Streetwise Reports: Adrian Day Asset Management holds various precious metals royalty companies. Would you tell us about one young royalty company that your fund holds?
Adrian Day: I like the royalty and streaming business model. It's a low risk model both from the point of view from a company, and also from the point of view of the investor. With larger royalty companies, the advantages of being a royalty company really start to kick in when you get the diversification of royalty revenue streams. Although Metalla Royalty & Streaming Ltd. (MTA:TSX.V; EXCFF:OTCQB) has only been in business for two years, it has done an incredible job building the company in that length of time.
In two years Metalla, without wasting money, has three revenue producing assets and about 14 assets in development and close to production. It is now at the point where it pays a dividend, 2.2% at today's market, which is better than the S&P 500 and the vast majority of mining companies. To me, paying the dividend is a validation that it's actually a real company. You can't keep on paying a dividend for very long if you're not actually earning money.
Metalla buys royalties with both shares and cash. When it finds a royalty it wants to buy, it goes out to raise the funds for that particular asset. The decisions of potential investors are a signal as to whether they view it as a good deal and accretive to the company, so that's another validation of whether the asset is good or not.
SWR: Is Metalla's stream mostly silver?
AD: Most of Metalla's revenue right now is from silver, a silver stream with the Endeavour Mine, but it is not intending to be a silver streaming company. Over time most of its pipeline is gold.
In addition to the Endeavour Mine, the New Luika Gold Mine (NLGM) in Tanzania is producing, and there is small-scale production at the Zaruma Mine in Ecuador.
Metalla's website is very good. It explains the business model and provides information about its projects in an easy-to-follow format.
SWR: Would you tell us a little about Metalla's management?
AD: I've known Brett Heath, Metalla's president and CEO for a long time, before he founded Metalla, and he is a person who does what he says he is going to do, which to me is critical.
I like the management, the way they have built the company in just two years and have actually achieved something, three producing royalties, and a good pipeline. I think that as it gets more royalties that are producing and developmental, the valuation multiple will more toward that of the larger royalty companies; as Metalla gets more diversified, the valuation gap will begin to close.
SWR: Thanks for your insights, Adrian.
Technical charts prepared by John Newell of Fieldhouse Capital Management, giving potential targets.
Chart from October 23:
Chart from August 31:
Charts courtesy of StockCharts.com.
Adrian Day, London-born and a graduate of the London School of Economics, heads the money management firm Adrian Day Asset Management, where he manages discretionary accounts in both global and resource areas. Day is also sub-adviser to the EuroPacific Gold Fund (EPGFX). His latest book is "Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks."
John Newell is a portfolio manager at Fieldhouse Capital Management. He has 38 years of experience in the investment industry acting as an officer, director, portfolio manager and investment advisor with some of the largest investment firms in Canada including Scotia McLeod, CIBC Wood Gundy and Richardson Greenshields (RBC Capital Markets). Newell is a specialist in precious metal equities and related commodities, and follows a disciplined proprietary approach incorporating equity research, analytical frameworks and risk controls to evaluate and select long and short stocks primarily from the Canadian small and mid-cap coverage. Many large, midcap and junior precious metal companies use his technical charts. Newell is a registered portfolio manager in Canada (advising representative).
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1) Patrice Fusillo conducted this interview for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. She owns, or members of her immediate household or family own, shares of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
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Charts provided by John Newell.
