Investing Opportunities in Market Volatility and the US Bitcoin Reserve

[00:00:01] This is The Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Braden Dennis and Simon Belanger Welcome back to The Canadian Investor Podcast. I'm here with Dan Kent. We are back for our news and earnings episode. And there's a lot of news to talk about today because the, you know, Donald Trump or the Orangeman, as I've heard,

[00:00:31] I like to call him is tweeting something or truthing whatever you call it on his platform every single hour, it seems like. And every day when it's affecting Canada and tariffs on Canada, which is obviously creating a whole lot of volatility in the markets. And I know you want to talk about that a little bit, right? Yeah, I seen a tweet earlier. Well, not a tweet, whatever platform he has that like Truth Social or whatever. And he had mentioned... A truth. A truth. Yeah.

[00:01:01] Yeah. He had mentioned that like, oh, how could, how could Canada put tariffs on electricity? That's like a basic life necessity or something. I'm like, well, didn't you tariff everything? Yeah. I mean, yeah. Like... And I thought also the US didn't need Canada and they were fine without our, our energy. So... Yeah. It's, I mean, it's, it's definitely causing some volatility. I mean, this has to be the most volatile the markets have been since 2022.

[00:01:29] I want to say that they might even be more volatile than that 2022 bear market. But I do remember the index is taking some like four or 5% dips on, you know, when inflation was coming in huge. But I mean, the NASDAQ, it fell by 4% yesterday.

[00:01:46] Uh, the S&P by 2.7%. So on February 19th, which is what three weeks ago, the NASDAQ was actually up 2.7% on the year. And the S&P was up around 2%. And they're now sitting on losses of, and I guess this wouldn't even figure in today.

[00:02:02] So if I factor in today, the NASDAQ would be down around 11% and the S&P 500 8% just three weeks later, it's been pretty crazy. I mean, the TSX is doing, I would say much better, but still, it hasn't been pretty, pretty since late February. I mean, it was up 3.5% on February 19th.

[00:02:20] It's now down 1.4%, probably a little bit more today. TSX today is down around half a point. So it's definitely, you know, the more resilient index, I guess, through all of this, but it also hasn't had to run up the US indexes have over the last while.

[00:02:36] So that's not really all that surprising. I mean, aside from all the tariff news, I think what really sent the markets down on Monday, at least, and I didn't actually have a chance to listen to this interview, but apparently Trump did an interview on Sunday in which the reporter asked him whether or not the US will enter a recession.

[00:02:58] And he pretty much stated, you know, he didn't say no, but he had mentioned that it would see a big period of transition. So he said he hates to predict things like that, but what they're doing is very big. I don't know if you had a chance to watch that, that interview, but I mean, as soon as he dodged the question about the recession, I think that's, you know, a lot of what kind of put the markets in a tailspin Monday for sure.

[00:03:25] Yeah, I mean, I didn't watch the interview, I heard about it. And when people start thinking about it, it does make sense what he's saying. There's a couple of aspects to think about, in my opinion.

[00:03:37] So the first one is, if they want to make some big changes in terms of reducing government spending, and they have said that they want to try and tackle the debt, which I think, as a side note, they will have a lot of trouble doing if they don't start looking at Social Security, at the military, I think they have started looking at that, and Medicare.

[00:04:00] Without those three big items, they'll have a very hard time to reduce the deficit as much as they say. That's the first hand. But whenever you're reducing expenses, as aggressively as they are saying, well, it means that there's less government spending.

[00:04:16] And that government spending trickled through through the economy, whether it's only 20-30% that results in actual GDP growth, it's still a decent amount that will no longer be there. There's no longer going to be that spending. There's U.S. government employees that are no longer spending as well.

[00:04:37] So you add all of these things up, and you can understand why the U.S. could be going into recession, especially if then you add in the impacts from tariffs and higher prices in the U.S. that may result in American consumers consuming less because they're facing higher prices. So all these things have ripple effects. And then obviously, if you want to do that, the way to do it, which that's what they're doing.

[00:05:03] If I'm Donald Trump, I'm just trying to think how he thinks, right? And that's probably impossible to do. Difficult, yeah. If you want to do major changes, you want to do them as quickly as possible. And if there's a recession, you want it to happen as quickly as possible because the midterms are coming in less than two years now. And he wants to make sure that the pain is felt now. And by the time the midterms arrive, there's actually a recovery starting.

