Royalties: Golden Shoe Makers
In the face of soaring energy prices, reduced commodity prices, and inflation, the mining industry is navigating a period of high uncertainty. However, streaming and royalty companies like Wheaton Precious Metals and Franco-Nevada are demonstrating resilience and strategic growth.
These companies, unlike traditional miners, do not operate mines or extract resources. Instead, they own interests in multiple mine outputs, providing them with diversified, low-risk revenue streams. This model allows them to maintain cash flow and profitability even when operational costs rise or commodity prices fluctuate.
For instance, Franco-Nevada, which was the first to adopt the streaming and royalty business model in 1985, achieved a new record result in the previous year due to its extensive portfolio. The company is involved in over 400 mining projects worldwide, with 113 of these mines already in production.
Wheaton Precious Metals, another prominent player, secured $125 million for the development of the Goose project in Canada. Feasibility studies for the Goose project calculate high margins due to expected low production costs. In exchange for providing financial resources, Wheaton Precious Metals will be granted the right to purchase 4.15% of the future gold production at less than one-fifth of the current gold price. This percentage will decrease over time as certain milestones are reached.
The costs of constructing planned or ongoing mines are affected by inflation, a significant challenge in the industry. However, financing the Goose mine solely through the issuance of new shares would result in significant dilution of existing shares. By securing funding through strategic partnerships, these companies can mitigate this risk.
The entry of non-traditional investors such as digital asset firms into streaming and royalty sectors also reflects a shift toward securing mineral supply chain resilience, especially for critical minerals tied to technology and energy transition. This new investor class provides access to large pools of capital and aligns the interests of technology-driven sectors with mining finance, potentially mitigating some risks faced by traditional miners under inflationary and energy-cost pressures.
In summary, streaming and royalty companies remain robust and strategically well-positioned in 2025, leveraging consolidation, diversification, and new capital sources to mitigate challenges that heavily impact traditional mining operations. This ongoing resilience underscores their important role in mining finance amid inflation, energy price hikes, and fluctuating commodity markets.
Franco-Nevada and Wheaton Precious Metals, despite not operating mines, generate revenue from diverse, low-risk streams by owning interests in multiple mine outputs. These companies maintain their profitability even in the face of fluctuating commodity prices and rising operational costs, as demonstrated by Franco-Nevada's record results and Wheaton Precious Metals' strategic partnership for the Goose project financing.
