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How Royalty Companies Manage Risk for Superior Returns

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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.

YearVeladero Mine RevenueProfit after AISC Deducted2.5% Royalty of Revenue2.5% 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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Misc

Charted: The End-of-Life Recycling Rates of Select Metals

End-of-life recycling rates measure the percentage of a material that is recovered at the end of its useful life, rather than being disposed of or incinerated.

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A chart ranking the end-of-life recycling rates (EOL-RR) of commonly used metals in the economy, per 2021 data from the International Energy Agency.

Charted: The End-of-Life Recycling Rates of Select Metals

This was originally posted on our Voronoi app. Download the app for free on Apple or Android and discover incredible data-driven charts from a variety of trusted sources.

We visualize the end-of-life recycling rates (EOL-RR) of commonly used metals in the economy. Data is sourced from the International Energy Agency, last updated in 2021.

ℹ️ EOL-RR is the percentage of a material or product that is recycled or recovered at the end of its useful life, rather than being disposed of in landfills or incinerated.

Tracking recycling rates helps manage resources better and make smarter policies, guiding efforts to cut down on waste.

Ranked: The End of Life Recycling Rates of Select Metals

Gold has an 86% recycling rate according to the latest available data. Per the Boston Consulting Group, one-third of total gold supply was met through recycling between 1995–2014.

MetalEnd-of-life recycling
rate (2021)
🔍 Used In
Gold86%💍 Jewelry / Electronics
Platinum/Palladium60%🔬 Optical fibers / Dental fillings
Nickel60%🔋 Batteries / Turbine blades
Silver50%💍 Jewelry / Mirrors
Copper46%🔌 Electrical wiring / Industrial equipment
Aluminum42%✈️ Aeroplane parts / Cans
Chromium34%🍽️ Stainless steel / Leather tanning
Zinc33%🔗 Galvanizing metal / Making rubber
Cobalt32%🔋 Batteries / Turbine engines
Lithium0.5%🔋 Batteries / Pacemakers
REEs0.2%📱 Mobile phones / Hard drives

Note: Figures are rounded.

Several factors can influence metal recycling rates. According to this International Resource Panel report, metals that are used in large quantities (steel) or have a high value (gold) tend to have higher recycling rates.

However, for materials used in small quantities in complex products (rare earth elements in electronics), recycling becomes far more challenging.

Finally, a metal’s EOL-RR is strongly influenced by the least efficient link in the recycling chain, which is typically how it’s initially collected.

Learn More on the Voronoi App

If you enjoyed this post, check out Critical Materials: Where China, the EU, and the U.S. Overlap which shows how critical materials are classified within different jurisdictions.

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Misc

Companies with the Most Fossil Fuel and Cement CO2 Emissions

Half of the world’s total fossil fuel and cement carbon dioxide emissions in 2023 came from just 36 companies.

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Half of the world’s carbon dioxide emissions in 2023 came from just 36 companies. Here, we chart the world's biggest polluters.

Companies with the Most Fossil Fuel and Cement CO2 Emissions

This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.

Key Takeaways

  • Half of the world’s fossil fuel and cement carbon dioxide emissions in 2023 came from just 36 entities, according to a report by the Carbon Majors Project
  • If Saudi Aramco were a country, it would be the fourth-largest polluter in the world, after China, the U.S., and India.
  • Five publicly traded oil companies—ExxonMobil, Chevron, Shell, TotalEnergies, and BP—together accounted for 5% of global carbon dioxide emissions from fossil fuels.

Chinese Companies Dominate the List

This graphic is based on Carbon Majors, a database of historical production data from 180 of the world’s largest oil, gas, coal, and cement producers representing 169 active and 11 inactive entities.

In 2023, the top 20 highest carbon-producing entities were responsible for 17.5 gigatonnes of carbon dioxide equivalent (GtCO₂e) in emissions, accounting for 40.8% of global fossil fuel and cement CO₂ emissions. The list is largely dominated by state-owned companies, with 16 of the top 20 being state-controlled. Notably, eight Chinese entities contributed to 17.3% of global fossil fuel and cement CO₂ emissions in 2023.

EntityTotal emissions (MtCO2e)Global CO2 emissions (%)
1Saudi Aramco4.4%
2Coal India3.7%
3CHN Energy3.7%
4Jinneng Group2.9%
5Cement industry of China2.8%
6National Iranian Oil Company2.8%
7Gazprom2.3%
8Rosneft1.9%
9Shandong Energy1.7%
10China National Coal Group1.7%
11Abu Dhabi National Oil Company1.6%
12CNPC1.6%
13Shaanxi Coal and Chemical Industry Group1.6%
14Iraq National Oil Company1.3%
15Shanxi Coking Coal Group1.3%
16ExxonMobil1.3%
17Sonatrach1.2%
18Chevron1.1%
19Kuwait Petroleum Corp.1.0%
20Petrobras1.0%
21Shell0.9%
22Pemex0.9%
23TotalEnergies0.8%
24QatarEnergy0.8%
25Lukoil0.8%
26BP0.8%
27Glencore0.7%
28China Huaneng Group0.7%
29Luan Chemical Group0.7%
30Equinor0.7%
31Peabody Energy0.7%
32Nigerian National Petroleum Corp.0.6%
33CNOOC0.6%
34ConocoPhillips0.6%
35Eni0.6%
36Petronas0.5%

Coal continued to be the largest source of emissions in 2023, representing 41.1% of emissions in the database and continuing a steady upward trend since 2016. Coal emissions grew by 1.9% (258 megatonnes of carbon dioxide equivalent – MtCO₂e) from 2022, while cement saw the largest relative increase at 6.5% (82 MtCO₂e), driven by expanding production.

In contrast, natural gas emissions fell by 3.7% (164 MtCO₂e), and oil emissions remained stable with only a slight increase of 0.3% (73 MtCO₂e).

Learn More on the Voronoi App

To learn more about this topic, check out this graphic that shows greenhouse gas emissions by sector in 2023, according to data was compiled by the United Nations. The power sector remains the largest emissions contributor.

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