All I Do Is Win
Royalty & Streaming companies seem to have taken notes from DJ Khaled.
All I do is win, win, win, no matter what.
Got money on my mind.I can never get enough.
And every time I step up in the building, everybody hands go up!
And they stay there.
And they say, "Yeah!"And they stay there.
Up down, up down, up down.'
Cause all I do is win, win, win.
And if you goin' in, put your hands in the air.
Make 'em stay there.
Imagine it's April 2022 and you are young upstart precious metals royalty company. You have a high cost of capital. To buy royalties you have to do private placements, selling your shares at a discount. You dilute your shareholders by 12% to acquire a gold stream in what investors view as the safe jurisdiction of Canada.
A year later the company you have the stream with goes bankrupt. It's a company killer right? Turns out no, you can mess up this terribly and still come out ahead. If you are the company that owns the stream and not the miner that is.
I present to you Elemental Altus' press release from today.
Fraser Craig
Since completion of the acquisition by FireFly, the Company has realised approximately US$12.2 million in cash with a final expected amount of US$0.1 million due. Including US$0.5 million in gold stream revenue, the Company has received a total of US$12.8 million from the Ming stream, compared to the original US$11 million acquisition in 2022.
That's about a 16% return in 3 years investing, which isn't blow the doors off good but beats putting money in Tbills. Considering the mine they invested in went bankrupt a year after they invested in it this is kind of amazing.
So what do their investments look like when the miner doesn't declare bankruptcy?
They are young, what do the great investments from the GOAT Franco Nevada look like?
Royalty companies do lose money on royalties sometimes. If the Ming mine hadn't been acquired in bankruptcy the stream could have been a zero. Some development royalties never get built and discovery royalties don't make a discovery. However, the vast majority of royalties and streams are heavily protected on the downside.
That downside protection lets royalty companies keep having cash to re-invest into the projects that can return 10x, 50x, or in the case of Goldstrike 500x.