Franco Nevada CEO David Harquail, a longtime portfolio management specialist, Monday appealed to institutional investors to seriously consider the growth potential of gold mining royalties when compared to gold ETF investments.
And, in a current environment when mining and exploration companies are filing for bankruptcy, royalty companies can still hold onto and maintain their gold mining assets even if the mining company goes bankrupt.The number one assessment of precious metals royalty is whether it will be in production or not even if the property is sold or the owner goes bankrupt, Harquail advised.
Legally, royalty companies retain a property right even if the property goes into bankruptcy, he added.
In a presentation to institutional investors, mining executives and metals analysts attending the BMO Global Metals & Mining Conference, Harquail advised that if it's enough of a resource, it will fall into better hands. Franco Nevada is focused on properties located on what he called premium mining trend properties.
While Franco tries to avoid hold royalties on mining companies operating on public lands, Harquail explained that even if a property reverts back to the federal government, it's Franco's option whether the company wishes to buy the property.
Unlike an ETF investment, Harquail suggested a royalty company can get its ounces of gold, monetize it, and still possess more than its original total of gold ounces as the mining operation grows or is taken over by another company.
Harquail is particularly enthusiastic about Franco's royalty for a new Newmont Gold Quarry expansion in Nevada and a gold revenue stream for Coeur d'Alene Mines Palmarejo gold and silver project in Mexico.
The Gold Quarry West layback will have access to an additional 2.5 million to 3 million ounces of gold of which Franco Nevada holds a 7.29% NSR.
The gold stream revenue at Palmarejo provides that Franco buys 50% of the gold produced on the property which is expected to mine 72,000 ounces of gold this year. The mine has a capacity of mining 120,000 ounces of gold and nine million ounces of silver annually over an 11-year mine life.
The result, Harquail predicted, will make a material contribution to Franco's revenues in the second half of this year.
Meanwhile, Franco Nevada expects to be added to the S&P/TSX Composite Index on the global gold component next month. Harquail believes gold is going to be very volatile going forward.
Noting that the old Franco Nevada traded at a premium to gold companies between 1985 and 2000, Harquail is frustrated that the new version is still trading at a discount relative to gold operating companies.
Nevertheless, he added, Our profitability, I'm confident, will climb quite substantially in the near future.
We still have a lot of bullets left in terms of acquisitions, he declared.