Higher oil prices can hurt gold prices in two ways. Given that a higher oil price has a significant impact on oil-importing countries such as India and China that have been major public and private buyers of gold, a continuation of the Iran war could start to put pressure on buying from these and other oil-importing emerging nations.
Higher oil prices, which will boost the CPI, have also led analysts to expect few interest rate cuts ahead, as the Federal Reserve and other nations emphasis the effect on inflation more than on the economy. This would be another negative for the gold price. In addition, the war has not only boosted the dollar price, but also seen interest rates move up, providing a double-whammy on competition for gold.
The Impact of Higher Oil Prices on Miners' Costs
Higher oil prices would also affect gold company margins, which have been remarkably strong and rising over the last few years, helped by a low oil price keeping costs largely under control even as the gold price increased. Diesel is the largest cost input for operating mines, so though the impact on gold mines is generally less than on copper or iron ore mines, it will cause costs to increase. Higher oil prices also affect other cost inputs of course.
A study from BMO concluded that costs for gold miners would increase by about 2% for every $10 move in the oil price. So a move from $60 to $100, for example, such as we have seen this month, would increase costs by around 9%. Mines in the Americas and in Africa have historically been less sensitive to the oil price than to those located elsewhere, while there are individual factors affecting different mines. And this is before miners took any remedial action, which they would if the price remained high for an extended period.
It Would Have a Modest Impact
In addition, some companies have hedged their diesel; Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE), for example, has hedged a little over half of its 2026 estimated exposure at an average of $0.69 per litre. The cost of diesel has jumped about 70% since late February to the current spot a little over $1 per litre.
So while a higher oil price unquestionably is a negative for gold mining companies, their costs and their margins, the impact is manageable.
Again for Agnico, with All-In Sustaining costs of $1,339, and the gold price at $5,200, there is room for costs to increase and the company to continue to generate margins well above its historical norm, and continue to be wildly profitable.
Franco Ends the Year on a Strong Note, Rebuilds Cash Pile
Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) reported results meaningfully above analyst expectations with 142k GEOs and revenue of $597 million for the fourth quarter, allowing it to end the year at the top end of its 2025 guidance (and annual earnings up 75%).
Increases at Antamina and Hemlo offset declines in the oil & gas division. It ended the quarter with cash of $671 million (and no debt), rebuilding its cash position after some large acquisitions last year, including, in May, a record royalty purchase on the Cȏté mine for just over $1 billion. In addition, Franco holds equities now valued at over $1 billion., primarily in two companies.
CEO Paul Brink said the shares were acquired as part of financing packages, the Franco intends to be a long-term supportive shareholder," but if there are good opportunities" they could "take some money off the table."
Guidance for Modest Growth, but Significant Potential
Starting this year, Franco will use fixed prices for different commodities in calculating "Gold Equivalent Ounces" in an effort to avoid fluctuating GEOs caused solely by commodity price differentials. The company provided guidance for this year of 510k to 570k, with modest increases over the next five years — "just the baseline," according to Brink–excluding anything from Cobre Panama.
Following an environmental audit of the closed mine, expected in April, stockpiled ore will be shipped, giving Franco an estimate 23,000 ounces of gold plus 265,000 ounces of silver, probably in the third quarter.
Franco is a core position for us; we are holding.
Wheaton Also Reports Record Quarter and Year
Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE) reported record fourth-quarter and fullyear results, largely in line with expectations after the company pre-released sales numbers last month. GEOs sold and revenues were records (with EBITDA up 88% from the year-ago quarter); costs were a little higher than expected.
The company ended the quarter with over $1 billion in cash, but all expected cash-onhand will be used towards the $4.3 billion purchase price for an additional stream on Antamina (see Bulletin #999), with the balance $900 million on its line of credit and $1.5 billion from a new term loan, giving the company a heavy debt profile. However, strong cash generation makes this manageable. This coming year will see additional stream production at Antamina and Hemlo, among other mines, with steady progress of several development assets.
Hold.
Altius Earnings Up, With Cash To Deploy
Altius Minerals Corp. (ALS:TSX) reported fourth-quarter earnings of CA$22.5 million, with lower costs, after pre-announcing royalty revenue. Adjusted net earnings, removing the gain on the sale of most of the Arthur Royalty, were higher for both the quarter and year compared to 2024.
Revenue was boosted by higher potash and base metal prices and higher deliveries from both copper and renewables, offset by lower iron dividends (little more than half of the prior year) CEO Brian Dalton noted that the Labrador Iron Ore Royalty Corp. would see lower dividend payments as the mine operators spent cash flow on reinvestment, after years of underinvestment; the royalty revenue would continue, however.
Balance Sheet Strong With Cash To Deploy
During the year, Altius repaid $17 million in debt, including $7 million of voluntary repayments. It also has continued share repurchases. It ended the quarter with $294 million in cash, and $89 million in debt, a balance sheet that allows it to continue to make significant acquisitions.
Altius is a core holding for us, given broad exposure to the commodity sector, from a very strong management team with a solid balance sheet. In addition, they have strong multi-decade assets–Arthur royalty, Kami iron ore, and the renewable business–that could each see upwards of $50 million in annual revenues starting in the early years of the next decade. Following a decline from an (almost) $50 peak at the beginning of the month, we are buying again.
