Investors can get gold and silver exposure in a number of different ways. You can obviously just buy the metals directly, but that often comes with high transaction costs and the need for storage. You can buy a mining company like Barrick Gold (NYSE:ABX) or Goldcorp (NYSE:GG), but operating mines is a dangerous and costly affair. Streaming is a slightly different way to get precious metals into your portfolio that you may have been overlooking -- which is where Wheaton Precious Metals (NYSE:WPM) comes in.

Gold with a twist

Streaming companies like Wheaton give cash up front to miners in exchange for the right to buy gold and silver in the future at reduced rates. The deals generally lock in low costs for Wheaton. On average, Wheaton's deals with producers have an average purchase price around $400 an ounce for gold and $4 an ounce for silver. That's well below current prices for these metals.    

A pick lies on a pile of gold nuggets.

Image source: Getty Images

The first, and most obvious, question is, why would a miner want to sell gold and silver for less than it could get on the spot market? The answer is access to cash. When precious-metals prices are low, capital markets and banks are often reluctant to give miners agreeable terms. That was a major issue in 2015, when miners were facing a cash crunch and commodity prices were in the doldrums. Wheaton inked deals with Vale and Glencore that year worth $1.8 billion. Opportunistic deals like these led to record production numbers in 2016.    

There's an important fact to take note of here: When miners struggle, Wheaton Precious Metals can step in and opportunistically grow its business. Sure, low gold and silver prices will hurt the company's top and bottom lines, but it was building for the future when miners such as Barrick Gold were trimming production in an effort to save money. For reference, Barrick's gold production fell nearly 10% in 2016 when Wheaton's production was hitting new record highs.    

Diversification

But all Wheaton did was fork over some cash at the right time. It never took on the risks of running a mine. That's why it might be best to think of it as something of a specialty finance company that owns a portfolio of mine investments. It just gets paid in gold and silver.

Wheaton Precious Metals visual explanation of streaming.

How streaming works. Image source: Wheaton Precious Metals. 

But step back and think about that for a second. Giant miner Goldcorp has 11 producing mines and eight major projects it's working on for the future. Wheaton has investments in 29 mines, eight of which are in development.    

If something goes wrong at one of Goldcorp's 11 mines, like a work stoppage, it could be a pretty big deal. If that were to happen at one of Wheaton's mine investments, it has a few dozen other properties to pick up the slack. Then there are the development projects. If costs go up at one of the mines Goldcorp is building, it has to pay up to get the project done. Wheaton only pays what it has contractually agreed to pay, nothing more. Its costs are fixed.

Worth a closer look

So Wheaton gives you exposure to gold and silver, it can benefit even when miners are struggling, and it has a more broadly diversified portfolio of assets than most miners do. That's a lot of positives, but there's one more: high margin through the entire business cycle.

WPM EBITDA Margin (TTM) Chart

WPM EBITDA Margin (TTM) data by YCharts

Notice that when times are good in the precious-metals industry, Barrick and Goldcorp have EBITDA margins that rival Wheaton's. But when times were bad, EBITDA margins at those two miners fell deep into the red, while Wheaton's margin stayed soundly in positive territory. That puts actual numbers behind the notion that Wheaton's streaming model is more stable than a miner's business.

If you're thinking about gold and silver miners, then stop right now. You need to broaden your view to include streaming companies such as Wheaton Precious Metals so you don't overlook an alternative approach to investing in the mining industry. You might just find that you prefer the streaming model once you learn the benefits it offers.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool owns shares of Vale S.A. The Motley Fool has a disclosure policy.