Just a quick introduction to this article. I know that gold and silver prices are racing higher as this post is published.
Despite the coincidence, this is not my motivation. This post is actually a follow-up post from my first series publication (US pushes China towards world dominance Series Part 5) in 🐯 app. Do check the series out if you have not read them.
Introduction
Solid producing gold and silver miners are still leverage plays on gold and silver prices movement. Most of the time, gold and silver prices rises when USD drop. When gold or silver prices rise, the market value of good gold or silver miners will rise even more. However , not all miners are created equally.
If one is concern about the risks from even the strongest miners, there is this group of royalty or streaming miners that one can consider as part of the portfolio. Quote from Google indicates that "Royalty refers to a contractual payment by a person for the use of assets belonging to another person. The payment includes royalty for the use of intangible assets, such as copyrights, trademarks, or franchise model agreements. Royalty is also paid for the use of natural resources, such as mining leases."
Royalty miners do not really perform the mining act. They are actually financial companies that make initial payments to miners that need (upfront) cash to kick-start or run their production. Miners take most of the risk throughout the mining phases, while royalty companies take a cut in terms of percentage resource outputs as payment throughout a mine's life (depends on contract agreement, of course - the percentage changes with mine's life).
You might ask, "why would a miner do this kind of deal?" To answer this, we need to know that most of the time, a mine comprises of more than one resource type. A mine could contain a mixture of resources, for example a gold-silver mix or gold found within a copper mine. A particular miner core focus might be in copper, so a royalty company might strike a streaming deal with the miner to fund part of its production by taking all its produced gold throughout the mine's life (in other word, leaving the copper for the miner).
These partnerships are win-win. The miners get reliable, hassle-free funding to cover part of the exploration and production cost, while the royalty or streaming miners get all / part of the mining output (product) at an agreed lower market price.
The top 3 gold/silver royalty miners are obviously $Royal(RGLD)$, $Wheaton Precious Metals(WPM)$, $Franco-Nevada(FNV)$, with WPM the founding royalty miner (previously known as Silver Wheaton) and FNV being arguably the largest. Other good royalty miners outside the top 3 include $Sandstorm Gold Ltd(SAND)$ and $Osisko Gold Royalties(OR)$.
Interestingly, OR only converts to a royalty company in recent years when it sold off some of its mines for some royalty fees (but it has not fully converted, which gives it future divestment potential).
One thing in common for these royalty companies is their executives are all highly experienced in the field. This trait is essential in risk assessment before completing a royalty deal with a targeted miner. Another essential trait to look out for a good royalty company is its low operating cost. Normally, a royalty miner does not require a huge manpower to run, unlike the normal miners. Most employees are normally only involved in administrative roles. This helps to keep the cost down and margins up.
Last point to note, before you decide to participate in any royalty miners, check out their dividends history (might not have one, for example OR mentioned here is too young to have one). Read its recent financial statements to understand the trajectory of their streams (projections), their price to net assets value (NPV). I especially like to compare their yields and dividends growth rate, since I am a long term investor.
Finally, let this article not be the end of your understanding of Royalty miners, rather the start of further research and perhaps the beginning of a new journey to take a new position in this reliable group of miners.
If you like the article, please share it with others. Thank you for reading.
@TigerStars, please help to distribute the article as well so that more people can understand this alternate option available for gold and silver investment.
For the sake of transparency, I am long WPM, SAND, OR.
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