develop new exploration drifts and 29,000 metres of underground drilling at the Doris deposit. On the back of the drilling success at Doris in the first half of 2022, Agnico Eagle is considering an increase to the exploration budget for the second half of 2022. Exploration is expected to continue through 2023 while a larger production scenario is being evaluated.
For more information, please refer to agnicoeagle.comand see the news releases dated February 23, 2022, and July 27, 2022.
Centerra Gold Inc. ("Centerra") announced it completed the acquisition of the Goldfield District project ("Goldfield") for $206.5 million. Goldfield is a conventional open-pit, heap leach project located in Esmeralda County, Nevada. Goldfield is comprised of three known deposits including the Gemfield, Goldfield Main, and McMahon deposits. The Gemfield deposit is fully permitted and shovel ready and was identified by Centerra as the first pit for potential development. In 2019, Waterton Global Resource Management, Inc. ("Waterton") announced it was completing a feasibility study for the project with project average annual production in excess of 125,000 ounces of gold. Centerra expects to release an updated resource estimate in the first half of 2023 and an updated feasibility study thereafter.
For more information, please refer to centerragold.comand see the news releases dated February 22, 2022, and February 28, 2022.
Montage Gold Corp. ("Montage") announced the results of a definitive feasibility study ("DFS") for the Koné gold project in Côte d'Ivoire including an after-tax net present value of $746 million and an internal rate of return of 35% at a $1,600 per ounce gold price. The DFS outlined a 14.8-year mine life with average annual gold production of 257,000 ounces in the first nine years and an average of 207,000 ounces over its mine life. The permitting process at Koné is well underway with all requisite approvals expected in the third quarter of 2022 and an advisor has been appointed to assist Montage in the raising of project finance for the development of the project.
For more information, please refer to montagegoldcorp.comand see the news releases dated February 14, 2022, and March 9, 2022.
Bluestone Resources Inc. ("Bluestone") announced the results of a feasibility study on its flagship Cerro Blanco project in Guatemala. The feasibility study outlined a robust, high-grade operation with average annual production of 241,000 ounces of gold over the first 10 years of operation and an initial mine life of 14 years with additional opportunities to extend the mine life given the extensive exploration potential of the land package. Bluestone recently submitted the environmental permit amendment application for the change in mining method and based on current estimates Bluestone believes it will be possible to receive approval of the permit amendment by the end of the year, followed by a construction license and a forestry license.
For more information, please refer to bluestoneresources.caand see the news releases dated February 22, 2022, and June 6, 2022.
Panton (2.0% NSR on Platinum Group Metals ("PGM"))
On June 21, 2022, Future Metals NL ("Future Metals") announced an updated mineral resource estimate for the Panton PGM-Nickel project ("Panton") of 5.0 million ounces of palladium, platinum and gold and 238 thousand tonnes of nickel, at a grade of 1.66 g/t palladium equivalent. The updated resource confirms the Panton deposit to be of a global scale and the second largest PGM deposit in Australia. Future Metals continues to progress the metallurgy work at Panton and are able to move towards a scoping study to make a preliminary assessment on the best path forward.
For more information, please refer to future-metals.com.auand see the news release dated June 21, 2022.
i-80 Gold Corp. ("i-80") announced that the underground, advanced-exploration, program at the McCoy-Cove project is progressing according to plan. The Cove mine portal has been collared and more than 300 metres of the decline has been constructed. The Phase 1 program will include the construction of an initial level with multiple drill bays to provide access for upgrading resources. Approximately 40,000 metres of underground definition and expansion drilling is anticipated to commence in Q4 2022 followed by a feasibility study anticipated to be completed in 2023.
For more information, please refer to i80gold.comand see the news release dated July 21, 2022.
Integra Resources Corp. ("Integra") announced a simplified strategy to advance the heap leach stage of the project into permitting and development on a standalone basis. Permitting work at DeLamar has been initiated and baseline study work is well underway to support the submittal of a Plan of Operations in H1 2023. Advancing the DeLamar gold-silver project towards permitting and development of the heap leach stage as a standalone mining operation is a lower cost, lower risk option, creating strong economic returns and rapid payback. Non-oxide milling expansion will continue to be optimized through further study work and can be pursued under the right market conditions.
