The world of precious metals royalties has been quietly changing a bit, with new entrants and some rising interest in gold as inflation concerns have heated up this year, so there are a few updates to share… but first…

If you don’t know what royalties are, they’re best thought of as a fixed perpetual share of returns from some asset (a song, a gold mine, a drug patent), the buyer of the royalty is the financier who provides capital in exchange for the royalty right, the seller usually uses that capital to develop the property (pharmaceutical R&D work, mine construction, etc.). They are hugely appealing for investors because they offer two ways to provide outsize returns: You buy a royalty based on some projection of how much of that asset will be sold and at what price over the planned future, perhaps five or ten years… but then you can get double leverage to whatever the asset is — you get upside beyond that if either the market price of the asset increases in value (like gold goes up in price, or a drug price can be increased), or the total production is higher for the life of the asset (if the gold mine expands beyond the originally expected eight years, for example, as most of them do, or the drug is approved for new diseases). For the best royalties, you get both — prices rise with inflation, or higher, and the asset turns out to have a much wider market (or reserves that they don’t find until they’re incentivized to look for them, in the case of a mine), double leverage.

There’s risk in all kinds of royalties, but most of the risk is in overpaying for them — once you’ve bought a royalty you don’t have to contribute any more to mine development, or pay for lab work, or suck up the increased operating costs from inflation, or whatever… your bet is in, it’s fixed, and you just wait for checks. The secondary risk is that royalty owners are passive… if a mine decides it can’t be profitable and has to shut down and wait for better prices, the royalty owner generally has no real say in the matter. Royalty companies have sprung up over the decades as a way to build diversified portfolios of royalty interests, and they usually look pretty expensive most of ...