Precious Metal Royalties: The New Landscape

The Gold Report, we survey the heads of the companies to explain the role they see themselves playing in investment portfolios and the future of mining.

In today's challenging finance environment, some miners are looking to royalty companies to fill the funding void. Royalty sales give the junior mining company capital to explore or build a mine in exchange for a percentage of future production. It is a win-win. Investors have exposure to gold profits, but are immune to much of the risk. Juniors get the money they need to move forward. But not all royalties are the same and a number of new types have entered the market to fill specific investing and funding niches. In this special primer from

In December 2012, at the Mines and Money conference in London, Sandstorm Gold Ltd. (SSL:TSX) President and CEO Nolan Watson proclaimed, "Mining finance as you know it is dead!" He proposed that streaming could be part of the solution to a lack of bank financing now available by buying the right to purchase future profits. This works best, Watson said, when mining company and royalty company interests are aligned. While royalty companies started as value arbitrage businesses, he now sees a broader role as funding partners. Sandstorm has started to invest in equity and debt. He went on to predict that royalty space would expand from the big four royalty companies worth $27 billion ($27B) at the end of 2012 to 10 or 20 companies worth hundreds of billions of dollars in the next decade.

We asked other executives in the space if they agreed with Watson's analysis of the sector. "It's a tight point in the cycle," said Silver Wheaton Corp. (SLW:TSX; SLW:NYSE) CEO Randy Smallwood. "Now is the time, however, when streaming and royalties should play a very pivotal role." Smallwood took a long-term view. "It is important to remember that this is a cyclical industry. At some points in the cycle, exploration finance is very hard to come by, which subsequently results in a dearth of new discoveries and ultimately a supply shortage. When supply becomes tight, the funding comes back, and hence the cycle. For Silver Wheaton, these periods of tight financing create opportunity—and this is exactly what we are seeing now." (more)

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