← Grant's Current Yield Podcast
Grant's Current Yield Podcast
A COMPELLING MODEL
00:39:12
With special guest Shaun Usmar, founder and CEO of Triple Flag Precious Metals Corp.
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Transcript26 lines
- [00:00]
A
Foreign. This is Current, Neil Grant's interest rate observer of the air. And I am Jim Grant. With me, as always, is the great deputy editor of Grant's, Evan Lorenz. And Henry French as our sound engineer, as per usual. And we, Evan, we have a guest today and his name is Sean Usmer. He the CEO of a company called Triple Flag. And we'll get to Sean in just one moment. In the meantime, Evan, this is high cotton times for the critics of fiat currency and kind of crazy credit. Do you have any sightings you might contribute to this discussion, Evan?
- [00:47]
B
Yeah, it's the weirdest juxtaposition in the world. On the one hand, we have some of the tightest spreads and high yield credit out there, which is usually a sign that things are going swimmingly well. And on the other hand, we got a report yesterday saying nearly 10% of rated private credit issuers are under covenant relief. And of those under covenant relief, just over a third of them can't even cover their interest expense out of ebitda, not even operating income. They're essentially insolvent entities in a benign economic environment and at a time when creditors are pricing things as if everything's hunky dory.
- [01:18]
A
Yeah, there was news also about a new high and so called dividend recapitalization. So if you. So you're a private equity promoter, right? You buy a public company and what do you do next? You borrow. Right. Okay, so you've loaded up with debt and then you pay yourself a dividend on top of the debt and then you. Wait, what?
- [01:36]
B
Oh, wait, wait. Does that dividend come from cash flow?
- [01:39]
A
No. Then you wait what, six or eight weeks if you're patient, then dividend recap. Anyway, it seems as if this is a fine time to focus on that monetary asset which is unencumbered by credit risk. And Sean, that is the cue for a discussion about Triple Flag. And I would like to begin by recollecting the source of the name. I gotta say, Sean, Sean is originally from South Africa, but most peripatetic career. But he might not be familiar with the thing that. With a product that one most typically, most typically associated with Triple Flag. What's that? Gold Insect Killer. Triple Flag, right? Or is it Double Flag? Anyway, Black Flag. Flag. Okay, so Sean, tell us about, if you would please, about this business you're in, which is Strike. We wrote a, I think our first article on Triple Flag. We've repeated it several times. And to declare an interest. I am a fan and personal interest in this company, but tell Us, if you would please. The nature of your business such that you can run it with a head count of what three or more you.
- [02:52]
C
Could as a public company. It's more. But yeah, I know it's been a number of years now since we first connected and it's been a great journey. So as you remember, I think in fact we just turned eight. We started off, I left Barack where I was CFO to start this company with capital from Paul Singer and Elliott Management for very much the same reasons. For the introduction of your show, which is just this sort of mistrust of what's happening with monetary policy spending. And the idea was really can you get diversified managed top line exposure to gold and silver in a portfolio which would allow for growth cash flow which you could reinvest, pay a decent dividend and form a really good vehicle for a way to get precious metals exposure. And I guess having always been on the on the mining side of things, the mining sector struggles very often to get traditional forms of capital. As you know, it's a long term capital deployment business. And so the idea of having to wait with timelines that may not align for your next acquisition, your next growth window presents opportunity. And so for us we're really providing more structured finance very often the advice schemes and royalties. And so what it does, it provides the miner with patient structured capital at a competitive rate to complement debt and equity. And at the same time it provides us with really it's been in eight years, since 2017, our first full year, we've had the highest growth rate in the sector in actual ounces, 20% cumulative annual growth rate year on year and a 34% growth in cash flow.
- [04:35]
A
Let's back up a moment for the benefit of people who might not be familiar with the nature of a royalty and streaming company is not the distinguishing feature that do you have an interest in the top line line rather than as many equity investors do, exclusively in the bottom line. Can you explain the difference?
