Compass, episode 13

Our previous interview: https://www.cruxinvestor.com/posts/why-smart-money-is-chasing-mining-royalty-companies-7032

Recording date: 28th April 2025

The investment landscape has settled into a period of relative calm following an eventful first quarter marked by new tariff policies from the Trump administration. Markets currently appear to be in a holding pattern, waiting for the next significant catalyst, according to recent discussions between Samuel Pelaez and Derek Macpherson of Olive Resource Capital.

This temporary market lull provides an opportunity for investors to reassess positioning, particularly in the gold sector, which is demonstrating remarkable strength. Q1 reporting reveals impressive performance from leading gold producers, with Agnico Eagle generating $6.7 million in daily free cash flow during Q1 at an average gold price of $2,900. With gold now trading around $3,400, daily free cash flow could potentially exceed $10 million, showcasing the significant operating leverage gold producers have to metal prices.

The fundamentals driving gold stocks are increasingly attractive to professional investors. Agnico Eagle posted year-over-year revenue growth of 36% in Q1, outpacing even successful tech companies that typically grow at around 20% annually. Despite this strong performance, valuations remain compelling, with Agnico Eagle estimated to be trading at a free cash flow multiple of 10-15 times.

Generalist investors are beginning to take notice, with Newmont ranking as the third-best performing stock in the S&P 500 year-to-date, up approximately 45%. This investment cycle typically begins with generalists purchasing large-cap gold producers, followed by capital flowing to mid-caps, developers, and eventually explorers – a pattern that appears to be in its early to middle stages currently.

Several macroeconomic factors continue to support gold, including upcoming debt ceiling negotiations and budget discussions in Congress, which could drive market volatility in the coming months. Additionally, the U.S. dollar, described as "significantly oversold," may experience a temporary rebound that could create short-term volatility in gold prices, potentially offering buying opportunities.

Olive Resource Capital maintains approximately 50% of its assets in gold and platinum group metals (PGMs), focusing on highest-conviction names. The company also sees potential in PGMs, which are currently out of favor but face fundamental supply constraints with production dominated by South Africa and Russia.

With ongoing fiscal challenges, potential monetary policy adjustments, and geopolitical uncertainties likely to persist through 2025, the fundamental case for gold as both a portfolio diversifier and growth opportunity remains compelling. Investors who can look beyond short-term price movements to focus on quality assets and management teams are well-positioned to benefit from this developing investment cycle.

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