Loans on minerals

Sometimes mineral owners get the notion that taking a loan against their mineral interest is a good idea.

While that might sound good, most of the actual paperwork that I have seen offered involves encumbering the minerals with some sort of right of first refusal being attached to the interest. In other words, (generally speaking) giving the lender the right in the future to match the price and terms of any one else that the mineral owner may be dealing with.

Think about it… what future counter party (potential buyer) wants to spend time evaluating anything where another party has the right to match their offer and take the deal? Again, from the paperwork I’ve run across over the years has this encumbrance still in place even after a loan is paid back. (not to mention how things are treated if a loan is not paid back according to the payment schedule).

In short, encumbrances like this make any asset less attractive.

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