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Please note: The Frank Talk articles listed below contain historical material. The data provided was current at the time of publication. For current information regarding any of the funds mentioned in these presentations, please visit the appropriate fund performance page.

Copper Well Positioned to Lead the Next Resource Cycle
May 6, 2019

Summary

  • Ivanhoe’s high-grade Kamoa-Kakula copper mine to come online soon.
  • Once again, bitcoin won’t replace gold.
  • Peak gold is closer than you think.

Ivanhoe Mines' high-grade Kamoa-Kakula copper project in the Democratic Republic of Congo

The world is on a path to vast shortages in copper, nickel, lithium and other important minerals that are necessary to build the batteries in electric vehicles. So says Tesla’s global supply manager, according to Reuters.

The comment comes as the electric car maker broke ground in Shanghai for its first overseas “Gigafactory.” Tesla’s first battery factory, in Reno, Nevada—the largest in the world—is still in expansion mode and aims to produce as many as 105 gigawatt hours (GWh) of battery cells and 150 GWh of battery packs by next year.

All combined, that’s a lot of copper that will need to come down the pipeline very soon.

But some analysts now say that capacity isn’t quite there yet to feed global demand, and the industry could be running in deficit by 2021. Commodities analyst firm CRU Group expects copper supply to be short some 41,000 tons that year and 270,000 tons a couple of years later.

Meaning: We could be looking at another commodities super-cycle, with the red metal leading the way.

Global Copper Market is Expected to Go into deficit in 2021
click to enlarge

“You’re going to need a telescope to see copper prices in 2021,” my friend Robert Friedland, billionaire founder and executive chairman of Ivanhoe Mines, told us last year during a visit to our office.

I had the opportunity to hear Robert speak last week at the Royal Bank of Canada (RBC), where he explained that investment in metals and mining must increase to meet the unique demands of the future. I also caught up with Ivanhoe executive vice chair Egizio Bianchini, who previously served as vice chair and co-head of metals and mining at BMO Capital Markets.

visiting with ivanhoe mines executive co-chairman robert friedland (left) and executive vice chairman egizio bianchini

Robert and I are in agreement: The trend toward mass electrification—of everything from vehicles to renewable energy—favors copper, and investors might want to consider getting in now.

Ivanhoe remains my favorite way to get copper access. I own the stock personally. The Vancouver-based miner is nearing the start of production at its long-awaited, high-grade Kamoa-Kakula project in the Democratic Republic of Congo, which has recently gone through leadership change. Ore grades are off the charts. The Kamoa-Kakula deposit—“unquestionably the best copper development project in the world,” as Robert describes it—was fast-tracked after China’s CITIC Metal invested more than $450 million, or nearly $3 a share, late last month.

If fears of a bear market or economic recession are keeping you up at night, I think high-quality resource stocks like Ivanhoe are where you want to be because they’ve historically held up very well.

Ivanhoe Mines is testing its 52-week high
click to enlarge

I’m also heartened to hear that infrastructure might soon be moved to the top of the U.S. government’s priorities, which would be a boon to copper and other base metals. President Donald Trump recently met with Democratic congressional leaders and tentatively agreed to a $2 trillion infrastructure package to overhaul U.S. roads, highways, bridges, railroads and waterways. Where this money will come from, I don’t know, but it’s a start.

India’s prime minister, Narendra Modi, made a similar pledge in April, promising as much as $1.44 trillion in infrastructure spending should he win reelection later this month.

Once Again, Bitcoin Won’t Replace Gold

Moving on to another metal, a new TV and social media ad blitz is urging investors to “drop gold” in favor of bitcoin. Maybe you’ve seen it. The ad, from crypto investment firm Grayscale, tries to make the case that investing in gold is tantamount to “living in the past,” and that bitcoin is the more logical investment in today’s digital world.

Nonsense.

I’ve commented on the comparison between the two asset classes before. As much as I believe bitcoin has a bright future, I couldn’t agree less with the idea that it will replace gold in people’s portfolios.

Gold is a tangible, time-tested commodity and currency—the best possible candidate for money among all of the known elements, in fact. It’s highly liquid. In 2018, daily trading volume averaged an incredible $112 billion, the sixth largest of any asset class for the year. Gold transactions don’t require electricity or computer technology, and it has a number of other applications besides trading and investing—think jewelry, electronics, dentistry and more.