For more information, please refer to integraresources.comand see the news release dated April 21, 2022.
Coeur Mining Inc. ("Coeur") announced that work has commenced to assess the economics of a potentially larger expansion and restart of the high-grade Silvertip property in British Columbia. The review is evaluating the potential to target a higher throughput to take advantage of the significant resource growth and on a timetable that would sequence an expansion and restart following completion and commissioning of the Rochester mine expansion. Results from this ongoing work are expected by the end of the year.
Coeur continues to generate positive results from ongoing exploration as highlighted by the silver, zinc and lead measured and indicated resources increasing year-over-year by approximately 51%, 33% and 44%, respectively. Silver, zinc and lead inferred resources also grew by 48%, 37% and 40%, respectively, during the same period. A total of approximately 102,275 metres were drilled in 2021 and up to seven core drill rigs were active during the fourth quarter (five on surface and two underground) focused on expansion drilling at southern portions and deeper extensions of the Southern Silver, Discovery South and Camp Creek zones. In 2022, Coeur plans to continue the resource growth program and follow up drilling activity on the newly discovered zones. Recently, surface and underground drilling led to the discovery of a new high-grade chimney west of the Camp Creek resource located at a shallower depth, called Camp Creek West.
Given the ongoing impressive drill results at Silvertip, Coeur plans to invest additional capital to accelerate activity during the second half of the year. For 2022, capital expenditures are now expected to be approximately $28-36 million (previously $18-24 million). The revised figures reflect increased underground development and infill drilling.
For more information, please refer to coeur.comand see the news releases dated February 16, 2022, April 28, 2022, and August 3, 2022.
(in thousands of USD, except for GEO and per share amounts)
(in thousands of USD, except for GEO and per share amounts)
1 Refer to section on non-IFRS and other measures of this MD&A.
Changes in sales, net income and cash flow from operating activities from quarter to quarter are affected primarily by fluctuations in production at the underlying mines, the timing of shipments, changes in the price of commodities, as well as acquisitions of Royalties, Streams and prepaid gold and other interests and the commencement of operations of mines under construction. For more information, refer to the quarterly commentary below.
Three Months Ended June 30, 2022 Compared to the Three Months June 30, 2021
For the three months ended June 30, 2022, the Company had net income of $2.8 million and cash flow from operations of $8.0 million compared with net income and cash flow from operations of $3.7 million and $8.8 million for the three months ended June 30, 2021. The decrease in net income and cash flows were attributable to a combination of factors including:
For the three months ended June 30, 2022, the Company had total revenue of $14.2 million and GEOs of 7,6491 compared with total revenue of $14.3 million and GEOs of 7,8801 for the three months ended June 30, 2021.
The following table summarizes the Company's total revenues and GEOs for the three months ended June 30, 2022 and 2021:
1 Refer to section on non-IFRS and other measures of this MD&A.
2 Other includes revenues generated from mines located in Russia, Honduras, Chile, Peru and Burkina Faso.
Six Months Ended June 30, 2022 Compared to the Six Months June 30, 2021
For the six months ended June 30, 2022, the Company had net income of $6.3 million and cash flow from operations of $16.0 million compared with net income and cash flow from operations of $18.5 million and $22.3 million for the six months ended June 30, 2021. The decrease in net income and cash flows were attributable to a combination of factors including:
For the six months ended June 30, 2022, the Company had total revenue of $28.9 million and GEOs of 15,3861 compared with total revenue of $27.4 million and GEOs of 15,1821 for the six months ended June 30, 2021.
