Guest Post: #Gold Royalty/Streaming

I met with President & Director Brett Heath of Metalla Royalty & Streaming Ltd. at PDAC, 1st week of March.  I liked his story and he articulates it very well.  Following is a Guest Post from Stockhouse that touches upon the Company, near the end of the article.  

NOTE:  Peter Epstein, CFA, MBA / Epstein Research [ER] has no prior or existing relationship with Mr. Health, his business interests, or any company mentioned below.  He does not own shares or options in any company herein.  Without further ado, here’s the Guest Post. 

The Insider Secret to a Gold Stock Fortune

Stockhouse editorial

There’s a problem in the gold mining business.  Even the biggest gold mining companies can’t escape it.  The more gold they mine, the closer they are to running out.

When that happens, companies are forced to scramble.  They do risky deals. They dilute shareholders.  They even try to build another mine quickly.  This often doesn’t go as planned, and the market doesn’t wait around to see if the company can find its next gold hoard.

You see, gold mines are depleting assets.  When gold comes out of the ground, it’s gone for good.  That’s why, to stay in business, gold miners constantly have to hunt for their next great gold discovery.   That’s not always easy….. and yet, it is always expensive.  Shareholders get stuck with the bill.

Source:  Cormark Securities (Feb 2017): Combined production growth forecast of Goldcorp, Barrick, Newmont, Yamana, IAMGOLD, Agnico Eagle and Eldorado Gold

That’s why some of the most successful gold investors buy gold royalty and streaming companies.  What they know is these are the true growth stories in the gold business.  The best example is a company called Franco Nevada [NYSE: FNV].  Pierre Lassonde and Seymour Schulich, the founders of Franco, sold shares in their new exploration company for $0.35.

The two quickly realized their fledgling exploration company would go belly-up if they couldn’t create reliable income.  From a tip to answer an ad in the Reno newspaper, they bought a small package of gold royalties.  One of those royalties covered land bought by mining giant Barrick Gold Corp. [NYSE: ABX].

Barrick discovered a massive deposit called Goldstrike on the property. It became the largest gold project in North America. The tiny royalty company with a $0.35 stock became Franco-Nevada.

They were able to use this cash flow to buy more gold and silver royalties. This created a real growth story that is still around and thriving today.

You see, Franco Nevada’s founders figured out this gold growth stock secret. They didn’t get caught up in get-rich-quick stories. They didn’t look for gold on the moon or at the bottom of the ocean. They stayed focused on this one money-making idea.

After several years, the two sold their once fledgling gold company to Newmont Mining Corp for $2.6 billion. Shareholders booked a gain of 1,250x times the price paid for the company’s first shares.

That means every $1,000 invested turned into $1,250,000

Franco-Nevada trades on its own again today. It went public at $15 CAD in 2007. Those shares now sell for over $85 CAD

This makes Franco one of the best performing stocks of all time.

Today, everyone has forgotten about Franco’s success. When its stock traded for $0.35, only the smart money paid attention. Even though the company told investors exactly what it planned to do….few listened. The ones that did, made a fortune to last several lifetimes.

Royalty Companies – The Real Growth Stories in the Gold Sector

As you likely know, gold royalty and streaming companies don’t operate big trucks, complex processing facilities, and don’t employ thousands of people.  That’s why this business model can generate incredible margins.  For instance, Franco-Nevada enjoyed a 79% EBITDA margin in the trailing 12-months.  [SourceYahoo Finance]. Strong margins and cash flow support an EV / EBITDA multiple of 23x!  

Royalty companies have small teams that purchase interests in precious metal mining operations.  They own these interests through royalties and streams.  These companies often complete 2-4 transactions per year, with each transaction giving royalty companies interest in that operation that typically lasts for 10-20 years.

That’s in stark contrast to the average mining company.  It gives you exposure to one asset over 10-20 years while constantly issuing shares diluting your real ownership of that one asset.

Royalty companies are the only growth businesses in the mining sector that allow you to “buy and hold” for long term gains.  This is why they have continued to out-perform the rest of the sector through the bull and bear market cycles.

The best time to own a royalty company is at the beginning of a bull market in gold and silver.  This is because as the gold and silver price rise, the profits follow.  The royalty company’s costs are fixed, allowing shareholders to be the main beneficiaries of rising gold prices.

Few royalty companies focus exclusively on precious metals.  That means, truly great opportunities to buy royalty companies don’t come along very often.  When they do, shareholders are poised to make incredible gains.

The way to make a fortune is to own a new gold royalty company at the beginning of a bull market in gold and silver.

New royalty companies can have internal growth of 100% year over year often for the first 3-5 years. The major royalty companies, (Franco Nevada, Silver Wheaton [NYSE: SLW], Royal Gold [NASDAQ: RGLD]) although great investments, are too big to have this type of growth.

The Next Great Opportunity?

One new company is already on a great path to success.  Although still early days, this company has already acquired several royalties.  A few royalties on properties held by some notable counterparties like Goldcorp, Tahoe Resources, Glencore PLC, Detour Gold, and Osisko Mining.

The company, Metalla Royalty & Streaming Ltd. (Symbol: MTA in Canada, EXCFF in the U.S. and X9CP in Germany), has accomplished this in the first six months by acquiring two royalty portfolios and has a producing silver stream on the way. The best part is, Metalla is just getting started. Investors that own this stock for the long run will likely be in for some great returns.

You can find more information about the company on its website and what it plans to do next.