Investors looking for an alternative way to invest in gold stocks may want to consider gold royalty and streaming companies like Franco-Nevada Corp (FNV -1.30%) and Royal Gold (RGLD 0.78%). Through royalty and streaming agreements, Franco-Nevada and Royal Gold provide investors with exposure to the upside of commodity price, reserve, and production increases. Because these companies are not generally involved in operational or development management, they can acquire large and diversified royalty and streaming portfolios without large development or administrative costs.

Franco-Nevada 2013 results
Franco-Nevada recently reported year end results for 2013. For the 2013 fiscal year, Franco-Nevada produced 241,000 gold equivalent ounces and achieved oil and gas revenue of $67 million. Total revenues were $401 million while net income was $11.7 million, which included after-tax impairment charges of $114 million . An impairment charge of $107.9 million was recorded on Franco-Nevada's McCreedy precious metal stream as KGHM International Ltd. announced cessation of production of contact nickel ores because its off-take contract has been cancelled.

This impairment charge highlights one of the main risks to gold royalty and streaming companies. Franco-Nevada derived 67% of its 2013 revenues from gold royalties and streams, approximately 13% from platinum based metals, and approximately 17% from oil and gas. For 2014, Franco-Nevada is expecting to receive between 245,000 to 265,000 gold equivalent ounces from its mineral assets and $60 to $70 million in revenue from its oil and gas assets .

New ways to make money
Along with traditional royalty and streaming agreements, Franco-Nevada has recently been expanding into gold royalty and stream financing. This kind of financing provides gold juniors with an alternative to traditional financing that allows them to maximize cash flows and otherwise might not be available to them. In turn, it provides Franco-Nevada with great return potential at low risk. A recent example of this strategy is Franco-Nevada's steam transaction with Terango Gold Corporation. The deal provides Terrango with $135 million which they will use to acquire the balance of the Oromin Joint Venture Group and retire $30 million of debt.

In exchange Franco Nevada receives 22,500 ounces of gold for the first six years of project production and then 6% of production thereafter. Franco-Nevada's purchase price is set at 20% of spot gold and the agreement runs for 40 years. If we do some quick math we can see that over the first six years Franco-Nevada will receive a total of 135,000 gold ounces. Assuming an average spot gold price of $1,300 an ounce, Franco-Nevada would receive roughly $140 million after they paid the 20% spot gold price. Then they would receive 6% of Terango's gold production thereafter. With Terango projecting production of 250,000 to 350,000 ounces annually, this would provide Franco-Nevada with over $15 million annually at the low end of production assuming an average spot price of $1,300 an ounce.

Royal Gold
Royal Gold reported Q2 2014 net income of $10.7 million on revenue of $52.8 million. This compares to net income of $27.2 million on revenue of $79.9 million for Q2 2013. The decrease is mainly attributable to 26% realized lower metal prices and 11% lower production volume subject to Royal Gold's interests. Royal Gold had current assets of $729 million compared to current liabilities of $24.2 million for a current ratio of 30 to 1 as of December 31, 2013. Royal Gold has a credit facility of $450 million, which along with its great cash position means it will have no problem with purchasing new royalties or streams without having to borrow further or raise equity.

Recently, Thompson Creek Metals (TCPTF) announced start-up production at its Mt. Milligan property. Once Mt. Milligan reaches commercial production, this will be one of Royal Gold's primary gold streams as it will receive 52.25% of the refined gold production at a cost of $435 per ounce. Royal Gold has paid a total of $781.5 million for the stream, but should realize a good reward as production is expected to average 194,000 ounces over the 22-year life of the mine . If we assume a gold price of $1,300 an ounce, Royal Gold is set to receive approximately $87 million per year from this stream. Of course, there is always the risk that production will be less than anticipated or that the mine will prove uneconomical for Thompson Creek and be shut down.

Foolish takeaway
Gold royalty and streaming companies like Franco-Nevada and Royal Gold provide investors with exposure to rising gold prices, but unlike traditional gold miners once the royalty or stream is purchased there are no ongoing operational or development costs. These companies can also benefit from future expansions and exploration discoveries made by the mine operators or developers. One major risk that these companies do face are impairment charges that occur when a royalty or stream stops because a mine is shut down, put on care and maintenance, or shifts focus to mining other materials.