Bullion Monarch’s Annual Report Shows Benefits of a Royalty Based Portfolio
When Bullion Monarch (OTC: BULM) released its 10-K annual report last week, showing revenues climbing over $1.4 million year on year to $5.2 million, the company cited increased production and higher gold prices as the key reason behind the gains. More specifically, they noted the benefits of their royalty portfolio, which requires relatively little capital and incurs only minor direct operating costs. This is indeed, a comparative advantage over many of its piers, and is an advantage well worth considering when assessing the potential value of the company going forward.
Bullion Monarch Mining is a natural resource company focused on its various mining properties in Nevada and the Western United States. The company has a market capitalisation of around $24 million. Bullion’s primary assets are various royalties from a number of gold projects (including Newmont’s new, large Leeville underground mine and the East Ore Body Mine), with total royalty payments for 2010 (according to the latest 10-K) almost $400,000. It is also worth noting that Bullion are currently in litigation over unpaid royalties that are due on their Carlin property, and potential future royalties also due.
The company suggest that “the combination of past royalties due, current royalties being paid and future royalties could put Bullion in a much stronger cash position which would enable them to compete in a more favourable and profitable way within the mining industry”. In addition to the company’s royalty holdings, they have an 80% interest in the oil shale exploration and production company EnShale, through which Bullion holds under lease some 4,650 acres of oil shale property. According to the US Geological Survey (USGS), this property holds approximately 667 million barrels of oil, which at a price of $75/bbl, sets a value of over $0.5 million in shale oil alone.
The majority of Bullion’s current revenues are derived from a high quality royalty claim block, located in the Carlin Trend in North East Nevada. Bullion is collecting a 1% gross smelter return (GSR) royalty from Newmont’s operations on this claim block, which covers five mines; the Leeville Mine, East Ore Mine, North Lantern Mine, Turf Mine and the Four Corners Mine.
Over the last three years, this royalty has generated in excess of $10 million in revenue for Bullion, and the company note it continues to grow both in gold production and gold reserves. not only is the mine life of these assets expected to be over ten years, but Newmont see a lot of potential for further exploration, particularly as the Leeville Turf complex ore bodies were found to be more continuous and thicker than originally modelled. Newmont are aiming for a 500,000 ounce gold production from Leeville this year, over 13,000 ounces higher than 2009.
Newmont have said that exploration drilling is targeting both the Turf and Four Corners deposits, and rigs are working both underground and on the surface on the complex of deposits that includes the West Leeville deposit, which is now being mined.
One area where bullion expects significant royalty revenue to come from in the future is their Maggie Property located in Eureka County, Nevada. This is approximately 7 miles north of Carlin, and lies just south of Newmont’s largest open pit operation, the Gold Quarry Deposit. The Maggie Creek property is in a direct line from Newmont’s Tusc Pit to the Mac Open Pit to the Gold Quarry Mine. The Gold Quarry Mine is located less than half a mile from the northern border of the two square miles of land, which Bullion hold a 3% GSR interest in. At the Gold Quarry Mine, Newmont continues to go wider and deeper in their production, helped by the increasing price of gold over the past few years.
As these open pit mines continue to deepen, higher grade underground mines have also evolved. The Gold Quarry Open Pit is becoming increasingly deeper and closer to Bullion’s Maggie Creek property border. Bullion believes that at some stage in the future, possibly over the next few years, the pit will begin to infringe on their property and so will allow them to begin to collect the 3% GSR on gold produced under their license.
As highlighted earlier, Bullion does in fact hold numerous properties (at varying states of interest) across America, and the potential revenues from EnShale and there recently patented oil shale production method may prove to be highly significant in coming years. But the benefits to a company of holding a royalty based portfolio of properties are there to be seen already in the top line of Bullion’s latest 10-K annual report. This is something well worth considering when looking to invest in the junior mining and exploration sector, and seems to be strategy that Bullion Monarch are happy to take advantage of.