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The Power of Optionality
The concept of optionality helps explain why mineral royalties, especially those that exist in perpetuity, are such powerful financial instruments.
Optionality refers to the potential for significant upside without a corresponding downside risk.
Let’s take a closer look at how it applies to mineral royalties and use our flagship AurMac/McQuesten Royalty for a real world context.
Royalties that exist in perpetuity grant the royalty holder a right to a portion of the revenue from a mine for as long as it produces. This means the holder benefits not only from the current operation but also from any future discoveries, expansions, or improvements made on the property the royalty covers.
Optionality: Future developments (e.g., new technologies, increased resource estimates, or rising commodity prices) could significantly boost production and revenue, enhancing the royalty holder’s returns.
The Aurmac (McQuesten) Royalty overlies portions of Banyan Gold’s Aurmac property which range between 0.5% to 2.0% NSR and covers a total of approximately *2342ha in the Yukon.
The latest inferred resource on the Aurmac property reported 7 Million Ounces Gold. This is still an early stage project and is already one of the largest gold resources in North America so any future development could significantly boost its value.
The royalty holder doesn’t fund exploration, mine development / expansion or production costs; they simply collect a percentage of the revenue. If the mining company discovers additional reserves or new deposits, the royalty holder benefits without bearing any of the associated costs.
Optionality: The royalty is akin to a free option on any future discoveries or improvements on the property.
Banyan Gold recently reported the highest grades to date with assays exceeding 11.00 g/t Au and up to 539.00 g/t Au. Exploration is focused on finding the intrusion but even if they never discover the high-grade source, there is no expense to Eagle Royalties.
Perpetual royalties provide exposure to the long-term upside of commodity prices. As gold, copper, or other mineral prices increase, so does the revenue generated by the mine, and thus the royalty payments.
Optionality: The royalty holder benefits from price surges without the risk of operational losses that mining companies face during price downturns.
The mineral resource estimate of a total inferred mineral resource of 7,003,000 ounces of gold was calculated in March 2024 at a gold price of only US $1,800. The value of a gold royalty is highly leveraged to an increase in gold prices.
While mining companies face risks such as rising costs, operational inefficiencies, and regulatory hurdles, royalty holders only depend on the stream of metals owed to him through mine production. Even if one mine faces challenges, the royalty holder often has royalties from multiple operations, further diversifying their risk.
Optionality: This diversification acts as a built-in risk management mechanism, providing consistent income while leaving room for upside from operational improvements.
When you see locations with glaciers and mountains and helicopters there is bound to be risks operating in that environment. If a mining project fails, the mining company bears the losses. Eagle Royalties avoids these risks by holding a diverse portfolio of over 35 royalties overlying gold, copper, zinc, and other critical-metals, rare earth elements and industrial mineral exploration projects.
“We have put together a land package by purchasing and creating royalties where we end up with a free perpetual option. It’s the optionality value of the land, the value of the operator spending money on our land, and the optionality to higher gold prices. And that is worth so much money. And yet, when the analysts calculate an NAV, none of them ever look at the optionality that we have in our portfolio. Frankly, it’s what’s worth the most. With royalties you get a lot of optionality, and that’s the strength of the Franco-Nevada business model. That’s why it’s so powerful.”
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Perpetual Ownership of Future Potential
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Exposure to Upside Without Capital Risk
Leverage to Commodity Price Increases
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Eagle Royalties has a considerable war chest with plans to add value through royalty acquisition while continuing to expose shareholders to the exploration efforts of other companies.
The Aurmac (McQuesten) Royalty may be a non-revenue producing royalty at the moment, but the rapid rate of growth and size of the project is attracting much attention. No matter who owns the project, remember that the binding agreement always protects the royalty holder.
Perpetual royalties allow companies to reinvest income into acquiring new royalties or streams. Over time, this creates a compounding effect, where a single royalty can turn into a diversified portfolio of income-generating assets.
Optionality: Each new acquisition adds more "options" to the portfolio, increasing the potential for future revenue growth without significant additional risk.
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Once a royalty is acquired, it requires little ongoing management. This makes perpetual royalties a passive income stream with the potential for exponential growth as the underlying assets evolve.
Optionality: This combination of minimal cost and high upside potential makes perpetual royalties one of the most efficient financial instruments in the mining sector.
Eagle Royalties holds royalty interests on over 35 mineral exploration projects in North America. Commodities include gold and critical metals such as copper, zinc, silver, rare earth metals, graphite, molybdenum, lithium among others.
The flagship AurMac/McQuesten Royalty covers a portion of Banyan Gold Corp’s gold discovery at their AurMac Property located in the central Yukon Territory.
Insulation from Operational Risks
Long-Term Compounding Growth
Low Maintenance with High Return Potential
- Pierre Lassonde (Co-founder of Franco Nevada, top 5 company on the world gold index)