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Ely Gold Royalties: Massive Growth Potential

Jun. 05, 2020 10:03 AM ETEly Gold Royalties Inc. (ELYGF)24 Comments


  • Ely Gold Royalties is a high-growth royalty company that also recently landed a major new investor in Eric Sprott.
  • The company owns a total of 43 royalties, of which 3 are currently producing, with strong third-party operators.
  • A recent acquisition of five 3% NSR royalties in Nevada carries strong economics for Ely.
  • I break down the recent performance of the stock.
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Ely Gold Royalties Analysis

This article was first published and made available to subscribers of my marketplace service on April 2, 2020, when the stock traded at US$.50. It has been edited and updated.

Recent stock price: US$1.30 (C$.68)

Shares outstanding: 119.3 million

Market cap: US$190.89 million (C$259 million)

52-week range: $.13-1.48

Ely Gold Royalties is a small company in the royalty space (sub-$200 million market cap), but it is growing fast and has been completing some attractive deals lately. It also has strong third-party operators on its royalties - such as Barrick Gold (GOLD), SSR Mining (SSRM), and Coeur Mining (CDE) - which is pretty rare for a company of its size.

Management and insiders are aligned with investors as they own 8% of the company, while new investor Eric Sprott owns 26%, according to the company's most recent corporate presentation (slide 6).

What is a royalty? And the benefits

A royalty gives a company a fixed percentage of the revenue generated from a mine for the entire life of the mine, regardless of who is the mine's operator.

The benefits of royalties include: Leverage to gold prices, the ability of a company to diversify over many royalties, high profit margins (80%+), no ongoing capital requirements, and no exploration costs (but exploration upside), and it makes it easier to scale the business versus the high cost of building a gold mine.

Example: if Ely buys a 1% net smelter returns royalty on a mine that produces 100,000 ounces of gold annually and gold averages $1,500/oz, then Ely would earn $1.5 million in annual royalty revenue (estimated). If that gold mine is able to increase production to 200,000 ounces, then revenue rises to $3 million at no additional cost to Ely.

Royalty companies trade at higher premiums

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This article was written by

Gold Mining Bull profile picture

With over a decade of experience in the investment industry, I am a highly skilled private investor with a proven track record of success in the commodities and hard assets sector. My areas of expertise include investing in gold and silver miners, royalty and streaming companies, pure exploration companies, as well as oil and gas producers and MLPs. My comprehensive understanding of these markets and my ability to identify and capitalize on profitable opportunities have enabled me to consistently deliver strong returns for my subscribers.

Analyst’s Disclosure: I am/we are long ELYGF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (24)

Bought ELYGF today at $1. Too soon?

I hope it is not too soon. ELYGF pulled back 32% from its high on no news, so I assume it was simply over-extended. Unless someone has some information or news underlying this pullback, ELYGF at $1 or below is an opportunity IMO. Just wish I had sold more when it was over $1.40 not long ago. Best.
I sold 2/3rds of my position at C$1.99 and bought back more at C$1.60 the next morning! With a small portfolio like mine trading this stock is possible, but don't expect to do the same with a $100k position. I first bought at C$0.34 and will hold for the next few years
What is happening today? Did gold merely react to the S&P bump or are there more durable (ie: low inflation, strong dollar, overbought) reasons for today's pullback? In other words 'should I back up the truck or wait awhile'? We got close to the commonly percieved 1650 bottom of the 'theoretical' trading range, afterall.
Adrián Hernández profile picture
Gold -2.5%, but you shouldn't try to rationalize every single stock price movement, especially for a iliquid MicroCap where a +/- 10% is quite usual.
06 Jun. 2020
Partial technical pullback - GDX (Sr. Miners EFT) and other gold stocks had a bearish Head & Shoulders pattern develop mid week, with the pattern following thru by the end of the week. Gold p/b due to better than expected job stats (although many are rejecting the stats as suspect). Gold did not break through the May high resistance, so a S/T p/b &/or consolidation is in play. Anticipated by many that gold will rebound when general market earnings show the real damage to the economy. Gold may have completed the C-rise and entered the D-decline phase, with a C-rise following. Think we may be in the deflationary stage of the economy, which will then be followed by inflation (all dependent on Trump/Powell activities).
These little royalty outfits are popping up dropping names like Eric Sprott, FNV, WPM and others. Are they legitimate or just some guys riding around on donkeys?
Did Eric confirm his involvement or is it just rumor?
The ones I own are legit and profitable. I do not care if they ARE riding around on donkeys as long as they maintain their business models and continue to make me money.
Fast Track to Financial Independence profile picture
Eric Sprott is definitely the key shareholder in Ely.
Fast Track to Financial Independence profile picture
Yet another Ely article in a recent string of write-ups, but it's always good to see this company recognized for its strategy and impressive execution. I first became a shareholder about four years ago, and have seen the extraordinary growth, and the pivoting from an optioning-based royalty strategy only to a dual approach also including purchases of producing or near-prodction royalties.
Yes, I missed this boat. I hope a reasonable pullback happens.
What would you consider a reasonable pullback?
Chancer profile picture
It doubled from 60 cents in 30 days since May 6.

I would not chase it here as I expect the gold price to drop.
@msiegel2003 @Chancer

I don't know but as posted below, if something doubles in 30 days, then I am wary of chasing it.
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