What is a Royalty?
Mining royalties are agreements that provide a mining company with a one-time payment in exchange for a share of future revenues. These are extremely flexible agreements that provide many benefits to both the royalty provider and the mining company.
A Better Way to Invest in Resources
Resource royalty companies invest in and hold royalties to provide investors with exposure to the value generated from the natural resources sector in a way that delivers key structural advantages over other forms of investment. Royalty investments are less exposed to the risks of capital and operating costs, while still providing investors with exposure to the price of the underlying commodity. Royalty businesses and those that invest in them can also benefit from the exploration and expansion success of the underlying project. Revenue based royalties, such as Deterra’s Mining Area C Royalty, can also have an advantageous position in a mining company’s capital structure, accessing cash flows from the asset ahead of debt and equity providers.
Benefits for Mining Companies
Royalty financing brings many advantages to the mining company versus traditional forms of financing. Compared to debt, royalty financing has longer terms and no fixed payments, is typically simpler to execute and has limited covenants. Compared to equity, it does not dilute existing shareholders, has no brokerage fees and is issued on the value of the project, not at a discount to the current share price. Overall, it is a flexible agreement that often better aligns the mining company and the financier.