The Generational Opportunity

For those of you that don’t know, as a California native, I found my way into the royalty and streaming business through the buy-side. Managing a fund focused on precious metal equities, it was my job to seek out the 10-12 of the best opportunities with thousands to choose. In the resource business, one of the keys to outperformance is to focus on the best “risk-adjusted” investment. Many investors get lured into promises by promoters of 10X or 100X your money, only to result in tears cycle after cycle.

Royalty and streaming companies became the cornerstone of the fund as nothing even came close to providing the risk-adjusted return we were looking for. This inevitably drove me to find a way to build a company (NYSE American: MTA)(TSXV: MTA) that would provide a way to capitalize on what I believe will be the most powerful move in gold that we have seen over the last 20 years. 

There are very few times in one’s career as an investor where you find a great company that will provide an attractive "risk-adjusted" investment that also lines up with an attractive "risk-adjusted" entry point. This happened briefly in March of 2009 at the depths of the financial crisis. Where high-quality companies like Silver Wheaton (now Wheaton Precious Metals) declined from C$16 to C$3, only to rally to C$40 over the following two years as gold and silver prices recovered. 

The difference between what we saw in 2009 and today is the underlying gold and silver price. At the same time, in 2009, we saw gold and silver equities decline, we saw silver decline from $20 to $8, and gold declined from $1,000 to $700. Today, we are witnessing another liquidity crunch only to see gold firmly in an uptrend up 30% over the last year in striking distance from all-time highs in USD and already all-time highs in many other currencies. At the same time, gold and silver equities, even high-quality royalty companies, are fully exposed to the liquidity crunch.

To understand where you are in these cycles, and when to enter, it is essential to look for macro-economic indicators that are at extremes. Below is a 20-year chart of the S&P/TSX Venture Composite Index. The index is a broad market indicator of Canadian micro-cap securities. The index market capitalization is weighted, and mining-related equities (majority precious metals) makes up about 50% of the weighted average. At $1,650 gold, we are witnessing all-time lows!

Source: https://web.tmxmoney.com/charting.php?qm_symbol=^JX

The gold and silver ratio is one of the best indicators of speculation within precious metal equities. This is because gold is used to preserve wealth. At the same time, silver, also a monetary metal and significantly more affordable, is a better representation of speculation as it historically moves on a percentage basis much more in either direction. As someone who is in constant contact with retail investors to some of the largest institutional investors in the world, I see very little to no speculative capital in the sector at $1,650 gold. Below is a historical 100-year chart of the ratio, and we have only seen these levels three times!

Gold to Silver Ratio - 100 Year Historical Chart 

Source: https://www.macrotrends.net/1441/gold-to-silver-ratio

I believe we are witnessing the beginning of a monetary crisis that has been ignited by media-driven fear of COVID-19. The world is experiencing a significant economic contraction that will likely result in substantial declines in GDP. Debt-based economies can continue to work for as long as the economic stimulus coincides with GDP growth. That is why it is always important to look at the debt as a ratio of GDP. The world is at extreme levels with this ratio at many western governments are holding firm over 100. What to be cautious about is that a major economic contraction can drastically decrease the GDP component sending this ratio to spike higher over the next few years to historically dangerous levels. We saw this in the previous major recession during 2008-2010. At the same time, these contractions are met with heavy stimulus by central banks, further increasing total public debt.

Source: https://fred.stlouisfed.org/series/GFDEGDQ188S

Metalla (NYSE American: MTA)(TSXV: MTA) was explicitly designed to be a way for investors to capitalize on this "paradigm shift," which looks to be the end of public debt-based growth and shift to private assets. We believe precious metals, more importantly, high-growth, high-quality royalty companies like Metalla, are going to be the best positioned private asset class to capitalize on this generational shift.

Source: www.metallaroyalty.com

We have put together a portfolio of 46 royalties and streams that will provide exposure to gold and silver operations run by the best mining companies in the business. More importantly, our business and strategy to continue to grow the company through accretive transactions have never been stronger. We will continue to execute our business, adding per share value each transaction. We have positioned our investors in royalty assets that are experiencing very high growth. Our counterparties will be spending hundreds of millions of dollars adding more gold/silver ounces by drilling, pushing projects into production, and increasing odds of more discoveries, all for the benefit of our shareholders without any further capital outlay Metalla.

Royalties on mining projects are one of the most incredible financial instruments I have ever come across in my life. They give investors a non-dilutive interest at the asset level, with no further capital required once acquired, to perpetual topline cash flow once the operations are producing. The power of a growing portfolio of high-quality precious metal royalty and streams, I believe, will be one of the best "risk-adjusted" bets of my lifetime.

 Sincerely,

 Brett Heath – President and CEO of Metalla Royalty

More on the gold price from widely followed E.B. Tucker and a recent interview on INN

I (E.B.) don’t get to address you as frequently as I’d like to. With the S&P 500 down more than 5% on the day (Monday) and just about 20% over the past three weeks, it seems timely.

