Five Metal Royalty Companies to Consider

In my previous article I was calling for a trend acceleration in gold. My recommendation was to build and maintain a core position in physical bullion held in your own possession. If you believe the gold bull market is going to last and want to increase your leverage, the next logical step would be to start building a core position in royalty companies.

Investing in royalty companies is a low risk approach and I would especially recommend considering these kind of stocks to those of you near retirement. As a general rule, the older you are, the less risky your assets should be. That said, everyone’s risk appetite is different. Just make sure you know what you are doing. Royalty companies are the best choice for conservative investors.

The low risk is due to the fact royalty companies are not exposed to the high capital costs in the mining business and still offer full exposure to rising gold, silver or base metal prices depending on the company. Another plus is it doesn’t matter who owns the mine. The royalty companies still get paid.

You still have to consider country risk and management though.

I’ll start with the gold royalty companies. The ones with an industry wide recognition are Royal Gold (RGLD) and Franco Nevada (FNNVF.PK).

Royal Gold is considered the industry leader and has a well diversified royalty portfolio effectively minimizing country risk. Here is the link to their property map.

Franco Nevada, as the name implies, is a great way to profit from the big gold deposits in Nevada.

If you compare the two royalty stocks with GD,X a proxy for senior gold mining stocks, you’ll notice they are both trading near their all time highs while most senior mining stocks are still trading far below their respective all time highs. You want to go with the winners. One way to identify them is to check how far away they are from their all time highs. This goes to show how well low risk assets have recently performed.

The next group I want to present are silver related royalty companies. The well known are Silver Wheaton (SLW) and Silverstone Resource (SVRCF.PK).

Silver Wheaton needs no introduction. It’s the industry leader if you want to leverage your exposure to silver prices. It is still trading slightly below the September lows though.

Silverstone Resources the new kid on the block. Compared with SLW, it is doing quite well. It has regained the September low level while SLW is still trading below that level.

The third group I want to present is base metal royalty stocks. Again I’ll stick to the best known in that sector, International Royalty (ROY).

Summary

So what is one supposed to do? And which are the ones you want to invest in?

Probably the most important thing when it comes to technical analysis is 'overhead resistance’. A stock trading near its all time highs is always a better choice as opposed to stocks with lots of overhead resistance. Traders always want to get out even once a stock moves against them. That’s why stocks on their way back up have to fight constant selling. Trading near the all time high offers clear sky potential. There is no urge to sell in order to recoup losses.

That’s why right now I prefer RGLD and FNNVF.PK.

Full disclosure: I’ve recently bought an initial position in RGLD.

Comments

[Beach Bubba:]

No Flames, please. I am asking.

Aren't these outfits a lot like lending companies, financing PM operations in exchange for the future ore production marketing rights. Sort of like hedging with long futures. Question is, can they short the markets on their own accounts. Do they have the hefty payouts as, say, oil royalty trusts or REITs. I have owned SLW often in the past and still do....But, I have never noticed payouts...I just try to buy low and sell high (PTL).

I tend to believe gold and silver will go much higher....but, I don't know that....just bet that way.

Mar 06 08:17 AM

[Ian R. Camp...:]

I would like to thank Mr. Tischendolf for writing this article. I have never spent time analyzing any of these companies other than Silver Wheaton which I owned and sold at a profit about 3 years ago. I would not describe Silver Wheaton as a ‘royalty company’, although I can see why someone might. I think of Silver Wheaton as a ‘silver arbitrager’ since it is committed to purchase silver from producers who primarily produce other metals, and profit or lose from the spread between the price it is contractually committed to pay for the silver and the market price of silver when it sells it. That said, I have planned for some time to study Royal Gold in particular. The referenced article has caused me to focus on doing that. I will write a blog post on my findings (stockresearchportalblo...) in the next ten days.

Mar 06 08:46 AM

[GMiki1:]

I recently bought more SLW at its low end and have already made decent money, but I'm holding. Silver will do well--very well. I also hold Silverstone and have lost a little. We shall see.

Mar 06 11:16 AM

[loaddown:]

For an example of a royalty business plan, Jim Sinclair's company: "Tanzanian Royalty Exploration (T.TNX, AMEX.TRE) is a unique, publicly-traded financial gold company whose business strategy is to acquire royalty interests in gold production from its core assets".

From his company website at: www.tanzanianroyaltyex...
This page gives a great pro/con chart showing the strategic advantage of a royalty setup.

Mar 06 11:45 AM

[blueriver:]

Re: Comment by "Comox" at 11:59AM.
Please stop spamming the forums. You've posted the exact same comment twice now... both off topic... in different threads.

Mar 07 09:07 PM

[chux08:]

comox - Do yourself a favor and buy yourself a subscription to one of the many fine precious metal focused newsletters that are available like Doug Casey offers, David Morgan, The Silver-Investor, Howard Ruff, Zeal, Coffin Bros, Greg McCoach, Porter Stansberry & Assoc or any of the others that do a good job of steering the non-experts in the right direction.when it comes to investing in silver and gold stocks. I've been with Casey Research for a couple years and besides giving good reco's I also like their free market, Libertarian point of view. They TEACH as well as GUIDE and THEY ARE EXCELLENT READS!! You can find many of them at Goldseek dot com or 321gold dot com or even do a Google. There's a lot of aspects to good investing in PM's and a good NL subscription is a valuable tool. Choose wisely and good luck!!

Mar 08 05:45 AM

[W0rthy:]

Quick response to your comment "I have never noticed payouts..."

I am a recent owner of SLW. I am buying low/selling high by experimenting with Robert Lichello's "AIM-HI" formula.

For payouts, when the stock is high, I am selling covered calls. Last sold the June $10 call for $75. I don't expect SLW to hit this, so the income is mine to keep, and even if it does, my cost basis is $5.23/share.

Incidentally, $75 twice a year on a cost basis of $523 per 100 shares is a 28% return.

Maybe give covered calls a try? Good luck!

PS: The URL is for the newsletter that I follow for SLW call recommendations.

On Mar 06 08:17 AM Beach Bubba wrote:

> I have owned SLW often in the
> past and still do....But, I have never noticed payouts...I just try
> to buy low and sell high (seekingalpha.com/symbo...;br/>
>
> I tend to believe gold and silver will go much higher....but, I don't
> know that....just bet that way.

Apr 09 11:27 AM