Introduction
If you are comparing gold industry equities, you probably already know gold itself is one thing and a company that digs it up is another. This article explains how to value and compare the three main business types you will see listed: operating miners, developers, and royalty/streaming companies. No hype, just the metrics, the model inputs, and practical steps you can follow.
What Is a miner, developer, and royalty/streaming company?
Short definitions up front:
- Miners operate producing gold mines. They sell gold they extract and carry operating costs, capital spending, and commodity price risk.
- Developers are building mines. They have resources and studies but are not yet in steady commercial production. Their value depends on project delivery and financing.
- Royalty and streaming companies provide capital to miners in return for a slice of future revenue or the right to buy metal at set prices. They do not run mines.
Analogy: miners are the farmers growing the crop, developers are farmers building greenhouses, and royalty/streaming firms are the landlords who get rent regardless of how the farming is done.
What is the core difference when valuing each type?
The core difference is where the operational and execution risk sits and which cash flows you model. Miners and developers require project-level modelling of production, costs, capex, taxes, and sustaining capital. Royalties and streams are contract-driven and depend more on the quality and diversification of the underlying portfolio and contract terms.
How it works: Key concepts to model
For miners and developers
- Resources vs Reserves — resources are estimated quantities; reserves are economically extractable. Reserves drive production schedule assumptions.
- Production profile — annual ounces produced over the life of mine.
- Costs — All-In Sustaining Costs (AISC) is the industry standard for per-ounce cost including sustaining capex. Also consider all-in costs including expansion capex for developers.
- Capital expenditure (capex) — initial build and sustaining capex matter most for developers and early-stage miners.
- Discount rate — higher for riskier projects; drives NAV calculation.
Note: AISC is a blunt but useful metric for comparing operating efficiency across miners.
For royalty and streaming companies
- Contract terms — percentage royalties, fixed oz deliveries, or life-of-mine streams differ. Streams often pay a fixed dollars-per-ounce or a small percentage of spot.
- Portfolio quality — number of assets, geographic spread, and operator quality affect stability.
- Net present value of future receipts — royalty companies are often valued as a portfolio of future cash flows discounted at a lower rate vs risky project operators.
Note: Royalty streams reduce operational risk exposure, but counterparty and concentration risk remain.
Step-by-step framework to value and compare
- Gather public inputs: reserves and resources, production guidance, AISC, capex schedule, feasibility studies, streaming/royalty contracts, and recent company presentations.
- Build a base production model: yearly ounces produced for the life of mine with an estimate of recovery and grade trends.
- Estimate cash flows: for miners, use revenue = production * gold price; subtract AISC, royalties, taxes, and sustaining capex. For streamers, estimate receipts according to contract terms.
- Calculate NAV: discount project or portfolio cash flows using an appropriate rate (higher for developers, lower for diversified royalty companies). Subtract net debt for equity NAV.
- Run scenario analysis: vary gold price, capex overruns, and production delays to produce downside and upside NAVs.
- Compare market multiples: EV/2025E EBITDA, EV/ounce produced, and EV/reserve ($ per ounce in proven and probable reserves). Consider premium/discount to NAV.
Worked examples
Example 1: Operating miner simplified NAV
Inputs: annual production 150,000 ounces, AISC 950 per ounce, gold price 1,800 per ounce, mine life 10 years, sustaining capex 10m per year, discount rate 8%.
annual_cash = production * (gold_price - AISC) - sustaining_capex
NPV = sum(annual_cash / (1 + discount)^t) for t = 1..10
Interpretation: If NPV is positive and significantly above market cap after accounting for taxes and initial debt, the company may look cheap. If production or AISC moves unfavorably, the NAV falls fast.
Example 2: Streaming company simplified valuation
Inputs: a stream entitles company to 10% of production from a mine or to buy 10,000 oz per year for 20 years at 400 per oz. Assume operator projects 100,000 oz/year and gold price 1,800.
if percentage stream:
annual_receipt = stream_rate * operator_production * gold_price
if fixed-price stream:
annual_receipt = ounces_delivered * (gold_price - fixed_purchase_price)
NPV_stream = sum(annual_receipt / (1 + discount)^t)
Royalty/stream value hinges on contract longevity and whether production surprises are likely.
Example 3: Developer risk premium
Developers often look similar on paper to miners but you must add probability adjustments for construction success and financing. If feasibility shows positive NPV but you estimate a 60% chance of successful build, apply a project success factor to the NAV.
risk_adjusted_NAV = project_NAV * project_success_probability
Comparisons
| Option | When It Fits | Pros | Cons | Common Pitfalls |
|---|---|---|---|---|
| Operating miners | You want exposure to production growth and leverage to gold price | Direct upside with rising gold price, visible cash flows, operational optionality | High capex and operational risk, margin compression if costs rise | Underestimating AISC and future sustaining capex |
| Developers | You accept execution and financing risk for higher upside if project is built | Large potential upside if feasibility converts to production | Binary outcomes, large dilution risk, long timelines | Over-reliance on optimistic feasibility numbers and CAPEX underestimates |
| Royalty/streaming companies | You prefer lower operational risk and steady cash flow growth | Lower capital intensity, portfolio diversification, attractive yields in many cycles | Exposure to operator risk and portfolio concentration, less leverage to spot price per ounce in some contracts | Ignoring counterparty concentration and early-stage asset quality |
Timeline (short)
- 1980s: royalty model gets traction with early pioneers.
- 2004: the streaming model expands with firms like Wheaton River popularizing upfront financing for future metal.
- 2010s: royalty/streaming financing grows significantly as an alternative to equity/debt.
- 2019: major industry consolidation continued, underscoring scale benefits for operators.
- 2020s: royalty and streaming companies often outperformed traditional miners in some periods due to lower operational risk.
Why it matters to you
Understanding these differences helps match choices to your risk tolerance and investment thesis. If you want lower execution risk and portfolio income, royalties/streams often fit better. If you seek higher operational leverage and accept volatility, producing miners or successful developers may fit. Always use NAV and scenario analysis rather than headline multiples alone.
FAQs
Which gold equities are the best?
There is no single best. It depends on your goals: income and lower operational risk point to royalty/streaming names; growth and leverage to commodity prices point to miners and successful developers. Compare NAV, production profiles, AISC, and contract quality.
Where are the US gold reserves located?
The US holds official gold reserves in several federal depositories, commonly cited locations include Fort Knox, Denver, and West Point. For precise, up-to-date holdings consult official government reports.
Does gold go up in a recession?
Gold is often perceived as a safe-haven and has risen in some recessions, but it is not guaranteed. Real interest rates, the US dollar, and monetary policy typically have a larger short-term influence than recession status alone.
Is gold a hedge against inflation?
Over long periods gold has been used as an inflation hedge, but the relationship is imperfect and volatile. When valuing equities, model a range of real and nominal gold price outcomes rather than a single inflation assumption.
Next steps
- Collect the company filings: resource and reserve statements, AISC and guidance, feasibility studies, and streaming/royalty contracts.
- Build a simple NAV model for one miner and one royalty company using the formulas above and run three price scenarios for gold.
- Compare market cap vs NAV, and check debt levels, permitting timelines, and operator quality for each underlying asset.
- Consider diversification across business models rather than betting on a single company type.
Disclaimer
This article is for educational purposes only. It does not constitute investment advice or a recommendation to buy or sell any securities. Valuation requires up-to-date inputs and professional judgement. Check primary sources and consult a licensed advisor before making investment decisions.
