Investing in mining stocks provides shareholders exposure to commodities which results in portfolio diversification, lowering overall risk. Additionally, mining royalty companies are asset-light and generate stable cash flows, as they have a right to a percentage of mining sales in exchange for upfront payments.
Here are two mining royalty stocks investors can consider buying in 2023.
Lithium Royalty stock
A lithium-focused royalty company with a diversified portfolio of royalties on mineral properties, Lithium Royalty (TSX:LIRC) is valued at a market cap of $625 million. Its portfolio of properties will supply raw materials to support the electrification and decarbonization of the global economy.
Lithium Royalty focuses on the battery supply chain for the electric vehicle, or EV, transportation industry. Lithium Royalty estimates lithium demand to grow at an annual rate of 23% through 2030, while market growth is forecast to grow by 22 times through 2050.
Greenhouse gases (GHG) from transportation account for 24% of global emissions, and the World Health Organization attributes air pollution as the largest environmental health risk, which accounts for 3.7 million deaths each year.
Full lifecycle emissions of EVs are 50% lower compared to internal combustion engines, and Daimler expects advances in battery manufacturing to further reduce GHGs by 30%.
With 32 globally diversified properties, Lithium Royalties is central to a global energy transition. It is well positioned to benefit from the growth in the lithium sector while insulating the company from rising cost pressures impacting traditional mining companies.
Lithium Royalty continues to add projects to its portfolio in a low-cost and financially accretive manner. With a net asset value of $1.06 billion, Lithium Royalties has completed six acquisitions in 2023, allowing it to increase sales by 98% year over year in the second quarter (Q2).
Analysts remain bullish on LIRC stock and expect shares to surge 84% in the next 12 months.
Freehold Royalties stock
A royalty oil and gas company, Freehold Royalties (TSX:FRU) acquires quality assets with acceptable risk profiles and long economic life. It generates gross overriding royalties for sales growth on its lands through lease-out programs.
It maximizes our royalty interests through a comprehensive audit program. Freehold Royalties manages debt prudently with a target of below 1.5 times net debt to funds from operations. It has built a diverse North American portfolio with robust cash generation ability at a wide range of commodity prices.
Freehold Royalties pays shareholders an annual dividend of $1.08 per share, indicating a dividend yield of 7.4%. It expects funds from operations, or FFO, between $250 million and $280 million in 2023, allowing the company to maintain a payout ratio of less than 80%.
Freehold Royalties reported revenue of $393 million, indicating a five-year average growth of 170%. Its funds from operations surged to $316 million last year, allowing the company to pay $142 million in dividends. It has also paid $2 billion to shareholders since its initial public offering.
Freehold Royalties’s enhanced scale while maintaining low leverage enables increased financial flexibility. Its multi-year drilling inventory in the highest quality basins and under the highest quality operators in Canada and the U.S.
