“Looking To Become Royalty Royalty” Pitch

We got a new gold/”>“soft” promo from Porter Stansberry’s Complete Investor on Saturday… he usually emails around the “back story” for each new recommendation for that newsletter, typically wrapped up in some kind of interesting tale from financial history, then cuts it off just before he actually talks about the company… but his attention has also caused the “secret” stock to jump already, in the early hours of trading on Monday, so I thought we should get into the story a little bit for you.

This time the long back story from Porter is mostly a spiel about the history of banking, usury, and the Knights Templar, with the big picture pitch being “you gotta own gold.”

“Gold prices respond to the total stock of dollar-denominated promises, not just the narrow money supply. When you measure credit instead of money, you capture the full weight of the dollar system – every mortgage, every Treasury bond, every eurodollar loan. That is what gold is really pricing: the sheer mass of dollar obligations relative to the one asset that cannot be diluted.

“Our proprietary global credit database, which tracks the total amount of dollar-denominated credit in the world, is telling us that credit growth has reached unprecedented (and possibly unsustainable) levels – which, in turn, is driving gold’s price even higher than the standard Austrian model would predict. In fact, we at Porter & Co. predict gold prices will easily double over the next three years.”

But, as always, we’re curious about what the real investment might be that he’s recommending because of this — we have written about a bunch of “royalty” pitches from Porter & Co. over the years (including his “Canadian Gold” just a week or so ago), he is at least as fond as I am of these kinds of companies, but it sounds like they’re now recommending another one — here’s the clue:

“For that reason, we are adding the world’s fastest-growing precious metals royalty and streaming company as this month’s recommendation. The four-year-old company’s portfolio includes more than 25 assets spanning gold, silver, copper, nickel, zinc, and uranium. Roughly 85% of expected 2026 revenue is tied to gold and silver.”

So who’s that? Thinkolator sez it pretty well has to be Versamet Royalties (VMET), which we’ve written about quite a bit this year both because Marin Katusa did a big paid-promo campaign for the stock in March, and because I bought shares myself recently, largely because Versamet is the cheapest large(ish) royalty company right now on a growth-adjusted basis…

… and the “new news” is that a couple weeks ago, Versamet made its biggest acquisition yet, acquiring a 3.5% gold stream on Eskay Creek, a big gold mine under construction in British Columbia. That should boost the growth a bit more, even though it will take some time for that mine to actually get to the bottom line.

This morning, Versamet opened trading at almost 70X trailing cash flow from operations (CFO), so it’s certainly not cheap on a backward-looking basis (most of the larger players are in the 30s, with Triple Flag (TFPM), which is expected to have a down revenue year, the cheapest at about 24X trailing CFO) — and it has risen quite a bit in the first hour or two of trading, thanks no doubt to Porter’s recommendation over the weekend (gold is down a little bit today, and despite that some of the other royalty firms of meaningful size are up, too… but they haven’t moved nearly as much as Versamet).

But with the production growth coming on VMET’s royalties and streaming deals, they’re currently expected to roughly triple their cash flow from now through 2028, which means that they are, if we believe the company’s own guidance and the guesses of analysts who follow the stock, growing much faster than all of the larger royalty firms. Versamet earned about 9,000 gold equivalent ounces (GEO’s) in 2025, and is forecasting that they will hit a rate of at least 20,000 GEO’s by the end of 2026, and 40,000 by the end of 2028. So that’s 100% GEO growth from 2026-2028, and the best growth forecasts at the larger royalty companies are more in the range of 50% GEO growth from 2026-2030, so yes, Versamet stands out for its growth.

If we just use 2026 estimates, which are probably imperfect but certainly more reliable than 2028, Versamet was trading at only about 22X expected CFO at the open this morning (that’s up to 25+ now, thanks to the 15-20% jump in the stock price that Porter seems to have ignited). 22X forward cash flow is only a hair more expensive than the bigger competitors, who are mostly in the 16-21X range this week… and, importantly, that’s using my estimates, which should be too conservative (I use trailing margins in order to introduce a little bit of a caution to my estimates, but smaller and faster-growing players like Versamet, with just a $1.4 billion market cap, should get a lot more efficient as they scale up).

The only real challenge is timing — I agree with the Porter & Co. folks that IF gold doubles in price over the next three years, Versamet should grow into “Royalty Royalty” (though all the royalty firms will do exceptionally well in that environment). That’s the benefit of having high “ounces” growth right now as they scale up the portfolio, you get some extra leverage if both your gold ounces and the gold price rise sharply.

And as you might imagine, there’s an “on the other hand” when it comes to leverage, as is pretty much always true — Versamet is being valued as a growth story, so they will be punished more than the others if that growth doesn’t arrive… and, more importantly, they’re also adding extra leverage by borrowing more money than the other royalty firms (as a percentage of their market cap), particularly to make this latest large “tentpole” acquisition, and that brings risk, too.

All of which might make Versamet the gold royalty company that is most aggressively levered to the gold price over the next three years (at least, among those with a market cap above $500 million or so). They still won’t be as levered to gold as a lot of the small miners are, and they’ll also be safer than the small miners in a downturn, but they do stand out from their royalty peers because of higher growth and more leverage.

