Projects & Prospects- About Royalties

There are two principal types of royalties:  Net Smelter Return (“NSR”) Royalties and Net Profit Interest (“NPI”) Royalties.   Most royalty companies are based predominantly on NSR-royalties, while Solitario is carving out a new niche with joint ventures that are significantly structured as NPI-royalties.   

We believe one of the main reasons that NPI-royalties are not common in royalty companies is that the underlying owner (or royalty generating company, i.e., Solitario) has to identify and partially reveal the potential of a mineral property in order to command the favorable terms that an NPI-royalty structured joint venture provides.  Identifying new properties with exceptional potential and advancing such projects to the point that others can see that potential are our technical strong suit.

Our joint ventures are all NPI-royalty structured joint ventures.   In many ways, our joint venture structures are better than NPI-royalties in that we have some influence over production decisions as we are minority members of a Board of Directors that manage the asset.  Another more favorable attribute with all of our joint ventures is that we receive some cash flow from project profits upon the commencement of production.  Generally, an NPI-royalty does not generate any cash flow until all capital is paid back. 

The charts below provide an excellent summary of the foregoing discussion on royalties and Solitario Exploration & Royalty Corp.'s unique position in the mining industry.

(click to enlarge)

The following are exceptionally important in understanding why Solitario Exploration and Royalty Corp. is a breed apart:

• Our business model has a significantly lower amount of upfront capital risk than a typical NSR-Royalty acquisition or a full-participation, independently financed project. This results in considerably less upfront risk.

• Our business model produces a much more robust financial return on a per share basis than a traditional NSR-Royalty investment. Although our model results in a lower financial return on an absolute basis, compared to a 100%-owned interest, our return on equity would be superior with much less upfront financial risk.

• The total investment that Solitario has to contribute to achieve cash flow in its five NPI-Royalty structured joint ventures is approximately $7.5 million. That is truly a low-risk profile.