How To Invest in Gold Royalty Companies

Let’s face it – mining is one of the worst business models in the world.

And we won’t be the first one to tell you that.

This is a sentiment shared by some of the greatest fund managers in the world.

Before drilling or production even starts, you have to first pay geologists to scour the land in search of prospective gold deposits. Then, mining companies must deal with massive building, infrastructure, and permit expenses – all of which can cost a fortune alone. You may even have to rent or buy chunks of land too… often in dangerous countries.

And even after all of that, the risks are endless…

Every mine may be challenged by:

• Environmental issues

• Strikes

• Shifting political regimes

• Engineering problems

• Market capitulation

• Wasted drilling campaigns

...You get the point.

But there is one sector of mining stocks that completely avoids most of these pitfalls and detrimental headwinds. These stocks have a history of outperforming most gold producers, regardless of their size, even in the steepest bear and bull markets.

They’re called royalty companies.

And right now, these stocks could provide enormous profits for gold investors over the next decade.

Let us explain…

The key to royalty companies is that they do NOT operate mines. They don’t put their boots on the ground, they don’t have thousands of employees… and most importantly, they are not riddled with sky-high or unexpected expenses that all miners face.

Instead, these are simply financing companies. They exist to bankroll mining projects. Think of them as startup accelerators or incubators. These companies make upfront payments to mining companies that need funding. In return, the royalty companies get a piece of the production income once operations launch. Better yet, most royalty contracts cover the entire lifetime of the mine. That means these companies will still get paid years after gold production comes into fruition.

Unlike mining in general, royalty companies have one of the best business models in the world.

If anything unexpected happens to the mine, it’s the mining company that has to deal with the associated costs – not the royalty financing company.

Aside from the initial upfront payment, the downside risk for royalty firms is next to nothing. No exploration costs, no capital expense overruns, no fixed costs… yet they reap the benefits of favorable commodity prices and production rates and even new drilling campaigns.

Additionally, these companies are vastly diversified. Most premier royalty businesses have their cards stacked among several projects, which reduces project-specific risk. If something goes AWOL on one asset, there are still plenty of growth opportunities from their other assets.

Gold Royalties in Action

To highlight the power of gold royalty companies, let’s take a look at a successful example.

The modern concept of royalty companies was first introduced in 1986 by the legendary Pierre Lassonde and Seymour Schulich of Franco Nevada (which we will further discuss below).

In 1986, Franco Nevada Mining, looking to copy the success of the royalty model in the oil & gas industry, made a significant move by providing an upfront payment of $2 million for the royalties of the Goldstrike Mine in Nevada. At the time, the mine was estimated to have around 500,000 ounces of gold in the ground.

By 2020, the mine (which has since been purchased by Barrick Gold) has generated close to $1 billion in royalty payments to Franco Nevada, representing a nearly 50,000% return on investment, with potential for more.

Top Royalty Stocks

With the anticipation of another gold bull market, the following gold royalty companies have been quietly building up their portfolios.

Franco-Nevada (FNV)

Franco-Nevada has a portfolio of over 405 assets around the world. The portfolio includes royalties on some of the most famous mines on Earth – including Tasiast, Detour Lake, Macassa, Island Gold, and the Cobre Panama stream. When the rest of the gold industry is hurting, Franco-Nevada strikes – by investing in amazing mines at great prices.

Reasons to Buy: Franco-Nevada was the first publicly traded royalty company and has consistently proven to be one of the best-managed companies in the entire gold market. Run by the legendary Pierre Lassonde, it currently generates one of the highest revenue per employee rates in the world.

If you are looking for a capital-efficient company with an amazing track record, look no further.

Wheaton Precious Metals (WPM)

Wheaton Precious Metals is the largest precious-metals streaming company in the world. Previously named Silver Wheaton, the company dealt mostly with silver. That changed in 2017, after a couple of large acquisitions. Wheaton’s streams now consist of a 50/50 ratio of gold and silver.

Reasons to Buy: Wheaton’s business model is similar to other royalty companies, but with a twist.

When a base metal miner (think, copper, zinc or iron) extracts ore from it’s mine, it usually contains other minerals – including silver and gold. The base metal miner doesn't want the hassle of smelting and dealing with the precious metals from it’s mine, so Wheaton will make a deal upfront for the silver or gold (usually at a fraction of the spot price).

With an impressive portfolio and quality long-term purchase agreements, any increase in precious-metal prices goes right to its bottom line.

Royal Gold (RGLD)

Incorporated in 1981 as an oil and gas exploration and production company, Royal Gold has over the years transformed itself into on of the leading precious metals royalty companies. Today, Royal Gold is a leading precious metals streaming and royalty company, involved in some of the world’s best mines.

Reasons to Buy: Royal Gold currently has royalty and stream interests on more than 180 properties in 17 countries. The company is also well diversified among the different stages in the life cycle of a mine

Sandstorm Gold (SAND)

Sandstorm Gold is a medium-sized royalty company that holds a portfolio of 230 royalties on mines around the world.

Reasons to Buy: Management. Sandstorm was co-founded in 2008 by two senior executives from the company we just covered above, Wheaton Precious Metals, and is still run by them. It’s exactly what you’d want to see in a portfolio diversifying gold stock – management teams with a big rolodex of contacts and a long track record of success.

Despite the ups and downs of gold since 2008, Sandstorm has the potential to join the ranks of the largest and well-diversified royalty companies in the world. What else? A big payoff is expected to hit their balance sheet in the next few years when their highly anticipated Hod Maden (gold & copper) mine is planned to come online.

Triple Flag Precious Metals (TFPM)

Triple Flag Precious Metals is an emerging gold royalty and streaming company. They’re the new guys on the block after merging with Maverix Metals in early 2023. Triple Flag’s business model provides investors with lower risk exposure to gold with upside exploration optionality through a portfolio of over 200 royalties and streams across 18 countries.

Reasons to Buy: With the company’s merger with Maverix Metals in early 2023, TFPM is now in the top five largest precious metals royalty companies on the market.. The company has continued to turn heads with a well-led management team, conservative investments, and frequent growth.

Osisko Gold Royalties (OR)

Osisko is an intermediate precious metal royalty company with a North American-focused portfolio of over 140 royalties, streams, and precious metal offtakes.

Reasons to Buy: Osisko is a stock worth exploring simply due to the massive potential in regards to their 100% owned Windfall gold project. The Windfall gold deposit is currently one of the highest-grade resource-stage gold projects in Canada and has rare, world-class scalability.

Mining analysts believe Windfall could be in production by 2024 and will produce roughly 300,000 ounces of gold per year over a mine life of about 18 years. Furthermore, Osisko has a flagship royalty on Canadian Malartic, Canada’s largest gold mine.