What is the gold royalty industry?
The gold royalty industry provides financing to mining companies by acquiring a percentage of the future revenue or production from a mine. In exchange for providing capital for exploration or development, royalty companies receive payments based on the mine’s output, but they do not operate the mines themselves, which limits their exposure to operational costs and risks. This allows them to build diversified portfolios across multiple projects and jurisdictions.
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How the gold royalty industry works
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- Financing:Â A royalty company provides funding to a mining company that needs capital to explore or develop a gold mine.
- Agreement:Â In exchange, the royalty company receives a contract guaranteeing it a percentage of the mine’s future revenue (net smelter return) or a share of the production.
- Revenue collection: If the mine becomes profitable, the royalty company receives payments based on the amount of gold produced, often without having to incur the mine’s operational costs.
- Examples of agreements:Â Some contracts may be based on a percentage of profits after the operator has recovered its capital costs, while others are based on the gross revenue from the mine’s output.Â
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Key characteristics
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- Lower operating risk:Â Unlike mining companies, royalty companies do not have to deal with the high infrastructure and operating costs or the day-to-day management of a mine.
- Diversified portfolios:Â To mitigate risk, royalty companies often hold a diverse portfolio of agreements across different projects, stages of development, and geographic locations.
- Lower staff costs:Â Royalty companies typically have very lean operations, leading to high revenue per employee.
- Exposures to different metals:Â While gold and silver are the focus for many, some royalty and streaming companies also have interests in other commodities like oil.Â
Click here for a list of gold royalty companies
