Roll Ups & Royalties At 4x Cashflows

Tell me again royalties are "expensive"

Welcome to the ROI Club.

As I move towards my mid-30s I find myself gaining ever more appreciation for elegant simplicity in my investment themes and the patience required to simply allow such themes to play out.

My uncle Rick said this would happen as my testosterone levels adjust after my 20s, but I maintain a solid diet of steak and eggs 2-3 meals per day so surely that can’t be it..

Speaking of Uncle Rick - grab your ticket to the Rule symposium here before the prices go up at the end of the month.

Last year I attended on line and it was awesome!
This year I’m attending live - there’s a money back guarantee so don’t be shy.

What it could be, however, is more time in publicly traded markets and more experience in observing my own investment behaviour.

It’s been nearly 5 years since I sold most of my private interests and shifted my focused to investing in public stocks which has given me time to not only acclimatise to the occasional insanity that inhabits short term price movements, but to accumulate enough references of my having correctly identifying investments that have appreciated 100% or more over 2-3 years.

Most of my successes came from the simplest of themes followed by STFU and waiting 12-24 months. Keeping it simple is the new sexy.

De-cluttering my thoughts at 4.2 km above sea level in Juy Juy, Argentina.

My focus over the next 5 years is capitalising on the following principles which illustrate the only real advantages I have as an individual investor in public markets:

• Extending my investment time horizon past the quarterly or yearly reporting seasons so maniacally focused on by Wall St which so often influences, or is influenced by short term price fluctuations.

• Concentrating my number of positions and investment themes: Focus on what I can keep track of. Sticking to my areas of expertise and business models I know well gives me the courage and conviction to see these positions mature in their valuation and unlock the magic of compounding.

• Viewing price volatility as akin to weather patterns: I’m not governed by investment mandates nor capital allocation rules. This means I’ll experience more volatility than average but also gives me a chance at achieving higher returns than the average.

Every individual investor could take advantage of the above principles, no matter what the strategy or area of focus in the market. Unfortunately, however, they usually succumb to the above which has me thinking about supporting tactics I can deploy to ensure I stick with the above principles.

Which brings me to today - what’s something practical I can do that will allow me to compound my capital over time and roll with the volatility-punches?

Focus on superior business models.

This has lead to my publicly shared portfolios being more than 50% allocated to Royalty & Streaming business and me being dubbed ‘The Royalty King’

I can comfortably live with both the title and the investments, which is no small thing because comfort gives me patience which for me is the key ingredient in this game.

There is truly something wonderful about a business model so elegantly simple:

You finance a mine or lease acreage for mineral extraction in exchange for an interest in production/revenue.

Obviously there are nuances, but the lack of capital intensity means maybe you clip a little less cashflow in a bad year - but you still likely profit when everyone else in the industry is struggling.

Then what do you do with the profit?

None of these guys ever really run any debt on their books and they seldom engage in equity offerings or ATM facilities like the producers/developers they finance.

So you end up in this situation where there’s nothing else to do but either acquire other royalties when situations are advantageous or you return capital to shareholders.

Elegant simplicity.

In some niche cases, the royalty holder is simply a pass-through trust where’s literally nothing to do BUT dish the earnings out to shareholders. I am in the process of buying a basket of these very entities which I can’t wait to share with you soon.

Today’s focus is on a company combining two themes that are very dear to my heart: Roll ups and Royalties.

This company is consolidating private royalty interests at baragin valuations using only 35% of its free cashflow, leaving 65% for shareholder returns every quarter.

When I mention royalties people often exhibit a knee-jerk reaction about how ‘expensive’ they are based on what they think they know about valuation metrics etc.

Well, this one trades at an expected 25% free cashflow yield, 7% dividend yield and buys back a ton of stock regularly.

What’s more - looking forward I have them trading at only 3x their 2026 free cashflow (E).. for a royalty that will give 65% of that back to shareholders in their capital returns program..

Too expensive?

Let’s break it down