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What $1,400 Gold Means For Juniors

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(Kitco News) - While exploration and development companies have lagged both senior miners and royalty companies, Osisko Gold Royalties' Sean Roosen feels that juniors may be turning the corner.

Kitco News spoke to the Osisko's CEO on Tuesday at the Sprott Natural Resource Symposium in Vancouver.

Roosen says the cannabis sector has cooled and cryptocurrency comes and goes, but the gold market gets interesting at these elevated levels. Gold has mostly stayed above $1,400 level over the past 30 days and recently hit fresh six-year highs.

Roosen says the sector needs more investment to become hot.

"If we see financing starting to come back into the exploration and development space, I think that'll be the indicator that we have a bull market," said Roosen, who noted equity private placement investments are pretty much at a 10-year bottom.

"During the summer 2018 we saw gold at $1,076, which was pretty much the five-year low, and here we are a year later at $1,430. We've got quite a gap there, and we need to stabilize and get inflows back into the active management funds and then see those funds allocated to exploration and development stage companies."

"We have not seen that yet, but I'm hopeful that we'll see quite a bit of money flow into the space over the next couple of quarters."

Transcript has been edited for clarity:

Kitco News: We've had gold mostly above the $1,400 level for about a month now. What has that meant for the industry?

Sean Roosen: We all hope that this is going to set the stage for a big push of new capital coming into the markets, and some projects that have been around get dusted off. What we need is to get exploration and development projects back up and running.

We see a strange scenario in terms that we have both a higher gold price in U.S. dollars and a bull market in U.S. stock exchange, which is not what we had last time we had a high gold price in U.S. dollars. So this is a little bit different. It feels pretty good, and what we see is capital markets and equity markets evolving in the gold space in terms of there being more passive management within the space, which leaves an opportunity for new capital to come in and take a more active role.

A lot of development group companies are seeing a depleted audience in terms of institutional shareholders. So there's a huge value gap in the developer and explorer space. Senior miners have moved because of a lot of inflows from passive management. Royalty companies have moved as well. Developers and explorers haven't received much allocation yet. But if we can maintain these gold prices, that that will happen. 


Chart courtesy of Osisko Gold Royalties

At Osisko Gold Royalties and our accelerator group of companies, we've been exceptionally fortunate. The Windfall Project has over a $1 billion market cap that we incubated in 2016 with an $8 million market cap. And we've raised more than $400 million for that company in the past four years.

There are some outliers where we've seen extreme success, but we need more of them. And I think a little bit of success will help drive this equity market and get some more exploration going and hopefully a few discoveries, which is always a great catalyst to see investor enthusiasm come back into the space.

Kitco News: What would a bull market in the sector look like?

Sean Roosen: Well equity private placement investments are pretty much at a 10-year low. So if we see financing starting to come back into the exploration development space, I think that'll be the indicator that we have a bull market. During the summer 2018 we saw gold at $1,076, which was pretty much the five-year low, and here we are a year later at $1,430. We've got quite a gap there, and we need to stabilize and get inflows back into the active management funds and then see those funds allocated to exploration and development stage companies. We have not seen that yet, but I'm hopeful that we'll see quite a bit of money flow into the space over the next couple of quarters.


Chart courtesy of National Bank Financial

Kitco News: Why have we seen money flowing into the senior miners and royalty companies, and not the exploration and development stage companies?

Sean Roosen: Well I think it's the access to capital question. You know the most of the senior mining companies and the royalty companies haven't had access capital for a while. We've been we've been actually making money in case of Osisko royalties we make about $3 million dollars a week in our royalty income. So we're cash flow positive on a very consistent basis, which is the criteria for a lot of institutional allocation. We'll see some risk capital coming back into this space now that the weed space has cooled quite a bit and the cryptocurrency space comes and goes. Both these sectors are not as exciting as they once were.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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