What are royalties?
Royalties are an alternative form of financing that involves a one-time up-front payment in return for the right to a proportion of revenue, profit, or production. Royalties are most commonly created as a result of one of the following scenarios:
  • Through the exchange of capital in return for a royalty interest, typically used for funding development projects or providing additional liquidity;
  • as whole or part of the consideration to sellers of resources assets; and
  • to allow mining companies to pre-sell their by-product commodity exposure in polymetallic mines.
One of the key distinguishing features of royalties is that royalty holders do not have a working interest in the underlying project or tenements. Therefore, the royalty holder has no obligation to contribute additional capital for any purpose, including operating or capital costs and rehabilitation liabilities.
Summary of common royalties
Revenue based royalties “Top-line” interests paid based on production or revenue with defined deductions as specified by the royalty contract
Profit based royalties Royalties paid as a percentage of profit
Fixed royalties Royalties paid based on a set rate per tonne mined, produced, ore processed; meaning that changes in the underlying commodity price do not alter the royalty amounts
What are streams?
What is a royalty company?
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