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How Precious Metals Streaming Works

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Miners seeking new capital have always had a variety of options: they could issue new shares, take out a loan, enter into joint-venture agreements, or divest non-core assets.

However, in the last decade, a new option has emerged called “precious metals streaming” – in which streaming companies essentially offer capital up front to mining companies in exchange for metal later. If properly executed, the end result is a win for both parties that can ultimately provide value to investors.

Precious Metals Streaming

Today’s infographic from Silver Wheaton explains the precious metals streaming model, and the arbitrage opportunity that creates value for both the streamer and the miner seeking to acquire capital:

Precious Metals Streaming Infographic

The aforementioned arbitrage opportunity in precious metals streaming is key.

For a traditional base metal miner, the majority of forecasted mine revenue may come from a metal like copper or nickel. However, along with those “target” metals, smaller amounts of gold and silver may be produced from the deposit as well.

Investors would still value those by-product precious metals in a base metal miner’s portfolio, but the metals may be typically valued at an even higher multiple in a precious metal streamer’s portfolio. This allows the base metal miner to transfer these future “streams” to the streamer in exchange for up-front capital, which can be a win-win scenario for both parties.

Streaming Benefits

In other words, miners use streaming to acquire non-dilutive financing, and to extract value from non-core assets. This allows them to deploy capital on purposes more central to their strategy. Major miners such as Teck, Barrick Gold, Vale, and Glencore all sold streams in 2015.

Meanwhile, streaming companies have been very successful since this model was first pioneered 12 years ago. They are getting gold and silver at a discount, and this has created significant amounts of value for investors over the last decade. Today, there are many valuable streaming companies out there, including the major ones such as Silver Wheaton, Royal Gold, and Franco-Nevada.

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Mining

Charted: The Value Gap Between the Gold Price and Gold Miners

While the price of gold has reached new record highs in 2024, gold mining stocks are still far from their 2011 peaks.

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Line chart comparing gold price and gold mining stocks since 2000.

The Value Gap Between the Gold Price and Gold Miners

This was originally posted on our Voronoi app. Download the app for free on Apple or Android and discover incredible data-driven charts from a variety of trusted sources.

Although the price of gold has reached new record highs in 2024, gold miners are still far from their 2011 peaks.

In this graphic, we illustrate the evolution of gold prices since 2000 compared to the NYSE Arca Gold BUGS Index (HUI), which consists of the largest and most widely held public gold production companies. The data was compiled by Incrementum AG.

Mining Stocks Lag Far Behind

In April 2024, gold reached a new record high as Federal Reserve Chair Jerome Powell signaled policymakers may delay interest rate cuts until clearer signs of declining inflation materialize.

Additionally, with elections occurring in more than 60 countries in 2024 and ongoing conflicts in Ukraine and Gaza, central banks are continuing to buy gold to strengthen their reserves, creating momentum for the metal.

Traditionally known as a hedge against inflation and a safe haven during times of political and economic uncertainty, gold has climbed over 11% so far this year.

According to Business Insider, gold miners experienced their best performance in a year in March 2024. During that month, the gold mining sector outperformed all other U.S. industries, surpassing even the performance of semiconductor stocks.

Still, physical gold has outperformed shares of gold-mining companies over the past three years by one of the largest margins in decades.

YearGold PriceNYSE Arca Gold BUGS Index (HUI)
2023$2,062.92$243.31
2022$1,824.32$229.75
2021$1,828.60$258.87
2020$1,895.10$299.64
2019$1,523.00$241.94
2018$1,281.65$160.58
2017$1,296.50$192.31
2016$1,151.70$182.31
2015$1,060.20$111.18
2014$1,199.25$164.03
2013$1,201.50$197.70
2012$1,664.00$444.22
2011$1,574.50$498.73
2010$1,410.25$573.32
2009$1,104.00$429.91
2008$865.00$302.41
2007$836.50$409.37
2006$635.70$338.24
2005$513.00$276.90
2004$438.00$215.33
2003$417.25$242.93
2002$342.75$145.12
2001$276.50$65.20
2000$272.65$40.97

Among the largest companies on the NYSE Arca Gold BUGS Index, Colorado-based Newmont has experienced a 24% drop in its share price over the past year. Similarly, Canadian Barrick Gold also saw a decline of 6.5% over the past 12 months.

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