Fundamentals and Valuations of Gold Royalty vs Gold Mining Companies

NIA has put together a chart showing how the median gold royalty company owned by VanEck Vectors Gold Miners ETF (GDX) is trading with an enterprise value/revenue ratio of 17.33, which is 5.50X higher than the median gold mining company owned by GDX. Why are gold royalty companies worth so much more than gold mining companies? The median gold royalty company generated free cash flow last quarter equal to 54.55% of revenue vs. the median gold mining company generating free cash flow equal to only 5.42% of revenue!

Wallbridge Mining (TSX: WM) is up another 12% today to $0.56 per share making it by far the #1 best performing mid/large-cap gold stock in the entire market! WM's market cap is now CAD$279.22 million and after subtracting its cash position of CAD$14.6 million it has an enterprise value of CAD$264.62 million. If ELY's 2% royalty in WM's Fenelon project was valued at 11% of WM's enterprise value due to the fact that the market is currently valuing gold royalties 5.50X higher than equity in the same gold mine ELY's 2% royalty in WM's Fenelon project would be worth CAD$29.11 million!

At the foundation of ELY is their Nevada Select business that has optioned 22 gold properties to 20 different publicly traded gold explorers. These 22 option agreements are contracted to bring in total 2019 revenue for ELY of USD$957,500 (CAD$1,250,687). In addition, ELY will receive advance royalty payments this year from 6 previously completed option agreements totaling USD$105,000 (CAD$137,151). With ELY's Nevada Select set to generate total 2019 revenue of CAD$1,387,838 from option agreements and advance royalty payments, the median gold royalty company enterprise value/revenue ratio of 17.33 values ELY's Nevada Select business at CAD$24.051 million!

Therefore, it can be argued that ELY deserves to trade with an enterprise value of CAD$53.16 million from its WM royalty and Nevada Select business alone! ELY has a net cash position of CAD$2.1 million so this would equal a market cap of CAD$55.26 million which equals a price of $0.55 per share!

In an effort to be conservative, we're not even including ELY's Isabella Pearl royalty and Jerritt Canyon royalty, which will both begin to generate royalty revenues for ELY in its upcoming quarters!

Past performance is not an indicator of future returns. NIA is not an investment advisor and does not provide investment advice. Always do your own research and make your own investment decisions. This message is not a solicitation or recommendation to buy, sell, or hold securities. NIA has received compensation from ELY of USD$30,000 cash for a six-month marketing contract. Never make investment decisions based on anything NIA says. This message is meant for informational and educational purposes only and does not provide investment advice.