RE: RE: Rob Mc Ewen talking about royalty and stre Interesting that he is so negative on it; doesn't MUX have a stream/royalty deal with someone?
It is certainly true that companies can get themselves into trouble this way (on both sides of the table). You really have to make sure that you don't end up with a situation where the company doesn't have substantial incentive to maximize production. If we buy 20% at 400, and the actual operating cost is closer to 1000, then at 1600/oz we're collecting 20% * (1600-400)/(1600-1000) = 40% of the operating profit. If spot doubles, but operating costs go to 2000, we're collecting 20% * (3200-400)/(3200-2000) or nearly half the operating profit. If expenses grow at a higher rate, we eat up even more of the profitability of the mine.
We know this, of course; the leverage is one of the reasons we invest in this model. I think the buyback provision is one of the ways this is defused a bit, and I'm sure, in light of his recent presentation, that Nolan and co are extremely sensitive to the need to keep interests aligned. Striking the balance between "we have price leverage per se" and "we have price leverage because more resource will produced when price goes up" is important.
One other comment -- this is my first post on stockhouse, after lurking and learning from so many of you on this and other boards. Thank you all for the ongoing (and entertaining) education!