The same can’t be said of bitcoin or any other digital coin.

That’s not to demean bitcoin. I’m only saying that the two assets are very different. It baffles me that some people continue to try branding bitcoin as a digital replacement for gold. This isn’t the same as upgrading from analog VHS to 4K Blu-ray.

As you know by now, I recommend a 10 percent weighting in gold, split evenly between physical bullion and gold mining stocks. I wouldn’t advise the same percentage weighting in bitcoin, which is much more speculative and volatile. Whereas gold has a daily standard deviation of only ±1 percent—approximately the same as the market—bitcoin’s is closer to ±5 percent. The difference in volatility is even greater for the 10-day, as you can see in the table.

Bitcoin and Ethereum Are More Volatile Than Gold and the Stock Market
Standard Deviation For One Year as of 3/31/2019
  One Day Ten Day
Gold Bullion ±1% ±2%
S&P 500 Index ±1% ±3%
Ethereum ±5% ±16%
Bitcoin ±4% ±12%
Past performance does not guarantee future results. Source: Bloomberg, U.S. Global Investors

What’s Supporting Gold Right Now?

Gold tested its 2019 low of around $1,266 an ounce this week, but some recent developments should be supportive of prices going forward.

For one, the pool of negative-yielding government bonds in Europe continues to surge. So far this year, it’s climbed some 20 percent to around $10 trillion, the highest level since 2016, according to Deutsche Bank. And it’s not just government debt. According to Tradeweb, nearly a quarter of the $3.6 trillion worth of investment-grade corporate debt in Europe carries a negative yield. This is constructive for gold, which has been trading closely with the amount of negative-yielding debt.   

rising negative yielding debt in europe should support the price of gold
click to enlarge

Gold prices jumped a bit last week following the news that the manufacturing sector, both in the U.S. and abroad, continues to slow on global trade concerns.

The Institute for Supply Management (ISM) reported that its U.S. manufacturing index fell sharply in April to 52.8, 2.5 points down from the March reading of 55.3. This is the lowest reading since Donald Trump was elected president in November 2016. Meanwhile, a closely watched barometer of manufacturers in the Chicago metropolitan area fell even more dramatically in April to 52.6, down 6.1 points from 58.7 a month earlier. The WSJ Dollar Index fell a marginal 0.2 percent to 90.45 on the news, which helped support the gold price.

U.S. Manufacturers Grew at Their Slowest Pace in April Since Trump Was Elected
click to enlarge

Peak Gold Is Closer Than You Think

Looking more long term, I think the idea of “peak gold” still makes the case for investing in gold very compelling. This is something I’ve been writing about since as far back as 2010.

Although global gold output is expected to hit a new record high this year—to the tune of 109.6 million ounces, according to S&P Global Market Intelligence—production is seen falling steadily every year thereafter. The only major gold-producing country to increase its production between now and 2024 is expected to be Canada. As a result, it could become the second largest producer after China.

production from major gold producing countries, 2014 - 2024
click to enlarge

South Africa is currently on an extended losing streak—it recorded its 17th straight month of declines in gold production in February—but Australia is expected to fall the most over the next five years, thanks to faster-than-anticipated depletion of older mines such as St Ives, Paddington, Telfer and others. Today Australia is the second largest gold producer, but by 2024 it could edge down to number four.

The largest Australian gold miner, Newcrest Mining, reported lower production in the first quarter of 2019 relative to the previous quarter. Output stood at more than 623,000 ounces, about 5 percent down from 655,000 ounces in the December quarter.

Central Banks Aren’t Done Adding Gold to Their Reserves

The yellow metal is a finite commodity, one of the many reasons why it’s so highly valued, and it’s about to get even more finite. Demand, meanwhile, is only increasing, as evidenced by central banks’ insatiable consumption.

According to the latest report by the World Gold Council (WGC), gold purchases by central banks totaled 145.5 tonnes in the first quarter. Not only was this the strongest first quarter since 2013, but on a rolling four-quarter basis, demand reached an all-time record high of 715.7 tonnes.

Perhaps the central bank chiefs didn’t see Grayscale’s ad to “drop gold.”

Missed my review of legendary small-cap resource investor Bob Moriarty’s new book? Read it now by clicking here!

