 Good day fellow investors. What are gold royalty companies or gold streaming companies? In this video we'll discuss what they are and are they a better investment there of gold or gold miners? It's a very interesting relatively new asset class to invest in, performed really good so let's see how it did. So first as you know gold is a relatively fixed asset. The amount of gold above the ground grows really slowly over time and therefore it's a great protector against inflation. In the last 30 years gold prices have increased as has the M2 money stock increased however there is a small divergence in the last five years. So it looks like gold is undervalued this is because people expect the money stock to go lower as the Fed streams their balance sheet. We'll see if that happens however for now gold is undervalued. So if gold is undervalued you want to be exposed to gold because it's a positive asymmetric risk reward you can lose only so much but the benefits if gold prices increase are very high. Now what are precious metal royalty or streaming companies? Those are companies that have cash and they invest in the development project or exploration of a miner and they say here I will finance part of your costs but when the mine becomes operational I will get a certain percentage of revenue for royalty companies or I will get a stream streaming companies practically the same thing where I can buy a certain amount 25 percent let's say of your silver production at a lower cost let's say four dollars per ounce of silver or usually it's 400 dollars per ounce of gold for example written precious metal bought 25 percent of all future silver production at a price of 3.9 per ounce from the penasquita mine from gold gold corp in 2007 for 485 million in cash that money allowed gold corp to invest to develop the property de-risk the property but it cost them a nice percentage of their silver revenue so this is a chart from silver written and you can see that their gold costs are now around 400 dollars so they invest in projects and they say okay we can buy a certain amount of gold from your project or percentage to say it more correctly at 400 dollars per ounce so they buy at 400 and they sell at 1200-1250 their margins are huge the same for silver so a company like a royalty company invests in a project and they say okay they buy a percentage of revenue of that project whatever happens so there are no additional mining costs there are no exploration costs there are no development costs so practically the only risk a royalty company runs is that the mine is shut down if the mine continues to work they simply get a cup of the revenue that's the deal and that has worked very well in the past for gold royalty companies the benefit is also if the mine finds a new deposit let's say at more depth then also those revenues go into the stream for the royalty streaming company so as long as the mine is mine if the initial plan was 20 years and it becomes 100 years for the whole 100 years the royalty company gets its percentage of revenue even if it didn't have to invest anything in the development of the underground mining and so on so that's a very great benefit you have very high upside and very low downside because you buy your ounces at a fixed price so when you make a deal the deal is structured so that the royalty company has upside but limited downside the risks for royalty companies are of course negative movements on commodity prices and they lower their margins it's very difficult that they don't make positive cash flows then the mine can also be shut down if the mine is shut down for political reasons no production no streaming revenues the third thing is royalty companies look very stable they produce cash they have dividends which makes them expensive when you compare it to the rest and then of course if they invest in a project and that project is not put into production then there is no royalty so that's also potential loss let's now discuss a few royalty companies to see how they work what are they doing and to see if they are fit for your risk reward appetite and your portfolio the first stock i want to discuss is from conevada corporation the largest royalty commodity company with the market capital 14 billion it owns 41 gold producing assets 31 advanced projects and 135 exploration projects in addition to 80 oil and gas projects so it's a really huge company with huge exploration potential if of those exploration many mines become operational then franc conevada will explode just to see here which are those projects and which are the operators you have kinross even a company carlin gold corporation must be interesting mechie when mining barric gold and other producers so they finance the exploration of their future potential project nevertheless franc conevada is a bit expensive the price earnings ratio is 99 the price to cash flow is 28.6 so they are doing well and they are therefore priced well the dividend deal is about 1.14 percent wheat and precious metals is a little bit different from franc conevada because it has 20 operating mines and only nine development projects so the upside is a little bit lower partners you can see valet glenkor barric landing hut bay and so on hut bay we mentioned and they get i think a percentage of their gold and silver production the third company i want to mention is royal gold that can tank in success to the core test mine in nevada that has been continued on with the mining growing improving and they continue to get their royalties no matter what at no cost another thing from to mention from these royalty companies for example the royal gold has only 22 employees so they assess a project miners geologists yes we can invest this is the rate of return we can expect this is the upside that's it they don't need they're just a company that deploys capital and then gets the revenues from that that's it simple simple simple but a bit expensive so be careful about that let's check the performance since 2005 all three gold streaming companies we mentioned here have significantly outperformed gold of course gold prices went up and those companies outperformed if we look at the five year chart and in the last five years gold prices have been falling we can see that still two out of three have outperformed gold because they offer a dividend they have many growth projects they are cash flow positive so we can say that they offer lower risk with higher potential rewards that's very very interesting to continue to dig on the subject i'll soon make a comparison about barric gold the biggest miner and franco nevada the biggest royalty company their market caps are closed and i really want to dig into which one is the best and which one offers the best risk reward so consider subscribing if you haven't yet click like if you like the content and there will be plenty more thank you for watching and i'll see you in the next video