- [04:52]
C
I can. So I think some of your audience may be familiar with royalties when it comes to things like entertainment or otherwise. But in mining's context, essentially usually you have a share of the revenue or a share of the product where you're not picking up the ongoing sustaining capital or operating cost exposure. And for those of you more familiar with mining, what typically happens. Equities are valued on the basis of what you can see visibly statistically proven over a life of mine plan in the ground. The beauty of this model is you provide an upfront payment either for royalty or Stream you get a percentage of either the ongoing top line revenue or the physical product. And you get that over. These are evergreen contracts. So they remain over the life of mine. So it participates not just through pricing cycles which you get but as the miner rationally invests money in exploration, expansion, extending mine life to grow value, you participate over time. And so what that means is you get this. And when costs go up, as we just lived through and we're still experiencing that is borne by the operator and not by the streamer. So it's been very, very helpful for us in this inflationary environment.
- [06:05]
A
Yeah, there's. For every successful business model there's. There's generally a preceding story that is magical in the leverage of idea to pay out. And you know, in the case of private equity, what evidence like the Gibson Greetings transaction with Bill Simon in 1970 something and they put up like $5 taking 5 billion. Right? Something like that. Anyway with. With in the mining area and the. In the royalty and streaming area. It seems to me, Sean, you can correct me if I'm, if I'm simplifying too much, but I, I think that the kind of the Bill Simon so to speak of the royalty and streaming business might be Pierre Lassonde or Seymour Schulich. And together they formed something called Franco Nevada. And Pierre loves to tell the story and who wouldn't tell it about the first deal. It was a. They bought 4% of a small Nevada mine for what? $2 million? I think that's right. And Pierce very affectionately recalls this as one would and he says less than a year later Western State sold out to Barrick Barrick Goldcorp now which probably discovered the now lovely gold strike mine. The royalty had paid out. When we talked to Peerless more than a billion and a billion and a half. And it just. So from 2 million to a billion and a half. That is called a rate of return.
- [07:36]
B
A pretty good one.
- [07:37]
A
Yeah. So however, however Sean, this is preface to a question about the risks inherent in even this model portfolio. So Franco Nevada, which is the up here in. And and Seymour's founding the founders and it's their baby still even though it's public company anyway they, they got socked by the most extraordinary example of governmental perfidy in Panama. And so the stock got clobbered. They had right off $10 billion of San Qua. I think something like that. But that's political risk and political risk is ubiquitous. I think. I think it was Bill Barr, the former Attorney general briefly under President Trump who said that in this country too, we have political risk. He said that, for example, in the presidential election this fall, the choice is between national suicide or Russian roulette, I think is the way he put it. So political risk is certainly not exclusive to worlds that we not always would care to visit on vacation, but it is still a risk. So with that windy preface, Sean, tell us, if you would please, about this episode in Panama. Tell us about your exposure to similar risks and how you manage those exposures and those risks.
- [08:57]
C
Yeah, so there's a lot there. And when you think as say Franco Nevada is, if you look at their journey and the returns and clearly the founding story, which is now folklore, it's been an incredible ride until they recently obviously had this Panamanian situation. So our founding was the idea of creating a high growth Franco Nevada vehicle. So gold, silver, without oil and gas, because they've had a very successful run on oil and gas. And our backgrounds have been really more in metals and mining. And so that's what we've sought to do. And the idea is strategically commit more of your capital in lower risk producing assets with good land packages, good life ability to extend mine lives or expand and to generate that cash you can reinvest. And then to your point, even you going back to Franco's founding example, it's not like someone flicked a switch, put $2 million in, woke up like five years later and they had a billion dollars in the bank. Mines take on average nearly 20 years now from discovery to develop, permitting all these government regulations and that are taking longer. So the reality is you want a model where you have diversified, high margin cash flows, good optionality and then a bucket of longer dated options which could be the next rank in the bottom. So you'll see that in our portfolio now with 234 assets, 32 of those produce that cash flow you talked about earlier. So you've got this big repository which really investors aren't focusing on, which could contain, if not the next gold strike, at least some subset of those are going to contribute meaningful ounces and growth on a longer medium to longer term horizon. And that's what makes this model so compelling, is shorter growth, high margins, and then longer dated optionality which you don't have to fund. So specifically your question on Panama, it's interesting. I was on a vacation with my wife, our anniversary in January down in Costa Rica, and our driver, who knows nothing about mining, was suddenly an expert on Panamanian mining. And I think you know the reality that he seemed