Gold & Silver Royalty/Streaming Companies Outperformed Miners In October - munKNEE.com
Monday , 23 November 2020

Gold & Silver Royalty/Streaming Companies Outperformed Miners In October

  • What are precious metals royalty and streaming companies?
  • How do they work?
  • What are their advantages?
  • What are their names?
  • How have they performed compared to each other?
  • How have they performed compared to that of gold, silver, and the mining segment as a whole?

The following are excerpts from an excellent article by Peter Arendas that has been slightly edited ([ ]) and abridged (…) where necessary to ensure a fast and easy read.

“Precious metals royalty and streaming companies represent a very interesting sub-industry of the precious metals mining industry.

  • They provide some leverage to the growing metals prices, similar to the typical mining companies; however, they are less risky in comparison to them.
  • Their incomes are derived from royalty and streaming agreements.
    • 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 that are usually well below the market price of the metal. They can be set as a fixed sum (e.g., $300/toz gold) or as a percentage (e.g., 20% of the prevailing gold price), or a combination of both (e.g., the lower of a) $300/toz gold and b) 20% of the prevailing gold price).
    • The royalties usually apply to a small fraction of the mining project production (usually 1-3%), and they are 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.

To better track the overall performance of the whole sub-industry, I created a capitalization-weighted index (the Precious Metals Royalty and Streaming Index) consisting of 15 companies as shown below…

Source: own processing

…In October, no major changes occurred in the ranking of the companies by market capitalization (table above). EMX Royalty Corporation (EMX) outgrew Abitibi Royalties (OTC:ATBYF) but the remaining companies maintained their positions…

October wasn’t good for the precious metals royalty and streaming industry as illustrated by the table below. Only 3 of the 15 companies recorded positive share price performance. The remaining 12 companies ended the month in red numbers.

Source: own processing
[Below is a graph showing how the performance of the index compares with that of gold, silver and some mining company indices:]
Source: own processing
  • The gold and silver prices remained almost flat in October.
  • The share price of SPDR Gold Trust ETF (GLD) declined by 0.52%.
  • Silver did better and the iShares Silver Trust ETF (SLV) grew by 1.62%.
  • The precious metals miners did worse, as the negative stock market sentiment drove their share prices down during the second half of the month..
    • The share price of the VanEck Vectors Gold Miners ETF (GDX) declined by 4.26% and
    • the share price of the VanEck Vectors Junior Gold Miners ETF (GDXJ) declined by 3.88%.
  • The precious metals royalty and streaming sector recorded negative returns with both R&S indices declining for the third straight month
    • The Precious Metals R&S Index declined by 3.87%.
    • The Precious Metals R&S Equally Weighted Index declined by 6.86%.

… Franko-Nevada reported its Q3 2020 financial results in October but the majority of big names will be reporting (or have already reported) in November. continue reading….

The November Outlook

Although October wasn’t good for the precious metals royalty and streaming companies – the metals prices remained more or less stagnant and the broader stock market was weak – November seems to be shaping up much more positively. Following the U.S. presidential elections, the gold and silver prices jumped up and also the broader stock market experienced a bull run. The positive sentiment also affected the precious metals royalty and streaming companies. If the current trends prevail, the final November results will be very good.

[For an enlightening insight into the operations of the above mentioned royalty and streaming companies during their last few quarters please refer to Peter Arendas’ original article “Precious Metals Royalty And Streaming Companies: The October Report” as it appeared on November 9th on SeekingAlpha.com.]
Editor’s Note:  The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.  Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.

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