Misc

How Royalty Companies Manage Risk for Superior Returns

Published

1 month ago

October 22, 2021

Article/Editing:

Niccolo Conte

The following content is sponsored by Nomad Royalty

Balancing Risk for Royalty Companies vs. Mining Companies

Risk is at the forefront of every company’s decision-making, especially for mining companies that operate large-scale mines in various jurisdictions.

While producing precious metals naturally carries a variety of risks, there is another way to get exposure to precious metals production with much lower risk: royalty companies.

Royalty companies provide up-front capital to miners in exchange for royalties on future mine production, providing a steady stream of revenue and precious metal exposure with far less risk attached to the company.

This graphic sponsored by Nomad Royalty looks at the risks royalty companies and mining companies face, and how royalty companies are able to mitigate and diversify with more flexibility to deliver stronger returns.

Trimming from the Top Line

By providing capital in exchange for a royalty or stream on a mine, royalty companies are an essential part of mine funding across the world. Along with competitively priced capital for mine developers, the lifetime royalties or streams received in return ensure royalty companies are invested in a mine’s lifelong success.

Mining royalty: A recurring percentage (typically between 0.5% to 3%) of revenue generated from a mine’s ore and mineral sales, paid out to the royalty holder.

Mining stream: An agreement for a recurring purchase of a percentage of a mine’s produced metals, at a previously agreed upon price (typically lower than the metal’s current market value). Typically mines will offer streams on metal by-products of the mine.

Royalties and streams are known as non-participating interests, meaning that the holders (royalty companies) have no obligation or expectation to further fund or assist with the mine’s production.

Along with this, royalties are from a mine’s top line revenue, meaning that the percentage given to royalty holders is calculated before operational expenses, sales costs, and other expenses are deducted. The difference between top line revenue and profit after expenses can be massive, changing the value of a royalty by millions of dollars.

Year	Veladero Mine Revenue	Profit after AISC Deducted	2.5% Royalty of Revenue	2.5% Royalty of Profit
2015	$720M	$106M	$18M	$3.7M
2016	$685M	$252M	$17M	$6.3M
2017	$788M	$219M	$20M	$5.5M
2018	$732M	$90M	$18M	$2.3M
2019	$772M	$166M	$19M	$4.2M
2020	$666M	$62M	$17M	$1.5M

Source: Mining Data Online

Both of these factors have a massive impact on the value of a royalty, as they ensure steady revenue shielded from the mine’s operational costs while requiring no maintenance or upkeep from the holder.

Sleeker Business, Lower Expenses

The nature of royalty companies naturally enables them to be lightweight businesses with incredibly low expenses. Compared to the many employees with varying skills needed to manage orebody exploration, project construction, and daily mine operations, royalty companies only require a tight team of specialized individuals.

While the top three gold mining companies (Newmont Goldcorp, Barrick Gold, and Newcrest Mining) have an average of around 15,500 employees each, the top three precious metals royalty companies (Franco-Nevada, Wheaton Precious Metals, and Royal Gold) each have less than 50 employees.

With minimal G&A expenses and no exposure to fluctuating operational costs, royalty companies skirt large amounts of operational risk compared to mining companies. Setting up a royalty agreement carries far less risk and takes much less time compared to developing a mine, meaning royalty companies can be much more nimble and lock down future revenue more easily.

This protection from operational risk allows for steadier revenue to ride out the bumpy market cycles commodities can have, and royalty companies typically have dividend policies to reflect this operational and financial stability.

More Freedom to Diversify Risk

The lightweight nature of royalty companies allows them more freedom and flexibility to diversify a variety of risks. By spreading out their capital properly, many of the risks mining companies struggle to avoid can be easily sidestepped by a royalty company.

While many mining companies tend to cluster their operations in single regions based on the assets they own or can purchase, royalty companies can more freely decide on which jurisdictions to set up royalty agreements. This also includes the perk of spreading out counterparty risk, as royalty companies can choose to work with a diverse selection of mine operators.

Along with diversifying royalties across jurisdictions and counterparties, royalty companies can carefully tune their portfolio’s exposure to specific commodities, unlike mining companies who cannot change what they find underground.

Royal Rewards for Reduced Risk

If having reduced exposure to this variety of risks wasn’t enough, royalty companies reap a variety of benefits compared to mine operators. Since royalty and stream agreements often last for the life of a mine, royalty holders receive the benefits of resource extension and mine expansion at no additional cost.

They also benefit from increases in precious metals prices, as increases in a mine’s revenue is reflected for royalty and stream holders as well. In times of metals price downturns, royalty companies are protected by their high margins and can use their cash reserves and credit to invest in royalties at a discount.

With far more freedom and flexibility in diversifying their risk, precious metals companies like Nomad Royalty provide investors exposure to gold and silver while protecting them from the many risks that plague the mining industry.