to have this view, I guess through the Local media that the locals woke up one morning and someone had stuck a coffer mine on their doorstep. And this is an outrage, but there were billions of dollars invested by First Quantum in there. And I think what really happened is the government with the capital sunk in that look to renegotiate the deal and I think lost control of it at that point. And you know, people will have their views, but what ultimately happened is they've taken, I think it's 5% of their GDP and erased it for the time being and they lost control of the beast. They've just gone through an election and with that, Franco really provided a large part of the risk capital. The First Quantum to build that mine in return for that very lucrative stream, which I think was about a quarter of their NAV roughly. So you can imagine with the government doing that and then the constitutional court saying this is not legally constituted, this mine cannot continue. That was a big blow to their stock and of course I think a loss for the country. I mean everybody talks about energy transition, turns out you need copper for that. So I suspect at some point, hopefully sanity will prevail. And I do think that Franco is quite well positioned. These contracts are typically quite defensively positioned compared to equity. So usually they're. If they don't have parent guarantees, they're often either senior or second secured. You're trying to be as bankruptcy remote as possible and have an enforceable contract. And you'll find with them, given the importance of this, they'll tend to likely be patient. And I suspect if they don't recover it or get it to resume at some point, I think they should be fine. But to your specific point on Country Risk, really what we're building is a managed portfolio that is diversified and it's diversified, I mentioned the number of assets, but it's diversified by region, by operator. And you can achieve. Because this is a passive portfolio. I'm not managing management teams at mine sites. We have good relationships. But you're not doing that on a day to day. You can achieve a level of diversification that you can't replicate operationally. So what that means when it comes to country risk is you have to look at the portfolio construction to think is this acceptable if the wheels fall off? Because weird things happen sometimes. And so for us, to your point, you know, Franco lost their cornerstone assets or at least for the time being, the NAV has been impaired. I think they've taken a complete right down on that. In our case, a single biggest cornerstone of a similar percentage of nav. Is North Parks which is a copper mine that's been going for 30 odd years in Australia, five hour drive from Sydney and it's got decades of mine life ahead of it. So jurisdictionally, if you've got Panama on one hand with no mining tradition where things have not gone well and you've got a situation in Australia which has a proud mining tradition, incredible ecosystem and we think about country risk. My biggest country concentration is actually Australia, an area I've operated in for 20 odd years now. And then it's the United States and Canada and parts of South America which have got a good mining history that's about 80% of our nav. And then when we go to more exotic jurisdictions, you mentioned a point moments ago that people really don't appreciate country risk is not as simple as something open up a Fraser Institute documents or table and saying oh this place looks pretty good. It's pretty hard to try and permit a new mine in parts of the United States. In Canada, like pick your jurisdiction. There's a lot of NIMBYism I think that also goes on. And a lot of these jurisdictions make it pretty difficult to get the necessary permits to build the mines that ironically they need in their devices or in the electric vehicles or elsewhere. So when you step back from that, I think the specifics of where the mine's located, their social license to operate, because ultimately what happened in Panama was they lost their social license to operate. And so you have to be able to, when you write these contracts on your due diligence, look through the operator because very often these contracts will be around a lot longer than any particular management team. Have they got the right orientation? Have they got a good social license to operate? If they're in conflict with their governments or with their host communities, they can't just pick up the mine and go somewhere else. So that's a large part of it. And then on the portfolio construction, what percentage exposure in a diversified portfolio do you have for any particular jurisdiction? So just to drive that home, our second deal was in Wolfar Fairway and it wasn't Australia or North or South America, was in Mongolia at a time when Rio was having a tough time with the government where they've invested billions. We wrote a modest check for the size of our portfolio. It was a high teens return to compensate us for the risk. Greenfield site which we could easy diligence. And the net result of that though is I wanted a four year payback because I didn't know what the next administration would look like and whether it Be more business friendly. The election happened, it's gone well, it developed the mine. I think already we've made about 160% on our original investment and they've extended my life by a decade. So that's the sort of thing when we look at country risk and exposure and proportion of the portfolio, certainly how we try to think about that around the world.
- [16:15]
B
2024 is a big year for elections and it seems like populism is on the rise. Is resource nationalism also on the rise? And if so, what does that mean in terms of where you pick, where to play?