Here’s an excerpt of what I wrote to the Irregulars back in April 10, when that big Eskay Creek deal was announced:

A New Tentpole for Versamet… at a cost

This week we got news of a big new royalty purchase by Versamet — they’re buying a gold stream on the Eskay Creek gold/silver mine in British Columbia, which is currently being built by Skeena Resources, and that’s helping to boost future expectations… but it also comes with a big chunk of debt, and a little bit of shareholder dilution.

The mine is about half built, and they expect production to begin in about a year (first quarter of 2027), after which Versamet anticipates receiving an average of 10,000 ounces per year for five years from their 3.52% gold stream — likely ramping up relatively slowly that first year or so — and then a declining number as the mine gets through the first phase. That means the plan is for Versamet to receive roughly 10,000 ounces a year for the first five years, then ~6,000 ounces/year for the next seven years, though production levels might well change and impact that royalty in the future… and expectations could change pretty soon, because the operator, Skeena, is expected to release its updated technical reports, which will very likely include a longer life span for the mine and higher production in the out years, though that report isn’t expected until the end of the year.

For that, Versamet is paying $340 million in cash and $20 million in new Versamet shares. The cash portion is coming from a new loan and their existing line of credit, so they will have a total of $385 million in debt when the deal closes, a relatively large amount for a royalty company of this size (market cap was about $1.2 billion this week). That debt is scheduled to be paid down on a regular basis through 2028 and 2029, and as long as gold remains above $3-4,000, that shouldn’t be a problem, but it will eat a pretty big chunk of their cash flow — at the moment, I’m estimating that they’ll have more than $50 million in operating cash flow this year and close to $70 million in 2027, though those numbers will fall sharply if gold gets close to $3,000 and will rise dramatically, particularly with this new 2027 stream addition, if gold soars well above $5,000 again.  And operating cash flow is a number we get to before the financing costs are accounted for, so the debt repayment and interest will have to come out of that — which means actual earnings and free cash flow will be substantially lower until the debt is paid down.  And that means the actual production from their mining partners and the actual gold price they realize over the next few years will be extra important.

The opportunity is clear, this is a “tentpole” royalty on what could be a very large and long-lived mine, and Versamet already had among the best “ounces” growth profiles of the royalty companies before this deal.  This accelerates that growth.

The risk is clear, too, with a much larger debt burden than their peers, on a relative basis, and that means they’ll be more fragile IF gold prices fall sharply over the next couple years, before they’ve repaid a good chunk of the debt. What I’d be wary of is a situation not unlike what happened to Sandstorm Gold a decade ago, when they overpaid for potentially transformative acquisitions at a time when gold prices were falling… we don’t know what happens to the gold price next, but we do, at least, know that the ounces growth is near-term and pretty predictable, since the mine is actively being built right now, so that means they’re taking less risk than Sandstorm was at that time….

…

Going by the current mine plan, and an estimate that gold will average $4,500/oz, Versamet would break even on this Eskay Creek deal sometime in year nine….

To some degree, that’s just because the business has changed, and streaming deals cost more now — but still, that seems like a long break-even period to me.  Maybe I’m just a little too anchored on my memory that a decade ago, royalty and streaming companies were routinely making deals that they expected to break even in 5 years or less.  And I think the average is still more in the 5-7 year range for bigger and more predictable deals, though every deal is different and I’m sure some have much longer break-even periods.

Here’s how I see it:  Paying that kind of price for this streaming deal either means that Versamet believes gold will average something much higher than $4,500/oz over the next decade… or that they believe that the new mine plan, released later this year, will include much higher production numbers or a much longer mine life. Both of those things are possible, but a nine-year breakeven seems pretty extreme for a major royalty acquisition on what is currently seen as a 12-year mine, particularly because they’re buying the stream at a time when gold prices are near an all-time high….

That might be worth it in this case, and the use of leverage and limited dilution means that it should work out very well for VMET shareholders IF gold keeps moving higher and/or the mine turns out to produce a lot more than is currently expected. But it also means they paid a lot to get that streaming deal, and things will be more challenging and the financing costs will eat into their cash flow much more noticeably IF gold prices fall over the next few years. I still like the company as a way to inject a little more growth into the portfolio, but this deal makes the outlook a little riskier.

And that’s still where I’d come down with this one — it’s likely to be the best growth story in the precious metals royalty space over the next few years, and they’ve built an impressive portfolio in a relatively short period of time… but they’ve also taken risks to accelerate that growth, and that makes them less safe than many of their peers.  Better growth/less resilience might be a reasonable tradeoff, if you’re looking for some additional leverage to gold in your portfolio.

It’s your money, though, so what say you, dear reader?  Like Versamet for a little shot in the arm as a levered royalty play?  Prefer the stodgier and safer large royalty companies, or the even jumpier tiny players in the space?   Want to wait out this “Porter bump” or the previous “Katusa bump” and see where the price settles down in the next few months?  Let us know with a comment below… thanks for reading!

Disclosure:  Of the companies mentioned above, I own shares of Versamet Royalties (VMET) and Triple Flag Precious Metals (TFPM), and I own (and automatically buy a little more) physical gold and silver every month.  I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.