[00:05:32] And then they can hope to keep control of both the Senate and the House in the U.S. So I think that's the whole game plan behind it in terms of making these moves early. If they have a bigger game plan in terms of endgame, I think that's where it gets a little more confusing. Does the U.S. want to be more the superpower of the Americas? Does the U.S. want to keep more influence around the world?

[00:05:59] Or do they really want to just go the isolationist route and just kind of zero out pretty much every other country regardless of where they are? Yeah. I mean, I think of what all you said there, like the main thing is, is like there's a lot of uncertainty. Yeah. And I mean, obviously the markets, it's no surprise that they really don't like uncertainty whatsoever.

[00:06:21] And I think the fact that, you know, I think if he, I mean, this is obviously just me speculating, but I think if he believed they could probably prevent a recession, he would probably have said that yesterday. Mm-hmm. He, you know, he kind of says a lot of things. So he just like dodged the question. And I think that scared a lot of people. And I mean, people were already scared prior to this. Uh, so I imagine, you know, they, they just heighten the fears.

[00:06:46] And again, like the, the, the constant unknowns in regards to tariffs, I mean, in regards to interest rates in the United States, I mean, in a matter of a day, you know, tariffs, they'll be on, they'll be delayed. They'll be threatened to be larger, like in a day, like you just never know. And it's causing some craziness in the markets. I mean. Order doubled on aluminum and steel, as we saw the announcement today. Which, by the way, we should say that we were recording on March 11, because by the time you hear this on the 13th or 14th.

[00:07:15] Might be completely different. It might be completely different. But yes, Ontario said it was raising a 25% export tariff, I guess, on to US, I think mostly New York State, on electricity. And as a response to that, now Trump said he has increased the tariffs from 25 to 50% on steel and aluminum. So it's, it's not looking great. Let's just be honest. Yes, yeah. It's good. There's going to be economic pain.

[00:07:41] I think nothing's 100%, but I think to me, in my mind, it's as close as 100% that Canada will be in a recession this year, if we're probably in one right now, to be honest. Yeah. And the US, I think, is highly likely as well for some of the reasons, as I said. And I think the other reason they're doing it so quickly is if the economy is turning south in the US, they can still blame that on the Biden administration. Exactly.

[00:08:09] The closer you are to the Biden administration, the more you can blame it on them versus doing this a year down the line. Then it starts getting harder to blame that on the previous administration. Yep. Definitely. I mean, the longer these linger, like the tariffs, I mean, it's, yeah, the longer, like the more guaranteed it will be. I mean, Canada is going to suffer big from this if those steel and aluminum tariffs continue.

[00:08:36] If we look to the Mag 7, they're down anywhere about like on average 9% to 12% when you look at, you know, like Google, Amazon, things like that. With the outliers being Meta, which is actually still up year to date, and NVIDIA down 21%, and Tesla, which is getting, you know, absolutely thrashed. It's down around 46%. And it was funny because I actually forgot the final Mag 7 stock. And remember, I showed you that yesterday.

[00:09:04] I Googled the Mag 7, and for some reason, like this 5X. Forgot Google? Yeah. Yeah. This 5X leveraged Mag 7 ETF showed up, and its year-to-date returns were minus 69%. So, I mean, it's just crazy. I mean, I don't know why you'd ever go 5X leverage on the Mag 7, but those funds do exist. But yeah, yesterday, largest single-day drop on the NASDAQ since 2022.

[00:09:32] And another thing which is kind of, I can't remember the last time we brought this up, but what I was reading was the yen carry trade kind of creeping back into the conversation. So, in a nutshell, that involves effectively, like, borrowing yen at very low interest rates in Japan. You then convert that to U.S. dollars and then invest in higher returning assets. I mean, for example, and I'm just kind of making up the numbers here, but you may be able to borrow some yen at 1%.

[00:09:58] You then convert it to U.S. dollars and buy treasuries at, you know, 4.5%. So, there's a bit of a spread there, but apparently, it's not treasuries. It's, you know, a ton of the money is in the Mag 7 as well, probably U.S. equities overall. And Japan increased interest rates in January, I think, to their highest level in almost two decades. And apparently, they're going to be doing so again. So, this is kind of causing a bit of unwinding of this carry trade, which I can't remember the last time this came in.

[00:10:27] It would have been, like, probably late last year. No, it was in July. Oh, okay. So, midway through the year. So, you can see it here. I'm showing the chart with the yen to USD. So, a lot of people will talk about the exchange rate between the two. They'll actually compare the U.S. dollar to yen. But just to show here, I'm comparing the Japanese yen to the U.S. dollar and you can see clearly in July. So, you have the yen starting to straighten in.

