Mineral Rights Relative to Devaluation of the Dollar

I am considering purchasing mineral rights with proven cash flow from production as a hedge against devaluation of the dollar. What return should I expect on proven cash flow? What are the main factors that I should consider in evaluating an opportunity?

The return you should expect is based on the risk of the production that you are buying. Risks to consider include remaining life or decline, mechanical risks, price, etc. Typically the rate of return on an acquisition is on par with investments of equal risk. For instance, a very low risk mineral purchase with a very stable decline will be very expensive and provide low rates of return…similar to a bond where the lower risk the bond, the lower the rate of return. Unfortunately, it’s hard to find good mineral rights on the open market that provide any better return than a low return treasury or corporate bond (in my opinion). To answer your question - “It Depends”… In general you will find most mineral acquisitions to achieve 10% Return or less. But price is the BIG risk in these acquisitions… so if you are bullish on price due to devaluation of the dollar… then my 10% return may be your 30% return.

Thanks for the quick response. I agreed that in a mature market the risk/return should be comparable. I am hoping that in the highly fragmented mineral market that there are micro plays where the transaction cost is too high for a larger player to justify a return on a small investment. I am hoping that a small investor using a forum like Mineral Web can complete a transaction (<$100,000) with minimal cost and make a good return beyond the potential spread should the dollar continue to fall. I also recognize that there are lots of potential ghosts in the closet with this highly fragmented market with various claims on property, deeds, decline in production, and other risks and hazards. If it seems to good to be true, I will proceed with caution. Thanks again for your response.

Jerry Smith said:

The return you should expect is based on the risk of the production that you are buying. Risks to consider include remaining life or decline, mechanical risks, price, etc. Typically the rate of return on an acquisition is on par with investments of equal risk. For instance, a very low risk mineral purchase with a very stable decline will be very expensive and provide low rates of return…similar to a bond where the lower risk the bond, the lower the rate of return. Unfortunately, it’s hard to find good mineral rights on the open market that provide any better return than a low return treasury or corporate bond (in my opinion). To answer your question - “It Depends”… In general you will find most mineral acquisitions to achieve 10% Return or less. But price is the BIG risk in these acquisitions… so if you are bullish on price due to devaluation of the dollar… then my 10% return may be your 30% return.