Three Things (9/19)

Monday, Sep 19th 2022


A rush to royalties

“There is no friendship in trade.” - Cornelius Vanderbilt

1) A rush to royalties: Undervalued for nearly a decade, surging commodity prices are drawing investors' attention to an asset class long forgotten and overshadowed by mining operations. Companies like Glencore PLC, RIO Tinto PLC, and South32 LTD. are reaping millions of dollars in sales from these royalties. Activity in the sector is booming, with South32 recently selling a package of royalties for ~$200 million in cash and stock and Sitio Royalties and Brigham Minerals announcement to merge earlier this year. 

Titan's Takeaway: Once a sleepy and outmoded sector, royalty transactions are booming as metals - such as copper - are viewed as essential for the energy transition, while many view gold as a hedge against inflation. With the Fed likely to continue to raise rates, mining companies might continue to turn to royalty agreements to fund projects as it becomes increasingly difficult to find capital in debt or equity markets. 

2) U.S. rail strike averted: The 11th-hour deal between major freight rail operators and two large unions thwarted what would have been the first major rail strike in thirty years. The unions - the Brotherhood of Locomotive Engineers and SMART Transportation Division - secured a significant concession from the operators allowing employees to take unpaid time off work for preemptive medical care. In recent years, rail operators have cut workforces, running trains with fewer personnel, and seeing profit margins increase substantially. 

Titan's Takeaway: With 40% of long-distance goods relying on the nation's rail system, the strike would have put enormous pressure on the supply chain of numerous industries, leading to price increases for consumers already dealing with entrenched inflation. For now, the trains continue running, but the rail strike is reflective of a more significant labor action movement spreading across the country. 

3) Indian industrialist surpasses Bezos: Gautam Adani surpassed Jeff Bezos as the world's second-richest person, trailing only Tesla's Elon Musk. According to Bloomberg's Billionaires Index, Adani's wealth surged to $147 billion. Adani, the chairman of an India-based conglomerate, is involved in projects spanning green energy power and gas distribution. 

Titan's Takeaway: It really isn't kosher to champion wealth for wealth's sake, but Adani's rise to the second-richest person in the world is notable as he is the first person from Asia who has ranked so high. The wealth index, long dominated by U.S. business magnates, is becoming more globally diverse, speaking to the growth of economies, and opportunities, across the globe.

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