[00:10:54] And then the yen carry trade, I think, started having some issues at the end of July. So, you saw, like, a quick, you know, quick pull down. Well, actually, a quick leg up for the yen compared to the U.S. dollar. And that's what led to some, a pretty decent pullback, if I remember correctly. I think it was around 10, 15%, depending on if you were looking on the S&P 500 or NASDAQ. And then you're starting to see the same thing happen.

[00:11:20] So, ever since, I would say, mid-January, the yen has been creeping back up. So, it is a bit like what we had explained back then for the episode is where people are essentially borrowing, borrowing in the yen and converting that to U.S. dollars to invest in the U.S., sometimes in U.S. treasury bills. But it could also be, they could be doing on the MAG7, like you said, even on Bitcoin or on other types of assets.

[00:11:46] But what happens when the yen straightens and they have to cover their position, now it's costing them more money, especially if, of course, their returns have not been great. It's even more. So, it's compounded. And what makes it worse in a lot of cases, it's highly levered as well. So, you have like this double whammy where a small loss could be magnified a whole lot, depending on the amount of leverage it would be using. Yeah, that's well explained. I mean, that's dragging on it a bit. I mean, I haven't looked into it too deep.

[00:12:15] I just know that, you know, there was a couple articles that popped up that kind of said that this is unwinding a bit, which is the exact same we've seen last year. However, last year it kind of disappeared after a short duration of time. So, I mean, it'll be interesting to see what happens here. We didn't have that much uncertainty at that time last year, though. Yeah, exactly. That's the big difference. The only thing was like, I think that was about to happen was the swapping of Joe Biden for Harris. Yeah. I think that happened around that time in like early August, potentially.

[00:12:45] So, that's the most uncertainty, but nothing like we're seeing. No. I mean, if you, you know, combine this with the Trump situation and just the uncertainty about, you know, forward policy period and, you know, in terms of interest rates, things like that, you could see larger drawdowns moving forward. I mean, I can say this for the first time ever. I have some dry powder.

[00:13:11] I would say I've been investing for a very long time and I've been 100% invested almost exclusively, but I have been kind of trimming back holding cash right now because like, I don't know, you just, it's not that much. I'm still like, I think like 80, 88% equity. But I mean, I just don't really feel the need to buy anything right now, especially with what's going on and how it changes on, you know, a daily basis.

[00:13:36] I mean, if there's definitely, if you're heavily concentrated in big tech, I mean, you're definitely feeling it right now. And I mean, I see a lot of people comment on how, you know, the S&P 500 is only down 5% on the year. This is nothing, which is true. Like on the year, it's only down 5%. But I mean, if you, if you go to the last three weeks, The drawdown. Yeah. The drawdown, it's not nothing. Like it's been, it's been pretty, pretty big.

[00:14:05] I mean, we look to the NASDAQ is down 13% over three weeks. The S&P is down nine. Those are not, those are not small pullbacks in a three, three week period. And meanwhile, gold is up in the 14% in the last six months and actually closer to, yeah, I guess 14, 15%. And in the last three months, it's up 7%. So I think gold is telling us something that people are fly,

[00:14:32] flying more and more to gold as a safety asset. I've been pretty vocal. Obviously, I own gold between that and Franco Nevada. It's over 10% of my portfolio now. So take that with a grain of salt. I, you know, I am talking my book a little bit here, but I've been saying this for quite some time is just, I think it's something in my view that should be in everyone's portfolio. At least a little bit doesn't have to be a huge percentage, but just to offer some stability, because now we're seeing that the correlation,

[00:15:01] even though gold seemed to be correlated to the stock market for, you know, a few months there, you're not seeing it as much now, where gold is actually remarkably resilient in the face of this market drawdown. Yeah, definitely. I mean, I don't own any right now. I used to own Agnico and I kind of sold it at a profit way, way, way too early. So, I mean, that's just the bar of soap theory there. But yeah, I mean, the one thing that hasn't been doing very well is the digital gold.

[00:15:31] No, exactly. I like the transition. I was going to go there too. In terms of news, if you're connected to the Bitcoin space, you may have heard this. For those who aren't, you probably have seen it too. So the U.S. announced Bitcoin strategic reserve. So the executive order by President Trump to create a strategic Bitcoin reserve uses seized Bitcoin essentially through criminal and civil forfeiture. So they'll be keeping those.

