BBOB,
I guess I disagree with the point that FN needs a good world economy to create wealth. Remember, they and EN have prospered tremendously the last decade,a decade when gold has been sick at heart. To my way of thinking, it just doesn't matter what mineral they invest in anymore. They only invest in very low cost and low risk,high and long term payoff deals. Of course a stronger commodity market would produce more dramatic results for either,BUT,it hasn't been necessary with gold. I feel like it won't be for other minerals either.Too,if our economy stumbles,gold might get even weaker instead of being counter cyclical. Let's look at their new investments.1: Platinum and palladium. They have a tremendous royalty on the Stillwater mine that at today's prices will rival their Goldstrike(Barrick)mine royalty in Nevada after the planned expansion of output X3 by the operator. Notice they bought low and also bought royalties on high grade output that the operator is fixing to invest hundreds of millions to triple output on. FN benefits from the expansion without paying 1 cent for it. They are the only producer outside South Africa of any consequence(market niche?).1B:
They own a hefty royalty on a platinum mine in SA that isn't even producing now,yet is sitting there for future revenue,operated by Anglo-American.
2: Diamonds. I know very little here,except if Lassonde was confident enough to take the stake he did in Aber, I trust his judgement. Remember,diamonds "don't go down in value",due to the DeBeers marketing power. This will serve FN(and Aber)well,yet they have no liabilities whatsoever.Diamonds never go down in value,BBOB. I used to own Debeers shares and I know how they keep prices high,even in terrible economic times. Their central selling organization controls almost all diamond wholesaling. Even during the cold war when the USSR was actively involved in trying to subvert the SA government,they were secretly dealing with the DeBeer's CSO to get the highest price for their diamonds.
3: Nickel. Inco VBN investment. Inco is going to basically have a market corner on nickel production when VB is producing. In the meantime,FN is receiving dividends which are equivalent of the dividends they were receiving on their T-bills waiting to invest somewhere.This mine is economic at today's prices. Now,I know the current government of Labrador is a joke. However,they need jobs and they need revenue,which means eventually they will back off their ridiculous "Soviet" style meddeling and approve operations there. So,FN has achieved simply a 9.3% royalty on what Lassonde believes will be the highest grade and largest mine on earth for a pittance. They now own 51% of the voting shares there. In other words,they are going to make all decisions in the future based on what's in FN's best interest. Lassonde intimated that the VBN property,already world class,has potential to be expanded dramatically. All the while,with commodity prices in the dumper,neither Inco or FN give a big flip about the delays caused by Labrador meddling. This is a 5 year project,probably. After a production decision is reached,I guarantee Inco will spend millions on further exploration.Lassonde can be read between the lines on this. He thinks he has his fingers in "THE" nickel play bar none on earth.
Gold: Yea. They still do that. Midas will help EN more,no doubt. BUT,beyond Midas,FN has more "potential" world class exploration deals working,mainly in Canada,independent of EN than EN does independent of FN anywhere. Both are going to make fortunes in Nevada beyond what has been discovered,I believe. The geology there is just what the doctor ordered,VERY low cost recoveries.
O/G: Not a big contributor today. Lassonde intimated that they are on the verge of very significant investments in this field because operators of "producing" fields are going out of business rapidly. They are poised to pounce. Yes, these will NOT produce revenue at 8$ a barrel oil,but they can be bought for pennies and when oil returns to the $15-20 range,BINGO! It may take a while, but with a depreciating asset like oil,it will rise again. This one definitely will be tied to economic performance. Got to lay something back for future growth down the road. Lassonde made the comment that even though this has been a bad period for revenue and share price,it is exactly what FN needed to reload the royalty portfolio for another round of growth over the next several years. Can't do it when commodity prices are high,because to invest then violates their principles. I've bought royalties on "existing" production before. It's a cinch to make nice paybacks when the wells start producing. You know Lassonde will steal assets from operators who paid out the ying yang for their assets and can NO LONGER SERVICE the debt levels while the revenue is below the costs. They are looking for buyers and none exist today. In steps our friend Pierre,with a very modest offer to relieve these unfortunate gentlemen of their burdensome debt loads. That's his style. I know a guy who was lucky enough to do the same in a gas well in Kentucky when NG was very low. He's now making 50% annual returns on his investment. Look for Pierre to do the same or better a couple years from now.
Uranium:They're making a million a year on advance payments on a Cogema royalty play in Canada. This thing will be a producer soon and a long steady stream of cash will flow forth from it,too.
Don't get me wrong, I own about equal amounts of each and they do have the same management. And,I do think EN will prosper more for a couple of years,but,I bet FN does better after that for a few years. I also agree that if your reason for investing is strictly for gold,EN is the share to hold here.Plus,it's beginning to look like EN will exceed FN soon in share price(as you've been predicting). FN may literally be a better value,though value sometimes takes a while to be reflected. One reason I would rather invest in these companies than the S&P is I know the high quality of management here. I really don't know much about many others.Also,the Dow really is over priced and FN is ebbing.At heart I am a value investor. I know I have had my can charred on these dang speculations on the Vancouver. I'm over the get rich quick period. I got poor quick though. BBOB,I could be 100% wrong on my thinking here,but with Lassonde at the helm,I bet I'm at least half right. Plus,I have OG and diamond knowledge,a little. He'll make money on both. |
