Since gold is going crazy, I’ll just follow up from my previous post on Gran Colombia Gold’s senior secured notes (TSX: GCM.NT.U).
With gold at US$1,475/Oz, and assuming a call date on May 1, 2021, the notes at a purchase price of 104 will have a 13% YTM if gold continues at that price.
Unfortunately since the notes are amortized quarterly, it is very doubtful you can fully realize this, but as a buy-to-maturity investment, it gives you an equity-like return for a first-priority bond that is linked to a hot commodity. Only real risk is that the income you are being paid with is mostly derived from a single mine in Colombia – just hope for no earthquake in the next two years. Fortunately the only earthquakes presently are financial.
My notes were purchased near par and this one is looking like to be around a 15%er on debt. Not bad. Don’t think we will be seeing this again for a long time.
See some insider picking up the notes at 105 which is somewhat reassuring.
Maybe they’ll milk the notes’ embedded option on bullion price instead of trying to find a way to retire them ASAP – where the company is better off.
Sadly by the time they get to really high premium levels (the last three years in particular) the principal balance will have been reduced to such a level that the huge percentage amount will be relatively immaterial, but every dollar counts I guess.
Still at present prices you’re looking at a decent yield if gold remains at this price. If gold heads under $1250 and they call it at the three year point it’s still roughly 7.4% which isn’t bad all things considered.
Q3-2019’s redemption resulted in a 1.26% extra payment on US$1,487.80/Oz gold price.