I made some adjustments to my gold exposure to raise cash, reduce the number of stocks and take less portfolio-level and company-specific risk.
- Sold Abitibi Royalties
- Sold Eldorado Gold
- Bought Osisko Gold Royalties
- Sold Nomad Royalty warrants and closed position
- Added to Nomad Royalty common
- Closed short position in Ely Gold Royalties
- Unchanged: Minera Alamos, Mako Mining (common and warrants), Sailfish Royalty, Orca Gold
Sold Abitibi Royalties, added Osisko Gold Royalties
This is a switch I’ve been wanting to make for a while. Osisko Gold Royalties and Abitibi Royalties both offer exposure to the Canadian Malartic mine, but I prefer the growth profile of Osisko and the plan put forward by Osisko Royalties CEO Sandeep Singh to earn back the trust of investors who loathed the Barkerville takeover. The hyper growth phase for Abitibi’s stock price is over and the prospect generation work it’s now financing makes me wonder how its business model differs from parent company Golden Valley Mines.
It won’t 5X in five years, but I expect to do very well with OR as the anchor of the basket and outperform Abitibi. Osisko Royalties isn’t supporting a functionally useless parent company. They also have the same capital allocation tools at their disposal, with more free cash flow and a better portfolio of growth assets.
Sold Eldorado Gold
I bought QMX Gold after the takeover announcement so I could back into Eldorado shares at a slight discount. My plan was to hold this position and generate some options income, but I think there will be a better and more obvious entry point later in the cycle. Eldorado is ripe for a hostile takeover once we get into the mania phase of the bull market, think Goldcorp’s bloated management structure with better assets. I also ran into a common problem for me – too many positions and the need to clean up my book. Better to book a small profit and bank that cash.
Nomad Royalties: Sold warrants and added common
I’ve botched this entire trade from the beginning. First I botched the warrant-clipping exercise, I couldn’t find much of a borrow on Nomad so I was mostly straight long …
When I ended up underwater after the deal closed and the other warrant clippers sold, I bought more instead of taking my lumps and joining them …
I still like my math and the long-term value of Nomad, but I am underwater on the stock for no good reason. However those free warrants have actually performed pretty well so I sold them between 29 and 23 cents to take myself off the clock and help reduce my cost base on the common shares. This isn’t a riskless position: Nomad is run by financial buyers in a competitive market for acquisitions. The possibility of NSR overpaying for growth is real. I like management and they are saying the right things, but this is the type of company you monitor on a transaction-by-transaction basis.
Closed out Ely short position
I don’t think anyone who follows me on Twitter is surprised I had a short position in Ely Gold Royalties. It’s been uninvestable since they gave Rick Rule a sweetheart deal – and the dilutive financings have kept coming. I was actually long Ely to start but eventually sold out, and then sold short, as I learned more about management and read every filing. The result of the long trade doesn’t justify bad process and lazy due diligence. If I published my rule book for investing in mining companies, one of the first chapters would be titled Sprott is not your friend.
Timing this short was relatively easy based on when Ely was doing marketing, news from Wallbridge Mining about Fenelon (Ely’s flagship royalty) and tracking warrant issuances.
I piled into the short in size in the $1.60 range and exited between 90 cents and current prices. If I was wrong and Ely started to recover I would have bailed out between $1.90 and $2. The overall package of assets is mediocre so the risk of a takeover was minimal.
I also had a small short position in Vox Royalty after they announced their financing with a warrant attached. But I couldn’t size the position properly and ended up closing out to trade for no gain when Vox bounced back into the $2.50 range without warning. Not the type of trade I’ll be making in future as it’s not worth the effort involved.
The current basket
- Osisko Gold Royalties: Organic growth, share buybacks and potential for multiple expansion as management delivers, all underpinned by a long-life royalty on Canadian Malartic
Small cap growth stocks (looking for at least 5X in five years)
- Mako Mining (common and warrants): Got in very early. Mispriced mine developer now heading for re-rating as it begins commercial production. Fully funded exploration program. Built to be sold by Wexford Capital.
- Minera Alamos: Got in very early. Successful team of mine builders funded to production. Santana will be producing in weeks, which should allow MAI to self fund its other mine builds.
- Nomad Royalty: Organic growth story. Maverix 2.0 in best-case scenario.
- Sailfish Royalty: Backed in early through Terraco takeover. Worth at least 8X my cost base on a SOTP basis. Built to be sold by Wexford Capital.
- Orca Gold: Stupid cheap on SOTP basis. Owns 31% of Montage Gold. Block 14 deposit in Sudan will eventually be sold to a Chinese buyer. Built to be sold by Ross Beaty.