[00:15:59] They will also keep other digital assets that were forfeited in criminal or civil proceedings. Specific to Bitcoin, the crypto and AI czar David Sachs also posted on Twitter that the U.S. government may also purchase additional Bitcoin provided that it is done in a budget neutral way, which a lot of people I think miss this part. Definitely through mainstream media, I think it's something that was missed a little bit.

[00:16:27] And you may be wondering like, okay, what the hell does that mean? Budget neutral way. There's a couple different, like it definitely leaves room for interpretation. So that's 100% for sure. A way that's been speculated that could be budget neutral would be to revalue the U.S. gold holdings to market value. So for those who don't know, currently the U.S. government value its gold at a price of $42 an ounce, which is obviously much lower

[00:16:57] than the $2,900 an ounce that we're seeing in terms of market price. Some people even say that there's been some suppression of gold prices on the open market for years and years, that gold's true price should be much higher than that. But that's a debate for another day. Regardless, the price that they have it on the books is much lower. And the U.S. is said to own over 8,000 tons of gold or 261 million troy ounces.

[00:17:24] And currently the U.S. gold is valued at 11 billion at that $42 an ounce. At the current market price, it would be worth more than 761 billion. It's a lot of money. But at the same time, the U.S., I haven't looked at their debt, but I think it's around 36 trillion right now. So it is more of a drop in the bucket. But what they could do is they could revalue gold.

[00:17:49] They could sell some of this to buy Bitcoin or even not have to sell any gold, but instead issue gold certificate and then turn over to the Federal Reserve based on this to essentially as a Federal Reserve to provide the U.S. government with liquidity and in exchange for those gold certificate. And then they could use part of that liquidity to buy Bitcoin. So that would be a way that it would be budget neutral with some kind of just accounting shenanigans,

[00:18:18] if you'd like to say. I mean, the revaluation, I think, makes sense to me. It should always be close to market value. But again, this could be a way to do it. Whether other countries follow suit or not, I think you'll probably see countries in the next five years that will announce once they've added Bitcoin to the reserves. You'll see some countries coming out of the woodwork because the issue is it makes no sense to announce

[00:18:46] it before you start before you start doing it because you'll essentially push up the price. You'll pay more. Yeah, you'll pay more. So in terms of game theory, if you want to make sure that you're not left out, it makes a whole lot of sense to do it. And you want to keep in mind on what potential other governments, institutions may be doing in the future. Whether Canada or not should be doing that. I think a lot of people would be opposed to it. And that's fine.

[00:19:14] The way I view it is we should look at diversifying our reserves away from U.S. treasuries. Canada does not own gold, although we own a lot of land that has gold in it. So I guess you can start mining it and it would be relatively easy for the government to acquire some gold. But I think to me, it would make a whole lot of sense just as a hedge. And in case this becomes a more widely adopted 5, 10, 15 years down the line, I think it makes

[00:19:44] sense for a central bank to have a little bit of it. Doesn't have to be a lot, but I think that would make sense because what if you don't and then it becomes one of the most in-demand assets like years down the line, then you wish you would have had done that. And if you do and it doesn't pan out, then as long as you don't do a big proportion of it, you're not hurt too badly. You just pretty much explained the exact reason why I own it. So I mean, I guess in that way, it makes sense.

[00:20:13] Didn't he do XRP as well? Well, they ended up... So who knows? The original tweet came out like a Sunday and it wasn't clear yet what the reserve would be. I think that came out like a week before it was announced. And it was originally like, yeah, XRP, Solana. But some people were speculating that he was just pumping his own bags. I've seen some people say that maybe they were just trying to set expectations to people be like,

[00:20:43] oh no, what the hell are they doing? And then just turn around and say like, oh, actually, we're just like doing it for Bitcoin. So like people are okay with it. It is good old like, you know, you close people into the room, you throw a grenade and then you get ready to negotiate type of deal. So maybe that was their intent. But it sounds like they will only hold on to assets that they own already. And the only one they could potentially buy is Bitcoin provided that it's neutral for the budget.

[00:21:10] And the assets they own would have been like criminal seizures and stuff. Yeah, exactly. Yeah, that makes sense. I guess we'll have to see since then. The price of Bitcoin has tanked. So we'll have to see what happens there. But next on. So speaking of digital gold, we'll go to a retailer that does sell some gold. So some actual gold. Yeah, Costco.

[00:21:35] Yeah, so Costco, I mean, it's been on quite the run over the last while. That's an understatement, really. It's been one of the better performing stocks in the country over the last few years. It reported one of its softer quarters in quite a while. So this is actually the first time the company missed earnings expectations since mid 2023. It was a pretty small miss. I mean, earnings came in at $4.04 when they were expecting $4.11.

