Gold is front-and-center these days for good reasons.
The world’s oldest asset is near $2,000-plus all-time highs at a time of profound global uncertainty. It’s rising on a market tide of stimulus dollars that are themselves rapidly diminishing in value. No surprises there.
That move sent Barrick soaring, and gold miners, gold exchange-traded funds, and the physical stuff itself went along for the ride, all cheered from the sidelines by Big Media.
Again, none of that is terribly shocking. (Though it is surprising that the story you’re hearing about in Big Media is essentially correct; it is in fact a smart move to have exposure to gold and gold stocks right now.)
But it’s what all those media observers aren’t saying that’s surprising to me. There’s a whole other class of gold plays to make right now, and nobody seems to have caught on… yet.
That means there’s more upside potential for us in this specific stock…
Physical Metal, ETFs, Mining Stocks, and…
I’m talking about gold royalty streaming companies – the “other” way to profit from gold’s strong upward moves. And as you’ll see in a second, it’s well insulated from some of the most common pitfalls of, say, gold miners.
Streamers have a fascinating business model – a unique niche in the “gold patch.” Streamers are essentially specialist financiers of gold exploration and production operations.
This is an oversimplification, but it’ll give you a good idea of how streaming works. For this purpose, let’s say you’re a hungry young (or not so young) mining company on the move in the world.
You’ve prospected your site and the geology looks great. You’ve even hit “pay dirt” and extracted some gold from the ground already. After several years of hard, thorough work, you’re finally ready to start digging for the stuff in earnest and…
… you’re stuck dead in the water, idled, because you’re fresh out of cash. You burned through it all exploring and proving out the site.
That is where the royalty streaming company comes in.
You, the mining company, take your proposal to the company and make a deal. It will finance or provide financing expertise to your operations in exchange for a share of the royalty stream, and often enough, an agreed-upon amount of the metal itself at a significant discount to market.
As a miner, you’ll make money if the cost of production gets lower and the price of gold increases. You naturally want to own mining stocks on the right side of this equation.
But the streamer will often make money even if prices and costs fluctuate. And since there are often multiple projects, exposure to those costs is quite limited. What’s more, every little positive development on a project often boosts the share price.
You don’t need the Big Media mania that’s whirling around gold and gold miners right now… but it doesn’t hurt.
I know one streamer that’s built an entire portfolio of gold operations like that…
One of the Smartest Gold Stocks to Own
My favorite streamer right now is Sandstorm Gold Ltd. (NYSE: SAND). It’s based out of Vancouver, Canada – Canada is a mining superpower – and its American Depositary Receipts trade right here on the New York Stock Exchange.
Sandstorm was founded in 2007 by proven managers who struck out on their own after leaving Wheaton Precious Metals Corp. (NYSE: WPM).
Over the years, it’s assembled a portfolio of around 200 projects at every stage from exploration to full-on, established production.
And, over the years, its stock has performed incredibly well despite gold’s eight-year turn in the doldrums. Since 2015, Sandstorm has piled on more than 200% in gains, far outpacing gold’s roughly 60% upswing in that time – much of which, remember, has been in the last few months.
Most excitingly, Sandstorm has built up a large stake in the Hod Maden project in Artvin, northeastern Turkey. Hod Maden is under development as a gold and copper mine. Studies completed in 2018 are, frankly, eye-popping.
Hod Maden predicted annual production could top 200,000 ounces of gold and 13,800 U.S. tons of copper over 13 years, with a capital investment of “just” $271 million dollars. The first production is expected by the fourth quarter of 2022.
In simple English, Hod Maden is likely to be one of the most profitable mines on the planet. And Sandstorm is guaranteed a big piece of the pie. Every milestone along the way should be favorable for Sandstorm’s shares.
The bottom line is this: Own gold, buy it on the dips. Own gold miners. Trade gold ETFs to make bigger profits on short-term moves up or down.
But ultimately, no gold portfolio is ever truly complete without a top-performing royalty streamer like Sandstorm. Going without a streamer is like leaving money on the table.
— D.R. Barton, Jr.
Source: Money Morning