SWOT Analysis: The Gold-Royalty Business Model Continues to Show Opportunity

Posted by Frank Holmes - US Global Investors

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  • The minutes from the Federal Reserve’s January meeting showed that policy makers argued for keeping interest rates near record lows for longer due to both the stronger dollar and the crisis in Greece. This news favors the case for both gold and silver.
  • Mandalay Resources announced its proven and probable gold reserves were up 136 percent in 2014 as a result of the Bjorkdal mine acquisition. Richmont Mines announced revenues were up 47 percent and operating cash flow was up 689 percent in 2014.
  • Timmins Gold announced it will acquire Newstrike Capital by way of a court-approved plan. This continues the recent streak of acquisitions in the mining space.




  • Alamos Gold announced that legal challenges in Turkey have increased uncertainty of the expected timing for receipt of permits for its Kirazli project.
  • According to a study of almost 100 global gold mining transactions by the Bloomberg Intelligence Metals and Mining team, valuations for gold mining deals peaked in 2011 and then fell more than 70 percent to a historical low in 2014. Mine prices fell faster than the metal due to lack of corporate interest in deals. As a result, gold mine values fell 350 percent more than the metal’s price.
  • Michael Rawlinson, Global Co-Head of Mining and Metals at Barclays, commented that while the sharp drop in oil prices has reduced costs for mining companies it has also added to uncertainty in the market and could prolong the wait for the commodity cycle to turn upwards again. This is mainly due to two unforeseen events: the drop in iron ore prices and the sudden collapse of the oil price.





  • RBC Capital Markets published a report highlighting Osisko Gold Royalties as being well positioned to outperform in the current price environment. This is due to a strong balance sheet that could allow it to pursue accretive deals as well as positive optionality in its existing portfolio. This is yet another implication of the gold-royalty business model which has outperformed the broader gold miner stocks in recent years.
  • Dundee Capital Markets initiated coverage of Klondex Mines with a “buy” rating. It highlighted that the company is positioned as a high margin and growing producer, has no material capital requirements, and that the company is forecasted to generate sizable free cash flow. Furthermore, the company’s assets host highly prospective exploration upside.
  • John Thornton, Barrick Gold’s chairman, commented that he’s planning on returning the company to its partnership culture that used to define it in its early days, underpinning much of its success. Newcrest Mining announced it is open to selling its Telfer gold and copper mine in Australia.




  • House Democrats have launched a perpetual U.S. mining reform crusade proposing measures that would force miners to pay royalties for minerals extracted from public lands and contribute to a fund for clean-up costs.
  • Sibanye’s CEO announced that the company is through with buying assets as it deems them expensive in the current environment. Nonetheless, he still sees potential for substantial synergies between companies.
  • Bank of America announced that gold may drop to $1,150 in the next few weeks citing the outlook for U.S. monetary policy.