1. What it is

Royalty: An upfront payment by the royalty holder to a mine owner/developer in exchange for a percentage of revenue/production.

• GRR (Gross Revenue Royalty): % of gross sales
• NSR (Net Smelter Return): Gross less refining, transport
• NPI (Net Profit Interest): % of profit after costs

Streaming: A form of prepaid forward sale. Streamer pays large upfront deposit + small ongoing payment per ounce/tonne delivered, for the right to buy a fixed % or fixed quantity of future production at a discounted price.

Wheaton Precious Metals model: Streaming agreements afford Wheaton the ability to terminate and recover specific remedies upon a material breach... Security is designed to secure Wheaton's investment during the term of the streaming agreement, including in the event of insolvency or bankruptcy

For Critical Minerals, the structure is crucial because of long gestation, high capex, and price volatility. Cabinet in India has now fixed specific royalty rates for 12 critical minerals - Beryllium, Cadmium, Cobalt, Gallium, Indium, Rhenium, Selenium, Tantalum, Tellurium, Titanium, Tungsten, Vanadiumand separately for Lithium, Niobium, REEs which otherwise would attract default 12% of Average Sale Price.

2. Why it is treated as a "Security"

Royalty/Stream is NOT debt, but it is structured to be bankruptcy-remote security:

1. Interest in Land (Proprietary Security): If drafted as an interest in the mineral tenement itself, it runs with the land and survives sale/insolvency. Purchaser takes mine subject to royalty.
2. Personal Property Security / UCC Article 9: In US, "as-extracted" minerals allow a security interest to be created while minerals are in ground, which attaches upon extraction. Stream is perfected by UCC filing.
3. Contractual + Collateral Package: Modern deals include:
   • Mortgage over mining lease
   • Share pledge of MineCo
   • Security over tenements required by providers, ranking pari passu via intercreditor agreement
   • Offtake agreement as direct agreement
   • Step-in rights

In absence of that, courts have held it is only a contractual right - a future or contingent right enforceable in personam, which is wiped out in insolvency.

3. The Legal Test - Is it Security or Just a Contract?

The Dynex Test - Supreme Court of Canada

Bank of Montreal v Dynex Petroleum Ltd., 2002 SCC 7
2-part test for royalty as interest in land:

1. Language of grant shows intention to create interest in land, not just contractual right to share production
2. Underlying interest from which royalty is carved is itself an interest in land (mining claim/lease)

This is the foundation for all streaming disputes.

The Dianor Line - Can a court vest it out?

Third Eye Capital Corporation v Ressources Dianor Inc., 2018 ONCA 253
Facts: Dianor's mining claims were subject to Gross Overriding Royalty held by 2350614 Ontario Inc. Dianor insolvent. Receiver sold claims to Third Eye Capital free and clear, extinguishing royalty because lower court said it did not run with land.

ONCA Reversed: Court applied Dynex, found registration of royalty on title was evidence of intention to create interest in land. You do NOT need a right to enter and explore to be interest in land.

Third Eye Capital v Dianor Inc., 2019 ONCA 508 - Second decision:
Question: Can a vesting order in receivership extinguish a third party's interest in land in the nature of a GOR?
ONCA: No. A royalty that is a true interest in land cannot be vested out without consent unless statute expressly permits. This is now the leading protection for royalty/stream investors.

Manitok Energy Inc (Re), 2018 ABQB 488
Alberta QB followed Dianor. Justice Horner held royalty described as interest in oil volumes once produced can still be interest in land if intention clear. Confirmed: a producing royalty may be interest in land even if quantity-based.

US Bankruptcy - Is Streaming an Executory Contract?

In re Peabody Energy Corp., 2016 Bankr. E.D. Mo. & In re Goodrich Petroleum
Issue: Debtor tried to reject royalty/stream as executory contract under 11 USC 365.
Courts distinguish:

• If stream is true sale of future minerals + absolute conveyance with security interest, it is not executory, cannot be rejected.
• If it requires ongoing performance from both sides (miner must mine, streamer must pay), some courts treat as executory.
  Modern drafting: Make ongoing payment nominal and delivery obligation absolute to avoid executory characterization. Wheaton structures include termination and remedy clauses to preserve non-executory status.

Quebec Civil Law Angle

Quebec Court of Appeal in Royalty Cases
Where royalty is subordinate to sale of extracted minerals and confers no direct right in minerals to use, enjoy or dispose, it is only personal right. Critical for critical minerals in civil law jurisdictions.

India - MMDR Act Context

India does not have private royalty streaming as proprietary interest because minerals vest in State. What MMDR calls "royalty" is statutory dues under Section 9. Supreme Court in BMM Ispat Ltd. v State of Karnataka (2025) held royalty liability is determined on date of transport/dispatch, not tender date, and State can recover differential royalty from security deposit.

Implication: In India, a private Critical Mineral Royalty Stream cannot be an interest in land under Dynex because lessee itself has only leasehold rights under MMDR. It is structured as:

1. Contractual NSR under Indian Contract Act
2. Secured by pledge of shares of SPV + mortgage of plant + hypothecation of movables + assignment of mining lease (with govt approval)
3. Registered as charge under Companies Act, 2013 and perfected via CERSAI

Therefore enforceability depends on contractual security package, not automatic running with land, unlike Canada/Australia.

4. How to Perfect a Critical Minerals Streaming Security - Best Practice Checklist

For a lithium/cobalt/REE project:

1. Intention Clause: "Parties intend this royalty to be an interest in land, runs with and binds the mining tenements"
2. Registration: Caveat/Notice on mining title in Canada/Australia; in India, file charge with ROC and note in mining register
3. No Control Defeat: Do not make royalty contingent on payer's discretion to mine - that makes it personal right
4. Intercreditor: If mine has senior lender, negotiate pari passu security over tenements
5. Offtake + Security: Stream = sale agreement + separate security agreement under UCC Article 9 for as-extracted collateral

In short: If you want bankruptcy protection, you must prove Dynex intention + title registration. If you fail, you are an unsecured creditor with a contingent claim. For India, you must add full collateral package because statutory regime will not protect you.