Gauging Royalty and Streaming Companies’ Upside Potentials

Anuradha Garg - Author

Jan. 30 2019, Updated 4:10 p.m. ET

Royalty and streaming companies

Royalty and streaming mining companies’ valuation multiples (GOAU) (NUGT) are usually higher than those of their mining peers, mainly due to their distinct business models and somewhat fixed income streams.

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FNV has the highest multiple

Among the four major streaming companies we’ll discuss in this article, Franco-Nevada (FNV) has the highest forward EV-to-EBITDA (enterprise value-to-EBITDA) multiple of 23.1x. This multiple implies a premium of 28% to its peers. The company has a superior growth profile and higher diversification compared to its peers. Its mines are also geographically more diversified than those of its peers. Its strong balance sheet is another plus and supports its superior multiple.

WPM versus RGLD

Wheaton Precious Metals (WPM), which was previously known as Silver Wheaton (SLW), has a multiple of 18.4x. WPM’s valuation has expanded by 20% since mid-December due to the settlement of its tax dispute with the Canada Revenue Agency. The tax dispute has been a major overhang on the stock. WPM’s discount to Franco-Nevada is primarily the result of WPM’s lower production growth profile and lower diversification. It’s trying to diversify away from silver into gold. The future catalysts for its valuation rerating currently seem limited.

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Royal Gold (RGLD) is trading at a forward multiple of 16.5x. Its future earnings growth potential seems to be stronger than WPM’s earnings growth potential. RGLD’s streams include three new or expanding assets, which are driving analysts’ estimates for its revenue and earnings. It has significantly diversified in the past several years. Another accretive acquisition could provide a further catalyst for the stock going forward.

Sandstorm Gold (SAND) is a smaller company than its peers. It has a forward multiple of 14.4x, reflecting a 20% discount to its peers’ average multiple. While the company offers high leverage to gold prices and is financially strong, its asset concentration risk could discourage some investors. The company recently announced its acquisition of a 0.90% net smelter royalty on Lundin Gold’s mine. The deal is being seen as a positive for the stock, but it will only be fruitful in the medium to long term.


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