Over the last few weeks, our cycles research — the same cycles that helped us predict every major move in the gold market since 1999 — have been shouting from the rooftops: “BUY, BUY, BUY!”
In fact, gold has soared to a new 6-year high. Now, it’s gearing up for another major surge. Early investors stand to see gains of 500% … 1,000% … even 4,000% or MORE!
I’m doing a whole online seminar TODAY at 2 p.m. Eastern, and it could easily be THE blockbuster gold event to prepare for the next decade.
The best part? It’s FREE to register. Click here to save your spot.
In the meantime, the biggest question is how to get into gold.
Your first option is gold and silver bullion. It’s always smart to have a small stash as emergency “crash insurance.”
Your second option — for better returns — is to invest in mining companies.
The precious metals mining business is pretty simple: Find a spot containing gold or silver, dig it up and sell it. And “Junior miners” can be the most exciting ride of all. That’s because they’re fairly risky.
If they find a massive deposit — and that’s a big IF — they can earn hundreds- and even thousands-of-percent profits for early investors.
But most of them go bust.
And one drawback for both major and junior miners: If prices fall, so do profits.
Your third option is a “streaming and royalty” company.
In the “streaming” model, the company provides cash up front to miners. In exchange, it gets a portion of all the gold and silver mined at the site. It doesn’t have to provide any additional capital after the initial investment.
All it has to do is drive to the bank and cash the checks!
Miners benefit from the additional investment capital over and above what they can get from banks, which can charge an arm and a leg. Streaming companies benefit by contractually locking in VERY LOW PRICES for gold and silver.
Many of these companies also add royalty deals. These are similar to streaming deals in that cash is provided up front to miners. In exchange, however, the miner directly pays a percentage of the sales to the streaming and royalty company.
Benefits of Streaming Companies
These companies may be the best option for most investors interested in adding precious metals to a diversified portfolio. Benefits include:
Consistent results. Although each streaming and royalty deal is different, earnings have been solidly positive over the past decade.
The contractually-guaranteed low prices these companies pay are the bedrock on which those consistently wide margins are built. Miners by comparison have seen their earnings dip into negative territory at least once, if not more often, during the same time period.
Diversification means less risk. Streaming companies generally spread their risk across a larger number of assets than individual mining companies. That reduces the risk that trouble at any one mine will derail performance. Because precious metals are prone to large price swings, diversified assets are a nice perk.
Dividends. Although miners often pay dividends, they can be cut when commodity prices fall. Locked-in low prices, wide margins and diversification allow streamers to be more generous with their dividends.
Risks with Streaming Companies
The basic streaming model is to use short-term debt to fund streaming and royalty deals, then permanently finance that debt by issuing stock and/or long-term debt.
Dilution. To finance deals, streamers can issue stock. And every new share reduces the ownership stake for existing shareholders.
This “dilution” isn’t a problem if the deals work out as expected. But if something goes wrong (e.g. a new mine doesn’t actually get built), issuing shares would be a negative.
Leverage. Another option is to use debt … and then use the cash flow from streaming agreements to reduce that debt balance over time.
Again, the risk comes when a mine investment doesn’t work out as expected. The projected cash flows won’t be there to pay down the debt or support the associated interest expense. And too much debt could leave it unable to ink new deals.
Nevertheless, streaming and royalty companies are a great mix of risk and reward.
The diversification, consistent earnings and regular dividends can make it much easier to maintain profitable exposure to precious metals throughout the entire commodity cycle.
Top Streaming Companies
The largest competitors have been in business since the 1980s, with smaller companies showing up more recently. Most investors, though, should stick with the longest-tenured companies … like Franco-Nevada (NYSE: FNV), Royal Gold (Nasdaq: RGLD) and Wheaton Precious Metals (NYSE: WPM).
The largest based on market cap is Franco-Nevada.
Right now, the company’s contracted price per ounce of gold is around $400.
That means it’s essentially buying gold for $400 an ounce and can sell it at the market for around $1,500 an ounce. Not a bad business, right?
Franco-Nevada is really an investment company. It finds great projects. And once production begins, the company sits back and cashes its royalty checks.
It really is that simple.
Franco-Nevada is up 32.1% so far in 2019, outperforming the VanEck Vectors Gold Miners Fund (NYSE: GDX), which is up just 27.8%.
With a strong balance sheet and a flowing stream of cash to expand its portfolio and pay dividends … Franco-Nevada is well-positioned to continue its tear higher.
All the best,