[00:22:04] But the thing is, when valuations are as high as they are, I guess you could say. I mean, even a small miss is going to send it downwards, no doubt. Comparable sales. They came in at 6.8% company-wide with Canada coming in at 4.6. The US 8.3 and internationally at 1.7%. This is pretty interesting because the US is typically much lower than this. And Canada has been typically much higher than this.

[00:22:31] When we adjust fuel and foreign currency fluctuations out of the picture, they came in at 9.1% company-wide. So I think lower fuel prices and probably some big swings in just the currency overall over the last while, regardless of which country they're in. That probably kind of impacted comparable sales. They exceeded expectations pretty much in every area except Canada. They came in a little light on the Canadian side.

[00:23:01] And another interesting thing here that they had mentioned, the company signed a new agreement with its workers, which includes a $1 raise on the top end of their service clerk wages and an additional $1 raise every year through 2027. So this puts their top end wages right now at pretty much $32 an hour, which kind of surprises me. Like I knew the company paid well, but not really that well. And I think they had decent benefits too. Yeah.

[00:23:30] Like they, like $32 US dollars an hour is, uh, that's, that's a pretty good wage, like for a retail position. And I mean, I guess in a couple of years, it'll be 3390. Their bottom end wage increase 50 cents to $20 an hour. So they did mention, uh, that it would put some pressure on margins more. So that bottom end wage, probably because more people are paid that than they are the, uh, you know, $32 an hour wage.

[00:23:58] But they said ultimately, you know, the margins will be impacted, but, uh, their main goal is to kind of, you know, maintain their status as, you know, an industry leading payer overall, make it a good place to work, which I mean, it, it does matter. Uh, especially this day and age, it reported a 5.7% increase in foot traffic, but only a 1% increase in average ticket price. But again, this is kind of impacted by gas and FX average ticket would have been up 3.2%. If you factor that out.

[00:24:27] So, so still some pretty good growth membership membership income came in at 1.19 billion. That's up 7.4% year over year and renewal rates again, crazy strong, uh, 93% in North America and 90 and a half percent. And worldwide, they said inflation came in at low single digits on the quarter with fresh foods being one of the main drivers of inflation overall. And for the most part, it came from meat.

[00:24:52] I mean, they said they're seeing a shift to consumers for lower cost meat items like pork and chicken, probably because of just how expensive beef is these days. I mean, it's, uh, people are probably cutting it out on a budget. Maybe. Yeah. Ground beef is not that expensive. Yeah. It's still like, if you look at ground beef versus say ground pork, it's like, it's crazy expensive. So, I mean, I imagine they're just cutting that out just because of the costs. And again, the quarter wasn't all that bad. I mean, the margins dipped again, which likely is what led to the earnings miss.

[00:25:22] But you know, the, the conference call kind of relayed that it was, you know, there's going to be pressure on it from those wage increases and just overall, uh, inflation in the products. Yes. And the one interesting thing is the, the CFO said customers were willing to spend, but they're continuing to see trends of customers being very careful with where they're spending their dollars. And this has been the case for like the better part of what two years now, probably, which is why Costco is just soared in popularity.

[00:25:47] But they kind of said they not only expect this to continue, but they expect it to worsen, uh, just because of the overall uncertainty, uh, in regards to tariffs, in regards to, you know, the U S in terms of a recession, you know, an acceleration and inflation maybe.

[00:26:03] And I mean, overall, when you have a stock trading at 50 X expected earnings, any sort of slight miss or even, you know, potential talk of headwinds is, is probably going to, you know, cause it to take a hit, especially because Costco is kind of a company that grows in the high single digit range. And it's trading at, you know, 50 X earnings. Uh, it's down around 14% since mid, since mid February. And just a quick look at the chart that looks to be, you know, the largest drawdown since the 2022 bear market.

[00:26:33] Yeah. Yeah. I, yeah. I think, uh, that would be it. Yeah. 2022 was the largest drawdown. So around 30%. So now that 14%, it is definitely, uh, next Monday, I'll be talking with Braden, some of the stock that I have on my radar, uh, rapid firing a little bit. And Costco is one, although I, I, it would have to go down quite a bit more for me to want to start a position, but I'm thinking with all this uncertainty and the raising likelihood,

[00:27:03] that there's going to be a recession in the U S and Canada and possibly a global recession as well. I think names like this could take a bit of a beating. So we'll, we'll have to see. And I think it's a wonderful company. So one that I'd be happy to, to buy at a depressed price, even though it might be a year or two of struggles to, you know, to turn back around, uh, longer term. Yeah.

