➤ Diversified miners will look to the royalty and streaming sector to fund a new generation of base metal mines, selling byproduct precious metals from the deposits.
➤ Franco-Nevada will help midtier gold miners in buying mines the gold majors plan to divest, but the opportunities are "B-rate."
➤ Investment in the mining sector is best left to professionals, not retail investors.
|Franco-Nevada CEO David Harquail
David Harquail is the CEO of Franco-Nevada Corp., a company that acquires royalties and streams mostly in the precious metals sector. Harquail spoke with S&P Global Market Intelligence about mine finance and acquisition opportunities, highlighting the potential of longer-life base metal mines. The following is an edited transcript of that conversation.
S&P Global Market Intelligence: Interest in the mining market remains pretty anemic, although the price of gold recently picked up. What are you seeing out there?
Harquail: At least there's a modicum of interest in the marketplace. But you know, gold is the anti-dollar, and whenever the dollar comes back, gold has a tougher time. Until there's something major [like a big move in the gold price], I just see it as a lot of noise in the marketplace.
Capital for mineral explorers and mine developers has been pretty constrained. January and February were terrible for juniors, while financing activity has picked up a bit since. From your point of view in the royalty and streaming sector, does lack of equity capital drive more business your way?
There's huge interest in any source of capital. Everyone wants us to look at their projects. We do deploy money on smaller projects. For example, we just funded Marathon Gold Corp.'s Valentine Lake gold project [in Canada] earlier this year. And we bought another royalty on Gold Fields Ltd.'s Salares Norte [in Chile], because these are projects that we think will become mines.
To us, more of a struggle is, which are the good mines? At US$1,300/oz gold, there's not a lot that makes much sense.
Capital remains picky.
I think the new reality is the market's going to be much more discriminating in terms of what it finances. In bull markets, the sector finances way too many things. What's going to happen now is fewer things will get financed. But I think we're going to have a much better success rate with those ones. And I think we're going to see more of the royalty and private equity types of financing.
There's been a lack of retail interest in the sector. Do you see it picking back up?
I really think the sector's better suited for professional investors than it is for equity investors.
Are you telling retail investors to take a hike?
The reality is, in the old days what happened is that retail investors had this sort of gnarly old analyst that was the hard-nosed guy that would say, "This is a good project for our clients to buy into."
I think the whole market now has too many intermediaries using expert-ized 43-101 reports [ a technical document used in Canada's resource sector.] Then a company says, "Well, the experts opined on it, and our job is to market it and sell it." In the old days, the investment community did serve their clients by telling stories they truly believed in and got behind. And nowadays, it's just a marketing machine.
What's better now is seeing people invest their own money, their own capital, in projects, because they're going to be a lot more careful in doing it. It's kind of going back to where we used to be in the 70s and 80s.
Any emerging opportunities you see in the royalty sector?
In the near term, we're going to help some of the midtier companies buy assets from the gold majors. But the reality is, these are all B-rate projects. So it's not that exciting.
What I think is more exciting is that the supermajors, the diversified companies, are all looking at streaming or royalty financing and saying, "How can we finance our next generation of base metal mines by getting a better [internal rate of return] in selling the precious metal streams on them?" All of them now are looking at this and saying, "This actually makes a lot of sense for our investors." That, to me, is exciting, having 30-, 50- or 100-year mines. Most of the gold mines with 10- or 15-year mine lives — it's a bit of a mug's game.