Mining is for suckers. 

As the editor of a resource and mining advisory, some people will think I've lost my mind saying this. After all, I've recommended plenty of mining companies to my readers... and most readers love the idea of owning miners right now. 

I also need to keep good relationships with industry insiders. Calling them suckers doesn't help my efforts here. So why am I telling you "mining is for suckers"? 

Well... strictly from a business standpoint, mining sucks.There's a far better way to profit from precious metals. I'll tell you about that in a second. But first let's look at mining as a business... 

For one, just looking for gold, silver, or copper is expensive. You have to rent or buy pricy drilling equipment. You have to rent or buy chunks of land... often in countries you wouldn't take the family to. And what do you get for all of this searching? Fewer than one in 3,000 drilling efforts results in a mineable deposit. 

Second, if by the grace of God you actually find a big deposit, it can cost more than $1 billion to build a mine. You have to raise money to pay for huge ore-processing facilities, huge dump trucks, huge excavators, huge everything. You'll need to hire an army of skilled workers to build and operate all that equipment. Construction and permitting take a lot of time. It can take years to build even a modest mine, and that means years before you actually have anything to sell. 

Oh... and for your efforts, you're selling a commodity just like everyone else's. There's no special brand of gold or uranium. You have no "pricing power" like Apple has with its iPods. You're also subject to crazy swings in the price of your product, which you have no control over. 

Yes, the great majority of the time, the business of mining is for suckers. Most mining investors – public and private – lose their shirts in it. 

Now, mining companies can make for great trades when commodity prices rise, but investors looking to profit in gold and silver should focus their energy on royalty companies. 

A gold or silver royalty company makes money in mining, but it's not a mining company at all. It's an accounting firm. Royalty companies invest in mining projects in return for a slice of the production that comes down the line. For instance, my readers are making great money in a company called Royal Gold. 

Royal Gold's business takes place mainly in boardrooms, not open pits. The company's specialty is evaluating mining projects and buying royalties. That means it exchanges cash today for a long-term supply of gold from the mine. Most of its earnings convert cleanly to cash on the bottom line. 

Royal Gold owns royalties on some of the world's great mines, like Goldcorp's Peñasquito project in Zacatecas, Mexico. The project contains 17.4 million ounces of gold and 1 billion ounces of silver reserves. Royal Gold owns 2% of that reserve, which has grown 76% since the company bought the royalty. 

Because it's such a fantastic business, Royal Gold's share price has outperformed most every gold mining company over the past few years. Its share price is actually higher than it was in the pre-crash days of last summer. Not many stocks can make that claim. 

Royal Gold and its peers in the precious-metals royalty business are great stocks to buy when folks panic out of gold plays like they did last year. If you want to avoid the risky business of mining – but still get the big upside precious metals can offer – check out the incredible royalty business. 

Good investing, 

Matt Badiali 

P.S. I just told my readers about an extraordinary royalty stock to buy right now in this month's issue of the S&A Oil Report. With the cash flowing into this company from mining royalties – coupled with a special income strategy I use – we should conservatively make 25% in two months here. 

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