The following table summarizes the Company's total revenues and GEOs for the six months ended June 30, 2022 and 2021:
1 Refer to section on non-IFRS and other measures of this MD&A.
2 Other includes revenues generated from mines located in Russia, Honduras, Chile, Peru and Burkina Faso.
For the Three Months Ended June 30, 2022 Compared to Other Quarters Presented
When comparing net income of $2.8 million and cash flow from operations of $8.0 million for the three months ended June 30, 2022 with net income and operating cash flows for other quarters presented in the table of Summary of Quarterly Results above, the following items impact comparability of the analysis:
Total assets increased by $1.0 million from March 31, 2022 to June 30, 2022 primarily resulting from accrued royalty income and sales during the period and a $2.0 million change in fair value of the Company's prepaid gold interests. The increase in total assets was partially offset by depletion of the Company's royalty, stream and other interests.
Total assets increased by $2.1 million from December 31, 2021 to March 31, 2022 primarily resulting from accrued royalty income and sales during the period and a $1.5 million change in fair value of the Company's prepaid gold interests. The increase in total assets was partially offset by depletion of the Company's royalty, stream and other interests.
Total assets decreased by $8.0 million from September 30, 2021 to December 31, 2021 primarily resulting from the $11.0 million repayment of the Company's credit facility and depletion of the Company's royalty, stream and other interests. The decrease in total assets was partially offset by royalty revenue and sales and the proceeds from the exercise of warrants.
Total assets increased by $33.5 million from June 30, 2021 to September 30, 2021 primarily resulting from the acquisition of the Auramet prepaid gold interest, which was financed by drawing $23.5 million on our credit facility and cash on hand and the proceeds from the exercise of warrants and options. The net increase in total assets from the acquisition of the Auramet prepaid gold interest was partially offset by the cash consideration paid from the Company's cash on hand and depletion of the Company's royalty, stream and other interests.
Total assets increased by $5.0 million from March 31, 2021 to June 30, 2021 primarily resulting from the acquisition of a royalty portfolio from Pan American Silver Corp. ("Pan American"), which was financed by the issuance of common shares of the Company and a cash payment of $7.0 million. The net increase in total assets from the acquisition of the royalty portfolio from Pan American was partially offset by the cash consideration paid of $7.0 million and depletion of the Company's royalty, stream and other interests.
Total assets decreased by $17.6 million from December 31, 2020 to March 31, 2021 primarily resulting from the $32.0 million repayment of the Company's credit facility, the decrease in the Hope Bay royalty interest from the partial buyback, and depletion of the Company's royalty, stream and other interests. The decrease in total assets was partially offset from the $50.0 million received from the partial buyback of the Hope Bay royalty interest.
Total assets increased by $54.2 million from September 30, 2020 to December 31, 2020 primarily resulting from the acquisition of a royalty portfolio from Newmont, which was financed by the issuance of common shares of the Company and a cash payment of $15.0 million. The net increase in total assets from the acquisition of the royalty portfolio from Newmont was partially offset by the cash consideration paid of $15.0 million, a $3.0 million repayment under the Company's credit facility and depletion of the Company's royalty, stream and other interests.
The Company has included, throughout this document, certain performance measures, including (i) adjusted net income and adjusted basic earnings per share, (ii) average realized gold price per GEO, (iii) average cash cost per GEO, (iv) cash operating margin per GEO, and (v) operating cash flows excluding changes in non-cash working capital. The presentation of these non-IFRS and other measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These non-IFRS and other measures do not have any standardized meaning prescribed by IFRS, and other companies may calculate these measures differently.
1 The Company's royalty revenue and silver sales are converted to a GEO basis by dividing the royalty revenue plus silver sales for a period by the average gold price based on the LBMA Gold Price PM Fix per ounce for the same respective period. Total GEOs sold includes the GEOs from the Company's royalty revenue and silver sales plus the gold ounces sold from the Company's gold Stream and prepaid gold interests.
As at June 30, 2022, the Company had cash and cash equivalents of $17.1 million (December 31, 2021: $17.1 million) and working capital of $39.2 million (December 31, 2021: $33.3 million). As at June 30, 2022, the Company had $147.5 million available under its credit facility.
