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Great Bear Resources Eyes New Royalty Strategy

The safe bet is that Fed chair Powell’s ongoing quantitative easing program will be anything but small and temporary, asserts Brien Lundin, junior mining sector expert and editor of Gold Newsletter.

All of this, of course, is contributing to not only gold’s recent advances, but will also be among the many monetary drivers behind the metal’s ascent to new heights over the coming months and years. The entire junior mining share market, as moribund as it is right now, will leverage those gains dramatically.

More from Brien Lundin: A Precious Trio from Brien Lundin

In the meantime we have to console ourselves with some of the exploration successes the market has been giving us. The best of these has been Great Bear Resources (Vancouver: GBR) which recently reached heights as much as 28 times our entry level.

However, the shares have trended lower over the last few weeks as investors struggled to understand the new bulk-tonnage, lower-grade model for the Dixie project, and as large shareholder McEwen Mining reportedly cashed in its rich gains by selling out its position in the stock.

The company recently announced the proposed creation of a 2% net smelter return royalty on any future production on the Dixie property, which would be spun out into a new company to be distributed to shareholders.

To understand the genius behind this idea, we must remember that Great Bear’s management and board are shareholders themselves — and big ones.

They obviously believe that the potential deposit their drills are now outlining will be very profitable to whomever eventually owns and develops it (which won’t be them, by the way).

Further, they know that other big, rich, world-class deposits typically have royalties of around 2% that are paid to previous property owners, and that these represent little burden to the projects’ economics.

Conveniently, Great Bear’s Dixie project has no underlying royalties. So why not create one that will pay the shareholders for many years down the road, after the project is sold to a big producer?

See also: The 10 Best Blue Chips for Income & Growth

Conveniently and appropriately, the management team’s interests as fellow shareholders are aligned with ours, and this strategy will benefit everyone. As a bonus, it also disincentivizes selling by current shareholders, since by doing so they’ll forfeit their interests in the underlying royalties. I view this as brilliant.

I love the strategy, but the market wasn’t as impressed.

Still, this is great news as far as I’m concerned, as a long-term shareholder. And I still expect some boomer drill results in the days ahead, as even the supposedly lower-grade LP Fault has demonstrated that it can produce some exceptionally high-grade intersections.

It’s important to note that the ultra-high-grade results that Dixie has so far provided required check-assays to confirm, and these led to delays in reporting. So while we may seem a bit overdue for news from Great Bear, this may actually be an encouraging sign. In expectation of better days ahead on the exploration front, Great Bear remains a buy.

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