Royal Gold, Inc. (RGLD)

How it makes money

Revenue is recognized when Royal Gold sells the metal it receives, at prevailing market prices, so it captures the full upside of higher gold, silver and copper prices without spending on exploration, construction or day-to-day mining costs. Stream ounces are bought at a fixed cost far below the market price, so streams carry the widest margins; royalties cost nothing to Royal Gold at all, since they are simply a contractual cut of someone else's production or revenue.

Revenue by segment

Each royalty or stream is a unique, long-lived contract, often lasting the entire life of a mine, built through decades of relationships with mining companies and hard-to-replicate deal expertise. That portfolio of contracts cannot easily be copied, but Royal Gold still competes for every new deal against Franco-Nevada, Wheaton Precious Metals and mining companies' own balance sheets.

Revenue moves directly with gold, silver and copper prices and with the production volumes of the mines Royal Gold has interests in, both of which swing with commodity cycles and broader risk appetite. Because Royal Gold has no control over operating decisions at those mines, its results also depend on production choices made entirely by other companies.

Key risks

• Concentration in a handful of large mines — A large share of revenue comes from a small number of mines such as Mount Milligan, Pueblo Viejo and Khoemacau. An operational setback, strike or geological problem at any one of them would disproportionately hit results.
• No operating control — Royal Gold does not operate any of the mines it has interests in and cannot control production schedules, cost decisions or mine-life extensions; it simply receives what the operator chooses to deliver.
• Commodity price exposure — Revenue rises and falls with gold, silver and copper prices, which Royal Gold does not hedge and cannot control; a sustained price decline would reduce revenue even if production stayed constant.
• Reserve depletion and reinvestment risk — Every mine eventually depletes its reserves, so Royal Gold must continually strike new royalty and stream deals to replace declining production, and there is no guarantee future deals will be as attractive as past ones.