3 Recent Buys – PAAS, FNV, NMI

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

PAA

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

fnv-logo

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

fnv-snapshot

Newmarket Gold Inc

nmi

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

nmi-klg

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.

14 thoughts on “3 Recent Buys – PAAS, FNV, NMI

  1. JC says:

    FNV sounds interesting and I like the streaming business model as opposed to the capital intensive exploration/mining side of the business. Definitely something I need to sit down and research a bit more.

    • Streaming/royalty businesses are a great way to wade in/get exposure to the resource sector if you are not familiar. I own the big 2 names in the space now – FNV and SLW. Both fantastic companies to own for the long run.

      R2R

  2. Those metals keep shining in your eye. I notice PAA buys more and more on your blog. Would you say that’s your favorite in the sector? Nice to see those buys keep coming in. Stir the pot… post a sell article.

    • Haha I need to stir a pot….I am in no rush to sell anymore of my positions although I can think of 1 or 2 names that I dont mind shedding.

      PAA is one of the largest silver producers…and I am very bullish on silver…hence the multiple purchases 🙂
      Best
      R2R

  3. Wow, Franco Nevada looks like an interesting business! I wasn’t really familiar with the royalty style business. Looks like they did a good job investing counter cyclically as well, which is incredible.

    My only experience with resource companies are businesses that pay too much for assets during booms and sell them for too little during busts!

    How do you get comfortable investing in such cyclical businesses? I just have little to no idea how to figure out what precious metal prices will do over the medium term.

    • The streaming business is a pretty sweet deal….both for miners and streaming companies, but more so for the streamers. Companies do not get any better than FNV — its the creme of the crop when it comes to commodity exposure. Its also the ideal company if you want to foray into the sector without learning much and using it as a proxy. A much better investment than, say, the GLD ETF. A look at the long term chart of FNV should provide you with a clue of how the company has performed through booms and busts.

      R2R

  4. Thanks for sharing another update on your portfolio reshuffle. I definitely have my eye on some gold miner stocks, given the recent pullback. Franco Nevada in particular looks quite appealing and I will give it a closer look. Thanks again!

    • You cant go wrong with FNV. Note that FNV is not a mining company, so the movements will not be like other gold miners. Its a more subdued slow climb due to the nature of the business. If you want volatile movements in your portfolio with exposure to gold, you want to own gold/silver miners directly as stock, instead of a streaming business such as FNV.

      cheers
      R2R

  5. I’ve gotta look into FNV; that looks like a fantastic company. And I agree about wanting to replicate their ability to do nothing for thirty years and still profit. Especially as I type this on my way to work.

    Sincerely,
    ARB–Angry Retail Banker

    • Haha…they are legendary in their deal-making and picking up undervalued assets. As I mentioned in the article, I believe FNV is the Berkshire of the commodity world. It also helps that they pay dividends and grow dividends year over year. Have a look and let me know if you have questions. Its a company that I am fascinated with and have been researching more and more.

      R2R

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