Investors find royalty and streaming companies such as Wheaton Precious Metals (WPM) attractive for a number of reasons, not least of which is that they have exposure to commodity prices but face few of the risks associated with operating a mine, explains Frank Holmes, CEO & chief investment officer of U.S. Global Investors and editor of Frank Talk.
Developing a mine property to start producing gold or other precious metals is an expensive, often time-consuming process. Infrastructure needs to be built out, permits applied for, laborers hired and more.
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A royalty company serves as a specialized financier that helps fund exploration and production projects for cash-strapped mining companies. In return, it receives royalties on whatever the project produces, or rights to a “stream,” an agreed-upon amount of gold, silver or other precious metal.
With operating costs mounting and metals still at relatively low prices, royalty and streaming companies have become an essential source of financing for junior and undercapitalized miners.
Royalty companies also hold a more diversified portfolio of mines and other assets than producers, since acquiring new streams doesn’t require any additional overhead. This helps mitigate concentration risk in the event that one of the properties stops producing for one reason or another.
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With only around 30 employees, Wheaton Precious Metals has one of the highest sales-per-employee rates in the world. According to FactSet data, the company generates over $23 million per employee per year.
More recently, Wheaton announced that it had finally settled its ongoing tax dispute with the Canadian Revenue Agency (CRA) over international transactions between 2005 and 2010.
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