Some links above may be directed to third-party websites. U.S. Global Investors does not endorse all information supplied by these websites and is not responsible for their content. All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

The standard deviation is a statistic that measures the dispersion of a dataset relative to its mean and is calculated as the square root of the variance.

The ISM Manufacturing Index is a widely-watched indicator of recent U.S. economic activity. Based on a survey of purchasing managers at more than 300 manufacturing firms by the Institute for Supply Management (ISM), the index monitors changes in production levels from month to month.

The Chicago Business Barometer is also known as Chicago PMI. It is calculated based on a survey of purchasing managers in the Chicagoland area. Respondents are polled to assess production volume, new orders, backlogs, unemployment and supplies in their firms. Instead of providing a quantitative measure, respondents provide a relative assessment of changes in the currents month: whether the situation has improved, worsened or has not changed.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of (03/31/2019): Ivanhoe Mines Ltd.

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Will 2019 Be the Year of King Copper?
February 19, 2019

Summary

  • Corporate purchasing of copper-gobbling renewable energy more than doubled from 2017 to 2018.
  • Sales of electric vehicles, which use three to four times the amount of copper as traditional vehicles, are booming in China.
  • Copper miners get upgraded by the big banks.

Goldspot

Because of its wide availability and exceptional conductivity, copper is found in everything from consumer products to automobiles to semiconductors. Last year global demand for the red metal stood at 23.6 million tons, and by 2027, it’s projected to reach just under 30 million tons, representing an average annual growth rate of about 2.6 percent.

This phenomenal growth is attributable not just to the rise of middle class consumers. It’s also thanks to our steady rotation into clean, renewable energy such as wind and solar—which is good news for copper demand going forward.

As I’ve shared with you before, renewables require many more times the amount of copper as traditional energy sources. A typical wind farm—those that blanket whole areas of West Texas, California and some other states—can contain as much as 15 million tons of the metal.

2018 Was a Record-Breaking Year for Renewables

Whether you’re a believer in renewable energy or not, the tipping point may have already occurred. Among the fastest growing jobs in the U.S. right now are wind turbine service technician and solar panel installer, for whatever that’s worth. And according to a report by Bloomberg New Energy Finance (BNEF), corporate purchasing of renewable energy more than doubled from 2017 to 2018. Globally, companies bought 13.4 gigawatts (GW) last year, compared to the previous record of 6.1 gigawatts in 2017. Over 63 percent of the purchasing activity occurred right here in the U.S. Facebook alone was responsible for consuming 2.6 GW of renewables, three times as much as the next biggest corporate energy buyer, AT&T.

Global Corporate Clean Energy Buying Hit a New Record in 2018
click to enlarge

The trend toward renewables is expected to accelerate at a white-knuckle pace for years to come. Take a look at the chart below, courtesy of McKinsey’s “Global Energy Perspective 2019.” Analysts believe that, by 2035, renewable energy will account for more than half of all power generation as its price falls below that of coal and gas-generated energy. Fifteen years after that, nearly three quarters of total energy consumed around the world will be derived from renewable means, chiefly wind and solar.

Renewable Energy Projected to Account for Three Quarters of Global Power Generation
click to enlarge

If this is compelling at all to you, now might be an excellent time to start participating. One of the best ways, I believe, is with exposure to high-quality, well-managed copper miners as well as funds that have a large position in copper mining.

China Will Lead the Transition from Internal Combustion Engines to Electric Cars

And we haven’t even mentioned electric vehicles (EVs), which are notorious copper gobblers. As I’ve shared with you before, EVs consume between three and four times the amount of copper as traditional internal combustion engines.

China is leading the world in EV adoption and will likely continue to do so for some time. In the fourth quarter of last year, China was responsible for 60 percent of global EV sales, according to Bloomberg, which adds that the country holds half of all vehicle-charging infrastructure. By the end of last year, electric cars made up about 7 percent of total new vehicle sales in China, with a compound growth rate of 118 percent since 2011. In about a decade, the Asian country will account for nearly 40 percent of the global EV market, followed by Europe (26 percent) and the U.S. (20 percent), according to BNEF.

China leads the world in electric vehicle adoption
click to enlarge

Not only does China have national subsidies in place, but its carmakers are also incentivized to manufacture EVs thanks to the country’s “New Energy Vehicle” credit system. The system acts as an EV quota, requiring carmakers to generate credits through the sale of electric cars. According to BNEF, this is the “single most important piece of EV policy globally and is shaping automakers’ electrification plans.”

