Royalties companies have been a frontier in helping fund exploration and production projects for hard-up mining companies. Sometimes referred to as “streaming companies”, these organizations help develop a mine property in order to start producing metals including precious metals like gold and silver.
Developing a mine property is a highly expensive and time-consuming process. There are a lot of steps that go into it: permits need to be obtained, labor forces need to be hired, and infrastructure must be built. This is where a royalty company comes in.
As the name suggests, a royalty company receives royalties from the project in return for development or operating capital. In some cases, they receive rights to “stream” a previously-determined amount of the metals produced at the mine.
Royalties and streams are often purchased from third parties by the royalty companies.
Key Insights about Gold Royalty Companies
Here are a few vital things you should know about royalty companies:
1. They have a solid, timeless business model
Royalty companies, especially the ones that deal with gold, have a well-grounded business model that works whether the price of gold is rising or falling.
Because they receive the royalties (or streams) from the top line of mine revenue, they are not exposed to increased mining costs.
New and emerging royalty companies tend to have a higher beta and a steep growth curve.
2. They put investors’ interests first
Paying the investors their dividends is the first priority of these royalty companies since it directly reflects their strength in terms of profits. They understand how important it is for investors to see growing dividends. In the last 6 years, royalty companies have shown 17% of a combined annual dividend growth rate.
3. They have the ability to manage the market fluctuations
Royalty companies are known to set fixed, lower-than-market rates for mining yield, which makes them great at managing the volatility that is intrinsic in the gold market.
In any given twelve-month period, gold prices can go up or down by 20%, and historical data supports this fact.
However, investors need to keep in mind the key factor – throughout the history, gold has shared a thriving converse relationship with real interest rates i.e., as gold prices fall, interest rates rise, and vice versa.
4. They are not dependent on debt
Gold royalty companies have been known as far better allocators of capital than crème de la crème of gold miners in the world. That is not a very surprising fact considering some of the biggest mining companies have a relatively higher debt-to-equity ratio.
On the other hand, the majority of royalty companies have much lower debt. In fact, some have no debt at all (zero debt). Their fiscal discipline and profitability are just some of the reasons most investors find gold royalty companies highly attractive.
This article contains the author's opinions. These are not investment-related recommendations. Do not consider the article as any type of commercial solicitation or an investment product offer.
About the Company
Ely Gold Royalties Inc. is a Vancouver-based emerging royalty company with development assets focused in Nevada and the Western US. Its current portfolio includes 31 Deeded Royalties and 219 Optioned Properties, and the portfolio is currently generating significant revenue.
Ely Gold’s royalty portfolio includes fully permitted mines, mines under construction, and development projects that are being permitted for mine construction.