[00:27:26] And I mean, in the event of, you know, I guess the economy slowing, I think they would still see some pretty big activity. I mean, overall, I mean, I shop there definitely because, um, it's just cheaper in my eyes. I mean, it's more expensive just due to the bulk purchases, but I mean, I think overall, I end up saving. Yeah. I save a ton of money. It was actually a tweet from Finchat.

[00:27:51] This was a few weeks ago, but they said, uh, their enterprise value per warehouse stands at $507 million. So each single Costco location would be a small cap company on its own, which is pretty crazy. Yeah. Yeah. They're, uh, I mean, the business model is probably, I mean, you could argue one of the best just, you know, it's, it's pretty expensive right now. And, you know, it's just going through a bit of a drawdown. Yeah.

[00:28:17] And as much as Canadians are trying to buy Canadian right now, and I'm definitely trying more to buy products that are from Canada myself. But one thing that I haven't heard many people saying there will be cutting out is Costco. Yeah. So that's a, that's the one thing that I've not heard anyone say yet to me that they would not be shopping at Costco because it's an American company. Yeah. And I mean, I would imagine they source some, I mean, there's plenty of American companies, I guess that sell Canadian goods.

[00:28:47] I know Loblaw is, this is a bit off topic, but Loblaw is putting the, they're putting like stickers on for Canadian goods and they're also putting stickers on for tariffed goods. So you're going to know what's been hit by a tariff. Okay. You said that this morning. That's a, I mean, it's a good strategy because they've been taking a lot of heat, right? For higher prices. Yeah, exactly. For food in the last five years. So I think it's a smart move for them. And I think for people who want to buy more Canadian, that's for sure.

[00:29:13] And I was shopping at a local place that it's like just this big produce place. And I, they've always made it clear where it's coming from, but it's definitely clearer now, but you can see like product from Mexico, U S and I've been giving priority to Canada.

[00:29:31] And then Mexico after is just like, yeah, I mean, at the end of the day, look, I think the one thing that this has done that Trump has done to Canada is, you know, I, I'm not speaking for everyone, but the impression I get is you're seeing a lot more Canadian flags hanging from people's houses.

[00:29:51] You're also, I'm hearing a lot more unity, unity behind all of this, where there's this perceived common threat versus, you know, even six months ago where it felt like there was a lot more polite polarization in Canada. So definitely we'll have to see where that goes, but no, that's good. Anything else to add for Costco? Nope. So I'm going to talk here, Franco Nevada.

[00:30:20] So they released Q4 in full year. I'm going to talk mostly about the full year results just because we, I think we may have touched on Franco Nevada like once in the quarterly earnings. So I think it'll provide some good context and feel free to jump in. I know with stock trades, you, um, I think you have this on your premium side. Yeah. I've followed Franco for quite a bit. Yeah. I mean, I own it. So all the full disclosure. So I own Franco Nevada.

[00:30:46] I've was, I built a pretty decent position last summer. It's done quite well. I mean, it was, if people bought it like around December, 2023, January, 2024, they would have crushed it because then you had the Cobre Panama mine that was shut down. That was a big portion of their revenue. And obviously the stock has recovered.

[00:31:11] And then some, uh, there's a lot of different reasons, but if you understand the business model, you probably would have figured that it wasn't a good thing. But the business model of Franco Nevada makes it that they aren't overly reliant on one bet and a bet being different minds, whether it's royalty or streaming agreements. Yeah. I think, uh, yeah. Well, I think what was it? First quantum, I think. Yeah. With the Cobre. Operated the mine. I think it was like 20% of EBITDA.

[00:31:41] I could be wrong on that, but I know it was, it was a decent size, but I mean. It was a decent chunk. Yeah. It seems to have pretty much recovered all those losses. And then, uh, I, I mean, when you think about it, there's, there's still a chance that that mine could come back online, which would be, uh, which would be. But they, they've already written it off. Yeah. It's kind of funny. It's a zero. Yeah. It's, it's kind of like, uh, it's a zero issue, but it's not necessarily completely dead in the water.

[00:32:11] It's very likely dead in the water, but, um, yeah, they know it. They've done very well. All things considered. Yeah. So for those not familiar. So if you're a new listener, like I mentioned, Franco Nevada is a precious metal streamer primarily, but they also do royalty deals. So precious metal streamers. So streaming means that they provide financing for mines in exchange for the right to buy a portion of the future production at a heavily discounted price.