Adding to this acceleration is the fact that China has elevated the adoption of new “Phase 6” emissions standards under its anti-pollution “Blue Sky Defense” action plan. Just as we’re seeing in parts of Europe right now, China will soon begin banning the production of the most polluting diesel engines.

Many cities in China see the writing on the wall and have already enacted restrictions on gasoline-powered vehicle sales. In 2018, Shenzhen and Shanghai collectively led the world with more than 165,000 EV sales. That’s more than Norway and Germany combined.

With demand for EVs so high, it’s little wonder that China’s copper imports climbed to 479,000 tonnes in January, the second-highest on record.

Morgan Stanley Bullish on Copper, Upgrades Freeport-McMoRan

All of this leads me to believe that 2019 could be not only copper’s year but also copper miners’ year. The price of the red metal is up about 6 percent so far in 2019, trading at close to $2.80 a pound. That’s about 67 percent short of the metal’s all-time high of $4.62, set in February 2011.

Last week Morgan Stanley joined Citi and Goldman Sachs in making a bullish call on the metal. The investment bank projected a 14 percent upside for copper in 2019, based on a widening supply deficit and the likelihood of a resolution to the U.S.-China trade spat.

As for copper miners, Morgan Stanley upgraded Freeport-McMoRan, while Goldman Sachs recently upgraded Rio Tinto. Piyush Sood, lead analyst at Morgan Stanley, said in a note that Freeport’s “earnings sensitivity to copper is still the highest among its peers, and combined with its high trading liquidity, we believe it will emerge as the go-to large-cap stock for exposure to a copper price rally.” Shares of the Phoenix-based company’s stock jumped nearly 7 percent on the news last Wednesday.

Singapore-based DBS Bank also sees a copper shortage over the mid-term. Analysts expect supply to be in a deficit each year between now and at least 2022, when it could be at its widest since 2004.

Copper Price Projected to Rise on Widening Supply Deficit
click to enlarge

“Copper is king for this electrification trend taking over the global economy,” Matt Gilli, CEO of Nevada Copper, told Reuters. “We see demand increasing steadily in the years ahead and, so far, supply is not keeping up.”

To meet surging demand, four U.S. copper projects are set to open by next year, the first to do so in decades, according to Reuters. And Ivanhoe Mines, founded by my friend Robert Friedland, is in the process of developing the Kamoa-Kakula copper deposit in the Democratic Republic of Congo, which Robert describes as the second-largest copper mine in the world.

“You’re going to need a telescope to see copper prices in 2021,” Robert told us when he visited our office last year.

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All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of (12/31/2018): Freeport-McMoRan Inc., Ivanhoe Mines Ltd., Citigroup Inc.

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Here's Why the Price of Palladium Just Zoomed Past Gold
January 22, 2019

EPalladium Strengthens on increased demand from automobile manufactures

Palladium might not fill headlines the way gold does, but it’s been on fire lately. Not only has the precious metal been the best performing commodity for two years straight, but its price also just shot past gold for the first time since 2001. For the first time ever, it broke through $1,400 an ounce last week before pulling back somewhat. From its 52-week low set in August, palladium has climbed almost 70 percent. It’s added about 16 percent in the past 30 trading days alone.

Shares of North American Palladium have surged on greater demand
click to enlarge

Supply is tight, but like many other things, we largely have government policy to thank for the palladium rally. In this case, I’m talking specifically about governments in Europe, which have recently strengthened their vehicle emission standards. The “Euro standard,” as it’s called, classifies vehicles on a scale from one to six, with one being the most polluting and six being the least polluting.

Some European cities have already banned the dirtiest “Euro 1” vehicles from their streets. Old diesel cars and trucks were outlawed in Brussels effective January 2018. In May 2018, Hamburg became the first German city to do the same.

Diesel Engines in the Crosshairs

But now that it’s a new year, some city governments are escalating the ban to include Euro 2 automobiles that run on diesel. Next month, Frankfurt—Germany’s financial hub—will go so far as to ban all Euro 4-and-worse diesel vehicles, and all Euro 1 and 2 gasoline-burning vehicles.

