4 Reasons Why We Believe in Royalty Companies

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  There are a number of ways to invest in the gold space – physical gold bullion, jewelry, coins, gold-backed investment products, gold stocks and more. We believe one of the best ways to gain exposure to the metal is through precious metal royalty and streaming companies. Scroll through this slideshow for four reasons why we believe in this specialized business model.

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  What Are Royalty Companies?
  A precious metal royalty company serves as a specialized financier that helps fund exploration and production projects for cash-strapped mining companies. In return, it receives royalties on whatever the project produces, or rights to a “stream”, an agreed-upon amount of gold, silver or other precious metal. We consider these companies to be the “smart money” of the gold space for a number of reasons.

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  Reason #1
  Our top reason for believing in royalty companies is because they have a robust business model that allows them to potentially generate revenue when the price of gold is both rising and falling. The price of gold and precious metals can be highly volatile, which is why royalty companies set fixed prices for mining output. In some cases, the royalty names have outperformed both the price of gold and gold miners.

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  Reason #2
  Since royalty companies aren’t operating mines themselves, they aren’t responsible for huge infrastructure and operating costs. They’ve also taken on very little debt relative to producers, making them better allocators of capital.

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  Reason #3
  Royalty companies tend to have high revenue per employee, again, because they don’t incur the costs of running the mines themselves. In fact, they have some of the highest revenues per employee of any type of company in the world. For example, Wheaton Precious Metals, the largest royalty name with just 35 employees, had $21 million revenue per employee in the second quarter of 2019.

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  Reason #4
  Miners are highly dependent on their own projects to generate revenue. On the other hand, royalty companies hold highly diversified portfolios of mines and other assets, helping to mitigate concentration risk in the event that one of the properties stops producing precious metals. By owning shares in a royalty company, an investor has exposure to several other companies through royalties and streams of metals. Some royalty companies even own streams on oil deposits.

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  Our Favorite Royalty Names
  There are many royalty companies, but we have three favorites: Franco-Nevada Corp., Wheaton Precious Metals Corp. and Royal Gold Inc. Franco-Nevada spun out Newmont Mining in 2007, and in the decade since its IPO in 2008, it has outperformed both gold bullion and gold miners. Royal Gold has also outperformed the price of gold for the three years ended September 30, 2019. U.S. Global Investors was one of Wheaton Precious Metals’ seed investors in 2004, when it was then known as Silver Wheaton, and is now the largest royalty company.

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  Please consider carefully a fund’s investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Foreside Fund Services, LLC, Distributor. U.S. Global Investors is the investment adviser.

  Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are subject to substantial price fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. We suggest investing no more than 5% to 10% of your portfolio in these sectors.

  All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

  Fund portfolios are actively managed, and holdings may change daily. Holdings are reported as of the most recent quarter-end. Holdings in the Gold and Precious Metals Fund and World Precious Minerals Fund as a percentage of net assets as of 9/30/2019: Wheaton Precious Metals Corp. (3.82% in Gold and Precious Metals Fund, 0.00% in World Precious Minerals Fund), Royal Gold Inc (0.00% in Gold and Precious Metals Fund, 0.00% in World Precious Minerals Fund), Franco-Nevada Corp (0.00% in Gold and Precious Metals Fund, 0.00% in World Precious Minerals Fund).