What are royalty and streaming companies and how can you invest in them?

Summary

• Royalty and streaming companies are not directly involved with the mining and drilling operations but help fund these operations in exchange for partial ownership.
• Some of the most well-known royalty and streaming companies listed on TSX include Franco Nevada Corp., Wheaton Precious Metals.
• Star Royalties Ltd. and Metalla Royalty & Streaming Ltd. are two junior royalty and streaming companies that can be examined by investors.

Royalty and streaming companies offer investors a lucrative and unique way to invest in the metal and mining sector. While these companies may not be directly involved with the mining and drilling operations, they help fund these operations in exchange for partial ownership.

Streaming and royalty firms may also help finance the mining sector by agreeing to purchase a certain proportion of the metal produced at a discounted price as compared to the spot price. Some of the leading royalty and streaming companies operate in the gold and silver sector, while other companies also operate in the cobalt sector.

Here, the distinction in royalty and streaming can be understood through the agreement that these companies share with the mining firms. A royalty company provides a loan to a mining firm and then receives a percentage share of the total revenue generated by the firm.

Meanwhile, a streaming company also gives a loan, in exchange for which it can receive partial ownership of the mine itself. Streaming companies also have the option to obtain royalty-like services from the mining agency once a set amount of product has been retrieved from the mine.

Investors can choose from a range of TSX- and TSXV-listed royalty and streaming companies to add wider margins and lower risk to their portfolio. Some of the most well-known royalty and streaming companies listed on TSX include Franco Nevada Corp. (TSX:FNV), Osisko Gold Royalties Ltd. (TSX:OR) and Wheaton Precious Metals (TSX:WPM).

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There are also junior royalty and streaming companies that investors can examine in the sector. Here is a closer look at two such stocks:

Star Royalties Ltd. (TSXV: STRR)

Star Royalties holds investments in copperstone, Keysbrook, EMS Forest and LSFN Forest. It has a market cap of about CA$24 million.

For Q1 2023, Star Royalty reported revenues of US$ 271,429, which were 12% lower than that in the same quarter of previous year. As per company reports, the decline in revenues came because of lower mineral sand sales at Keysbrook. 

At the same time, STRR reported an uptick in quarterly net income to almost US$70,000, which was primarily boosted by equity income from the Green Star Royalties joint venture. Star Royalties also saw a jump in quarterly revenue from the Elk Gold mine of US$ 54,959. 

Star Royalties reported post-tax economics result in base case after-tax IRR of 50.3%. As per a preliminary economic assessment, a high-grade gold mining operation with annual production of over 40,000 ounces of gold is supported over a 5.5-year mine life. 

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Based on Thursday’s closing price of CA$0.32, Star Royalties has a P/E ratio of 1.01x. At the end of trade on July 27, 2023, STRR stock price saw a weekly decline of 1.54%.

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Metalla Royalty & Streaming Ltd. (TSXV: MTA)

The company’s investments include gold, silver, and similar precious metals. It is headquartered in Vancouver, Canada and has a market cap of around CA$304 million.

Metalla acquired 1 stream and 5 royalties during the March 2023 quarter. It held 85 precious metal assets by the end of the March 2023 quarter. It received or accrued payments on 927 attributable gold equivalent ounces during the quarter.

The company closed an agreement with Nevada Gold Mines for the sale of JR mineral claims making up the Pine Valley property.

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MTA stock price saw a monthly increase of 6.55% as on Thursday, July 27, 2023. By the end of trade on Thursday, MTA declined to CA$5.86, a fall of 4.56% as compared to the previous close price.