Mining royalty companies have proven to be excellent investments this year up an average of 8.6% (24). The performance has been even better from precious metal-focused mining royalty companies, with these 12 companies up an average of 14.8%.
Recently seven leading investment banks have increased their upper-range forecasts for the price of gold to an average of US$3,121/oz and some analysts suggest it could go as high as US$3,500/oz.
In this rising gold price market, precious metal-focused royalty companies offer an attractive opportunity to gain exposure to the gold market without directly investing in gold miners.
What are Mining Royalties?
A royalty is a guaranteed percentage of a mine’s revenue or cash flow.
The owner of the royalty provides upfront finance to develop or expand a mine and in return receives regular cash payments typically over the life of the operation. Royalties can also be created as a consideration for the sale of a mineral property, or as a backstop to a dilution clause in a joint venture arrangement.
Why are they Attractive Investments?
What makes royalties an attractive investment is that the owner of the royalty has no ongoing financial liability to the mine beyond that originally outlaid, but it still receives positive cash flow from the operation. As a result, mining royalties are an attractive asset class where large cash flow-generating assets can be managed by a small low-cost team, resulting in a very high-margin business that can return significant capital to shareholders through dividends.
What Types of Mining Royalty Companies Exist?
Mining royalties can be focused on one particular commodity such as precious metals, uranium, iron ore or lithium, or they can be diversified across a range of bulk metals, base metals, energy metals and precious metals.
Broadly royalty companies can be separated into four groups, based on market valuation:
- Majors are valued at between US$31 billion and US$27 billion
- Large-tier royalty companies are valued at between US$1 billion and US$10 billion
- Mid-tier royalty companies are valued at less than US$1 billion but more than US$100 million
- Junior royalty companies are valued at less than US$100m
Majors
Since the start of the year, the two major royalty companies, Wheaton Precious Metals Corp. (WPM.NYSE) and Franco-Nevada Corporation* (FNV.NYSE) have seen their share prices rise by 22.2% and 19.7%, respectively (Figure 1).
Wheaton recently announced that its 2024 production of over 633,000 gold equivalent ounces (GEOs), exceeding the upper end of its guidance range of 620,000 GEOs. The Company issued production guidance of 600,000 to 670,000 GEOs for 2025 growing by 40% to 870,000 GEOs by 2029.
Meanwhile, Franco increased its quarterly dividend to US$0.38 per share a 5.56% increase from the previous dividend and is the 18th consecutive annual dividend increase from the company. It also purchased a 4.25% net smelter return royalty for US$300 million over the Newmont Corporation’s Porcupine Complex located near Timmins, Ontario. The royalty will cover the mine’s extensive mineral resources of 3.9 Moz Au measured and inferred (1.76 g/t Au) and 12.5 Moz Au inferred (1.53 g/t Au). The scale of the resources represents one of the largest known gold resource endowments in Canada.
Figure 1: Year-to-date Share Price Chart for Major Royalty Companies
Large-tier Royalty Companies
Since the start of the year, large-tier royalty companies are up an average of 10.9%, while the precious metal-focused large-tier royalty companies are up an average of 13.4% (Figure 2).
Sandstorm Gold Ltd. (SAND.NYSE) has been the best-performing large-tier royalty company so far this year up 16.1%. Sandstorm recently reported annual production for 2024 of 72,810 GEOs with revenue of $176.3 million. For 2025 the company forecast GEO’s to be between 65,000 and 80,000 ounces .
Figure 2: Year-to-date Share Price Chart for Large-tier Royalty Companies
Mid-tier Royalty Companies
During the year to date, mid-tier royalty companies are up an average of 6.3%, while the precious metal-focused mid-tier royalty companies are up an average of 16.1% (Figure 3). Metalla Royalty & Streaming Ltd. (MTA.TSX-V) has been the best-performing mid-tier royalty company so far this year up 26.2%. Gold Royalty Corp. (GROY.NYSE) has also performed well, up 22.31%.
Metalla recently announced a series of developments from within its royalty portfolio of assets including, an update on the ramp-up of production at G Mining Venture Corp.’s Tocantinzinho Project in Pará, Brazil, where Metalla holds a 0.75% Gross Value Return royalty.
Gold Royalty Corp. reported a 146% increase in revenue during 2024 driven by its cash-flowing royalties at Canadian Malartic, Côté, Borborema, Cozamin and Borden (Porcupine) and the Vares copper stream. The company also expects strong revenue growth in 2025 as the Côté royalty and Vares stream continue to ramp up operations from the underlying mines.
Figure 3: Year-to-date Share Price Chart for Mid-tier Royalty Companies
Junior Royalty Companies
Junior royalty companies are up an average of 6.0% this year, while the precious metal-focused juniors are up an average of 8.6% (Figure 4). Morien Resources Corp. (MOX.TSX-V) has been the best-performing junior royalty company this year, up 25.0% but has had limited news flow. Sailfish Royalty Corp.(FISH.TSX-V) has also had a strong start to the year, up 11.5%.
Sailfish Royalty recently updated the market on the progress at the Spring Valley Gold Project, where the company has multiple royalty interests at various rates. Solidus Resources, LLC, the owner and operator of the project, recently announced a feasibility study for the Spring Valley project, Nevada, which defined an after-tax net present value 5% of US$1.5 billion with an after-tax internal rate of return of 36%.
Figure 4: Year-to-date Share Price Chart for Junior Royalty Companies
Precious Metal Royalty Companies Offer a Range of Opportunities
Precious Metal Royalty Companies offer investors a wide range of opportunities to gain exposure to the rising gold price environment, from the major to junior level.
Some of these businesses have high-margin recurring cash flows and pay regular dividends, while others offer exposure to a portfolio of earlier-stage pre-development gold projects.
Whatever aspect of the gold equity development pipeline investors are looking to invest in precious metal royalties companies should also be considered.
*Mining and Metals Research Corporation (MMRC), the author of this article holds 38 shares in Franco-Nevada Corporation
