Royalties
A royalty is a right to a share of a mine's revenue, paid for its whole life. It is a common way to fund exploration and development without selling shares.
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A royalty gives its holder a percentage of a mine's revenue for the life of the mine, in return for money paid today.
What it is
The royalty holder pays upfront. In return, it receives a slice of revenue from every tonne the mine ever sells. The holder does not own the project, pay its costs or run it. Royalties are paid only once the mine produces, so their value depends on the project getting built.
The main types
| Type | Paid on | Notes |
|---|---|---|
| Revenue after cost of sale | By far the most common | |
| Gross revenue royalty | Revenue before any deductions | Simpler, worth slightly more to the holder |
| Net profits interest (NPI) | Profit after operating and often capital costs | Higher rates, but paid only when the mine is profitable |
| Sliding-scale royalty | Revenue, with a rate that changes with the metal price | Shares upside and downside with the price |
| Fixed per-tonne royalty | A set amount per tonne mined or processed | Common for bulk commodities |
Government royalties are separate. They are a tax set by law, not a financing: see government take.
How the money flows
Who buys and sells royalties
- Royalty companies buy royalties on projects at every stage, from exploration to production.
- Royalty generators explore ground, sell or option it to others, and keep a royalty.
- Vendors often keep a royalty when they sell a project.
- Owners sell new royalties on their projects to raise money without dilution.
Typical terms
| Item | Typical range |
|---|---|
| NSR rate | 0.5–3% (1–2% is common) |
| NPI rate | Often 5–15% of profit |
| Buyback | Part of the royalty can often be bought back for a set price, for example half before a construction decision |
| Area of interest | Covers the licence, sometimes nearby ground acquired later |
Advantages and disadvantages
| For the project owner | For the royalty holder | |
|---|---|---|
| Advantages | No dilution, no repayment, no loss of control | Exposure to price and exploration upside with no operating or capital costs |
| Disadvantages | A permanent claim on revenue; too many royalties can make a mine harder to finance | No control; nothing paid until production; depends on the operator |
Royalties stack. Two or three royalties on the same project add up to a revenue burden that lenders and buyers will check.
To try the numbers, use the deal calculator on the Karoo-12 project page.
Terms and ranges are indicative and vary by market, jurisdiction and project. This is educational material, not investment advice.
Key terms
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Educational material only. Nothing here is investment advice or an offer to buy or sell any security or mineral interest.