Monday, May 13, 2013

Precious Metal Royalties: The New Landscape

The Gold Report, we survey the heads of the companies to explain the role they see themselves playing in investment portfolios and the future of mining.
In today's challenging finance environment, some miners are looking to royalty companies to fill the funding void. Royalty sales give the junior mining company capital to explore or build a mine in exchange for a percentage of future production. It is a win-win. Investors have exposure to gold profits, but are immune to much of the risk. Juniors get the money they need to move forward. But not all royalties are the same and a number of new types have entered the market to fill specific investing and funding niches. In this special primer from

In December 2012, at the Mines and Money conference in London, Sandstorm Gold Ltd. (SSL:TSX) President and CEO Nolan Watson proclaimed, "Mining finance as you know it is dead!" He proposed that streaming could be part of the solution to a lack of bank financing now available by buying the right to purchase future profits. This works best, Watson said, when mining company and royalty company interests are aligned. While royalty companies started as value arbitrage businesses, he now sees a broader role as funding partners. Sandstorm has started to invest in equity and debt. He went on to predict that royalty space would expand from the big four royalty companies worth $27 billion ($27B) at the end of 2012 to 10 or 20 companies worth hundreds of billions of dollars in the next decade.

We asked other executives in the space if they agreed with Watson's analysis of the sector. "It's a tight point in the cycle," said Silver Wheaton Corp. (SLW:TSX; SLW:NYSE) CEO Randy Smallwood. "Now is the time, however, when streaming and royalties should play a very pivotal role." Smallwood took a long-term view. "It is important to remember that this is a cyclical industry. At some points in the cycle, exploration finance is very hard to come by, which subsequently results in a dearth of new discoveries and ultimately a supply shortage. When supply becomes tight, the funding comes back, and hence the cycle. For Silver Wheaton, these periods of tight financing create opportunity—and this is exactly what we are seeing now." (more)

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Rob McEwen: “We Are At Or Very Near The Bottom In Gold, Definitely For Gold Shares”

I had the opportunity yesterday to join McEwen Mining‘s Q1 2013 conference call, led by legendary founder and former CEO of GoldCorp, Rob McEwen. He is now the CEO, Chairman, and largest shareholder of McEwen Mining.
It was an interesting call, with over 30 minutes dedicated to listener Q&A. In response to some very intelligent questions, Rob shared some very interesting market comments in return.
Here are the highlights:
With regard to the tightening interest-rate “noose” choking fixed-income dependants, Rob said, “We’re in a situation where governments have dropped interest rates to a point that it’s hurting so many people—the retired, those on pensions, those on retirement fixed income. It’s forcing people into riskier and riskier investments and the price is large that will have to be paid.” (Editor’s note: what that “price” is, he didn’t say)
When asked if currently buying new positions in gold bullion and mining shares at these levels, Rob replied by saying, “Not bullion. I think the shares are heavily discounted right now, and represent very interesting opportunities. We see both good and bad situations discounted in equal amount, and I don’t believe we’ve seen buying opportunities like this since 1999 and 2001. I have done some buying…[and] I do believe we are at or very near the bottom for gold, and definitely for gold shares, and prices are going to improve.”
Speaking to the expectation of a recovery in mining shares this year, Rob noted that, “Gold shares I think are overdue for a big move up by the end of the year, and there is a phenomena I’ll call the “White House Affect.” If you go back to the presidential election in 1984 and look at the eight elections…up to 2012, in the year of every election, gold shares have fallen in value, and the year that follows the election…the gold shares have risen. If you use the XAU as a measure of gold shares, they’ve risen between 10% and 80% in the years that have followed a presidential election in 7 out of those 8 periods. In the one year that they went down [it] was during the Bre-X scandal, as it pulled the whole sector down. But based on that 7 out of 8 year increase, there’s a high probability that at the end of this year, gold shares are going to be higher.”
Concluding on the value-driver to push the mining industry forward, Rob said, ”In my experience it’s discoveries that create value and will pull the sector along, and that’s why we invest a lot of money in exploration, and we’ve met with some success.”
Bottom Line: This was an interesting call with one of the great mine developers of our time. It is recommended listening for precious metals investors and those looking to add to their education in the space.
To listen to Rob McEwen’s Q1 2013 comments, visit:
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Popular Inc (NASDAQ: BPOP)