I believe this escalation was prompted in part by a comment made by Elzbieta Bienkowska, a European commissioner whose responsibilities include oversight of industry and entrepreneurship. Speaking to Bloomberg in May, she said that “diesel cars are finished.”

Diesel vehicle sales continue to plunge in Europe

And then, as if to hasten Bienkowska’s prediction, a damning study on diesel engines was issued in June by the very same group that blew the whistle on Volkswagen’s emissions scandal back in 2015. According to the study, conducted by the International Council on Clean Transportation (ICCT), even the newest, cleanest diesel vehicles failed to meet Europe’s strict emission standards in “real world” driving conditions. Peter Mock, the ICCT’s managing director, defended the report, saying that “pretty much all Euro 6 diesels on the market are not clean.”

European sentiment of diesel was already in freefall, but momentum is increasing. In the first half of 2018, sales of diesel vehicles within the European Union (EU) and European Free Trade Association (EFTA) fell more than 16 percent compared to the same period in 2017. For all of 2018, British sales of diesels were down nearly 30 percent, according to the Society of Motor Manufacturers and Traders (SMMT). Between 2016 to 2018, diesel’s share of new vehicle sales in the EU plunged dramatically, from nearly half of all sales to just under a third.

Palladium Has Been the Beneficiary

So what does all of this have to do with palladium? The metal, as you probably know, is used in the production of catalytic converters, which “scrub” pollutants from the exhaust of internal combustion engines. And because of Europe’s enforcement of strict new standards, demand for these devices is surging, along with palladium itself.

Demand is so high, in fact, that there are now reports, in the U.K. and U.S., of thieves stealing catalytic converters, sometimes in broad daylight, to extract the precious metal. On Thursday, it traded as high as $1,434.50, according to CNBC.

Supply Worries Have Remained High

There’s more to the story of palladium’s bull run. For the past several years, supply has been in deficit. That’s mostly because around 80 percent of all palladium (and platinum) production is concentrated in two countries—South Africa and Russia. The geopolitical risks are high. When South African laborers went on strike in 2014, all production of the platinum metals, including palladium, grinded to a halt. 

Where is palladium mined
click to enlarge

Besides supply issues, the biggest risk facing palladium right now is substitution risk. With palladium trading above $1,400 an ounce, how long will it be before auto manufacturers switch to its sister metal, platinum, which is currently trading at around $800 an ounce?

In the meantime, there could be money to be made.

A Palladium Miner With Incredible 87 Percent Income Growth

One of our favorite ways to play the rally is North American Palladium. The company, headquartered in Toronto, mines both palladium and gold (and other metals as a byproduct), and has seen quite a rally itself on higher metal prices. For the 24-month period, its shares are up a remarkable 120 percent.

Trading places palladium overtook gold again
click to enlarge

North American Palladium had a phenomenal third quarter in 2018. According to results, income after taxes and expenses was $22.9 million, up a whopping 87.7 percent from $12.2 million during the same period the previous year. That translated to earnings per share (EPS) of $0.39, up from $0.21 in 2017. I’m eagerly awaiting the company’s results for the fourth quarter!

Stay up-to-date on this potential trend by subscribing to our FREE, award-winning Investor Alert!

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of 12/31/2018: North American Palladium Ltd.

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Gold and Commodities Set to Soar in 2019
January 14, 2019

Summary:

  • An update to the Periodic Table of Commodity Returns.
  • Goldman Sachs issues an overweight recommendation for gold and commodities.
  • Paradigm Capital says royalty companies are the “best bet” in metals and mining.

Our ever-popular Periodic Table of Commodity Returns has been updated for 2018 and is now available on the U.S. Global Investors website! I invite you to get lost using the interactive feature, which easily allows you to highlight a certain commodity, the top performer, the most volatile and more.

Explore the new periodic table of commodity returns 2018

Palladium was the best performing commodity for the second year in a row, returning 18.59 percent in 2018 after ending the previous year up a phenomenal 56.25 percent. As we’ve noted before in the Investor Alert and elsewhere, palladium and gold prices are now near parity, with a razor-thin spread of only around $2 separating the two at the moment. Late last year, the white metal actually overtook the yellow metal for the first time since 2001 on increased demand from automobile manufacturers. More than 80 percent of world supply is used in the production of catalytic converters.

