In exchange for an initial payment, Star Royalties is given the right to receive a percentage of revenue, profit or value of metal produced from a mining operation. Star Royalties owns various types of royalties as defined below:
Gross Revenue (GR) Royalty: A defined percentage of the gross value, revenue or proceeds from a resource extraction operation, without deductions of any kind.
Net Smelter Return (NSR) Royalty: A defined percentage of the gross revenue from a resource extraction operation, less a proportionate share of incidental transportation, insurance, refining and smelting costs.
In exchange for an initial payment, Star Royalties is given the right to purchase all or a predetermined amount or percentage of future metal production generated from a mining operation, at a predetermined below-market price. Streaming transactions typically represent larger investment opportunities than royalty transactions which allows for greater flexibility in the negotiation of terms and conditions, and generally offer both Star Royalties and its counterparties with tax advantages.
BENEFITS OF THE ROYALTY AND STREAMING BUSINESS MODEL
The Star Royalties approach is intended to provide investors with commodity price leverage, expansion, optimisation, and exploration upside, without the direct risk of operating cost inflation, exploration and capital expenditures, and logistical requirements of managing an operation.
|Commodity price leverage||✓||✓|
|Counterparty and shareholder alignment||✓|
|Expansion and optimisation upside||✓||✓|
|Reserve and resource growth||✓||✓|
|No operating costs||✓||✓|
|No capital expenditures||✓||✓|
|No exploration expenses||✓||✓|
|No environmental and closure liabilities||✓||✓|
|No operations management||✓||✓|
Once established, the royalty and streaming business model also benefits from greater risk diversification than is typical for larger mining companies. Royalty and streaming companies tend to own a large portfolio of assets diversified by operation, counterparty, jurisdiction and commodity, whereas mining companies are commonly dependent on only one or a few key mines or projects. The goal of a diversified royalty and streaming company is to act as a managed exchange-traded investment fund with the portfolio having exposure to multiple mines and mineral deposits, operators and jurisdictions.