Royalty companies over producers in late-stage gold
The guest argued that major precious metals royalty and streaming companies offer superior downside protection compared to traditional producers in the late stages of a gold bull market.
The argument
With the gold bull market at 124 months (historically overtime), a 30% drop in gold prices would collapse a typical producer's margins by 60% (or more if they carry debt). In contrast, royalty companies maintain ~90% margins, meaning their stock prices are likely to only fall in line with the metal.
The thesis, stress-tested
✓ What validates it
- ✓Gold price correction demonstrating the relative outperformance of royalty stocks over producers
▸ Risks discussed
- ▸Royalty companies will still experience absolute downside if the gold price drops
- ▸Operators of the underlying mines could face operational halts, affecting royalty cash flows
Hear it yourself
"Like, in the case of where their margins go down by, 60% in in a 30% gold drop, well, then that stock price is probably gonna go down by about 60%. But if they also have debt and the market is concerned, hey, I'm not sure if they're gonna be able to service this debt or pay that back."
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