Prime Time for Royalties

Friday File look at some passive precious metals stocks

The teaser ads are piling up again for companies that offer some sort of royalty interest in precious metals mining operations — and I think there’s a good reason for that.

The royalty companies and streaming companies are ready to do deals and many of them are flush with cash, and junior miners are, after the recent downturn in gold and silver prices and the clobbering that most mining stocks have gotten, more ready now (or even desperate) to do this kind of financing.

That has swung the balance of power back a bit toward the financiers, which is how I like it — when everyone loves gold and silver and wants to get rich on the latest discovery, it’s relatively easy for junior miners to raise equity capital by selling stock at inflated prices … when those share prices fall, and when people are avoiding risky stocks, companies that are on the verge of doing something really expensive that requires up-front investment (like building a mine or expanding production) have to look outside the stock market for reasonable funding options. That’s when the royalty, streaming and specialty lending companies come in and push tougher terms — what most of these companies essentially do is pay money to miners up front in exchange for a long-tail payoff in the form of a portion of the gold and silver.

There are a half-dozen or so reasonably sized royalty and streaming companies — if you’ve been with us for more than a few weeks, you probably know that my favorite is still Sandstorm Gold (SSL.V, SNDXF on the pinks), which continues to be one of my largest personal holdings, but there are also a couple other relatively small public firms in this space and a few huge ones, notably Royal Gold (RGLD) and Franco-Nevada (FNV) with a gold focus, and, dwarfing them all, Silver Wheaton (SLW). I’ve seen quite a few ads in recent weeks about these, and I mentioned Silver Wheaton as a more conservative silver pick when covering Greg McCoach’s latest micro silver stock earlier this week, so I thought I’d blather on about this topic for you for a spell today.

Recent teasing has been mostly focused on gold, not silver, and largely, from my scanning of emails, on Royal Gold and Sandstorm Gold — Ian Wyatt’s latest tease for the “get paid in gold” company that ...

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