"TGR: What royalty companies do you follow?
PL: I follow Franco-Nevada Corp. (FNV:TSX; FNV:NYSE), and my partner Shane Nagle follows Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX) and Sandstorm Gold Ltd. (SSL:TSX.V).
TGR: Sandstorm is a relatively recent entry into that space. Do you expect more royalty companies to come into the mix?
PL: There's definitely an attraction to the royalty model, which was pioneered by the founders of Franco-Nevada. There is a lot less risk, yet the shares still give you exposure to exploration upside.
Yes, there are a number of groups out there trying to create new royalty companies, but the hardest part is to attract a premium valuation. In order to attract a premium valuation, the royalty company has to have a portfolio of royalties. It's very difficult to gain enough critical mass to attract that premium valuation and truly be in a situation where one plus one equals three. Groups are trying, but it's not easy.
"TGR: Will larger royalty companies like Royal Gold and Franco-Nevada buy up some of the smaller royalty companies?
PL: I would imagine that they have reviewed their competitor's portfolios. However, a company like Franco-Nevada just finished spending $1 billion on the Cobre Panama project with very little short-term impact on its share price. We believe the asset will eventually start to improve the share price as it gets closer to generating cash flow. It's very difficult to move the needle for larger royalty companies and as such they try and focus on longer-life assets or assets they believe have exploration upside."