Royalty and streaming companies existed in the oil and gas industry for decades before they were introduced to the gold industry.
Table of Contents:
The History of Royalties and Streaming
Royalties have a very old historical basis. Originally, they were payments made to the British monarchy in exchange for the rights of miners to operate gold and silver mines on land owned by the crown. Today, such agreements still exist in the form of agreements between governments and industry that require mining operators to pay a share of the revenues deriving from
resources generated on public lands.
Royalty companies can also use a streaming model. In this case, royalty companies typically agree to provide funding for the exploration or development of an asset in exchange for a percentage of the proceeds from the deposit if it starts producing
.
Similarly, a company with a streaming model may enter into an agreement with an asset company for a share of the metal produced from a deposit in exchange for an investment. In the case of precious metal streams, a streaming company could conclude an agreement with a base metal mining operation to receive a certain amount of derivative precious metals such as gold or silver at an agreed price
.
The History of Royalty and Streaming Shares
The first royalty in the gold sector was an agreement in which Franco-Nevada made an investment of 2 million U.S. dollars in Western States Minerals’ small Goldstrike mine in 1986 for a 4 percent share of the revenues collected from the mine.
The Best Gold Royalty and Streaming Companies
Franco-Nevada (TSX:FNV, NYSE:FNV)
Market capitalization: US$27.83 billion
A pioneer in the gold royalties industry, Franco-Nevada has set a high standard. The current iteration of the company was spun off from Newmont in one of the largest IPOs of
2007.
Wheaton Precious Metals (TSX:WPM, NYSE:WPM)
Market capitalization: C$24.91 billion
Wheaton was founded in 2004 as Silver Wheaton with a focus on streaming silver. Goldcorp held a majority stake, but began to reduce it in 2006 and by 2008 it had completely divested itself. At that time, Silver Wheaton had begun to diversify into other
precious metals.
Osisko Gold Royalties (TSX:OR, NYSE:OR)
Market capitalization: C$3.45 billion
Osisko Gold Royalties was created in 2014 as part of a spin-off agreement between Osisko Mining, Yamana Gold and Agnico Eagle Mines. The deal was made in an attempt to prevent a hostile takeover of Osisko Mining and its Malartic gold mine by Goldcorp
.
Precious metal royalty companies can be a stable addition to an investment portfolio, as they can offer exposure to gold and silver without the risks associated with investing in mining or exploration activities.
However, as evidenced by the experience of Franco-Nevada and First Quantum, they can still be influenced by local politics and mining interruptions. Big players in the industry can weather the storm adequately through highly diversified portfolios and deep pockets that smaller, emerging companies don’t
have.
While royalty companies present themselves as a safe investment, it is up to the investor to do their research in an industry that is becoming increasingly saturated.