Popular, Inc., a financial holding company, provides a range of retail and commercial banking products and services primarily to institutional and retail customers in Puerto Rico and the Mainland United States. It offers various deposit products. Popular, Inc. also provides commercial and industrial, as well as commercial real estate loans; construction loans; lease financings comprising automobile loans/leases; residential mortgage and construction loans; consumer loans, including personal loans, credit cards, home equity lines of credit, and other loans to individual borrowers. In addition, the company offers financial advisory, investment banking, investment and securities brokerage, and insurance and reinsurance agency services. As of December 31, 2012, it owned and occupied approximately 63 branch premises and other facilities in Puerto Rico; and 97 offices comprising 17 owned and 80 leased in New York, Illinois, New Jersey, California, and Florida. Popular, Inc. was founded in 1917 and is headquartered in Hato Rey, Puerto Rico.
To review Popular's stock, please take a look at the 1-year chart of BPOP (Popular, Inc) below with my added notations:
1-year chart of BPOP (Popular, Inc) BPOP has been on a nice, steady uptrend since against, but has since paused in a sideways trading range. For the last (3) months the stock has been stuck within a common pattern known as a rectangle. Rectangle patterns form when a stock gets stuck bouncing between a horizontal support and resistance. A minimum of (2) successful tests of the support and (2) successful tests of the resistance will give you the pattern. BPOP's rectangle pattern has formed a $30 resistance (red) and a $27 support (blue). A break above $30 would also be a new 52-week high.
The Tale of the Tape: BPOP has formed a rectangle pattern. The possible long positions on the stock would be either on a pullback to $27, or on a breakout above $30. The ideal short opportunity would be on a break below $27.
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When Interest Rates Go Up, It's A Whole New Ball Game

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from KingWorldNews:
“Their patience was rewarded today and that was some serious tonnage, at least 40 tons (of physical gold purchased). This is 40 tons of real physical (gold).
What it is doing is insuring that the bullion banks are taking the long side of this hot money (shorts) chasing price to zero. Because there is a lagging effect, we may see this (downside move) carry through until Monday, but I absolutely doubt that it can extend beyond that.
This cannot stick (the downside move) with this kind of volume (on the physical buy side) coming through. I saw premiums in Shanghai this morning at close to $26. That’s outrageous. The Mumbai premiums are through the roof. If you want physical today, you are going to have to pay a premium price for it.
Audio Interview with Andrew Maguire @
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Investment Education 101: Home equity loans

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US Weekly Economic Calendar

time (et) report period Actual CONSENSUS
8:30 am Retail sales April   -0.6% -0.4%
8:30 am Retail sales ex-autos April   -0.3% -0.4%
10 am Business inventories March   0.2% 0.1%
TUESDAY, may 14
7;30 am NFIB small business index April   -- 89.5
8:30 am Import price index April   -0.5% -0.5%
8:30 am Producer price index April
-0.7% -0.6%
8:30 am Core PPI April   0.2% 0.2%
8:30 am Empire state index May   2.9 3.1
9:15 am Industrial production April   -0.4% 0.4%
10 am Home builders' index May   44 42
8:30 am Weekly jobless claims 5/11
330,000 323,000
8:30 am Consumer price index April   -0.3% -0.2%
8:30 am Core CPI April   0.2% 0.1%
8:30 am Housing starts April   968,000 1.036 mln
10 am Philly Fed May   2.2 1.3
9:55 am Consumer sentiment May   78.2 76.4
10 am Leading indicators April   0.3% -0.1%
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