Heuristics!
Selling down royalty names after this year's monster rally; Adding a developer; Going to Reno
I’m heading to Nevada this week for site visits. It’ll only be three days but if I don’t say this to everyone I come across when I’m back in Toronto, the trip is a failure.
The only other thing I know about Reno is that Tommy Morrison messed up Joe Hipp’s face in his comeback fight from the Ray Mercer debacle. On to business!
Weekend Notebook …
Royalty Report: Selling TFPM and GROY
Other portfolio updates
Interesting links
Royalty Report
If you watched the Morrison-Hipp highlights above, you notice the difference in speed. As a fighter I had power and relatively long reach, but not elite hand speed1. Or any other kind of speed. One of the more effective ways I was taught to counter speed was with timing, capitalizing on my power by using a simple heuristic2.
If you can feel the other fighters gloves hit your arms, that means he’s in front of you and in range. Fire off a jab and then hammer him with your followup.
Like any heuristic there’s a lot of nuance missing. The effectiveness of that strategy is based on the physical gifts you bring to the ring and whether you’re fighting Ali in his prime, or Joe Hipp.
Applying the principle of heuristics to mining royalties worth buying, all roads lead to one. As in 1 x Net Asset Value:
Larger royalty companies trade at a premium to NAV
Smaller royalty companies often trade at large discounts to NAV
When smaller companies own royalties that bigger companies want, they get bought somewhere around NAV
NAV, particularly NAV per share, isn’t static. It’s fluid.
You can position early when NAV changes and wait for the market to catch up. Of course when the market catches up you have to sell, or make a conscious decision that there is more value creation possible above and beyond mean reversion to Net Asset Value.
Selling Triple Flag
I’m not sure who buys Triple Flag Precious Metals after surging 66% year-to-date and swallowing Orogen’s Silicon/Arthur NSR. I decided to sell at $36 rather than waiting around to see how far past NAV the stock can run.
I received my TFPM shares after buying Orogen in April/May in the low $1.70s as a takeover arbitrage. Based on the exchange ratio of 0.05355 + 0.25 shares in Orogen 2.0 for every Orogen share, that works out to $1.92 for half my shares. Combined with the $1.63 in cash I received for the other 50% of my shares, we get an average sale price of $1.77 in cash + 0.25 shares in Orogen 2.0.
A long way of saying my cost basis on the Orogen spinco is negative 5 cents.
Selling Gold Royalties common
With Orogen and Altius selling their Silicon/Arthur royalties, Royal Gold buying Sandstorm Gold, and OR Royalties and Triple Flag Precious Metals re-rating closer to their net asset values, these are the royalties I track. They’re the type of royalty a major pays a sickening premium for - gold NSRs on long life assets.
Odyssey, Cote, Vares: Gold Royalty
Spring Valley/Moonlight: Sailfish Royalties
Timok royalty basket: EMX Royalties
Frotet: Kenorland Minerals
Much easier than tracking dozens of companies holding hundreds of royalties. But you can also see there isn’t much left that would provide an outsized return. We’re waiting on the next wave of monster royalties to appear.
Now here is the year-to-date return on GROY, which went from 0.3 NAV to something approaching 1, we’ll call it 0.9, in a short period of time.
I decided to sell all of my GROY common and lock in the 2.5-bagger return in a few months time. I also sold enough warrants on the move from 25 cents to 1.25 to get my original investment out.
There’s more meat on the bone with GROY as NAV in this case is very fluid. Convertible debentures have moved into the money so the only debt left on the balance sheet that needs to be repaid is approximately US$25-million from a line of credit. That’s nothing for a half billion dollar company. The warrants give me more torque than GROY common to the effects of debt reduction, rising gold prices and cash flow as Cote, Vares, Borborema and Malartic ramp up. With my cost base reduced to zero, I feel comfortable taking on the risk of GROY management relapsing and making a dilutive acquisition. There’s also the possibility increases in the net asset value get cancelled out by warrant exercises and debenture conversions.
