Our principal activity is the acquisition and management of precious metal royalties and similar interests, including precious metal streams. By partnering with capable operators, we focus on building and managing a diversified, cash-flowing portfolio of precious metal assets.
Royalties and streams can be acquired outright from either a resource company or a private party. New royalties are created by providing capital to an operator or explorer in exchange for a royalty. Precious metal streams are obtained by providing financing to operators, allowing them to monetize a portion or all their precious metal production. In either case, the capital provided by Royal Gold is typically used for the development and construction of a mine, mine expansion, or funding exploration work.
Benefits to Investors
There are several ways to invest in precious metals. Options and associated risks range from the direct purchase of gold and silver bullion or ETF funds to investments in mining and exploration equities.
We have designed Royal Gold to be a unique and lower risk investment opportunity while retaining upside value. Five key advantages to our business model include: portfolio diversification, no-cost exploration upside, geopolitical stability, fixed-cost investments, and inherent growth.
- Portfolio Diversification: Royal Gold owns a large portfolio of interests in high-quality, long-life mines, development projects, and evaluation and exploration properties. Our portfolio of revenue generating assets consists of nearly 40 producing properties, with the majority of our revenue generated from mines owned by some of the largest mining companies in the world. In comparison, most mid-tier mining companies have five to ten mines in their operating portfolio at any given time. Royal Gold’s large portfolio provides a level of financial and production stability.
- No-Cost Exploration Upside: We enjoy the benefit of reserve growth, as operators seek to extend mine lives by exploring for additional reserves at their existing mine sites. With the exception of the Peak Gold joint venture, Royal Gold is not required to participate in the exploration expense or pay any additional compensation when operators discover or add additional reserves at existing mines.
- Geopolitical Stability: Many mining companies have assumed increased political risk as they turn to less stable countries in their quest to replace depleted reserves. As of June 30, 2016, over 90% of our net gold equivalent ounces of production were located in the host countries of Canada, Mexico, the Dominican Republic, Chile and the United States.
- Fixed-Cost Investments: We do not have to contribute to capital or operating costs at the mining operations in which we have an interest. Therefore, Royal Gold is not exposed to inflationary pressures that can erode the rate of return expectations and profit margins of operating mining companies.
- Inherent Growth: In addition to our large portfolio of producing assets, in FY2016 we owned interests in 24 additional properties where reserves have been identified and efforts are being made to develop the properties. We hold a significant development interest at Barrick’s Pascua-Lama project located on the Chilean/Argentine border. New Gold's Rainy River project in Ontario, Canada, is in development and is expected to contribute to Royal Gold's growth profile once production commences in 2017.
The combination of a strong balance sheet, solid cash flow and freedom from managing mine operations allows us to focus on identifying additional accretive business opportunities.