Lara To Raise Equity To Advance Planalto
Lara Exploration Ltd. (LRA:TSX.V) announced an equity raise of up to CA$33,75 million at CA$3 per share, with funds to be used to advance the Planalto project, including the newly acquired Atlantica extension, with both drilling and a pre-feasibility study over the next year.
The stock responded positively to the news as the financing will put the company in a strong position to increase the size and potentially improve the grade at the deposit, as well as upgrade the quality of the resource. Knowing the Lara team, they would not have announced such a large and aggressively priced offering–with no warrant–without knowing where many of the orders were coming from.
Lara remains a Buy.
Orogen Also To Raise Funds; Possible Acquisition Ahead?
Orogen Royalties Inc. (OGN:TSXV; OGNNF:OTC) also announced an equity raise of up to CA$10 million at CA$3.46 per share. The proceeds will be used for executing "potential royalty acquisitions" as well as continuing generative activities.
Since the company is well funded and generates free cash flow, sufficient for its generative work, it would appear than an acquisition could be in the works. The company indicated that some directors and officers would participate in the placement. Orogen stock fell into and after this announcement, however, and is now trading at a discount to the offering price. We suspect that one cause of this could be a large resource-oriented brokerage firm prohibiting clients from buying the stock since one of their brokers is taking part in the raise. This is apparently to avoid a perception of collusion, though sells are still permitted.
(Whoever said that compliance is meant to help investors?) If you do not own Orogen, you can thank over-zealous compliance regulations and officers for giving you a good buying opportunity.
At today's price, Orogen is a Buy.
Tether Increases Stake in Metalla, With Possible Change in Strategy
Metalla Royalty & Streaming Ltd. (MTA:TSX.V; MTA:NYSE American) saw its second-largest shareholder report an increase in holdings to 10%. This is now the fifth 13D filing by Tether since it first reported holdings in Metalla at the end of October. A month ago, Tether reported a 8.9% holding. It is possible that Tether may have changed its tactics with regard to junior royalty companies that are resisting ceding control and merging with its royalty flagship, Elemental.
Tether, which has indicated it does not like hostile takeover fights, may prefer to work with other juniors independently of Elemental, as least for the time being. Another junior royalty, Versamet, in which Tether owns 12.7%, just named a Tether representative to its board. In any event, independent of Tether, Metalla is undervalued on an asset basis, with many of its royalties on major assets that will not be cash flowing for several years (including the Gosselin extension of Cote, Copper World, Castle Mountain, and Taca Taca) being undervalued in analyst NAVs and by the market.
Metalla is a Buy.
Nestlé To Buy Back Deb
Nestle SA (NESN:VX; NSRGY:OTC) has commenced cash tender offers to purchase some outstanding low-coupon notes totaling $1.6 billion.
No reason was given for the repurchase offer.
Hold.
TOP BUYS this week, in addition to the above, include Midland Exploration Inc. (MD:TSX.V).
In addition, for those underinvested in the gold equity space, you should take advantage of the current pullback; the GDX index is down 20% since the Iran bombing began at the end of February. If you do not already own, best buys would be OR Royalties (OR:TSX; OR:NYSE), Fortuna Mining Corp. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE), and Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE). Note that these stocks may slip a little more, but if you are not invested, you should at least start a position now.
| Want to be the first to know about interesting Oil & Gas - Exploration & Production and Gold investment ideas? Sign up to receive the FREE Streetwise Reports' newsletter. | Subscribe |
Important Disclosures:
- As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Agnico Eagle Mines Ltd., Franco-Nevada Corp., Wheaton Precious Metals Corp., Lara Exploration Ltd., Orogen Royalties Inc., Metalla Royalty & Streaming Ltd., Midland Exploration Inc., OR Royalties, Fortuna Mining Corp., and Agnico Eagle Mines Ltd.
- Adrian Day: I, or members of my immediate household or family, own securities of: All. My company has a financial relationship with: None. My company has purchased stocks mentioned in this article for my management clients: All. I determined which companies would be included in this article based on my research and understanding of the sector.
- Statements and opinions expressed are the opinions of the author and not of Streetwise Reports, Street Smart, or their officers. The author is wholly responsible for the accuracy of the statements. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Any disclosures from the author can be found below. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
- This article does not constitute investment advice and is not a solicitation for any investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Each reader is encouraged to consult with his or her personal financial adviser and perform their own comprehensive investment research. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company.
For additional disclosures, please click here.
Adrian Day Disclosures
Adrian Day’s Global Analyst is distributed for $990 per year by Investment Consultants International, Ltd., P.O. Box 6644, Annapolis, MD 21401. (410) 224-8885. www.AdrianDayGlobalAnalyst.com. Publisher: Adrian Day. Owner: Investment Consultants International, Ltd. Staff may have positions in securities discussed herein. Adrian Day is also President of Global Strategic Management (GSM), a registered investment advisor, and a separate company from this service. In his capacity as GSM president, Adrian Day may be buying or selling for clients securities recommended herein concurrently, before or after recommendations herein, and may be acting for clients in a manner contrary to recommendations herein. This is not a solicitation for GSM. Views herein are the editor’s opinion and not fact. All information is believed to be correct, but its accuracy cannot be guaranteed. The owner and editor are not responsible for errors and omissions. © 2023. Adrian Day’s Global Analyst. Information and advice herein are intended purely for the subscriber’s own account. Under no circumstances may any part of a Global Analyst e-mail be copied or distributed without prior written permission of the editor. Given the nature of this service, we will pursue any violations aggressively.
