Are we at the end of Peak Gold?

"The End of Peak Gold? – No. The End of Peak Cheap Gold? - Yes"

Kevin McElligott, Managing Director – Australia, Franco-Nevada Corporation 

Interviewed by Andrew Thake, Mines and Money

Mines and Money Daily Issue 10

Franco-Nevada Corporation is the leading gold-focused royalty and streaming company with the largest and most diversified portfolio of cash-flow producing assets. Its business model provides investors with gold price and exploration optionality while limiting exposure to many of the risks of operating companies.

Kevin McElligott joined Franco-Nevada Corporation (TSX:FNV, NYSE:FNV) in 1996. He has been Managing Director – Australia since 2008, and is responsible for business development and portfolio administration in Australia. He is based in Perth, Western Australia

In advance of his appearance our Hong Kong show, Mines and Money caught up with Kevin to get his outlook on gold and the future of the royalty business model.

Mines and Money:  Franco Nevada had a great 2017 with your shares up 30%. What do you attribute to this performance?

We’ve got 47 producing assets and 40 advanced stage assets i.e. expected to generate cash in the next 5 years.

In addition, the last 12 months has been largely positive news for us. Stillwaters’ is expanding with its PGM production; Tasiast is expanding; Perseus is expanding with its gold production in Cote D’Ivoire.

We’ve had a year of really good news.

Mines and Money: How do you expect the royalty business model to evolve in 2018?

We’ll see more diversification in the royalty industry. At Franco Nevada we’ve done three US$100 million dollar plus investments in the last 12 months in oil and gas industry. At Silver Wheaton they have changed their name to Wheaton Precious Metals signalling a move away from silver.

Mines and Money: Where do anticipate the price of gold to be by the year end? 

My personal view is higher. I am very bullish on gold. The important thing about gold is it performs well at both ends of the investment spectrum. People like to invest in gold in times of crisis. However, it is also has a luxury component at the other end. 

Mines and Money: Do you expect to see banks return to mining finance?

I’m seeing equipment finance from banks, and they are providing finance for the top tier mining companies. However, if you are mid-tier and below you need to look elsewhere.

Mines and Money: Have we reached peak gold and what are the implications for the industry?

Years ago, people talked about the end of peak oil. However, what they really meant was the end of peak cheap oil. There was still plenty of oil, it just became harder to find.

I think we are approaching a similar phase for gold. We’ve passed peak cheap gold but there is still plenty out there – it will just become harder to find.

However, as with oil, I think technology will play a role in opening up gold mining opportunities. Drones are an obvious example of a technology which could completely change the cost structure.

Q. What’s your view on cryptocurrencies?

They’re here to stay but as an investment they are awful.

I see a use for an anonymous cryptocurrency payment platform but for me personally, buying bitcoin or Ethereum makes no sense. Far too volatile and I can’t see them replacing traditional fiat currencies. Can you imagine the implications for the US and global economy if the US$ dollar fluctuated by 5% each day?