For the six months ended June 30, 2022, cash flow from operations was $16.0 million, compared with $22.3 million for the six months ended June 30, 2021, with the decrease primarily attributable to the timing of receipt of royalty receivables related to the Omolon royalty. During the six months ended June 30, 2021, the Company received $2.5 million for previously deferred amounts for a portion of the Hope Bay royalty revenue and $2.5 million for the remaining amount owed under the Beta Hunt royalty amendment completed in September 2020.
Cash flow used in investing activities
For the six months ended June 30, 2022, the Company had net cash outflow of $13.1 million from investing activities primarily due to the acquisitions of the Elevation Prepaid Gold Interest for $6.0 million, the three royalties on gold projects located in Nevada for $5.0 million and $2.0 million of investments. For the six months ended June 30, 2021, the Company had net cash inflows of $53.5 million from investing activities primarily due to the proceeds received from the partial buyback of the Hope Bay royalty interest and the sale of 19.5 million common shares from the Company's investment portfolio.The net cash inflows were partially offset by $7.0 million in cash consideration paid for the acquisition of a royalty portfolio from Pan American.
Cash flow used in financing activities
During the six months ended June 30, 2022, the Company had net cash outflows from financing activities of $2.9 million, which was primarily the result of dividend payments of $3.7 million and financing costs associated with our credit facility of $0.5 million. The net cash outflows were partially offset by proceeds from the exercise of stock options of $1.3 million. During the six months ended June 30, 2021, the Company had net cash outflows from financing activities of $34.3 million, which was primarily the result of Company repaying $32.0 million of its credit facility, dividend payments of $3.2 million and financing costs associated with our credit facility of $0.4 million. The net cash outflows were partially offset by proceeds received from the exercise of stock options.
We believe our current financial resources and funds generated from operations will be adequate to cover anticipated expenditures for general and administration and project evaluation costs and anticipated minimal capital expenditures for the foreseeable future. Our long-term capital requirements are primarily affected by our ongoing activities related to the acquisition or creation of Royalties, Streams, prepaid gold and other interests.
The Company currently, and generally at any time, has acquisition opportunities in various stages of active review. In the event of the acquisition of one or more significant Royalties, Streams, prepaid gold and other interests, we may seek additional debt or equity financing as necessary.
In connection with its Streams and prepaid gold interests, the Company has committed to purchase the following:
Per ounce cash payment: Lesser of amount below and the then prevailing market price (unless otherwise noted)
In connection with the acquisition of the Silvertip Royalty in 2017, the Company may issue an additional 1,400,000 common shares of the Company when the Silvertip mine achieves commercial production and a cumulative throughput of 400,000 tonnes of ore through the processing plant is achieved.
In connection with the acquisition of a portfolio of royalties from Newmont in October 2020, the Company agreed to make certain contingent cash payments of up to $15.0 million if certain production milestones at certain assets are achieved within five years of closing the acquisition.
In connection with increasing and expanding the royalty interest at Omolon, the Company agreed to make an additional $1.5 million cash payment upon sales of 1.2 million gold equivalent ounces.
As at August 11, 2022, the Company had 147,379,354 outstanding common shares, 4,336,647 outstanding share purchase options outstanding with a weighted average exercise price of CAD$5.44, 608,260 outstanding restricted share units, and 5,000,000 outstanding share purchase warrants with an exercise price of $3.28.
The Company does not utilize off-balance sheet arrangements.
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities, including any director of the Company. Compensation for key management personnel of the Company was as follows:
During the three months ended March 31, 2022, the Company purchased $0.3 million of refined gold from Pan American at a price of $650 per ounce purchased under its La Colorada gold Stream agreement. As of April 1, 2022, Pan American is no longer considered to have significant influence over the Company due to a change in its shareholdings of the Company and other factors.
Critical Accounting Judgements and Estimates
The preparation of the consolidated financial statements in conformity with IFRS requires the Company's management to make judgments, estimates and assumptions that affect the amounts reported in the consolidated financial statements. Estimates and assumptions are based on management's best knowledge of the relevant facts and circumstances. However, actual results may differ from those estimates included in the consolidated financial statements.