Not to be outdone, gold ended 2018 on a high note, beating global equities and commodities for the fourth quarter. And as I mentioned before, it was the sixth most liquid asset class, with daily trading volumes nearly identical to that of S&P 500 companies.

Goldman Bullish on Gold, Forecasts $1,425

With a majority of investors now betting that the current rate hike cycle has peaked, the U.S. dollar looks to be in retreat, having lost about 1.7 percent over the past month. Mike McGlone, commodity strategist at Bloomberg Intelligence, writes that he believes the “2019 dollar downtrend has legs.” This is constructive for metals and commodities in general, gold specifically. On Friday, in fact, the yellow metal achieved a “golden cross,” whereby the 50-day moving average crosses above the 200-day moving average—a very bullish sign.

Gold Achieves a Golden Cross
click to enlarge

Among those that are most bullish on the precious metal is Goldman Sachs. In a report last week, the investment bank maintained its overweight recommendation and raised its 12-month price forecast up from $1,350 an ounce to $1,425, a level last seen in August 2013. Goldman analysts contend that the gold price “will be supported primarily by growing demand for defensive assets, with a slower pace of Fed rate hikes in 2019 boosting demand only marginally.”

The World Gold Council (WGC) made a similar case in its 2019 outlook last week, predicting that global investors will “continue to favor gold as an effective diversifier and hedge against systemic risk.” The rise in protectionist policies around the world is chief among the risks since they tend to lead to higher inflation and slower economic growth over the long term, according to the WGC.

I believe the current government shutdown, over funding for a wall along the southern border, is evidence of the risks protectionist policies pose. Now the longest in U.S. history, and with no end in sight, the shutdown could start to take a toll on the economy the longer it lasts, according to Federal Reserve Chair Jerome Powell, and perhaps even cost the U.S. its triple-A credit rating.

Commodities Could Also Be a Buy Right Now

Goldman Sachs isn’t just bullish on gold. Commodities also look like a strong buy, the bank’s analysts say, after prices were slashed late last year. Before the fourth quarter, commodities were following the “late-cycle playbook.” Up 16 percent, they were the best performing asset class of 2018. But with the Fed now “on hold” and there being “low risk” of a recession, Goldman says it can now argue “with confidence” that the sell-off last year was a “mid-cycle pause.”

This is actually good news for commodities, as mid-cycle pauses have historically been a buying opportunity. Look at the chart below. It shows that, with few exceptions, commodity prices rallied in the days and weeks following a “pause” signal from the Federal Open Market Committee (FOMC). And as you might already know, Powell recently commented that the Fed “can afford to be patient” and “flexible” when it comes to additional rate hikes.    

Mid-Cycle Pauses Have Historically Been a Buy Signal for Commodities
click to enlarge

Goldman maintains an overweight recommendation for commodities, with a 12-month forecast of 9.5 percent.

Gold Royalty Companies Are the “Best Bet,” Says Paradigm Capital

It’s no secret that I’m a fan of royalty and streaming companies. (You can read my posts featuring Franco-Nevada and Wheaton Precious Metals.) I’ve long admired these companies for generating profits and creating value, even when the metals market is flat or weak.

Last week, Paradigm Capital reaffirmed my conviction in the royalty model. The Canadian investment dealer shared its research into the long-term performance of the various tiers in gold mining, from juniors to seniors, from explorers to developers. The royalty companies—which include not just Franco and Wheaton but also Royal Gold, Sandstorm and Osisko Royalties—are the “best bet” when seeking to “make money in gold equities,” according to Paradigm’s senior analyst, Don MacLean. He adds: “Royalty companies have the best business model in the sector, by far.”

Below, you can see that royalty companies have outperformed all other tiers, including gold itself. They collectively delivered 16 percent in compound annual growth from 2004 to 2018. Put another way, they returned a massive 884 percent in cumulative change, compared to gold at 300 percent.

Gold Royalty Companies Have Outperformed All Other Tiers Since 2004
click to enlarge

Many junior and senior producers have struggled over the same time period, but Paradigm writes that gold equities are like “coiled springs” and should outperform the precious metal if a “meaningful” gold rally of 10 percent or more occurs. Right now large-cap seniors are leading the rally, having increased 24 percent over the past three months, followed by intermediates (up 18 percent) and royalty companies (up 15 percent). This is in line with past gold equity rallies, Paradigm says, as the largest producers have historically performed best at the start.

