Royalty and streaming (R&S) companies are lower risk because they don’t mine metal themselves but contract with other mines to take part of their future output. Here are the details on all 15 R&S companies and on 1 ETF with 43% exposure to R&S companies.[TM Editors' Note: This article discusses some penny stocks and/or microcaps. Such stocks are easily manipulated; do your own careful due diligence.]

What Are Royalty and Streaming Companies?

R&S companies serve as specialized financiers that help fund exploration and production projects for cash-strapped mining companies. In return, they receive royalties on whatever the project produces, or rights to a “stream,” an agreed-upon amount of gold, silver, or other precious metal.

• Under a metal streaming agreement, the streaming company provides an upfront payment to acquire the right to future deliveries of a predefined percentage of metal production of a mining operation.
  • They pay ongoing payments - a fixed sum per troy ounce of gold mined, a percentage of the prevailing metal price, or a combination of both - that are usually well below the market price of the metal.
• A royalties type arrangement usually applies to a small fraction of the mining project production (usually 1-3%) and is not connected with ongoing payments. They can have various forms, but the most common is a small percentage of the net smelter return (“NSR”). The NSR is calculated as revenues from the sale of the mined products minus transportation and refining costs.

Advantages of Royalty/Streaming Companies

• Leverage to commodity prices
• Fixed operating & cash costs ensuring consistent and ongoing strong margins
• Exploration & mine expansion upside at no additional cost
• No Capex or cost overrun exposure
• No limit to growth as execution risk does not rise with each acquisition
• No dilution
• Agreements with multiple miners spread & mitigate any potential risk
• Benefit immensely if new zones are discovered and actual production comes in higher than originally forecast
• Enjoy a favorable tax situation courtesy of the Canadian Government. As long as they reinvest their proceeds or pay it out as dividends, they are gifted with a tax rate in the neighborhood of 0-8%. That’s a huge advantage when it comes to net profit margin.