tags:

• thesis/gold-play
• analyst/kuppy
• sector/mints ...

Royalty companies have become the instrument of choice, but Franco Nevada’s (FNV – USA) experience in Panama instructs us that the royalty companies take on the same jurisdictional risks as the miners. Eventually, everyone will realize that the royalty companies are just sophisticated Return-of-Capital “Ponzi Schemes,” masquerading as gold leverage. They raise capital at one multiple, invest it in an asset at a much lower multiple, harvesting the spread for shareholders. It works as long as the Ponzi economics continue to work, but it isn’t sustainable. If they can’t keep raising capital, the impairments will catch up with them and bury the scheme. In the increasingly volatile world I envision, there will be many more Panama-like situations, which will collapse the multiple and end these “Ponzi Schemes.” This isn’t my asset either.

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