Precious metals

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benrickert
Posts: 24
Joined: Sat Apr 25, 2020 11:34 am
Location: Oslo

Re: Precious metals

Post by benrickert »

@giskard Very interesting. Have you followed the hedge fund Horizon Kinetics’ argument for gold royalty companies? Similar to yours. And it’s sound. It sounds like the best exposure to gold. They are big on franco nevada and sandstorm. What I have an issue with is the very high multiples they are trading at.
- How do you think about valuation of these companies given high multiples to earnings p/e and free cash flow?

giskard
Posts: 116
Joined: Sat Apr 30, 2016 12:07 pm

Re: Precious metals

Post by giskard »

FrugalPatat wrote:
Sun Apr 26, 2020 9:47 am
I've just started reading about gold stocks as well but am wondering now:
1) What about the impact of decreasing mining yields in the sector?
2) It seems obvious that low oil prices imply increased profits but when I looked at the charts there seems to be a high correlation between gold prices and oil prices as well (https://www.macrotrends.net/1334/gold-p ... orrelation)? Are we sure the price of gold will not be coming down?
3) A lot of these companies seem to be not only mining gold but also copper and other metals. Is increased profitability for gold sufficient to offset potential decreased profits from other metals?
1) I was reading due to gold production the inflation rate of the gold supply is about 1.6% a year. I think we are going to see gold supply drop due to covid related shutdowns so I guess we'll see what happens. Should increase the spot price of gold right?

2) Oil is a commodity and it seems nearly all commodities are correlated in this demand shock, so they should all fall. But gold is being treated as a store of value, or hard money. So its the only thing the held steady. To answer your question no I'm definitely not sure it won't be coming down. If we get serious deflation I'm sure it could drop a lot. But I also think central banks will act to counter deflation because deflation would bring a debt crisis like no other.

3) In most cases I think they are just small amounts. Definitely look though. I was looking at the annual reports of all the royality streamers and Wheaton for example had some palladium exposure, but mostly it was gold and silver. Franco Nevada has energy exposure though :shock: !

giskard
Posts: 116
Joined: Sat Apr 30, 2016 12:07 pm

Re: Precious metals

Post by giskard »

benrickert wrote:
Mon Apr 27, 2020 6:24 am
@giskard Very interesting. Have you followed the hedge fund Horizon Kinetics’ argument for gold royalty companies? Similar to yours. And it’s sound. It sounds like the best exposure to gold. They are big on franco nevada and sandstorm. What I have an issue with is the very high multiples they are trading at.
- How do you think about valuation of these companies given high multiples to earnings p/e and free cash flow?
You know I actually read that report just a few hours after I was writing that last comment. It was really validating to read it haha. I like FNV less now that shale has crashed and knowing they have something like 15-17% of their revenue tied to shale gas royalties.

I don't know about the PE ratios and if that is a meaningful thing to look at for royalty companies, they seem to be very lumpy because of the way they invest money. I think it might be similar to looking at PE ratios of REITS, I don't know that it makes sense, but I agree I don't know how to accurately value these vs a normal company. At this point I'm basically speculating on a rise in gold and I need to continue to understand the space even more.

benrickert
Posts: 24
Joined: Sat Apr 25, 2020 11:34 am
Location: Oslo

Re: Precious metals

Post by benrickert »

Agree that P/E multiples of royalties are not comparable to the average company in the s&p500. But if it’s an investment and not speculation in Ben Graham’s words, there would need to be some kind of benchmark to make sure it is not unreasonably overvalued. Yes, the gold story sounds right, but inn a highly complex system - the markets - with lots of different variables to assess it could end up being just that - a good story...?

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