- [16:26]
C
I think the short answer has to be yes. You know, I think it's happening. The supply chains and the globalization that we've benefited from and taken for granted for a long time, increasingly I think is fractured. And I actually feel with the Western lens we are playing catch up and we are too short sighted. Our time horizons seem to run within narrow election cycles. Whereas the Chinese and others have been engaging in a very strategic way where they're not just trying to maximize the value within a narrow part of the value chain, which we tend to do, but really through the full value chain. They've been doing it quite successfully for long periods of time now. And so we've got, whether it's critical minerals, energy transition or elsewhere, governments are only starting to really, I think, realize what's needed. And it's not just the mineral endowments, it's the skills. We have an acute skill shortage. I think we actually have a generational cliff of talent that really we have to sort of backfill. And I think part of this is also intrinsically inflationary. The reality is the critical minerals and things that we need for our future, a lot of these things have been locked up already and these costs are going up. They've gone up quite dramatically just in the last number of years. So I think this is a chapter that's in its early innings and I think there's more to come. And so for us, a lot of that is around the choice of jurisdictions that I've just already mentioned that I think are certainly lower risk. They are very carefully diligenced up front. And then that diversification element is a large part of how we looked at it. If we're taking on slightly more risk jurisdictionally, it's commensurate with the returns that we obviously seek from that. And we make sure that we don't go oversized from a nav or an exposure from the portfolio.
- [18:23]
A
Sean, you were born and educated in South Africa, which at one point was synonymous with gold mining. More recently the country has run into all manner of difficulties, political, social, what have you. I don't know if you have any exposure to South Africa. Do you rule that out? You do?
- [18:41]
C
Yeah, yeah. So you know, I spent, you know, I Left actually in 97 to go to Northwestern, do my MBA there and with the full intention of going back into operations and ended up really in London in M A with the scholarship provider. And you know, I've spent a lot of time, from time to time in this industry going back, there's a huge mineral endowment still and I worked on empowerment and other transactions. But really there's so much unrealized possibility and potential there. The infrastructure is not kept up. You'll see if you listen to Anglo American now there's a lot of reference to that. It's been well publicized, the challenges with electricity generation. I think when I left Eskom was one of the lowest cost utilities in the world and had about 10% surplus capacity and was drawing in aluminum refiners. And that was in fact my second job was at alicef because there was so much cheap, abundant power. And now there's, you know, shortages. So putting that aside and going back to your example with the US and other things, I think like any situation, the devil is in the detail. And if you look at an operator who has a good social license, has a good mental endowment, has a good track record of operating in those regions and perhaps doesn't have access to the sort of capital that we take for granted very often in a market like Canada, the United States, that creates opportunity. So probably five years ago now and again, size for the portfolio we looked at, the bulk of our ounces actually come as byproducts. So I'm looking for gold and silver. Primarily we're 95% gold and silver exposure. But often it's associated like with North Parks, which is a copper mine. I stream gold and silver as a byproduct that cash flows traditionally were say four or five times EBITDA multiples to those companies. It's not strategic. For our investors it's worth many times that. So it's a symbiotic form of financing. And when I look at the PGM space, so our material asset we invested there, we wrote $145 million check on a platinum mine which was really call it the sovereign wealth fund of a group. They're called the Buffer Kang, a mine called IB Plat. It's a multi asset complex and in return they just bought out their newly built Mechanized mine with Anglo platinum, a mine called Steld Drift, which you could stick that anywhere in the world. People would just go, wow, this is incredible. Beautiful infrastructure, a great mine, an incredible mineral endowment. And we wrote them $145 million check at a reasonable rate of return and got ourselves a three decade plus stream goldstream in the process. So for us I could see that they had a great impeccable social license. We put 100,000 US scholarship program for the life of the mine alongside to benefit their host communities and their operators as part of that social license. It would take a very brave government to go at odds with the actual community where you're providing employment and economic investment, schools, housing and all the things they do impeccably. And so that's where I point about the devil in the details. A very high quality management team that we knew and trusted and we knew that they didn't have issues constraints related to power and infrastructure. So that's where the diligence comes in and the portfolio construction. So that's how we've looked at that.
