The precious metals royalty company caught my attention several years ago. Its business model looked like a combination of the goose that lays the golden eggs and the proverbial cash cow. Let me explain.
Unlike the typical gold mining company that shoulders all the exploration and production expenses, Royal Gold can cherry pick mining operations run by other companies who need investment capital. In return for its investment outlay Royal Gold receives precious metals royalties, precious metals streams and similar interests.
The company focuses on acquiring royalty interests from proven mines that are either in production or in development stage in exchange for royalty payments. The Denver, Colo.-based firm owns interests on 204 properties on six continents, including interests on 36 producing mines and 21 development stage projects.
Stated another way, it has all the benefits of being in the precious metals business with very few of the risks. That's why I consider it one of the safest ways to invest in the nascent bull market in gold after the brutal bear market that trashed such big name miners as Barrick Gold (ABX).
It was that bear market culminating in late 2013 which helped Royal Gold seal more profitable deals. As the price of gold fell from $1,900 an ounce in 2011 to below $1,200, many production companies were in desperate need of operating cash to stay in business.
With more than $600 million in cash as of March 31, Royal Gold was able to offer financial help in exchange for the right to share in the production and profits of its gold-mining partners. This worked out well for Royal Gold in the first quarter of 2014 contributing to its year-over-year quarterly earnings growth of almost 212%.