first majestic silver

Royalty Companies Overview

March 6, 2009

In my previous article I was calling for a trend acceleration in gold. My recommendation was to build and maintain a core position in physical bullion held in your own possession. If you believe the gold bull market is going to last and want to increase your leverage the next logical step would be to start building a core position in royalty companies.

Investing in royalty companies is a low risk approach and I would especially recommend considering these kind of stocks to those of you near retirement. As a general rule the older you are the less risky your assets should be. That said everyone's risk appetite is different. Just make sure you know what you are doing. Royalty companies are the best choice for conservative investors.

The low risk is due to the fact royalty companies are not exposed to the high capital costs in the mining business and still offer full exposure to rising gold, silver or base metal prices depending on the company. Another plus is it doesn't matter who owns the mine. The royalty companies still get paid.

You still have to consider country risk and management though.

I'll start with the gold royalty companies. The ones with an industry wide recognition are RGLD - Royal Gold, FNV.TO - Franco Nevada.

Royal Gold is considered the industry leader and has a well diversified royalty portfolio effectively minimizing country risk. Here is the link to their property map

Franco Nevada as the name implies is a great way to profit from the big gold deposits in Nevada.

If you compare the two royalty stocks with GDX a proxy for senior gold mining stocks you'll notice they are both trading near their all time high while most senior mining stocks are still trading far below their respective all time highs. You want to go with the winners. One way to identify them is to check how far away they are from their all time highs. This goes to show how well low risk assets have recently performed.

The next group I want to present are silver related royalty companies. The well known are SLW - Silver Wheaton and SST.V - Silverstone Resources.

Silver Wheaton needs no introduction. It's the industry leader if you want to leverage your exposure to silver prices. It is still trading slightly below the September lows though.

SST.V is the new kid on the block. Compared with SLW it is doing quite well. It has regained the September low level while SLW is still trading below that level.

The third group I want to present is base metal royalty stocks. Again I'll stick to the best known in that sector. ROY - International Royalty.


So what is one supposed to do? And which are the ones you want to invest in? Probably the most important thing when it comes to technical analysis is ‚overhead resistance'. A stock trading near its all time highs is always a better choice as opposed to stocks with lots of overhead resistance. Traders always want to get out even once a stock moves against them. That's why stocks on their way back up have to fight constant selling. Trading near the all time high offers clear sky potential. There is no urge to sell in order to recoup losses.

That's why right now I prefer RGLD and FNV.TO.

Full disclosure: I've recently bought an initial position in RGLD.

You can easily keep track of the charts I follow and how they evolve over time by visiting my public list


Olivier Tischendorf


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In the Aztec language the name for gold is teocuitlatl which means "excrement of the gods."
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