Mineral (and Other) Rights

 

Mineral Rights

There are “only two ways to make money in business: one is to bundle; the other is to unbundle.” – Jim Barksdale

Most of the time this concept is referenced in a conversation about cable companies, the music industry, or other technology companies, but the concept is more broad than this. It can be applied to land rights as well as other more innate things such as the right to negotiate or contract as well as others that often go underutilized.

I believe the best things to unbundle are assets or rights with no perceived value that can be put into production through creative thinking.

Desirable characteristics include:

  • An unproductive asset: What do you have that you don’t even recognize you have?
  • Can be very valuable if put to productive use: What could you (or someone on your behalf) do with this right / asset?
  • Long lived: Doesn’t become less valuable through time alone or use
  • Can be applied in many ways: Whether in mining or negotiating, find creative ways to use your available assets

You’ll Pay Me for That?

A great historical example of this concept is mineral rights and how during the early 20th century many millions of acres of mineral rights were purchased for pennies an acre.

Unproductive – Aside from instances where you live in the Bakken or Eagle Ford and sold for far too little, I would say most people got a fair deal from the sale of their mineral rights. After all, would you really have mined that coal yourself? Before selling their mineral rights, most people had probably never heard of the concept.

Valuable – A right in the wrong hands can be worthless, but priceless in the right hands. Even today so little value is placed on non-productive mineral rights that most states only impose taxes when minerals are produced from the site. Unfortunately for homeowners with surface rights that logic doesn’t hold – you can’t not pay property tax because you “didn’t use the guest room” last year.

Versatile Value – Another beautiful quality of mineral rights is that the specific value driver (coal, natural gas, gold, etc.) isn’t specified and can quite literally change from one mineral to another over time (natural gas and coal deposits are commonly found together).

Long-Lived – You use it; you (don’t) lose it.

“The meek shall inherit the earth, but not the mineral rights.” – J. Paul Getty

Things like mineral rights (as well as almost all other rights) exist in perpetuity which can make them very valuable to the right holder. For example, D.R. Horton and most other large-scale homebuilders keep the mineral rights to all homes they sell in the off chance that their neighborhood sits on a literal goldmine. It doesn’t cost DR anything to hold the right and buyers don’t expect a discount for their home not carrying the right so it is a win-win for DR.

What underutilized rights do people have that they could make better use of?

 

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