Maverix Metals Is Strongly Positioned for the Gold Bull Market
Russian President Vladimir Putin launched a military operation in Ukraine and, as feared by many in recent days, the initial crisis has turned into war. The United States, the European Union, Canada, Australia and Japan condemn the Russian initiative and promise sanctions not only against the Donetsk and Lugansk regions (which Putin recognized as separatist republics with a decree signed last Monday), but also on the Russian economy.
Financial market tensions are mounting, with the Moscow Stock Exchange being the hardest hit with losses of over 15% in a single day, followed by the rest of the world's stock exchanges. Conversely, oil and gas prices are skyrocketing as wartime activity in Ukraine strains the supply of these commodities (of which Russia is Europe's main supplier), while their demand continues to rise due to the resumption of activity following the Covid-19 crisis.
May 2022 Brent oil futures are well above $100 per barrel and the April 2022 natural gas futures price is close to the last three-week record of $5 per million British Thermal Unit as of the time of writing.
As energy costs are a main component of the record inflation, it is easy at this point to expect a very aggressive approach from the Federal Reserve and other central banks in raising interest rates as a measure to counter the sharp rise in the prices of goods and services and bring the rate back to the target of 2%.
However, as global economic growth is already slowing down, the sanctions against Russia will accelerate the process as they impact other economies as well due to the interconnection and globalization of markets.
This, combined with high inflation, tight labor market conditions and supply chain constraints, could push the economy into stagflation. Additionally, higher interest rates will only encourage the transition to this cycle.
The global economic situation is very uncertain and has already triggered a process of higher volatility in several securities. We've seen higher volatility over the past several days, worrying investors, who, in response, are increasing the demand for gold to take advantage of its appretiation ability while all other assets, including cryptocurrencies, are falling.
At the time of writing, April 2022 gold futures were trading at $1,972.75 a troy ounce, a substantial 3.3% increase from Wednesday. Current macroeconomic conditions suggest this trend will continue and the precious metal could surpass the $2,000 level in hours and remain above it for several weeks.
Profit from gold is the buzzword currently floating among investors who are looking to increase assets that will grow with the commodity, or hopefully even faster.
My pick is Maverix Metals Inc. (MMX), a Canadian precious metals royalty and streaming company with business activities in the Americas, Australia and internationally.
After the 2021 acquisition of gold streams from Auramet Trading LLC, a major U.S. trader of precious metals products and provider of merchant banking and advisory services with an annual turnover of $20 billion, Maverix now has more leverage in the gold market as it can generate higher cash flow and throughput of attributable ounces.
The portfolio of Maverix now includes 122 royalties and streams, which will enable the company to project more than 31,000 ounces of attributable gold per year. Thus, the stock looks much more prepared to capitalize on higher gold prices and to reach higher levels.
Shares were around $4.73 in early trading on Thursday for a market cap of $684.21 million, a price-earnings ratio of 26.96 and a 52-week range of $3.91 to $6.40.
The stock is not expensive as it is trading well below the 200-day moving average of $4.85, while the 14-day relative strength indicator of 58 suggests the stock is far from overbought.
A very robust balance sheet will support the company in the development of mineral interests to add to the portfolio and expand the business.
The portfolio produced total revenue of $13.7 million for the third quarter of 2021, of which $8 million was income from royalties and $5.7 million was income from the sale of metal products. Total revenue fell 8% year over year on lower gold prices, but adjusted earnings of 3 cents per share beat the average consensus estimate by one cent.
As of Sept. 30, 2021, Maverixs balance sheet had total cash on hand and equivalents of $44.6 million, which was almost double the total debt of $23.5 million.
The Altman Z-Score of 14.3 and the Piotroski F-Score of 7 mean the financial condition of Maverix is stable and the risk of bankruptcy is low. The current ratio is 15 as Maverixs short-term creditors' claims are met punctually and efficiently.
Maverix Metals appears to be an interesting player with promising growth prospects and the market valuation is not expensive, making it appealing in the current gold bull market.
This article first appeared on GuruFocus.
