American Consequences - September 2020

spent, these companies are done. They just sit back and collect checks for decades. That makes them very low-risk. Streaming and royalty companies often perform well, even during bear markets in precious metals. That makes them a great long-term, buy-and-hold hedge for your portfolio. Buying gold miner stocks takes a little bit more homework. But they can produce incredible gains during a bull market. I separate them into three categories... 1. Major gold producers are the safest mining stocks to buy. These include companies like Barrick Gold – the one that Buffett just bought. These “majors” produce millions of ounces of gold per year. They have large mines all over the world with decades worth of proven gold reserves. Given the size of their assets, they can survive cyclical gold booms and busts. 2. The next tier is intermediate producers. These are miners that might only have a few mines – or sometimes just one. Intermediate producers are riskier than majors, but can generate much better returns if you select the right ones. But it takes research and due diligence. It’s also important to understand the political risk these companies are exposed to in the jurisdictions where they operate. It’s also important to understand a company’s growth strategy and the quality of its management team. 3. Finally, there are junior miners... extremely risky stocks. If you are new to gold investing, you should stay away from these. Junior miners have no revenue. They are either exploring or developing new

If taking physical ownership isn’t a viable option for you, consider buying a gold bullion-backed exchange-traded fund (“ETF”). There are several out there, so make sure you understand exactly what you’re buying. The other primary way to invest in gold is to buy gold stocks . This could be gold miners, precious metals streaming and royalty companies, or various gold-stock ETFs. During a bull market in precious metals like the one we’re in now, gold stocks can rise much higher and faster than the spot price of the metal. As the price of gold rises, the extra revenue goes straight to the company’s bottom line. So it gives an investor leverage to the price of gold. My favorite way to own gold stocks is through streaming and royalty companies. These companies have a fantastic business model... You see, mining is an extremely risky business. It requires a ton of capital up front and miners are at the mercy of cyclical price fluctuations. That makes banks leery of lending them money. That’s where streaming and royalty companies come in. They simply lend the miner money in exchange for a portion of future profits. A royalty is simply a small percentage (usually 1% to 3%) of overall sales. A stream is the option to purchase silver and gold produced at the mine for a deep discount from the spot price (as much as 75%). Streams are typical in mines where silver and gold are byproducts of base metal mining. The best part is, after the initial capital is

American Consequences


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