Royalty Companies’ Effect on Royalty Agreements and Other Recent Trends

This paper discusses the nature of a royalty and their uses.  Traditionally, royalties were granted when the owner of mineral claims sold or optioned them to another party, or when a joint venture partner was “diluted down” to a specified percentage interest in the joint venture, resulting in a loss of its participating interest in exchange for a royalty.

More recently, royalties have been used as a source of financing for mining companies.  In this connection, companies have emerged who buy royalties on advanced stage development projects.  The royalty agreements used by such royalty companies are usually much more comprehensive than royalty agreements used for the more traditional purposes.

This paper outlines certain common royalty provisions (the definition of “Property”; “taking in kind”, advance royalties, minimum royalties, capped royalties, right of owner to buy back the royalty; periodic reporting, auditing and site visits; owner control over decisions; commingling and unitization; confidentiality; hedging; abandonment of mineral interests; and rights of first refusal).  Additional provisions found in the more comprehensive “royalty company” agreements are also discussed, including representations and warranties, covenants, security, transfer of royalties, guarantees, tailings and residue, stockpiling and dispute resolution.

The paper also discusses the potential loss of royalties upon the bankruptcy and insolvency of the property owner.  This includes a discussion of determining whether a royalty interest is “an interest in land” or a mere contractual interest.

This paper was presented at the Continuing Legal Education (BC) Mining Law conference held on October 12th, 2017.