How Precious Metals Royalty and Streaming Companies Create Value
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How Precious Metals Royalty and Streaming Companies Create Value

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The following content is sponsored by Empress Royalty.

Gold and Silver Royalty and Streaming Companies

Investing in precious metals often seems like it boils down to either buying the physical gold or silver or investing in shares of specific mining companies, both with their own very distinct advantages and risks.

Rather than having to settle for the simplicity of bullion or extensive research in individual mining companies, precious metals royalty and streaming companies provide investors with exposure to a diversified portfolio of miners’ revenues and produced metals.

These companies are not operators of mines. Instead, they seek to find undiscovered value by financing and working directly with miners to forge agreements that provide their shareholders with steady exposure to precious metals production.

This infographic from Empress Royalty outlines exactly how gold and silver royalty and streaming companies operate, and how they mitigate risk and create value for their shareholders.

What Do Precious Metals Royalty and Streaming Companies Do?

Royalty and streaming companies are an important part of the mining industry’s financial ecosystem, as they provide capital to mine operators and explorers in exchange for a percentage of revenue or metals produced from the mine.

Mining companies receiving this investment are able to further develop or expand projects, providing greater returns for both their shareholders and the companies with royalties and stream agreements on the projects.

These agreements typically last for the life of a mine, providing steady cash flow to royalty and stream holders while cutting out various risks associated with mining companies and operations.

“What it takes in the royalty business is patience and cash.”
– Pierre Lassonde, co-founder of the first royalty and streaming company, Franco-Nevada

The Difference Between Royalty Agreements and Streams

Royalty agreements and streams have similarities in their structure, but ultimately have some key differences.

  • Royalty agreements, also called net smelter return (NSRs), provide the royalty holder a percentage of the mine’s revenue from production, typically around 1-3%. There are also other kinds of royalty agreements like net profits interests (NPIs), where the royalty holder receives a percentage of the profits rather than the revenue.
  • Streams provide the right to purchase a certain percent (typically 5-20%) of metal production directly from the mine. Typically, streams will have an already decided purchasing price for the metal, which is usually either a fixed dollar amount or a fixed percentage of the spot price.

Royalties are more common than streams as they provide cash directly to the royalty company rather than the option to buy the physical metal which then needs to be sold.

While royalty and streams differ in what is delivered, both kinds of agreements avoid operational costs as they receive cuts from the top line.

The Growing and Diverse Landscape of Royalty and Streaming

The niche sector of gold and silver royalties has changed greatly since the founding of the original royalty business, Franco-Nevada in 1980.

While still fairly small today, the subsector has grown to have more than 10 companies with a market cap of $100M USD each, with five surpassing the $1B mark.

Here are the top 10 royalty and streaming companies by market cap:

CompanyMarket Capitalization (USD)Forward Dividend Yield
Franco-Nevada$21.6B0.91%
Wheaton Precious Metals$17.8B1.20%
Royal Gold$7.1B1.12%
Osisko Gold Royalties$1.9B1.39%
Sandstorm Gold$1.3B0.00%
Maverix Metals$738.0M0.75%
Nomad Royalty$488.6M1.82%
Metalla Royalty and Streaming$368.3M0.37%
EMX Royalty Corporation$308.0B0.00%
Abitibi Royalties$237.9M0.78%

Source: Yahoo Finance

While the three big names of Franco-Nevada, Wheaton Precious Metals, and Royal Gold tend to focus on larger and more secure ounce-producing agreements, the newer precious metals royalty companies start out by establishing a few cash-flowing agreements in their portfolio.

After this, they can begin targeting more speculative agreements with developing or exploration projects which are typically worth smaller dollar amounts and are slightly riskier or further from production, but have the potential of undiscovered upside.

Some royalty companies don’t even deal with mining companies at all, and focus exclusively on buying royalty and stream agreements held by third party companies or prospectors.

How These Companies Reduce Risk and Capture Upside

By avoiding many of the operational costs, royalty and streaming companies cut out a large amount of risk that is typically associated with mining investments.

In precious metal bull markets, it’s typical to see mining company revenues rise alongside the prices of gold and silver.

While mining companies’ operational costs will also rise, royalty and stream holders simply reap the benefits of high margins as they sell their physical metals at higher prices, despite having acquired them at lower fixed prices according to their agreement.

Another key advantage royalty and streaming companies have is their ability to diversify their portfolios and be selective with their agreements. This allows them to escape concentrated jurisdictional or asset risk and make agreements with mines which are already producing or close to production.

Since royalties and streams tend to last as long as the associated mine is operational, the holders of these agreements also benefit from any increased production or lifespan.

