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Why Royalty and Streaming Companies Outperformed Peers in 2017

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Nov. 20 2020, Updated 2:11 p.m. ET

Royalty and streaming companies

Royalty and streaming companies are quite different than other precious metal miners (RING) in terms of business model. They do not own mines like other precious metal companies but make upfront payments to gain a right to a fixed percentage of future silver or gold mine production. Additional payments are then made to the mine owners as they deliver precious metals.

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Stock performance and gold prices

As a group, these companies have significantly outperformed gold prices. While gold prices have risen 16.3% YTD (year-to-date) as of September 5, 2017, royalty and streaming companies have gained 39.4% on average.

While these companies are usually a defensive play on precious metals due to their stable income streams and lower variable costs, in 2017, they’ve outperformed gold prices.

Royalty companies’ prospects

Royal Gold (RGLD) has outperformed its peers in the royalty space with a YTD gain of 48.8%. Franco-Nevada (FNV) comes in at a close second with a gain of 40.6%.

Royal Gold has significantly expanded in the last one to two years, mainly through acquisitions. Franco-Nevada also has a robust growth profile, and its balance sheet is also strong.

Wheaton Precious Metals (SLW) has underperformed the royalty and streaming space, rising only 8.4% YTD, compared with the sector average of ~39%. Its production growth is likely a concern for investors. Also, its balance sheet lacks the fire power for future accretive acquisitions, which could limit its future upside.

Sandstorm Gold (SAND) has gained 25.4% YTD but is a smaller company with higher leverage to precious metal prices. It also faces risks due to its limited diversification.

The Direxion Daily Junior Gold Miners Index Bull 3x Shares (JNUG) is an alternative way for investors to gain exposure to increasing gold prices. Notably, since JNUG is a leveraged ETF, it comes with significant risks, so investors should invest according to their risk appetites.

Now let’s explore the performance of silver equities.

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