- [22:08]
A
Shawn, when we spoke about three and a half years ago, I asked what about the flow of ideas that come your way that must be a big part of your franchise, is having a network of knowledgeable people to furnish you with the next opportunity. And a member of your team said that you typically find 25 or so unsolicited deal proposals dropping over the transom every quarter and the hit rate was only 1 in 32. Could you elaborate on that and perhaps reflect on how this pertains to the difficulty of mining gold, its scarcity and the all the geological and economic hurdles in the way of actually producing it.
- [22:49]
C
Yeah. So when we started in 2016, I'm sitting in Toronto just off Bay street and I'd say the narrative with the brains trust and the banks here was you're competing with the great Franco Nevadas and others. There's nothing to do here. Good luck with that. And we felt that really going back to my earlier comments, that there's actually an opportunity here for an underserved mining community to commit smart capital. And that's really, I think our track record demonstrates that, that we've been able to do that. But as you move forward with, you know, this investment in the beginning when you're private, your, your path to deal flow is really through your networks. We put a lot of as former executives where like when I was Barrick CFO, we had too much debt at 13.1 billion of debt, had to get the cost the cost structure, right? Reduce gna, reset the mine plans, sell off non core assets. But you're selling ebitda, so you've got to be careful, you've got to get a good enough multiple. And we did a stream as part of that. And so that same sort of knowledge and mindset and also the appreciation that there's only a few guys who know to structure these deal deals and diligence them and it isn't actually a straight IRR shootout, which most people don't appreciate, has informed how we've gone about deal flow, how we go to miners, we do the proactive legwork. We'll say to them, look, we know we're ultimately competing with conventional forms of financing or we're complementing it. We invest through the cycle. So periods when things are at a low, you know that equity is expensive, maybe they have got too much debt and you're investing and helping them, particularly with byproduct financing to improve their balance sheet in a non dilutive way to their investors. Other times they're looking at acquisition financing where they're looking for a trusted partner who can work alongside debt and equity, deal with intercreditor and know that they will help them execute their deal and not get jammed. And other times it's liberating a non core portfolio of assets that are undervalued by the market. And sometimes it's mine development financing where you're sharing risk in return for higher returns that ebbs and flows. So to your point, when we were private and we were an unknown quantity, there was a disproportionate amount of time going and putting ideas in front, enjoying rejection and occasionally converting some of those. I think the challenge now, being public and being more of a household name, is that I think the track record is clear. And what we found is we get a lot more passive inbounds. I mean, today alone I've had several and it's a common feature and I actually think our pipeline right now, in this very minute, in fact this year has been the busiest in our history. I think the challenge for us is you have to really be disciplined because a lot of that I would describe as low calorie. It's stuff that it can take up an awful lot of resource and in many cases it's not truly transformational. So you've got to dedicate very practically only so much of your time to those opportunities. Think about if I convert this, what does it truly do for the portfolio returns? Diversification scale on your journey versus something where it Might be lower probability, be truly transformative. So why this matters to me as we're shareholders, that we have the highest insider ownership of any of our peers, intermediates or seniors. Everything we do is through that lens. And so when we started in 16, our nearest intermediate peers at that time when we were doing zero, we're doing 40 and 50,000 ounces a year. Last year we did 105 and they were in the 90s. This year we're the only group out of intermediates and seniors that's actually showing an increase in guidance. All of them are down to flat. So that combination of high margin cash, good cash on, on net invested capital and continuing to invest wisely is key. And I think to you know, your point, I think we've seen well over 800 opportunities now for the deals that we've done over time. Those 234 assets were in 234 separate transactions. Things like we took over Mavericks just over a year ago as a smaller peer which had about 140 odd assets of which 14 were producing, which was 50, 55% of the NAV, you know, that bought along these longer dated options as part of the mix. All of that is informed through what's the right thing to add, sensible accretive growth per share. And you know, I think the environment now is probably in a point where everybody's got Nvidia fever and you know, the mining and other equities are not exactly seeing the benefits flow through into their stock. With higher prices in gold and silver, it's a very busy environment for us.
- [27:21]
B
Ashan, I'd like to ask you about an analogy and lead that into a question. So in the airline industry, airlines in general are leveraged, they have wafer thin margins and it's a cyclical business where they, you know, cyclically go bankrupt. But at the same time because they have bad balance sheets, they turn to the airline lessors, the people who actually own the aircraft. These companies tend to have good balance sheets which they leverage to actually buy planes More cheaply from OEMs then the airlines could themselves and lease the planes. And as a result because they operate with long term leases, they tend not to have the cyclicality like airline lessors actually generated profit during the great financial crisis whereas airlines went bankrupt. And you mentioned when you were the CFO of Barrick and Barrick was over levered and running to problems, you turned to royalty streamers to actually finance your projects. Is that a fair analogy?