Royalty and Streaming Companies: Stable Exposure to Metals

As precious metals royalty and streaming companies are able to carefully choose their agreements and are overall less exposed to price downturns, they provide investors with a more stable investment in gold and silver.

Royalty and streaming companies typically have dividend policies which ensure shareholders are consistently rewarded with rising dividends, while many gold and silver mining companies cut dividends aggressively during precious metal market downturns.

As they help finance new projects and expansions, royalty and streaming companies take advantage of high margins in a unique form of financial arbitrage while providing their shareholders with stable exposure to precious metals and mining operations.

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Operational Health Tech: A New Billion Dollar Market

Operational health tech is poised to be a multi-billion dollar industry. This graphic breaks down how its disrupting healthcare as we know it.

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Operational Health Tech: A New Billion Dollar Market

Many lessons were learned throughout the COVID-19 pandemic, but what has become most apparent is the need to invest in healthcare on all fronts. In fact in just a few short years, businesses, governments, and consumers have had to entirely reassess healthcare in ways not quite seen before.

What’s more, this elevated importance placed on health could be here to stay, and one area in particular is poised for significant growth: operational health tech.

The graphic above from our sponsor Bloom Health Partners dives into the burgeoning market that is operational health tech, and reveals the key driving forces behind it.

What is Operational Health?

To start, operational health is an industry that provides health services to employees to help keep companies running smoothly.

A critical piece of operational health is workplace health, which is expected to soar in value. From 2021 to 2025, the market for workplace health is expected to grow 200% from $6.5 billion to $19.5 billion.

The industry is undergoing a tremendous amount of innovation, specifically in relation to technological advances.

Operational Health Tech: Disrupting Healthcare

The operational health tech industry is disrupting traditional healthcare by providing direct services to employees in the workplace.

For decades now, the U.S. has increasingly become a statistical outlier for healthcare spending relative to health outcomes. For instance, the average American incurs $9,000 in healthcare spending per year, nearly twice that of OECD countries, yet life expectancy is flatlining while other countries see rises.

A worsening and increasingly expensive health dynamic makes the environment ripe for disruption and is allowing for new ideas to be brought to the table.

In addition, people are already responding to these inefficient practices by shifting greater emphasis on health within the job market. For example, studies show that workers care more about healthcare benefits over the salaries when choosing an employer.

Going forward, employees will gravitate towards employers that provide standout health benefits like workplace healthcare options offered by operational health. Here are some additional factors that act as catalysts for this space.

1. Healthcare as Smart Business

What do companies that rank as some of the best to work for have in common? First, they all tend to outperform relative to the S&P 500 on a cumulative stock performance basis. Second, many offer superior healthcare benefits.

Moreover, from 2012 to 2022, companies that were the best to work for saw shares appreciate nearly 500%, compared to around 300% for the broader market. Data like this suggests investing in healthcare and keeping employees happy is smart business that pays dividends.

2. Healthcare as a Differentiator

Since 2020, labor markets have changed dramatically. As a result, employees now have more options and are much more selective about where they work. This is evident from the difference between job openings and hires which has risen to unrecognizable levels. For example, the data shows that there are nearly 12 million job openings, but only around 6-7 million hires in 2022.

Altogether, with an oversupply of jobs relative to workers, employers will have to find new ways to differentiate. One way to stand out is through healthcare and initiatives around operational health tech.

3. The Looming Mental Health Epidemic

Today some 700 million people suffer from some form of a mental health condition and COVID-19 has continued to exacerbate the problem.

Moreover, the cost of mental health for the global economy is estimated to be a whopping $6 trillion by 2030, over double compared to the $2.5 trillion figure in 2010.

Under the umbrella of services operational health tech covers, mental health will stand to benefit. Especially in the years to come as we look for new ways to combat its mounting costs.

Investing in Operational Health Tech

Bloom Health Partners is an operational health tech company looking to revolutionize workplace health by supplying employers with data to better understand their employee base and business.

One way Bloom stands out is with Bloom Shield—its flagship cloud-based big data platform for employee health data management. With Bloom Shield, new health insights become available to make better decisions. Employers can get insight into demographic data and age trends within the workplace, pre-screening detection for cancer and diabetes, and testing for management to tackle the spread of disease.

Click here to learn more about investing in operational health tech with Bloom Health Partners.

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How Environmental Markets Advance Net Zero

The global price of carbon increased 91% in 2021. Below, we show how environmental markets are supporting a greener future.

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Environmental Markets

How Environmental Markets Advance Net Zero

In 2021, roughly 20% of global carbon emissions were covered by carbon pricing mechanisms.

