Gold price outlook
Year-over-year, gold is up approximately 29.1% to $1,700.05 per troy ounce on the London bullion market and $1,727.40 per troy ounce on the Comex futures market as of market close on Thursday, June 4.
In my opinion, the favorable macro environment will likely push the price towards higher levels, potentially breaking through $1,800 mark.
U.S. GDP contracted at an annualized rate of nearly 5% in the first quarter of 2020 as a result of lockdown conditions. Looking ahead to the second quarter, analysts predict that U.S. GDP could tumble as much as 17%.
The Federal Reserve is also likely to maintain the current 0-0.25% target interest rate range to support the U.S. economy.
These factors all contribute to demand for gold as one of the most sought-after safe-haven assets.
One way to take advantage of the rising gold price is to increase portfolio exposure to gold-focused royalty and streaming companies. These companies are not engaged in mining activities, so they do not support costs related to the production of the metal. They obtain a certain percentage of gold produced as a fee for granting mining companies the rights to operate on the properties they own.
My picks in the gold royalty and streaming industry are Osisko Gold Royalties Ltd (OR, Financial), Maverix Metals Inc (MMX, Financial) and Metalla Royalty & Streaming Ltd (MTA, Financial). Wall Street sell-side analysts have also issued positive recommendation ratings for all three of these companies.
Osisko Gold Royalties Ltd
Following an 11.5% drop in the past year, the share price of Osisko Gold Royalties traded at $9.48 at close on Thursday for a market capitalization of $1.57 billion. The average Wall Street target price of $17.30 reflects an 82.5% upside from Thursday’s closing price of $9.48 per share.
The stock has a price-book ratio of 1.33 versus the industry median of 1.54.
Based in Montreal, Canada, Osisko generates income from 135 mineral interests, including precious metal royalties, streams and offtakes located in North America and Chile. Osisko is also engaged in the development of future royalties and streams from several projects located in Canada.
In the first quarter of 2020, Osisko posted $37.8 million in revenues from royalties and streams, which was up 13% from the prior-year quarter, and $23.8 million in operating cash flow, which declined by 4%. Adjusted net earnings jumped 29.3% to $7.5 million, or 5 cents per share.
The balance sheet had $580 million in total liquidity (including lines of credit), $1.14 billion in royalties, stream and other mineral interests and $374.5 million in long-term debt as of March 31.
Due to uncertainties caused by the Covid-19 pandemic, Osisko withdrew its guidance on production for 2020.
Maverix Metals Inc
The share price of Maverix Metals rose by 3.6% over the past year up to $4.29 at close on Thursday for a market capitalization of $512.31 million, a 52-week range of $2.51 to $5.72 and a price-book ratio of 2.26.
The stock has an average Wall Street target price of $5.27, which represents a nearly 23% upside from Thursday’s closing price.
Maverix profits from more than 100 precious metals royalties and streams located in North America, Australia and several other countries.
The assets allowed Maverix to generate $996 thousand in net profit in the first quarter of 2020 on revenue of $9.3 million. Furthermore, the operating cash flow increased 128% to $5.7 million.
The company withdrew its guidance on production for 2020.
Metalla Royalty & Streaming Ltd
Over the past year, the stock price of Metalla Royalty & Streaming has gained 78.2% to $5.81 at close on Thursday, which is above the middle point of the 52-week range of $2.73 to $7.33.
The stock has a market capitalization of $203.70 million and a price-book ratio of 4.43 versus the industry median of 1.54. The average Wall Street target price of $8.25 represents a 42% upside from Thursday’s closing price.
Based in Vancouver, Metalla holds a portfolio of royalties and streams which are located in Canada and Australia.
The Canadian precious metals royalty and streaming company closed its fiscal third quarter ended Feb. 29 with a net loss of approximately $1.6 million.
The strengthening of the portfolio through the inclusion of new gold royalties from deposits in Chile and from a prolific area in Nevada, plus an expected increase in precious metal prices, should help Mestalla Royalty & Streaming Ltd improve its financial results considerably.
Disclosure: I have no positions in any security mentioned.
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