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 sm