lev-os Structuring Royalty And Streaming Deals
Designs royalty and streaming agreements with volume projections, delivery schedules, and implied return analysis.
When To Use
- Structuring a new royalty or streaming transaction on a producing or development-stage asset
- Evaluating an existing royalty/stream for acquisition, sale, or restructuring
- Comparing royalty economics (NSR, GOR, NPI, overriding royalty) against streaming economics (fixed delivery price per unit)
- Modeling implied returns and breakeven scenarios for passive resource exposure
- Advising on deal terms such as upfront deposit size, delivery thresholds, step-downs, and price participation mechanisms
Inputs To Gather
- Asset profile: commodity type (precious metals, base metals, oil & gas, bulk minerals), mine/well stage (producing, development, exploration), jurisdiction
- Reserve and resource estimates: proven/probable reserves, measured/indicated/inferred resources, expected mine life or well decline curve
- Production forecast: annual volume projections by commodity, ramp-up schedule, sustaining capex assumptions
- Royalty or stream terms: royalty rate or stream percentage, upfront deposit amount, ongoing per-unit cash payment (streams), minimum delivery commitments, make-whole or clawback provisions
- Commodity price assumptions: spot prices, forward curve, long-term consensus forecasts
- Operating cost data: cash costs, all-in sustaining costs (AISC), operator breakeven price
- Discount rate / hurdle rate: investor required return, comparable transaction benchmarks
- Tax and withholding: applicable royalty tax treatment, withholding rates on cross-border payments [VERIFY]
Workflow
Classify the instrument — Distinguish between royalty types (NSR, GOR, NPI, overriding royalty) and streaming agreements. Identify whether the deal is on a single asset, portfolio, or corporate-level interest. Flag hybrid structures (e.g., royalty with stream conversion option).
Build the production model — Construct annual production volumes using the operator's mine plan or decline-curve analysis. Apply recovery rates, grade assumptions, and processing factors. Stress-test with low/mid/high production scenarios.
Model cash flows to the royalty/stream holder — For royalties: apply the royalty rate to projected revenue (NSR) or gross output (GOR) net of allowable deductions. For streams: calculate delivered ounces/barrels at the stream percentage, subtract the ongoing per-unit cash cost, and apply commodity price assumptions. Include minimum delivery obligations and make-whole provisions if applicable.
Calculate implied returns — Compute IRR, NPV, and payback period on the upfront deposit or acquisition price. Run sensitivity tables across commodity price (+/− 20%), production volume (+/− 15%), and discount rate (6%–12%). Identify the breakeven commodity price for target return thresholds.
Assess delivery and credit risk — Evaluate operator financial health, counterparty credit, and completion risk for development-stage assets. Review security packages (offtake liens, step-in rights, insurance requirements). Flag concentration risk if the stream depends on a single mine or well.
Benchmark against comparables — Compare implied yield and upfront cost-per-reserve-unit to recent royalty/stream transactions. Reference public comps from Franco-Nevada, Wheaton Precious Metals, Royal Gold, Osisko, or analogous energy royalty companies. Note premium or discount to market and explain drivers.
Draft term sheet or deal memo — Summarize the proposed structure: upfront consideration, delivery schedule, ongoing cash payment, step-downs, price participation, anti-dilution provisions, area-of-interest clauses, and termination triggers. Include a recommendation on deal attractiveness with supporting return metrics.
Output
A structured deal analysis report containing:
- Executive summary: deal type, commodity, asset stage, headline return metrics (IRR, NPV, payback)
- Production and delivery schedule: annual volumes in tabular format with scenario bands
- Cash flow waterfall: year-by-year revenue to the royalty/stream holder under base, upside, and stress cases
- Return sensitivity matrix: IRR across commodity price and production volume combinations
- Comparable transaction table: recent deals with implied yield, cost per reserve ounce/barrel, and premium/discount
- Risk register: key risks (geological, operational, counterparty, commodity price, jurisdictional/regulatory) with mitigation notes
- Recommended term sheet: proposed commercial terms with rationale for each material provision
Quality Checks
- Verify that production volumes reconcile to the operator's published reserve/resource statement
- Confirm royalty rate or stream percentage matches the proposed term sheet — not a placeholder
- Ensure commodity price assumptions are sourced (forward curve date, consensus provider) and not stale
- Check that IRR and NPV calculations use consistent discounting conventions (mid-year vs. end-of-year)
- Validate that allowable deductions for NSR royalties match the contractual definition, not a generic industry assumption [VERIFY]
- Confirm tax treatment of royalty income vs. stream income in the relevant jurisdiction [VERIFY]
- Flag any minimum delivery shortfall scenarios and confirm the make-whole mechanics are correctly modeled
- Mark all jurisdiction-specific regulatory requirements (mining royalty regimes, export duties, indigenous royalty obligations) with [VERIFY]