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Strategies & Market Trends : Ride the Tiger with CD -- Ignore unavailable to you. Want to Upgrade?

To: NOW who wrote (212131)	2/29/2012 2:08:42 PM
From: Veteran98	Respond to of 313613

LOL... you mean it's not March yet ???

To: NOW who wrote (212131)	2/29/2012 2:57:29 PM
From: Veteran98	Read Replies (1) \| Respond to of 313613

SSL..... Junior Mining Weekly \| 4 29 February 2012 BEAUTY, THY NAME IS FREE CASH FLOW No one metric can entirely to describe how a company is trading, and for some companies, particularly in the junior mining space, traditional metrics, such as price to earnings (P/E) or price to cash flow (P/CF), are not particularly meaningful given their stage of development. Nevertheless, free cash flow is the ultimate name of the game, even for those companies that are years away from generating revenues. Which is why we are highlighting free cash flow in this week’s Junior Mining Weekly. For our purposes today, we define free cash flow as operating cash flow after working capital changes and after deductions for sustaining capital. Operating cash flow before working capital changes can be subject to accounting manipulation. It does not reflect the capital required to sustain production or maintain adequate liquidity for a business. Free cash flow can be used to finance growth, pay dividends, buy back shares, and/or finance acquisitions. Unfortunately, there are many examples of mines and companies which generate substantially lower free cash flows than predicted by feasibility study, company guidance, and/or analyst expectations. Mining is a tough business, and there is a dearth of qualified mining engineers, metallurgists, and geologists with the experience to address the normal issues that arise when building and operating mines. It is in this environment, with operating cost escalation, depleting margins, and capital escalation sucking up excess funds, that royalty companies are in a particularly strong position. Royalty companies, such as Sandstorm Resources Ltd. (SSL : TSX-V : C$1.69 ? SPECULATIVE BUY : covered by Nicholas Campbell), Silver Wheaton Corporation (SLW : NYSE : US$38.75 ? BUY : covered by Steven Butler ), Franco-Nevada Corp. (FNV : TSX : US$44.19 ? Not rated), and Royal Gold, Inc. (RGL : TSX : C$71.63 ? Not rated) have low overhead, more cost certainty, minimal capital requirements, and are usually structured for optimal tax efficiency. It is for these reasons that they tend to receive higher valuations relative to producers. These companies appear to us to be the free cash flow machines in the mining space, and the royalty space has been getting smaller and smaller. Over the past three years, we have seen Silver Wheaton acquire Silverstone Resources, Royal Gold acquire International Royalty Corp., and Franco-Nevada acquire Gold Wheaton Gold Corp. From our perspective, Sandstorm Gold stands out as a precious metal-focused small cap royalty company, with a strong balance sheet and growing free cash flows. Given the consolidation that has occurred in the royalty space, we believe that it is only a matter of time before Sandstorm Gold attracts the attention of a larger cap royalty company. While these equities are uniquely positioned to outperform in an inflationary cost environment, they also benefit from the current volatile equity markets that have damaged the equity financing environment for junior exploration and development companies. With fewer alternatives to finance development, the sales of royalties and metal streams have become much more common over recent years. With cost pressures continuing and ongoing personnel challenges, the expanding margins, free cash flows, and growth potential associated with royalty companies should continue to attract investors and higher valuations in the market.