Category: Equity

Royal Canadian Mint ETR premiums

In Canada you can directly invest in gold by buying (TSX: MNT), which currently represents 0.0105808 Troy ounces per unit (this goes down slowly to reflect the 0.35% MER).

Normally the trading price of this product is close to the net asset value, but presently there is a huge premium involved.

This second as this is being written, the NAV is $24.81 while the market value is $26.99.

This is an 8.8% premium above NAV, which is very expensive and more so than it has typically been, especially during and after the CoronaCrisis.

You can redeem for physical with 10,000 ETRs, which would be good for 105.808 troy ounces, or nearly 3.3 kilograms.

The redemption fee for this (assuming you receive 3 kilobars, and the remainder in gold maple leaf coins) is about US$2,500, plus shipping and insurance. This is roughly 1.3% of the whole purchase price.

One would intuitively think that the NAV premium would be restricted somewhat to the cost of delivery.

Because you can’t just deliver physical gold to MNT, the only method to equalize this arbitrage is for the Royal Mint to sell units of MNT to the public at a premium to NAV (skimming the difference).

Torstar Acquisition

In January, which felt like a very long time ago, I wrote about Torstar. In fact, at one point I owned shares in the company, but during the CoronaCrisis, I dumped my small stake (which to my mystification, was one of the few companies to receive a bid at the time) simply because the rest of the stock market was on sale.

What is ironic, however, is that a couple business days ago, I put in an order to buy in the low 30’s, but never got hit.

A couple trading days ago (Monday, May 25, 2020), the stock rocketed up from about 33 cents up to 48 cents on about 150,000 shares of volume (this is really unusual for Torstar stock, which is very slow moving):

On first glance, this appears like blatant insider trading. How could it not?

Today (May 26, 2020), the stock buying tapered and some people clearly not in the know dumped stock:

And finally, Tuesday evening, the announcement that NordStar will be buying Torstar for 63 cents per share, cash. NordStar is run by a prominent former Fairfax executive (that still sits on the board). Fairfax already owns about 40% of the non-voting Class B shares and got the consent of the Class A owners, who cashed out at a price that is magnitudes different than how things were a decade ago.

I am guessing Fairfax’s involvement will be acquiring some media clout for a relatively inexpensive price. At 63 cents per share, NordStar is paying $51 million (minus FFH’s ownership, $33 million) in exchange for a company with $69 million in unrestricted cash on their balance sheet, with relatively little on the liability side on their balance sheet. The big black eye is the 56% equity investment in VerticalScope, which is barely generating cash but has a $150 million debt on their balance sheet (I suspect when the ownership changes, that NordStar will be jettisoning this anchor in short order). Operationally speaking, however, I suspect advertising revenues are going to continue to crash and it will be interesting to see how NordStar can re-purpose this investment.

Finally, it isn’t quite clear how much influence Fairfax will have in this, but something makes me suspect there is more behind the scenes.

While I am slightly unhappy that I did not get some Torstar shares in the low 30’s (I was rather late to pulling the trigger), the number of shares I was looking to purchase would not have been material even if I had received an execution on my order. Basically I was caught sleeping and this was another instance of a company that had pulled away from my limit orders.

At least I can take this thing off my watchlist now.

Marijuana stocks

Why anybody continues to invest in this sector is beyond me. But for whatever reason, over the past 7 trading days, Canopy Growth has skyrocketed – yes, this is over a 50% surge up:

I’m not short the stock, but those that are are obviously hurting. It is a heavily shorted stock, with about 40 million shares short on the US side and 11 million on the Canadian side, with a cost of borrow of around 25% (assuming you can actually get shares to borrow).

While I’m not the type to gamble on these stocks, my gut instinct says that it might Tilray these short sellers before crashing again. In March 2019, they reported CAD$4.5 billion in cash and marketable securities on the balance sheet, and at the end of December 2019, it was about C$2.3 billion, an impressive cash burn trajectory. While Constellation Brands did exercise C$245 million in warrants on May 1st, I’m sure Canopy would love another opportunity to raise cash again!

I’m guessing all of these Robinhood and Wealthsimple investors have been happily buying shares. Who knows, they might have the last high!

Cash parking – why bother?

A year ago, if you had spare cash in the brokerage account, it made sense to dump it into a cash-parking ETF such as (TSX: PSA) and get your 200 basis points of yield while you waited to make a decision on your capital.

You can see the effect of the decrease in interest rates from the Bank of Canada:

Now cash in this instrument yields 65 basis points, minus a 15 basis point MER, leaving a net of 0.50%. Might as well keep it in zero yielding cash instead of bothering with the hassle.

I found it amazing to know that despite the decrease in interest rates to nearly nothing, that PSA’s assets under management is still $2.2 billion! The managers are being paid $3.3 million to administer a savings account.

I note that one of their competitors, (TSX: HSAV) had to decrease its management expense ratio from 18bps to 8bps. Its gross yield pre-MER is 75bps on a $313 million net asset value.

Might as well keep it in liquid cash at this point. Who knows if the market maker will decide to have a heart attack and you can only liquidate with a 25 cent spread at the worst moment?

Another clothing retailer bites the dust

The fixed costs of leasing for most of these companies is way too high, so CCAA is the only real escape hatch.

Reitmans (TSX: RET.A) finally pulled the trigger on CCAA today, probably to get out of their onerous leases.

My only comment about them is that their balance sheet is still in reasonably decent shape (they have a lot of cash, relatively speaking – $89 million at the beginning of February 2020) and little in the way of debt other than their lease obligations.

Finally, in what had to be the worst-timed substantial issuer bid in stock market history, on July 29, 2019 they repurchased $43.4 million in stock at $3 a piece.  I’ll leave it to the readers to determine the rate of return on this after less than 10 months.