NIA comments on ELY
Major unexpected developments occurred last night regarding Ely Gold Royalties (TSXV: ELY) and we decided that we must focus on ELY today because it is almost definitely going to rally big from its current price of only $0.34 per share with a market cap of only CAD$33.57 million and enterprise value of only CAD$29.48 million. ELY's most valuable asset is their 2% NSR royalty in the Fenelon project of Wallbridge Mining (TSX: WM). Yesterday evening, after the close of trading, WM announced that its Fenelon Drill hole FA-19-086 assayed 27.00 g/t of gold over 38.39 metres in the Tabasco zone at a vertical depth of 500 metres! This is equal to 1,036.53 grammeters of gold and is WM's best gold intercept in history!
On September 30, 2019, ELY announced that it entered into an agreement with WM that we believe greatly increased the fundamental value of ELY's WM Fenelon 2% royalty. WM has agreed to officially acknowledge ELY's 2% NSR royalty in their Fenelon project, which is called the Morrison Royalty and dates back to an exploration agreement from Oct 31, 1986 between Morrison Petroleum and Morrison Minerals. WM also agreed to support registration of ELY's royalty with the Ministry of Energy and Natural Resources, Québec. In addition, WM has agreed to pay ELY its full 2% royalty on any future bulk samples at Fenelon that occur after the effective date of June 30, 2019. Finally, toll milling will not be considered a deductible expense when calculating royalty payments.
WM is currently working towards receiving approvals for the start-up of small-scale, 400-500 tpd production from the already-developed areas of the Main Gabbro zones by the second half of 2020. We estimate that this will initially allow WM to produce approximately 60,000 oz of gold per year. WM intends to reach production of 100,000 oz of gold per year within 5 years.
With WM's initial production of 60,000 oz of gold per year, ELY will earn an estimated CAD$2.34 million in annual royalty payments. Once WM reaches production of 100,000 oz of gold per year, ELY will earn an estimated CAD$3.9 million in annual royalty payments.
Over the last twelve months, ELY generated CAD$2.106 million in revenue and is currently trading with an enterprise value/revenue ratio of 14, which is much lower than other gold royalty companies! The average enterprise value/revenue ratio of the three leading gold royalty companies Royal Gold (RGLD), Franco-Nevada (FNV), and Wheaton Precious Metals (WPM) is currently 20.
ELY deserves a much higher multiple than these other gold royalty companies, because ELY's most valuable asset its 2% NSR royalty in WM's Fenelon mine is currently not generating any revenue at all, but will likely soon cause ELY's revenues to more than double! If ELY initially earns annual royalties from WM's Fenelon mine of CAD$2.34 million on top of its current revenue of CAD$2.106 million it will generate total annual revenue of CAD$4.45 million and the average gold royalty company enterprise value/revenue ratio of 20 would give ELY an enterprise value of CAD$89 million, which would equal a market cap of CAD$93.08 million and a share price of $0.94 for a gain of 176.47% from its current share price of $0.34!
It is easy to figure out what you believe. The difficulty lies in determining - is what you believe the truth.
