This Gold Royalty Stock Is Quietly Up 59% YTD
And It Still Trades at a Discount to Book—My Full Update Inside.
Hello and welcome back to the ROI club.
This morning I landed in Melbourne and it’s been straight back into the groove.
Today’s piece focuses on just how out of control the US Fiscal situation is and why I’m becoming ever more convinced that most investors simply won’t be able to outperform the gold /BTC price performance over the next few years as we bear witness to a global monetary re-set.
Paid members will also get access below to my update take on my favourite small precious metals royalty company whose price is up 61% YTD and still trades at <0.6x book value.
I will be interviewing the company’s CEO at the upcoming Rule Investment Symposium in Boca Raton, FL July 7-11.
*The Rule Symposium Is Almost Here*
It seems to me like the FED is getting close to stopping even pretending they’re interested in fiscal tightening.
Despite a huge relative reduction in the Fed's balance sheet, the money supply is now hitting new highs. The federal deficit in 2024 went higher for the third year in a row, and the 2025 YTD deficit is already higher than the 2022 total deficit.
The US government needs a few years of inflation above double digits in order to repress their way out of the debt bind it finds itself in and currently shows no sign whatsoever of reducing the deficit as seen recently with congress passing the ‘Big Beautiful Bill’ which is estimated to add $2.6T to the budget deficit over the next decade.
It’s worthwhile pondering what double digit inflation in the world’s reserve currency would mean for you and your family.
Long time readers will know that I regularly perform alchemy, turning my fiat profits into gold every month and holding it as liquidity.
Below I published a piece on why I choose the gold price + an equity risk premium as my hurdle rate. Anything that won’t do better than that doesn’t deserve my gold to be liquidated and invested in it.
In that piece I also give my analysis on FNV which I described as
“FNV is an investment today that offers an acceptable real return plus a host of free call options on exploration, pricing, and volume. A call option on gold with positive carry in the sector bell-weather is a highly unusual opportunity.”
FNV was at $125 then and is up 38% since within less than 6 months.
Today’s focus opportunity I liken to buying FNV when it was still a small cap and I have an entire article comparing the two companies when they were at similar stages in their growth cycle.
Now, what about BTC?
Michael Saylor has gained an enormous amount of attention with his strategy of placing basically the entire balance sheet of MSTR in BTC. What’s more, he’s issued convertibles to essentially create his own BTC fly wheel effect to the benefit of MSTR (at least so far).
His thinking, as I understand, is that BTC will grind higher at ~30% CAGR until it matches the market cap of the global monetary supply and therefore he and others should simply buy BTC because they won’t be able to outperform this rate of return.
Now I’m not smart enough to know whether this will happen or not but I can see BTC closing the gap between its Market Capitalisation (MC) and that of the global M2.
After all, every fiat currency goes to zero eventually so why wouldn’t a fixed issue currency which now has institutional adoption at least be worth a fraction of what a decaying fiat currency is worth?
The global M2 supply currently stands at $111 Trillion and BTC’s market cap around $2.1 T ergo if BTC were to reach even 0.2x the value of global M2 it would reached an implied MC of $22 Trillion - or over $1 Million per coin - and that’s assuming no further dilution of the fiat M2 supply!
Compared to the price at time of writing, some possible return profiles - if you believe in my contention that BTC will continue to close the gap in market cap between itself and the fiat currencies- could look like the following:
Some serious asymmetry is still on offer.
How does it look on an IRR basis to get a feel for it as a hurdle rate?
So, maybe Saylor is right/wrong/a fraud or a genius - time will tell.
I have no idea how MSTR doesn’t blow up, it seems to me to be a self-consuming snake if/when the fly wheel turns in the other direction.
BTC itself however, seems highly likely to land somewhere on the above chart.
Taking even the lowest of the projected returns and you still get 12% IRR which is a damn high hurdle rate. Just try plugging in 12% as a discount rate on your DCF of your favourite stock to see just how drastically it will drop the returns in comparison to the standard 7% that’s mindlessly used by investment bankers and sell side guys currently.
For something less controversial, let’s do something similar with gold examining a scenario where the US gold holdings are revalued to provide a similar level of backing for the US Monetary supply.
All this is to say that any investment idea needs to be expected to clear 10% (roughly rounded bottom of the above IRRs) + an equity risk premium of say 3-5%.
An effective hurdle rate of 15% is high.
From 1971-1981, a decade of high and volatile stag-flation in the USA, Berkshire Hathaway’s stock price compounded at an annualised 25% while the gold price compounded at an annualised 28%.
Even the great Warren Buffet, with his mastery in selecting quality brands with pricing power couldn’t outrun the gold price re-establishing its role in the monetary system once it was untethered to the US dollar in 1971.
This leads me to believe that if I want to make a real return, as defined by a return over and above the gold or BTC price, it makes sense to look at derivatives of the gold price. Now you already know I don’t consider the miners an investible derivative given their exposure to margin creep from the expense column.
That leaves Gold royalties as the most logical option if you want operational leverage rather than marked to market leverage.
I’ve already written extensively about the biggest and best in class: FNV and WPM.
Today it’s time for a review of my favourite small cap royalty which, from a standing start in 2021 has already gathered 248 royalty contracts, reached ~7,000 GEO per year production interest and has grown its revenues at 238% CAGR since its inception.
In my previous piece I likened it to FNV and in fact it actually holds more royalties than FNV did at a similar stage of its development.
Let’s take a look.
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