Royalties are ongoing economic interests in the production or future production from a property and, depending on their terms and the laws applicable to the royalty and the project, in general have the following characteristics:
They are not subject to cash calls to fund exploration, development, capital or closure costs and so are lower risk in this respect than an operating interest.
They provide exposure to the upside of commodity price, reserve and production increases.
They can provide an interest on any new discoveries made on a property.
They do not involve operational or development management so a large number of royalties can be assembled without the need for significant corporate overheads.
Almadex’s royalties are nearly all Net Smelter Return Royalties (NSR) this term is not as accurate as it may have been in the past because much precious metal production does not go in concentrate to a smelter but goes directly as doré (gold and silver bullion with some minor impurities) bars to a refinery. Nevertheless, the time honoured term is still used.
A NSR is a percentage of gross revenues from the sale of product with minimal of defined deductions as specified in the royalty contract. Usually only such things as transportation costs from mill site to purchaser, sampling and assaying costs to determine the value of the product, insurance costs, and smelter charges (if applicable) are allowed. No deductions are taken with respect to capital or operating costs. Accordingly, the royalty holder receives cash flow at an early stage of the operation of the project.