My focus lately has been on how the idea of “peak gold” might drive the need for mergers and acquisitions (M&As) within the metals and mining industry. It’s been almost a decade since the last round of deals, and because there’s a sore lack of big discoveries right now to replenish reserves, I feel as if we’re due for more M&A activity this year. The Barrick Gold-Randgold merger, announced last September, might have been just the start of a new wave of consolidation.

We learned just today, in fact, that Newmont Mining plans to buy Goldcorp for a reported $10 billion, thereby making the world’s biggest gold producer. Look for my thoughts on this later!

On a final note, our very own Ralph Aldis, precious metals expert and portfolio manager, shared his top stock pick for 2019 with MoneyShow. To find out which one it is, click here!

 

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The S&P GSCI Total Return Index in USD is widely recognized as the leading measure of general commodity price movements and inflation in the world economy. Index is calculated primarily on a world production weighted basis, comprised of the principal physical commodities futures contracts.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of 12/31/2018: Franco-Nevada Corp., Wheaton Precious Metals Corp., Royal Gold Inc., Osisko Gold Royalties Inc., Sandstorm Gold Ltd., Newmont Mining Corp., Barrick Gold Corp. 

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Talking Tech With Pulitzer Prize Nominee Michael Robinson
November 28, 2018

Michael Robinson, chief technology strategist of Money Map Press, is a lot of things: devoted son and father, technologist, avid skier and gun enthusiast, accomplished blues guitarist, Pulitzer Prize nominee.

Readers of his popular newsletters know him for his mantra, "The road to wealth is paved with tech.” As editor of Strategic Tech Investor, Nova-X Report and Radical Technology Profits, Michael has helped curious investors get in early on small-cap and micro-cap names involved in biotech, defense, cannabis research and more.

I got to see Michael’s presentation at the Black Diamond Investment Conference in October and was impressed by his energy, interesting life story and deep knowledge of niche markets.

Below are snippets from our recent discussion, which touches on topics ranging from trap shooting to cannabis legalization to blockchain technology.

Tell us about your start in military tech and biotech.

I grew up in a military household. My dad was a Marine Corps officer, and later he became the senior military editor at Aviation Week & Space Technology. He was among the earliest to write about the Strategic Defense Initiative (SDI), popularly known as Star Wars. So as a high schooler, I was exposed to all of these exotic defense technologies—materials, sensors, warheads and the like—which really gave me a leg up.

My dad and I ran a high-tech military newsletter in the 1980s. This put me in a position to visit Silicon Valley pretty regularly and talk with scientists and CEOs about cutting edge tech—materials that made battleships and submarines quieter, for example.

As a young auto analyst and reporter, I managed to break some big tech stories because I was willing to look away from the mainstream. The biggest story I did actually led to the firing of two executive vice presidents, which cost the bank close to $80 million. The New York Times and Wall Street Journal ended up having to cover the story, so that helped put me on the map.

I got involved in biotechnology later through my work at what was then the Oakland Tribune. The biotech sector was brand new in the mid-80s, and I was in California where it was all happening. While there, I did a five-part series on Betaseron, the first FDA-approved biotech drug to treat multiple sclerosis (MS).

How did you make the leap to the financial world?

That just felt like the natural next step. Every time I left a Silicon Valley presentation on some new tech, I would think: "That's really cool, but how can you make money off of it?" So even though I consider myself a technologist, I'm always looking at the financial angle.

What’s more, I served on the advisory board of a venture capital company. The experience gave me a different way of evaluating startups than a standard financial analyst, who might be trained only to do ratio analysis and things like that. There's nothing wrong with ratio analysis, but it's not going to give you the kinds of insights and instinct you need to figure out which companies really have it together and which don’t.

You’re known to have a strong interest in guns and shooting. Did that come out of your dad’s military background?

I never really thought of it that way. I just love shooting guns. Mostly these days I shoot trap and skeet. I joined the National Rifle Association (NRA) because I wanted to qualify as a Triple Distinguished Expert in pistols, rifles and shotguns. Shotgun was the most difficult, I thought.