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The Largest Copper Mines in the World by Capacity

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Misc

The Largest Copper Mines in the World by Capacity

Where are the world’s largest copper mines, and just how large are they? Here are the 20 largest copper mines by capacity.

Published

2 months ago

October 12, 2021

Govind Bhutada

The Largest Copper Mines in the World

Copper is one of the most-used metals in the world, for good reason.

Global copper production has expanded with populations and economies, especially in China, which consumed 54% of the world’s refined copper in 2020. Copper’s demand comes from various industries, ranging from construction to renewable energy.

But before copper reaches its array of end-uses, miners have to extract and refine from deposits within the ground. So where are the world’s largest copper mines, and just how large are they?

Types of Copper Deposits

The location of mines ultimately depends on the occurrence and discovery of copper deposits. There are two main types of copper deposits:

Porphyry deposits:
These are copper ore bodies formed from hydrothermal fluids from magma chambers that lie deep below the deposit.
Sediment-hosted deposits:
These deposits are formed when copper-bearing fluids mix with permeable sedimentary and volcanic rocks.

Copper is primarily sourced from porphyry deposits, which are concentrated in the Americas. Therefore, many of the world’s largest copper mines operate in this region.

Top 20 Copper Mines by Capacity

North, South, and Central America collectively host 15 of the 20 largest copper mines. These three regions combine the capacity for nearly 36% of global copper production in 2020.

Rank	Mine	Country	Annual Production Capacity (tonnes)	Capacity as a % Global Production†
1	Escondida	Chile 🇨🇱	1,400,000	7.0%
2	Collahuasi	Chile 🇨🇱	610,000	3.1%
3	Buenavista del Cobre	Mexico 🇲🇽	525,000	2.6%
4	Morenci	U.S. 🇺🇸	520,000	2.6%
5	Cerro Verde II	Peru 🇵🇪	500,000	2.5%
6*	Antamina	Peru 🇵🇪	450,000	2.3%
6*	Polar Division	Russia 🇷🇺	450,000	2.3%
8	Las Bambas	Peru 🇵🇪	430,000	2.2%
9	Grasberg	Indonesia 🇮🇩	400,000	2.0%
10	El Teniente	Chile 🇨🇱	399,000	2.0%
11*	Chuquicamata	Chile 🇨🇱	370,000	1.9%
11*	Los Bronces	Chile 🇨🇱	370,000	1.9%
11*	Los Pelambres	Chile 🇨🇱	370,000	1.9%
14	Kansanshi	Zambia 🇿🇲	340,000	1.7%
15	Radomiro Tomic	Chile 🇨🇱	330,000	1.7%
16*	Kamoto	Congo 🇨🇩	300,000	1.5%
16*	Cobre Panama	Panama 🇵🇦	300,000	1.5%
18	Bingham Canyon	U.S. 🇺🇸	280,000	1.4%
19	Toquepala	Peru 🇵🇪	265,000	1.3%
20	Sentinel	Zambia 🇿🇲	260,000	1.3%

*Mines with equal capacities have the same rankings. †2020

The Escondida Mine in Chile is by far the world’s largest copper mine. Its annual capacity of 1.4 million tonnes means that it can produce more copper than the second and third-largest mines combined.

Porphyry copper deposits are often characterized by lower grade ores and are mined in open pits. As a result, some of the top copper mines are also among the world’s largest open pits. The Bingham Canyon Mine (seen below) in Utah, United States, is the deepest open pit with a depth of 1.2 km. It’s also the largest man-made excavation on Earth, spanning 4 km wide.

Chuquicamata and Escondida are the second and third-deepest open pits, respectively.

Indonesia’s Grasberg Mine is another notable name on this list. It produces both gold and copper on a massive scale and has the world’s largest known reserve of gold and the second-largest reserve of copper.

Overall, the top 20 mines have the capacity to produce nearly nine million tonnes of copper annually—representing 44% of global production in 2020. However, with demand for refined copper expected to rise 31% between 2020 and 2030, these existing sources of supply might not be enough.

Falling Grades, Rising Demand: New Mines on the Block?

According to the International Energy Agency, average copper ore grades in Chile have declined by 30% in the last 15 years. Since Chile’s mines produce more than one-fourth of the world’s copper, these falling ore grades could be a cause for concern—especially with a deficit looming over the market for refined copper.

New copper mining projects are becoming more valuable and it wouldn’t be surprising to see fresh names on the list of the largest copper mines. For example, the Kamoa-Kakula Mine, which started production in May 2021, is expected to churn out 800,000 tonnes of copper annually after expansion. That would make it the second-largest copper mine by capacity.

Misc

All the Metals We Mined in One Visualization

From iron ore to gold, over 3 billion tonnes of metals were mined in 2019. Which metals did miners produce?

Published

2 months ago

October 4, 2021

Govind Bhutada

All the Metals We Mined in One Visualization

Metals are all around us, from our phones and cars to our homes and office buildings.

