Whenever I make a purchase, I like to share my buys to document my journey towards financial independence. As regular readers are aware, I have broken from the DGI pack and sold some of my investments to move to a cash position. I shared details on my motivation to do so in this post. In that post, I have indicated that I am bullish only on one type of investment currently — hard asset, and more specifically gold and silver.
Earlier in the month, during the Chinese national holidays of Golden Week, the gold and silver market saw significant pullbacks — thanks to the paper traders and shorts having a field
day week. It was a great opportunity for investors like me to load up on some gold/silver equities at a discount. I managed to pull trigger on three such instances. One incremental addition to an existing position and two new stocks for my portfolio.
The three recent buys are:
- Pan American Silver Corp (PAA.TO) – added 50 shares @ C$20.70
- Franco Nevada Corp (FNV.TO) – 50 shares @ C$84.50 *New Position*
- Newmarket Gold Inc (NMI.TO) with 1,200 shares @ C$3.97 *New Position*
Pan American Silver Corp
Pan American Silver is an existing and I have already shared details on this blog as to why I am bullish on silver and this stock. I will simply link to the original article instead of recounting the details here.
Franco Nevada Corp
Franco Nevada is the best of the best when it comes to gold/silver/resource investing. Franco Nevada is a streaming/royalty company that has over 340 assets across the world — most of them in stable geopolitical countries. For those unaware of the streaming/royalty business model, the company enters into an agreement with a developer/producer where, in exchange for an upfront payment, it has the right to purchase, at a low fixed cost, all or a portion of the gold/silver production from several high-quality mines.
Recent Buy Decision
- Arguably the best company to own for gold/silver/commodity exposure. The company is legendary in deal-making and looks at under-appreciated assets in tough times and sets up the mine productions to come online periodically. I believe Franco Nevada is the Berkshire Hathaway of the commodity world!
- Excellent management that has a proven track record of some salivating deal making. Founded by Pierre Lassonde, who is now the chair; and current CEO David Harquil have been the envy of the industry. During the bear market of 2011-2015, FNV was completing agreements on a regular basis that are now appearing to be extremely smart. In a recent interview, CEO David Harquil noted that the company is very relaxed and not rushing into any deals as the gold market has risen significantly. The company literally has to stay put and do nothing to reap the rewards for the next 30 years!! That is the level of achievement that I would personally love to reach in my personal finance/investing!! 🙂
- The business model – Streaming and royalty business model is something that works amazingly for the shareholders and provides fantastic returns with limited risks. Shareholders get upside of exploration, security, leverage to gold price, dividend yield and long term optionality while seeing limited cost exposure and involvement in operations.
- The business model provides excellent scale. The G&A costs have continued to be driven down and as the company purchases more assets. Current G&A costs are as low as 0.13%. That is much less than an ETF such as GLD.
- The scale is apparent when you consider that a $12B company is run by only 29 employees. With a $500M revenue, that translates to $17.2M revenue/employee. That is significantly higher than any tech company, unicorn or otherwise, that gets a lot more media attention.
- FNV’s assets currently stand at 94% in precious metals and 5% in Oil & Gas. 85% of its assets are in the Americas and in safe political jurisdictions.
- Lots of cash on hand and zero debt.
- A healthy free cash flow, dividend yield (currently about 1.3%) and a dividend grower (5-yr CAGR of 22.6%) for 9 consecutive years.
- Following snapshot provides an overview on some of FNV’s metrics
Newmarket Gold Inc
Newmarket Gold is a mid-tiered gold mining company that has its operations in Australia. The company has three operating mines – Fosterville, Cosmo and Stawell.
Recent Buy Decision
- Newmarket Gold is a well run company and has great resources in a safe jurisdiction (Australia).
- On Sep 29, 2016, it was announced that Kirkland Lake Gold (KLG.TO) and Newmarket Gold (NMI.TO) will merge to create a new mid-tier gold company that will have a combined market cap of C$2.5B and will have a capacity to produce 500 koz of gold on an annual basis.
- The shares of Newmarket will get converted to Kirkland Lake. The conversion ratio is 0.475.
- Each Newmarket share was valued at C$5.28 at the time of this deal (currently trading at <C$4.00) after the correction earlier this month.
- Eric Sprott, a major shareholder in both companies has been an advocate on combining the companies and creating a new mid-tier name that can take on others in the space
- The combined company will have operations in Canada and Australia — safe jurisdictions and will complement well with my other mid-tier gold producer company B2Gold Corp (BTO.TO), which has slightly riskier operations in countries such as Phillipines, Burkina Faso, Mali, Colombia etc.
- An overview of the combined KLG + NMI company compared to peers is presented below
That’s about it for this particular update. I now hold a pretty big chunk of my portfolio exposed to gold & silver. I am comfortable at the moment with my exposure and am happy to sit back and wait for the fat pitches in the rest of the market.
Full Disclosure: Our full list of holdings are available here.