[00:32:39] And obviously when the price of gold, uh, a lot, I'll say gold a lot, but again, they have precious metal, but the majority of it is gold. What's good with that is they have a set price. They have very little cost associated with that.

[00:32:54] So any kind of increase in the gold prices goes, a lot of it goes to the bottom line for a company like a Franco Nevada versus company that are actually in the mining exploration and production where yes, higher gold prices is good, but they also have to compete with higher prices of production. So in an inflationary environment, they'll end up paying more.

[00:33:19] So some of them have, obviously they've all benefited from higher gold prices, but it's been mitigated for some of them because of higher costs. And the other way they make money is using royalty agreements. Now, royalties are a bit different. It will typically be based on a, the revenue produced by mine. So they'll get a percentage of that. And obviously in exchange, often it will be for an investment in the mine. So it is, that's their business model. They end up taking tons of different bets.

[00:33:48] Some may work out, some might not, but they do that. And over the long haul, more, the, the positive tends to outweigh the negative. So the, the ones that do work out will more than outweigh for the bets that did not work out. And that's, what's so great about this business model is they, they have bets all around the world. So that's, that's why I like this company. It's not capital extensive at all. And I'll, I'll touch more bit about that later.

[00:34:17] So in spite of having tough comps for 2023, when you factor in that most of 2023 had that Cobra Panama mine operating, they did quite well for this year. So they had their revenues. I think I deleted this portion, but if I remember, yeah, there you go. So revenues, I thought I deleted it.

[00:34:40] So revenues for the year were up 9%, down 9%, sorry, but up 15% if you zero out the Cobra Panama mine, which I think is useful because most of this year or last year, they did not have that in place. And for context, it did stop operating in November, 2023. So most of 2023 had that mine. And keep in mind that an ounce of gold price in USD increased more than 26% in 2024.

[00:35:07] So clearly that was a big boom here for Franco Nevada. And it was achieved also by selling 26% less of gold equivalent ounces because in big part of that shutdown. Now, gold equivalent ounces, also known as GO, is a metric used to express the value of other metals mine in gold value. So it's a really important metric, especially for a company like Franco Nevada,

[00:35:34] that most of the revenue comes from gold cells, but they also get other precious metals. They also have revenue from oil and gas. And to provide some context here, 77% of revenues came from precious metals altogether, but 64% came from gold sales alone. So it gives people an idea that gold is still the most dominant resource here, but the rest came from oil, gas, and other metals.

[00:36:01] The average price of gold sold for the years versus 2023 was up 23% to 2387 US per ounce. And for Q4 specifically, it was 2662 per ounce. And keep in mind, we've talked about it a little bit in this episode, gold is now trading at 2900 an ounce. So it should be, I mean, who knows where the price will go? I am very bullish on the price of gold. I won't hide that.

[00:36:30] And maybe it goes sideways this year. Maybe it goes down a bit. Regardless, even if it goes down to 25, 2600, they're still looking at pretty nice result because it'll still be higher than the average gold price of last year. Net income was 552 million compared to a loss from last year, but the loss was primarily due to the impairment charges because of the Cobra Panama mine.

[00:36:56] Panama mine, free cash flow was down 24% to 422 million, which makes sense, right? Because those, the impairment are non-cash items. So it's normal that they had a bit less free cash flow because of a bit less production this year or production, well, sales because of the lack of Cobra Panama. Panama, they completed 1.3 billion in acquisitions and commitment in 2024.

[00:37:22] And this will all be financed with cash on the balance sheet. And that's the other thing about Franco Nevada that I love is they have zero debt. And they're pretty committed to only financing projects with cash. And they are guiding for a total geo sold for 2025 that will increase by 7% if you're using the mid-range of their guidance. They also expect their geo for precious metal outputs to steadily increase over the next few years

[00:37:51] as new projects come online and they start getting royalties or streaming deals online with those. And they also announced a dividend increase of 5.6%, which for a dividend investor, it's their 18 consecutive year of dividend increases. Yeah. I mean, if you think of how much gold has struggled over the last two decades, like it's pretty impressive. They've been able to run it up for 18 straight years. I don't know what it is with the streaming companies. They just don't like debt.

[00:38:21] I mean, Wheaton Precious Metals has zero debt as well. Is it zero? I thought they had a little bit, but not a lot. I mean, when I look at Y charts right now, long-term debt, zero. So, I mean, they don't like carrying debt. I mean, they have a lot of, you know, both of them have quite a bit of cash to finance these deals. So, really, what's the reasoning to take out debt? I mean, debt is obviously attractive in some situations. But, I mean, the oil and gas, I think, is definitely dragging them down at this point in time.