- [28:10]
C
Yes and no. It's an interesting analogy which I think few people Fully appreciate, you know, the airline industry, the life of those assets. I don't know what is it, 30 years or so? They're trying to. Everybody gets greedy at the same time, everybody gets fearful at the same time. And in theory you're trying to be kind of cyclical. So the downfall I think of our sector certainly very often has been poor capital allocation choices with an equity investor pool that's often historically generalist that all want growth at the same time and then know they want discipline along the way. And unfortunately management teams demonstrate discipline, they show buybacks and then hey, guess what, one day everybody's found religion. They want the new minds. And I mentioned earlier, it's taking longer, it's like decade long timelines sometimes to bring new minds on. So I think the parallels are there and they're interesting. I do think unlike the example that you've mentioned, for us this has to be, you can't have a winner and a loser if it's a long term capital deployment game. I do think the part that is underappreciated is that, you know, this form of funding can be competitive and symbiotic, but also really rewards over time. Our investors as miners are successful, that they explore and they expand and then we get to participate and we get that right or their free participation. So it isn't a one hit overnight wonder in those regards. So the problem is if you've got a miner that is struggling along the lines of what you said, they're over levered, you know, the operations aren't successful or they're down. That has an impact on you. It doesn't have the same impact because for example, to illustrate the point, Covid we, you recall everybody in their basements and we had two jurisdictions in the portfolio, South Africa and Peru, where we lost, I think it was 40, 45 and 54 days respectively due to government mandated shutdowns. I can tell you as an operator previously what would have happened is you've lost your revenue but you still have a lot of fixed costs that you're carrying. So you've got negative cash as a streamer, you better, you know, you're not adding. If I, if we were debt finance here, there's obviously interest occurring so we lose the ounces over that period, but we haven't lost them, they're deferred. That's one of the benefits. Going back to your Barrick example though, and this is the lens we use when we're dealing with prospective partners, we looked at a stream which we did on public BA of $610 million opposite Royal Gold, where it was really Royal, Franco and Royal with only three who could write the checks and structure the deals. But that was alongside selling a 10% joint venture interest to a competitor or divesting other assets. You're always weighing these things up. We looked at convertibles. You looked at the universe of the possible. So it wasn't a wholesale long term encumbrance, if you will, of just saying I have a cure for everything here. It's going to be a stream and we're multiple streams and that's the way to go. I think, you know, you really have to. The management team has to understand their business, understand their resilience. And part of that for us is not just the partnership, it's also understanding on a forward looking basis, if prices were to go down, we model actively. What does the fully leverage situation of this business look like? And they projected liquidity similar to if you had a significant debt position. Because we don't want, we're not a buy to own shop. We don't want a situation where the miner is distressed. We want them to be successful, invest money in the ground, explore and expand and we benefit too.
- [31:55]
A
Okay.
- [31:56]
B
That was the lead in to ask about miners and the price of gold and their stock prices. So miners are operationally leveraged to the price of gold. If it cost a miner 1000 bucks to extract an ounce of gold and gold is $2,000, they get 1,000 bucks in profit. If gold shoots up to 2,300, they get $1,300 in profit. If it falls to 1,700, falls to 700. Since the start of 2023, the price of gold has shut up by 28% as we, as we're recording today. But the Philly Stock Exchange Gold and Silver stock Index, which is made up of gold and silver miners, is only up 12%. I would assume just, you know, from the fact that they have operating leverage to this surge up in gold, that they would have actually outperformed the metal. What's going on and what's your read for this?