It might help if I share a little background of how I ended up here.

In 2016 Brett Heath, the CEO of Metalla Royalty, came to me with an idea. He knew I believed gold had bottomed at $1,053 in late 2015. He told me he had a viable plan to buy up dozens, possibly hundreds, of gold and silver royalties in the coming years. I liked his plan.

Over three years later, 15 transactions, 46 royalty interests, and claim to proven ounces of gold in the ground well into the 6-figures, I'm more excited today than I was on that day in 2016.

While our stock sits close to $6.00/share today, up 5-fold from its $1.20 debut, it hasn’t kept up with your company’s true value.

What interests me about royalty claims is holding proven ounces in the ground. Someone else has to dig up these ounces, refine them, and remit our portion of the proceeds per the royalty agreement.

That means the value of the ounces covered by our claims increases with the price of gold. I don’t watch our stock as intently as I watch the gold price.

As you may know, I went on Kitco News and other major media outlets in late 2018, predicting gold would clear $1,500 last year. It did. When asked what's next, I said gold would clear $1,900 this year. It breached $1,700 last night (March 9, 2020).

The way I see it, every dollar gold moves higher boosts the value of our royalty claims.

 Gold Has A Long Way To Go

Last Friday, I bought several U.S. gold Indian coins through a local dealer. He told me he'd been swamped all week. Sellers flooded the store with tubes of bullion coins they bought in 2010-2011. They held on for almost a decade waiting for break-even. This is a very important piece of information about where we're headed.

These sellers watched their entry price, not the market price. They rush to get out at the first sign of life. They have no idea that the nearly nine-year bear market in gold is over. We’re in a new uptrend…..and we’re only in the first inning.

So you know, I don't suspect gold gets any attention until it clears $1,900. Brett tells me mainstream funds have an interest in the gold sector and don't know where to begin. Clearing the old high will get them into bullion, and maybe large-cap miners. 

If our stock is undervalued (compared to the value of the gold covered by royalty claims) today, imagine what that looks like at $1,900 gold. Then, we're only talking about professionals getting involved. Retail investors rushing to sell gold at the first sign of life will eventually rush back in at much higher prices.

The Big Picture

While I have you, I’d like to share a few additional predictions relevant to our mutual interest in Metalla shares.

I expect the Federal Reserve to shepherd U.S. rates into negative territory. The same goes for bank interest rates, which I expect will carry negative yields in the coming years. That means you'll pay the bank to hold your savings.

This will be an effective Fed policy tool in the fight against deflation. If you’re charged to hold savings, you’ll spend or invest. You’ll put that money to work driven by the power of incentive.

In January, the U.S. consumer savings rate hit 7.9%. That can't happen in a debt-based system. Economic contraction spells disaster for our modern financial system.

This will happen slowly, and the average person won't notice until rates on savings products are explicitly negative. It's wise to position before the herd wakes up.

I also expect the Fed to buy stocks.

This current market decline can go much further. I don’t hear people begging for mercy yet. That’s always a sign it’s time to cover and get long. When this runs its course, I expect the Fed to support the stock market.

All of this is tremendously bullish for gold.

If gold stocks, including ours, (NYSE American: MTA)(TSXV: MTA) lag while gold surges, I'm not concerned. The eventual catch-up rally will not be one you want to miss.

Best regards.

E.B. Tucker

Please see my most recent interview with INN by clicking here.

#gold #silver #royalty #royalties #streaming #mining #covid-19

This update contains “forward-looking information” and “forward-looking statements” within the meaning of applicable Canadian and U.S. securities legislation. The forward-looking statements herein are made as of the date of update only, and Metalla does not assume any obligation to update or revise them.

 Forward-looking statements and information include, but are not limited to, statements with respect to the future price of gold and other commodities, the possibility of a monetary crisis, the future impact of COVID-19, potential economic contractions, potential for increasing public debt, the positioning of Metalla and its ability to capitalize on current and future market conditions, the ability for Metalla to grow through accretive transactions in the future, Metalla’s need for future capital outlay, the future value of Metalla’s portfolio of assets, the value of Metalla in relation to possible increases in the price of gold, and competitive uncertainties, and contingencies. Forward-looking statements and information are subject to various known and unknown risks and uncertainties, many of which are beyond the ability of Metalla to control or predict, that may cause Metalla's actual results, performance or achievements to be materially different from those expressed or implied thereby, and are developed based on assumptions about such risks, uncertainties and other factors set out herein, including but not limited to: the changing price of gold or other commodities, the impact of COVID-19, lack of control over mining operations. No forward-looking statement can be guaranteed, and actual future results may vary materially. Accordingly, readers are advised not to place undue reliance on forward-looking statements or information.