Meanwhile, the global price of carbon increased 91%, bolstered by government, corporate, and investor demand. This puts traditional fuel sources at a disadvantage, instead building the investment case for renewables.

This infographic from ICE, the first in a three part series on the ESG toolkit, explores how environmental markets work and their role in the fight against climate change.

What are Environmental Markets?

First, meeting a goal of net zero carbon emissions involves limiting the use of the world’s finite carbon budget to meet a 1.5°C pathway.

Achieving net zero requires us to:

  • Change how we utilize energy and transition to less carbon-intensive fuels
  • Put a value on the conservation of nature or “natural capital” and carbon sinks, which accumulate and store carbon

Environmental markets facilitate the pathway to net zero by valuing externalities, such as placing a cost on pollution and placing a price on carbon storage. This helps balance the carbon cycle to manage the carbon budget in the most cost-effective manner.

What Is the Carbon Budget?

To keep temperatures 1.5°C above pre-industrial levels, we have just 420 gigatonnes (Gt) of CO₂ remaining in the global carbon budget. At current rates, this remaining carbon budget is projected to be consumed by 2030 if no reductions are made.

Carbon Budget1.5°C1.7°C2.0°C
Remaining GtCO₂4207701270
Consumed GtCO₂247524752475

Each scenario based on a 50% chance of success
Source: IPCC AR6 WG; Friedlingstein et al 2021; Global Carbon Budget 2021

Across three different scenarios, the above table indicates the amount of carbon emissions humanity can emit to prevent the worst effects of climate change.

What are Negative and Positive Externalities?

Second, when companies compensate for CO₂ emissions, they can fall across two categories: negative and positive externalities.

  • Negative externalities include pollution. Carbon cap and trade programs, using carbon allowances, put a cost on pollution.
  • Positive externalities include renewables, such as wind and solar power that generate carbon-free electricity. The value of renewable energy can be expressed with a renewable energy certificate.

Natural capital is another example of a positive externality, which involves the capturing and storing of carbon. The value of this type of natural capital can be expressed using a carbon credit.

Environmental Markets and the Energy Transition

Next, environmental markets can drive the transition to cleaner energy sources by ascribing a cost to pollution and putting a premium on renewables, to change how we use energy.

As one example, in 2013 the UK government introduced the Carbon Price Support mechanism to complement the emissions cap and trade program and weaken the investment case for coal. Between 2013 and 2020, Britain’s overall CO₂ emissions fell by 31%.

Here’s how coal was phased out of the UK’s energy mix, while renewable energy sources such as wind, solar, and bioenergy played a greater role.

DateCoal Gas Wind and SolarBioenergy
Q1 200031 TWh40 TWh0 TWh1 TWh
Q1 200541 TWh36 TWh1 TWh2 TWh
Q1 201031 TWh47 TWh2 TWh3 TWh
Q1 201528 TWh23 TWh13 TWh6 TWh
Q1 20203 TWh27 TWh28 TWh9 TWh

Source: Digest of UK Energy Statistics (DUKES); BP; EMBER via Our World in Data (2021)

Today, less than 5% of the UK’s electricity is coal-generated, with remaining plants expected to be decommissioned by 2024.

How Environmental Markets are Advancing Net Zero

Finally, as governments increase their commitments to net zero, carbon prices are rising towards a level that requires industries to decarbonize and meet those goals.

In fact, between 2014 and 2021, the global price of carbon has increased over sixfold.

DateGlobal Carbon Price (Year End)Annual % Change
2021$47.7891%
2020$24.9637%
2019$18.16-7%
2018$19.56102%
2017$9.6729%
2016$7.52-24%
2015$9.887%
2014$9.2432%

As indicated by the ICECRBN Global Carbon Price (CPW Weighted)
Source: ICE (Apr 2022)

As companies begin to treat their carbon footprints as liabilities, there will be increasing demand for environmental attributes, such as carbon allowances and carbon credits.

Managing Risk and Opportunity

Quoted markets like ICE Futures Exchanges and NYSE allow stakeholders to precisely value positive and negative externalities to:

  • Manage emissions cost effectively
  • Hedge climate transition risk
  • Allocate capital to facilitate the energy transition and build carbon sinks
  • Create an asset class for Natural Capital
  • Invest in assets to meet climate obligations

Everyone is exposed to climate risk which means it needs to be measured and managed.

That’s why balancing the carbon cycle will be critical to managing the world’s carbon budget. Markets are providing greater access, liquidity and opportunity in supporting net zero ambitions.

In part two of the series sponsored by ICE, we’ll look at four motivations for using ESG data.

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