LONDON, Oct 11 (Reuters) – Investors in precious metals are opting for streaming and royalty companies over pure gold and silver miners this year despite a rise in metal prices, as producers struggle to win confidence in their ability to capitalise on the rally.
Streaming and royalty companies provide financing for exploration and development to precious metals producers in return for a cut of any future output. That gives them exposure to a range of companies in the gold sector, rather than being reliant on any individual stock.
The model makes them a nominally safer bet for investors, but gives them lower leverage to a strong rise in underlying gold prices. Among the biggest streaming companies, shares in Toronto-based Franco-Nevada are up 24 percent and Royal Gold Inc is 40 percent higher this year, while among smaller names, Osisko Gold Royalties has risen 25 percent.
But even with an 12 percent bounce in gold this year, the FTSE Gold Mines Index, which represents mining companies, has risen just 10 percent. Gold mining stocks are historically leveraged at two or three to one to the gold price.
Streaming companies’ higher net asset value shows how much more favourably investors view their risk profile compared to those of the underlying mining companies, Keith Watson, co-fund manager for City Natural Resources High Yield Trust, said.