The Company's significant accounting policies and estimates are disclosed in Notes 2 and 3 of the annual consolidated financial statements for the year ended December 31, 2021, except as described in Note 2 of the condensed interim consolidated financial statements, as it relates to restricted share units. The following accounting policy has been updated as a result of the change in planned settlement to cash-settled awards.
Under the restricted share unit plan (the "RSU Plan"), awards can be either cash or equity settled upon vesting at the discretion of the Board of Directors of the Company. The Board of Directors plans to settle all grants under the RSU Plan in cash on a prospective basis. Share-based compensation expense relating to cash-settled RSUs is accrued over the vesting period with the related obligation recorded as a restricted share unit liability which is included in trade and other payables. At the end of each reporting period, the expense and liability are adjusted for changes in the fair market value of Maverix common shares and the estimated number of awards that are expected to vest.
In March 2020, the World Health Organization declared a global pandemic related to COVID-19. The current and expected impacts on global commerce are anticipated to be far reaching. To date there has been significant volatility in the stock market and in the commodity and foreign exchange markets, restrictions on the conduct of business in many jurisdictions and the global movement of people and some goods has become restricted. In the current environment, estimates and assumptions about future production, commodity prices, exchange rates, discount rates, future capital expansion plans and associated production implications at the underlying mines and other interests in which the Company holds a royalty or stream interest are subject to greater variability than normal, which could significantly affect the valuation of our assets, both non-financial and financial.
The conflict between Russia and Ukraine and any restrictive actions that have or may be taken in response thereto, such as sanctions, export and or currency controls, have caused and could have further negative impacts on Polymetal's ability to continue operation of the Omolon mine, where the Company owns a 2.5% GRR, and could further inhibit Polymetal's ability to make payments to the Company. Maverix continues to work with Polymetal to effect payment of royalties from Omolon in a way that does not breach any relevant sanctions. At June 30, 2022, the carrying amounts related to the Company's Omolon royalty interests and accounts receivable were $23.4 million and $4.4 million, respectively.
Due to the conflict between Russia and Ukraine and any restrictive actions that have or may be taken in response thereto, such as sanctions, export and or currency controls, the Company has estimated the recoverable amount of its Omolon royalty interest during the three months ended June 30, 2022 and determined the recoverable amount is greater than the carrying value of $23.4 million. The recoverable amount was determined using a discounted cash flow model in estimating the fair value less cost of disposal. This is a level 3 measurement due to unobservable inputs in the discounted cash flow model. Key assumptions used in the cash flow forecast were: mine life of approximately five years, metal price forecasts by research analysts and management expectations and a 20% discount rate. The recoverable amount of the Omolon royalty interest is most sensitive to changes in metals prices and mine life. In isolation, a 10% decrease in metal prices would result in a reduction in the recoverable amount of approximately $2.9 million and a one-year reduction in mine life would result in a reduction in the recoverable amount of approximately $3.0 million, but in both scenarios the recoverable amount would still be greater than the carrying value of $23.4 million. The Company has determined there is no impairment at June 30, 2022, but the conflict and restrictive actions that may be taken in response thereto, such as sanctions, export and or currency controls are constantly evolving. Consequently, there remains a risk that future developments could result in a material adjustment to the carrying value in our royalty interest and receivable.
The Company has exposure to a variety of financial risks from its use of financial instruments. This section presents information about the Company's exposure to each of these risks, the Company's objectives, policies and processes for measuring and managing risk, and the Company's management of capital.
The Company's primary objective when managing capital is to maximize returns for its shareholders by growing its asset base through accretive acquisitions of royalties, streams and other interests, while optimizing its capital structure by balancing debt and equity. At June 30, 2022, the capital structure of the Company consists of $373.0 million (December 31, 2021: $371.8 million) of total equity, comprising share capital, reserves, accumulated other comprehensive income, and retained earnings, and $12.5 million (December 31, 2021: $12.5 million) drawn under the Company's credit facility. The Company was not subject to any externally imposed capital requirements with the exception of complying with certain covenants under the credit facility. The Company is in compliance with its debt covenants as atJune 30, 2022.
