E Three Exposures To Small Cap Gold With Varying Risk Profiles

To summarize – miners offer a direct exposure to junior gold, but companies that are not yet producing are inherently risky. Pilot is one of the lower risk options in the space, however, based on its low cost path to production and the location of its exploration projects.

Gold Royalty Streaming

When miners need capital, they turn to gold royalty streaming companies. These companies act as a sort of financial services company for the gold industry. They offer capital for exploration, development and production costs in return for financial reward later down the line. This primarily involves either a percentage royalty on the gold produced as a result of their capital injection, or an agreement that promises the royalty streaming company access to discount gold, at a fixed price, as and when it is produced.

In the large cap space, the above mentioned Franco Nevada, and Silver Wheaton Corp. (USA) (NYSE:SLW) are the leaders in gold and silver royalty streaming respectively. As a small cap allocation, however, a company called Preston Corp (OTC:PSNP) looks to be a potentially rewarding exposure.

The company operates under the name Preston Royalty, and targets the funding of both the exploration and the production side of junior mining. It’s targeting $100 million in annual royalty revenues by 2020, and seeks to return between 50-85% on every dollar it allocates to junior mining.

The company just signed its first major agreement with a Nevada based explorer, and expects to spend between $4-5 million to gain royalty streaming access to a resource that, at current prices, holds around $130 million of gold.

Looking at risk, PSNP is not dissimilar to the ETF exposure. That is, moving forward, its risk profile should align with that of both Global X Explorers and MV Junior Gold. Why? Because the more companies it funds, the wider its diversification. As things stand, however, it’s closer to a direct miner allocation than it is an ETF, based on its single-company option. It’s market capitalization reflects this, and offers plenty of upside as the company matures.

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Alexa Cress 5 years ago Member's comment

Very Interesting that the turkey based project is on high demand.

Ross Gritner 5 years ago Member's comment

This was pretty instructive. Do you have more information about the Turkey-based project?

Sarah Angelo 5 years ago Member's comment

Interesting that the Global X allocation is the riskier of the two funds, good to know.

Danny Straus 5 years ago Member's comment

Agreed.