[00:38:47] I remember looking into the quarter and there's some pretty big declines from the oil side of the business, but the precious metal side of the business is doing very well. And, I mean, they're doing exceptionally well considering, I mean, the big hit they took from Cobre Panama. So, yeah, it was a pretty good quarter. I kind of, you know, I wish I had bought this company, but it's one that I've covered for like literally six or seven years,

[00:39:15] but I've never owned. Yeah, I just love the business model. I mean, it doesn't trade very cheap. It definitely trades at a premium compared to miners, but I think they have a premium business model. What's that? There's no operating expenses, right? You think of those miners like... Exactly. The mining business is just... It's crazy. Like the input costs you have and like just the workload that goes into it.

[00:39:42] I mean, whereas these streaming companies, they pretty much just get a chunk of that with having absolutely no exposure to the operating expenses. Yeah, and it allows them to spread out their bets way more geographically. Not that the big miners don't. I know they have mines around the world, but it's also much harder to set up and operate a mine in different jurisdictions

[00:40:06] than it is to have streaming and royalty deals that give you a part of the production for streaming deals or royalty. You can really spread out your bets more so you're not as dependent. And that's a big issue with the Crowbury Panama mine that we saw is politics. Oh, yeah. Can... There are risks with miners.

[00:40:29] Like depending on where, who the government is, where it is, there's always a risk that sometimes the mine will just be shut down or nationalized by the country itself. And I think that's why it makes... That in my view is the reason why it's such a premium play. Franco-Nevada and even Wheaton. I haven't looked at them too closely in the last little while.

[00:40:52] But for these kind of businesses, and I'm showing this for our Joint TCI viewers, like you can see the breakdown between commodity, geography, asset, and deal type. So I'll go with deal type. Almost 50-50 between stream and royalty and other as a tiny portion. The assets, you can see that there's all, I guess, they're major mines. So... Yeah. And energy type. I'm not quite sure about the assets here. So I'll just move on.

[00:41:21] And the geography, you can see there's Canada and USA. It's about a third. South America, it's about a third. Central America is maybe, you know, 10-15%. And rest of the world is maybe a quarter. So you have that divided. But it's pretty well spread out. And the commodity mix, I won't go into detail because most of it, like I said earlier, a lot of it is gold. And then it's spread out between oil, gas, and other precious metals. Yeah.

[00:41:49] And I mean, in regards to the, just to the overall exposure, that's kind of why I own, when I did own Agnico, that's kind of why I owned it. I mean, they were Kirkland Lake merger as well. But they, like, the majority of their mines were either in Canada, the USA, or Australia. Whereas, like, I mean, if you look at the impact of that mine shutting down. So you look at First Quantum, when that mine got shut down, they fell 74%. Yeah.

[00:42:17] Whereas Franco fell around 22%. So you can just see the difference between, you know, a streaming company and, you know, a mining company. Because once that mine shuts down, I mean, First Quantum. It was their main, the biggest mine they had, I would think, right? Yeah. They're screwed. I mean, that's like putting it lightly. I mean, you see it. It fell 74% in a matter of a few months. Now, it still hasn't recovered either. I mean, it's still, you know, it was at $39 a share before the mine shut down.

[00:42:47] And it's at $17 now. So huge impact. Just kind of shows you the huge risk in miners versus the streaming companies. No, exactly. And that's why I own it. And again, obviously, take that with a grain of salt. I mean, I own it. So take what I say, you know, do your own due diligence. It's not, none of this is an investment advice. But it's done quite well for me. I'm happy to own it.

[00:43:11] And I'm probably going to be looking to add to that position if there's any kind of pullback. Gold has played a pretty nice place in my portfolio over the last year. And it's definitely nice to have right now because it does provide a bit of stability compared to everything else. Except cash, maybe. But cash, the problem is you have less upside, right? But you do have that dry powder. So, yeah. Yeah, cash is doing quite well in 2025 thus far, though.

[00:43:41] Cash is no longer trash. But anything else to add? I had another name on the dog, but I think we're about around the 45-minute marks, usually the sweet spot. So anything else you want to add or we'll just call it an episode? Nope, that's it. Thanks for listening, everybody. The Canadian Investor Podcast should not be construed as investment or financial advice. The hosts and guests featured may own securities or assets discussed on this podcast.

[00:44:11] Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.