Mineral exploration is a high-risk activity
and the cost can be substantial. While there is never an assurance that a
commercially exploitable deposit will result, projects usually require long lead
times where returns may not be realized for years. This is why small companies or
individuals turn to larger, more integrated firms to develop their property. Likewise,
larger firms, even with significant financial resources, turn to smaller companies or
individuals who may control a property with significant mineral potential, to avoid
the long lead times in mineral exploration.
After all, the goal of successfully negotiating a mining agreement is to provide maximum benefit to all parties.
One cannot discuss royalties without noting the impact royalties have on
project economics and mineral reserves. Royalties, no matter what
type, represent a direct operating cost to the project. Thus, royalties
have the direct impact of raising the the cost of a project.
Landowners generally prefer the NSR royalty to avoid the detail and
negotiations associated with net proceeds or net profits royalties.
Net proceeds royalties vary from 10-35 percent, depending on the agreement terms
and number of landowners involved.
(the preceeding is largely from the PDAC 2005 International
Convention March 6–9, 2005 and an article by Don Tschabrun)
2012 Outlook:
We expect that 2012 will see record M&A (Merger & Acquisition) volumes and values in the
global mining sector. With over $105 billions in cash, pent-up demand for new projects, rising production costs and declining developed world reserves, miners will seek out targets to build scale and achieve cost efficiencies. Activity will be underpinned by
continued demand for base and precious metals by the world’s rapidly industrialising nations. Competition for deals will be fierce.
(www.pwc.com/ca/miningdeals)
So Maybe there is some confusion as to just what type of Royalty we are dealing with here. Management assures us it does have a signed deal. It will be announced on a date already agreed upon. At any rate, expected value in the company greatly exceeding that presently represented by the $2 billion reported for the initial value of already drilled mineral claims is just a start. As a reminder, present drill results on the ALTO represent approximately 5 million tons of ore. Typical porphyry deposits of this type in this region of the world are 300-500 million tons, and are fairly homogenous in mineral content. I’d take either an NSR or net proceeds royalty of a project the size the ADL is shaping up to be. LDM is just icing on the larger cake. We’ll just have to wait until full details and results of both deals are officially announced. I look forward to an interesting and profitable number of years ahead for those of us invested in this company.
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