Credit risk is the risk of potential loss to the Company if the counterparty to a financial instrument fails to meet its contractual obligations. The Company's credit risk is primarily attributable to its liquid financial assets including cash and cash equivalents and accounts receivables in the ordinary course of business. In order to mitigate its exposure to credit risk, the Company maintains its cash and cash equivalents in several high-quality financial institutions and closely monitors its accounts receivable balances. The Company's accounts receivables are subject to the credit risk of the counterparties who own and operate the mines underlying Maverix's royalty portfolio.
The conflict between Russia and Ukraine and any restrictive actions that have or may be taken in response thereto, such as sanctions, export and or currency controls, have caused and could have further potential negative impacts on the Company's ability to receive payments under its royalty interest in the Omolon mine in Russia that is operated by Polymetal International plc. At June 30, 2022, the Company's accounts receivable related to its Omolon royalty interest is $4.4 million.
Financial instruments that affect the Company's net income due to currency fluctuations include cash and cash equivalents, accounts receivable, investments, trade and other payables denominated in Canadian and Australian dollars. Based on the Company's Canadian and Australian dollar denominated monetary assets and liabilities at June 30, 2022, a 10% increase (decrease) of the value of the Canadian and Australian dollar relative to the US dollar would increase (decrease) net income by $0.1 million and other comprehensive income by $0.1 million, respectively.
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. The Company's approach to managing liquidity is to ensure it will have sufficient liquidity to meet liabilities when due. In managing liquidity risk, the Company considers anticipated cash flows from operations, its holding of cash and cash equivalents and its revolving credit facility. As at June 30, 2022, the Company had cash and cash equivalents of $17.1 million (December 31, 2021: $17.1 million) and working capital of $39.2 million (December 31, 2021: $33.3 million). In addition, at June 30, 2022 the Company had $147.5 million available under its credit facility.
The Company is exposed to equity price risk as a result of holding common shares in other mining companies. The combined fair market value as at June 30, 2022 is $1.3 million (December 31, 2021: $2.7 million). The equity prices of investments are impacted by various underlying factors including commodity prices and the volatility in global markets as a result of COVID-19 and the daily exchange traded volume of the equity may not be sufficient for the Company to liquidate its position in a short period of time without potentially affecting the market value of the equity. Based on the Company's investments held as at June 30, 2022, a 10% increase (decrease) in the equity prices of these investments would increase (decrease) other comprehensive income by $0.1 million.
Maverix's disclosure controls and procedures ("DC&P") are designed to provide reasonable assurance that material information relating to Maverix, including its consolidated subsidiaries, is made known to management by others within those entities, particularly during the period in which this report is prepared and that information required to be disclosed by Maverix in its annual filings, interim filings or other reported filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in the securities legislation. The Chief Executive Officer ("CEO") and its Chief Financial Officer ("CFO") have evaluated whether there were changes to the DC&P during the three months ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, the DC&P. No such changes were identified through their evaluation.
Internal Controls Over Financial Reporting
Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting as such term is defined in National Instrument 52-109 - Certification of Disclosure in Issuer's Annual and Interim Filings in Canada ("NI 52-109") and under the Securities Exchange Act of 1934, as amended, in the United States. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of the Company's financial reporting for external purposes in accordance with IFRS as issued by the IASB. The Company's internal control over financial reporting includes:
The Company's internal control over financial reporting may not prevent or detect all misstatements because of inherent limitations. Additionally, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with the Company's policies and procedures.
There were no changes to the Company's internal controls over financial reporting during the three months ended June 30, 2022 that have materially affected, or are likely to materially affect, the Company's internal control over financial reporting or disclosure controls and procedures.
