What is a Royalty Company
Royalty companies provide specialised finance that helps to fund exploration projects and production operations. Royalty companies are an excellent source of third party validation of precious metals production numbers, but they are not included in the production totals – these are associated with the original mining company.
Royalty companies can be split in the following ways:
- Strategic Investment companies (that buy long term investments, creating primary royalties, in mining facilities, including the following publicly quoted companies: Franco-Nevada, Royal Gold,, Trident Royalties plc, Triple Flag, Sandstorm Gold, Wheaton Precious Metals and Osisko Gold Royalties)
- Royalty Acquisition companies (that buy secondary royalties – effectively trading in existing royalties, including: Elemental Altus Royalties, Metalla Royalty, Vox Royalty, Altius Minerals, Sailfish Royalty, Empress Royalty, and Gold Royalty)
- Royalty Generation companies (who generate primary royalties, EMX Royalty and Orogen Royalties are examples. Juniors classified as project generators are also included in this category),
- Mining or Mining Investment companies (mining industry companies who sell their properties but retain an interest by attaching an NSR to the property sold).
Many facilities are subject to royalty agreements, typically a “Net Smelter Return” (NSR), which reward the royalty company for their investment.
Primary royalties are a direct investment in the mine and require the royalty company to negotiate the royalty agreement with the mine operator
A secondary royalty is an existing royalty that the royalty company acquires from the holder of the royalty rights
What is an Net Smelter Return?
Net Smelter Return (NSR) is the net revenue that the owner of a mining property receives from the sale of the mine’s metal products less transportation and refining costs. As a royalty it refers to the fraction of net smelter return that a mine operator is obligated to pay the owner of the royalty agreement.
A royalty agreement involves the mining company receiving an upfront payment in return for the royalty company (or maybe another mining company) having the right to receive a percentage of future gold production from the mining operation.
Metal Streaming
A metal streaming deal involves a streaming or royalty company receiving the right to purchase gold production – at a price determined when the agreement is struck – in return for a payment. The primary difference between a royalty and a stream is that the latter includes fixed ongoing payments for each ounce of gold purchased. Also, unlike hedging, royalty and streaming deals may not bring gold to the market before it is mined.