- [32:38]
C
I think there's a few factors. Firstly, a large part of the driver of the underlying commodity price rise hasn't occurred via investor demand in the West. I know there's a lot of stories that you would have picked up with consumers going into Costco and buying gold, physical gold that's on sale, paying a premium and they can't keep the stuff in stock. And we applaud that. But a lot of that has been a Story of central bank buying Chinese I think the weaponization, the dollar people looking for alternatives, central banks buying indeed Chinese retail investors have driven up the underlying commodity price beyond certainly what the prognosticators had assumed. Given the rate environment and what's going on, I think the equity story is a little different. So if you think in the west we're not seeing big, in fact we've seen outflows in ETFs. You know, we're not seeing a lot of focus on precious metals as a whole. So far most people are underweight. I don't see a lot of evidence of generalist investor interest. They're all focusing on back at crypto bizarrely and Nvidia and name your risk on investment. At this stage it has been a story where I think both a bit of investor apathy but more importantly until very recently we've seen supply chain disruption through Covid and then just beyond that that has really impacted the capital cost profile of many if not most projects. And we've seen significant inflation. So what that's meant with the math you just shared is that when you would expect that fairly significant flow through on margins as prices rise, that isn't occurred. We've seen a lot of margin compression because we've seen costs go up. We've seen capital costs go up I think the last quarter and it's not a universal truth, not every issuer has reported this but we have seen Some like Agnico, LMAs and others actually starting to see that margin flow through occurring to the investors and benefiting. So I think you're starting to see a bit of a bifurcation between some of the high quality names controlling costs, maybe less country risk and jurisdictional risk profile going back to one of the themes from earlier and others who either struggle with capital allocation, cost containment and the like. So I think it's a. I think it's an opportunity for the future for that flow through to occur. But you've not seen it on mass so far.
- [34:58]
A
Sean, in. In conclusion or in semi conclusion there's this phrase called forward facing metals by which people seem to mean copper principally but also some of the rare earth thing. And I don't know, I. I am of the view perhaps you share some of this, that the forward facing metal par excellence is gold because it is facing forward to the gales falling from the eyes of the world so far as the institution of fiat currencies and top down interest rate manipulation. I'm inviting you to say something nice about this forward facing monetary asset that seems to have taken a back seat to mere copper. What is in fact has the streaming business, royalty and streaming business, is it turning its back on gold in some way? Or the miners themselves looking to diversify because they have given up on this, as they would call it. Pig.
- [36:04]
C
Yeah, it's funny you said, I mean, look, we're unashamedly gold and silver focused for very much along the lines of what you've sort of outlined here. It's funny, you may have picked it up, but probably three months ago, the Financial Times ran an article which said, hey, we've seen these record gold prices, but some of the sector leaders are just talking about their copper portfolios. They said, like, if you've got the sector leaders not exactly espousing the virtues of the primary commodity that they're focused on, like, why should they get investors to focus on this? So, you know, I think to your point where I was actually in Philadelphia with some investors just last week, where one mentioned a friend of theirs from my home country who used to invest in Krugerrands and said, help me understand why they would do that versus something else. And I said, well, let me take you back to my first home in my 20s. My mortgage rate at the time was 23.5%. The idea of putting money in a physical hard asset against that inflationary backdrop as a preserve of value is something that I think people in a more stable environment don't truly appreciate. And there's so much of the world that does get that and actually sees the importance of that, which I think is often why you are seeing the attraction, whether it's Chinese, retail or others, for a hard asset that has stood by for millennia over time. And I mean, look, you'll know the numbers better than me, but what is the US federal debt number? What, 34 trillion or something? I think it's gone up from what, 60% of GDP to 120% over the last 20 years. I've just had my damn taxes. As of next week, more than half my income goes to my income tax to the government in Canada. They're running big deficits. And this is not a theme that's unique to them. So it's unsustainable. And so I cannot see how if governments lack the will and also with these debt service costs that are continuing to mount and are going to make tough choices for ourselves and for future generations, how something like gold as a store of value in this moment is not relevant, more relevant now than perhaps certainly in my lifetime.
- [38:18]
A
That is an inspiriting speech. In fact, I'm going to not forget that. Shah. What a pleasure it is to have been speaking with you. This is Shahn Asmar, CEO of Triple Flag Precious Metals Corporation, TFPM on the New York Stock Exchange. And it's been lovely, so thank you. Thank you, Evan. Yeah. And, Henry, thank you for making it sound as if we're doing this for a living. That's good. All right, ladies and gentlemen, we'll talk again soon, okay? So long, Sean. Thank you, ladies and gentlemen, for listening. This is a current yield grants interest rate observer of the year, Sam.