The amount of concentration that's required to shoot at a high level really appeals to me. You have to block out all distractions. In that respect, shooting is a lot like investing. One of the things I remind readers and clients is to separate the signal from the noise. You can't become a good shot if you can't block out all the external distractions and things. Similarly, investors must learn to block out short-term market noise before they pull the trigger, so to speak.

Who would you say are your biggest influences?

Besides my dad, I would have to say the renowned economist Milton Friedman. I had the great pleasure to interview him once for the American Enterprise Institute (AEI). I remember he had a portrait of himself done, but his wife wouldn’t let him hang it up on the wall in their Nob Hill condo. It’s funny—here’s one of the world’s greatest economic thinkers, a Nobel Prize winner, and he had his portrait just sort of propped up in a corner somewhere.

In any case, Friedman was a huge influence on the way that I think about economics. In my freshman year when I was signing on to be an economics major, I remember reading about how iconoclastic he was, how out of step he was with the rest of the economics community, which was very Keynesian at the time. I learned the true value of contrarianism from studying him and looking at things like freedom to choose. Ayn Rand was another huge influence in that respect.

Michigan just voted to legalize recreational cannabis, making it the first Midwest state to do so. Is this a tipping point?

I think the tipping point probably occurred in 2016, when as many as nine states had cannabis legalization on their ballots. That year is also when we launched our investment report, the Roadmap to Marijuana Millions. All 30 of the stocks we recommended made money. The reason I say that is not to brag about our track record, but to point out that we saw large numbers of new investors coming in, willing to take the risk, wanting to be early and understand the industry.

Michigan, for me, was an affirmation of this critical mass. It’s also a reminder of what we need more of to attract institutional investors: initial public offerings (IPOs), mergers and acquisitions (M&As), up-listings to major exchanges.

Obviously the biggest catalyst would be something out of Washington—an effort to reclassify marijuana off of Schedule I, for instance. I would love to see that happen, as would my dad, the Marine Corps officer, but I don’t believe the support is there right now.

You recently argued that blockchain technology should not be used for voting, for reasons involving secrecy and anonymity. In what industries do you see its application making the most sense?

Literally everything. Supply chain management is a huge area that could benefit from blockchain. Look at the oil industry, which still uses this old paper-based system. Companies that have already shown interest in blockchain are British Petroleum (BP) and Royal Dutch Shell, among others.

Counterfeit goods is a problem that runs in the hundreds of billions of dollar every year. Blockchain can help with that. You can use it to tag and identify goods early on, and then they can be tracked with some kind of a distributed ledger.

Or look at financial services. Frank, you’ve pointed out a number of times before that JPMorgan Chase CEO Jamie Dimon has criticized cryptocurrencies, and yet the bank was quietly investing millions upon millions.

Speaking of cryptocurrencies, they’re down significantly this year. Do you think now is a good time to buy, or is more pain ahead?

I fear about jumping in right now. Are we at the bottom of bitcoin? I don't know. One thing I do know is that this crypto selloff may be healthy in the long-term. There’s been an insane number of initial coin offerings (ICOs), which have really hurt bitcoin and Ethereum. We need to sweep out some of the smaller coins because 2,000 cryptos is more than the world can possibly absorb. There has to be a shakeout.

Total currency market capitalization
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You work on several newsletters. Can you describe them for our readers and explain what value they bring?

The main value they bring is making our readers a lot of money. For starters, we have Strategic Tech Investor, which is our free service. The idea is to give investors the rules they need to succeed and not be so emotionally-driven. Because it's free and it's open format, we want to educate investors, and hopefully they'll develop an interest in my investing style and decide to subscribe to one of our paid services.

That brings us to the Nova-X Report and Radical Technology Profits.

Nova-X focuses on mid-cap stocks and the lower end of large-caps. We feel that's a good comfort zone for entry-level investors who are looking for big trends and ways to make money that aren't necessarily household names. We try to get to market early.

Radical Tech is our premium service. It’s designed for much more savvy, much more aggressive people. We swing for the fences more than we do with Nova-X. The focus is on any kind of cutting-edge technology—small-caps and even some micro-caps.

As long as my readers make money, I know I'll do well. I take breaks from time to time, but for the most part I'm up well before dawn screening charts and looking at articles—anything to make our readers as much money as I can.

I want to thank Michael for his time and enthusiasm. Be sure to check out his newsletters!

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of 9/30/2018: BP PLC, Royal Dutch Shell PLC.

 

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