While we often overlook the presence of these raw materials, they are an essential part of the modern economy. But obtaining these materials can be a complex process that involves mining, refining, and then converting them into usable forms.

So, how much metal gets mined in a year?

Metals vs Ores

Before digging into the numbers, it’s important that we distinguish between ores and metals.

Ores are naturally occurring rocks that contain metals and metal compounds. Metals are the valuable parts of ores that can be extracted by separating and removing the waste rock. As a result, ore production is typically much higher than the actual metal content of the ore. For example, miners produced 347 million tonnes of bauxite ore in 2019, but the actual aluminum metal content extracted from that was only 62.9 million tonnes.

Here are all the metals and metal ores mined in 2019, according to the British Geological Survey:

Metal/Ore	Quantity Mined (tonnes)	% of Total
Iron Ore	3,040,000,000	93.57%
Industrial Metals	207,478,486	6.39%
Technology and Precious Metals	1,335,848	0.04%
Total	3,248,814,334	100%

Miners produced roughly three billion tonnes of iron ore in 2019, representing close to 94% of all mined metals. The primary use of all this iron is to make steel. In fact, 98% of iron ore goes into steelmaking, with the rest fulfilling various other applications.

Industrial and technology metals made up the other 6% of all mined metals in 2019. How do they break down?

Industrial Metals

From construction and agriculture to manufacturing and transportation, virtually every industry harnesses the properties of metals in different ways.

Here are the industrial metals we mined in 2019.

Metal	Quantity Mined (tonnes)	% of Total
Aluminum	62,900,000	30%
Manganese Ore	56,600,000	27%
Chromium Ores and Concentrates	38,600,000	19%
Copper	20,700,000	10%
Zinc	12,300,000	6%
Titanium (Titanium Dioxide Content)	6,300,000	3%
Lead	4,700,000	2%
Nickel	2,702,000	1%
Zirconium Minerals (Zircon)	1,337,000	1%
Magnesium	1,059,736	1%
Strontium	220,000	0.11%
Uranium	53,400	0.03%
Bismuth	3,700	0.002%
Mercury	2,400	0.001%
Beryllium	250	0.0001%
Total	207,478,486	100%

Percentages may not add up to 100 due to rounding.

It’s no surprise that aluminum is the most-produced industrial metal. The lightweight metal is one of the most commonly used materials in the world, with uses ranging from making foils and beer kegs to buildings and aircraft parts.

Manganese and chromium rank second and third respectively in terms of metal mined, and are important ingredients in steelmaking. Manganese helps convert iron ore into steel, and chromium hardens and toughens steel. Furthermore, manganese is a critical ingredient of lithium-manganese-cobalt-oxide (NMC) batteries for electric vehicles.

Although copper production is around one-third that of aluminum, copper has a key role in making modern life possible. The red metal is found in virtually every wire, motor, and electrical appliance in our homes and offices. It’s also critical for various renewable energy technologies and electric vehicles.

Technology and Precious Metals

Technology is only as good as the materials that make it.

Technology metals can be classified as relatively rare metals commonly used in technology and devices. While miners produce some tech and precious metals in large quantities, others are relatively scarce.

Metal	Quantity Mined in 2019 (tonnes)	% of Total
Tin	305,000	23%
Molybdenum	275,000	21%
Rare Earth Elements	220,000	16%
Cobalt	123,000	9%
Lithium	97,500	7%
Tungsten	91,500	7%
Vanadium	81,000	6%
Niobium	57,000	4%
Cadmium	27,500	2%
Tantalum	27,000	2%
Silver	26,261	2%
Gold	3,350	0.3%
Indium	851	0.06%
Platinum Group Metals	457	0.03%
Gallium	380	0.03%
Rhenium	49	0.004%
Total	1,335,848	100.00%

Percentages may not add up to 100 due to rounding.

Tin was the most-mined tech metal in 2019, and according to the International Tin Association, nearly half of it went into soldering.

It’s also interesting to see the prevalence of battery and energy metals. Lithium, cobalt, vanadium, and molybdenum are all critical for various energy technologies, including lithium-ion batteries, wind farms, and energy storage technologies. Additionally, miners also extracted 220,000 tonnes of rare earth elements, of which 60% came from China.

Given their rarity, it’s not surprising that gold, silver, and platinum group metals (PGMs) were the least-mined materials in this category. Collectively, these metals represent just 2.3% of the tech and precious metals mined in 2019.

A Material World

Although humans mine and use massive quantities of metals every year, it’s important to put these figures into perspective.

According to Circle Economy, the world consumes 100.6 billion tonnes of materials annually. Of this total, 3.2 billion tonnes of metals produced in 2019 would account for just 3% of our overall material consumption. In fact, the world’s annual production of cement alone is around 4.1 billion tonnes, dwarfing total metal production.

The world’s appetite for materials is growing with its population. As resource-intensive megatrends such as urbanization and electrification pick up the pace, our material pie will only get larger.