Four Reasons To Invest In Royalty and Streaming Companies
By March 25, 2018– Published in on
There are many ways to gain exposure to the upside potential in precious metals. One of the most secure ways to gain leverage to increasing silver and gold prices are royalty and streaming companies (R&S).
Experienced investor Frank Holmes knows how profitable an investment in R&S can be. He worked to take Franco-Nevada public, which was the first company to use this highly successful business model.
The idea behind a R&S company is simple. When a miner is still in its pre-production stage, or when a promising mine is having a hard time raising capitol from a trying market, R&S companies enter the picture, and offer capital today for production royalties down the road.
This arrangement is a big win for both parties, and when it comes to a stable business model, it is hard to find one in the world of mining that can compete with R&S.
There are lots of good reasons to add a R&S company to your precious metals portfolio.
One look at the performance of a company like Wheaton Precious Metals will give you some idea of how this business model creates solid returns, but there are many other good R&S companies out there to choose from!
ONE High Barrier to Entry
As Frank Holmes points out in this recent panel discussion from the Vancouver Resources Investment Conference, Warren Buffet likes to buy into companies that edge out the competition early on.
Because R&S companies gain exposure to future mine production when the mining company doesn't have easy access to other forms of fresh capital, the R&S company gains an asset that will be nearly impossible for another company to buy.
Once the mine is producing metal, or they pull through their rough patch, their access to new capital will be much easier, and they won't be willing to make another deal on the same terms that the R&S company received.
This all but removes competition from the business model of a R&S company, which makes them a great way for investors to buy reliable exposure to metals.
TWO Strong in Market Downturns
While most traders want volatility, investors want some amount of stability in their investments.
From this perspective the R&S business model is very attractive from to investors, because unlike a miner whose profits are highly leveraged to the price of the underlying commodity, an R&S is creating revenue if the mine is running.
This makes them a more solid choice in the precious metals sector, and also very resilient to both downturns in the equity market, and rough times for the underlying commodities their royalty and streaming agreements create.
THREE Steady Income
As mentioned in #2, a R&S company brings in an income under most market conditions.
The only real threat to their business model is a shutdown of a mine, and because most R&S companies have multiple agreements across the mining sector, they aren't likely to experience a sudden drop in revenue.
This aspect of their business model also makes their dividends secure, and in the world of mining, that is a major advantage they bring to the table.
FOUR Incredible ROI
Did you know that most of the major R&S companies have higher revenue per employee than investment banks like Goldman Sachs?
Because they employee the best of the best, and only take on royalty and streaming agreements that have to potential for huge returns over time, they can create incredible efficency. This doesn't make them an exciting sector to watch, but for people with a long time horizon, they can make a great addition to a portfolio!
If you want to learn more about the advantages that R&S companies create for their investors, the upcoming International Mining Investment Conference is the perfect place to be.
Frank Holmes will be speaking at the conference, which will be happening on May 15-16 at the Vancouver Convention Center East, right on the waterfront in Vancouver, B.C.
You can register anytime before the event that you like, and secure your credentials for free. Mr. Holmes is only one of the distinguished speakers that will be in attendance, and given the host of talented people that will be there, this year's International Mining Investment Conference is an incredible opportunity for any investor.