Limitation of Controls and Procedures
The CEO and CFO, in consultation with management, believe that any disclosure controls and procedures or internal control over financial reporting, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, they cannot provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been prevented or detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by unauthorized override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Accordingly, because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
This MD&A contains "forward-looking information" or "forward-looking statements" within the meaning of applicable securities legislation. Forward-looking information is provided as of the date of this MD&A and Maverix does not intend to and does not assume any obligation to update forward-looking information, except as required by applicable law. For this reason and the reasons set forth below, investors should not place undue reliance on forward-looking statements.
Generally, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved". Forward-looking information is based on reasonable assumptions that have been made by Maverix as at the date of such information and is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of Maverix to be materially different from those expressed or implied by such forward-looking information, including but not limited to: the impact of general business and economic conditions; the absence of control over mining operations from which Maverix will purchase precious metals or from which it will receive royalty or stream payments, and risks related to those mining operations, including risks related to international operations, government and environmental regulation, delays in mine construction and operations, actual results of mining and current exploration activities, conclusions of economic evaluations and changes in project parameters as plans are refined; problems related to the ability to market precious metals or other metals; industry conditions, including commodity price fluctuations, interest and exchange rate fluctuations; interpretation by government entities of tax laws or the implementation of new tax laws; the volatility of the stock market; competition; risks related to the Company's dividend policy; epidemics, pandemics or other public health crises, including the global outbreak of the novel coronavirus ("COVID-19"), geopolitical events and other uncertainties, such as the conflict in Ukraine, and as well as those risk factors discussed in the section entitled "Risk Factors" in Maverix's annual information form dated March 16, 2022 available at www.sedar.com.
Forward-looking information in this MD&A includes disclosure regarding royalty payments to be paid to Maverix by property owners or operators of mining projects pursuant to its Royalties, and gold and silver deliveries under its Streams, prepaid gold and other interests of Maverix, and the future outlook of Maverix. Forward-looking statements are based on a number of material assumptions, which management of Maverix believe to be reasonable, including, but not limited to, the continuation of mining operations in respect of which Maverix will receive Royalty payments or from which Maverix will purchase precious or other metals, that commodity prices will not experience a material adverse change, mining operations that underlie Royalties or Streams will operate in accordance with disclosed parameters and such other assumptions as may be set out herein.
Maverix has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers are advised not to place undue reliance on forward-looking statements or information. Maverix undertakes no obligation to update forward-looking information except as required by applicable law. Such forward-looking information represents management's best judgment based on information currently available.
Brendan Pidcock, P.Eng., Vice President Technical Services for Maverix and a qualified person as defined under NI 43-101 has reviewed and approved the written scientific and technical disclosure contained in this document.
Except where otherwise stated, the disclosure in this MD&A relating to properties and operations in which Maverix holds Royalty, Stream or other interests is based on information publicly disclosed by the owners or operators of these properties and information/data available in the public domain as at the date hereof, and none of this information has been independently verified by Maverix. Specifically, as a Royalty or Stream holder, Maverix has limited, if any, access to properties on which it holds Royalties, Streams, or other interests in its asset portfolio. The Company may from time to time receive operating information from the owners and operators of the mining properties, which it is not permitted to disclose to the public. Maverix is dependent on, (i) the operators of the mining properties and their qualified persons to provide information to Maverix, or (ii) on publicly available information to prepare disclosure pertaining to properties and operations on the properties on which the Company holds Royalty, Stream or other interests, and generally has limited or no ability to independently verify such information. Although the Company does not have any knowledge that such information may not be accurate, there can be no assurance that such third-party information is complete or accurate. Some reported public information in respect of a mining property may relate to a larger property area than the area covered by Maverix's Royalty, Stream or other interest. Maverix's Royalty, Stream or other interests may cover less than 100% of a specific mining property and may only apply to a portion of the publicly reported mineral reserves, mineral resources and or production from a mining property.
Maverix Metals Inc. published this content on 12 August 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 12 August 2022 11:04:04 UTC.