Bottom line: I think GROY eventually gets sold but the velocity of the stock move slows down from here. I’m keeping my GROY warrant exposure for as long as I can stomach it.
Adding Banyan
This is just cheap, low-grade ounces. Banyan Gold is a starter position for now but I’m looking to add on a pullback. I had some exposure to Airstrip and Powerline through Eagle Royalties, but those royalties cover only a small part of the future pit. I want to capture more upside from Banyan’s 7-million ounces. The consistent messaging and execution from Tara Christie and friends is what I would want to see from Minera Alamos, keep doing your thing in the face of negative sentiment so I can jump on board after the inflection and still catch the bulk of the move.
Needless to say, I think AurMac moves forward. The politics of keeping people employed in a remote location with only 41,000 people will win the day.
Star Royalties
This isn’t complicated. We’re reviewing the second quarter financials for cash burn to make sure the ice cube isn’t melting too fast. Star sold 600,000 Minera Alamos shares to increase cash on hand prior to quarter end. They sold another 1,071,500 MAI shares after June 30.
Star is still sitting on approximately 8-million Minera Alamos shares. The Keysbrook royalty will continue to produce cash, with an infusion coming before the end of the year. The bad news is the going concern warning and not using an auditor in what I can only assume is a cost-cutting move.
The parts are worth more than the whole, which is slowly bleeding out. Star management needs to sell the Copperstone stream as soon as possible to capture the value from this royalty consolidation cycle and return it to shareholders. Ideally that would be accompanied by a Minera Alamos stock dividend rather than selling more stock to keep STRR limping along. The next catalyst for Star will come from a Copperstone feasibility study and/or Jason Kosec telling a compelling story about the mine eventually producing 50,000+ ounces per year.
Updated Portfolio
As of August 22, 2025
Mining
KGCRF - Kinross Contingent Value Rights
Banyan Gold
Mayfair Gold
Industrials
Comstock Inc. - Silver
Aecon - Nuclear
Royalties
Gold Royalty Corp. (20% Warrants,
80% Common shares)Triple Flag Precious MetalsAltius Minerals
Exploration/Prospect Generators
Kenorland Minerals
Orogen 2.0
Kingfisher Metals
Vulcan Minerals
Specials/Workouts
NGEx Minerals
Chibougamau Independent Mines
Star Royalties
Eagle Royalties(Exiting portfolio upon completion of RTO/resumption of trading)
Raw Commodities
Sprott Physical Uranium Trust
Interesting links: Timminco
For our interesting links, we’re going back in time to remember Timminco. Here’s another heuristic that’s handy for investing in mining stocks, the past doesn’t repeat but it definitely rhymes.
Timminco dismisses cynics (paywall)
How Eric Sprott got solar burn (paywall)
In 2006, Timminco stock was trading around 30 cents on the Venture. After claiming they had developed a proprietary and cheap method of creating solar-grade silicon for solar panel manufacturing, the stock shot up to $34 by 2008.
I arrived at BNN in 2009 in the middle of all this as the hard questions started. By 2012 short sellers and skeptics were proven correct, and Sprott was proven very wrong, as Timminco ran out of money and declared bankruptcy. A lot of claims and fancy videos from Timminco - but ultimately no customer contracts to provide economic validation they had unique technology and could deliver on their promises.
I don’t like linking to paywalled articles, but those are great long reads for a history lesson or refresher - and perhaps food for thought as you think about increasing your graphene exposure.
Schedule
This week: Nevada for site visits.
September: Beaver Creek Mining Conference.
October: Planet Microcap Showcase in Toronto
If you’re in any of these areas and want to meet up let me know.
In my own mind, I liken my fighting style to Marcos Maidana. The reality of how I operated is probably closer to Oscar De La Hoya vs John John Molina. No, I’m not comparing myself to Oscar De La Hoya.