What is the difference between resource rent and resource royalty?

Factual Questions
1

Hi

What is the difference between resource rent and resource royalty? I have seen the terms used in the contest of discussions dealing with the extraction industry/mining industry in Africa. I look forward to your feedback.

2

The resource rent is the difference between (a) the cost of extracting the resource, and (b) the amount you can make by selling the resource you have extracted. By default, the resource rent accrues to the miner.

“Royalty” is the price paid for, or a tax charged upon, the right to exploit a resource. The royalty reduces the resource rent. Or, if you prefer, it ensure that part of the resource rent that would otherwise accrue to the miner will instead accrue to the owner of the resource/the state.

3

Mining Royalty is often based on actual tonnage of material extracted each year (… of course not a flat rate per tonne - its a variable rate depending on the material … and license/contract offered. why ? Gold mines dig up and crush and process a tonne for a few grams of Au. ) Royalty is often paid to the government - Land ownership is a government controlled abstract that says that one owns the surface…

Ah, there’s a specific term “resource rent” which means the profit.

4

In Australia only the states have the right to charge a Royalty for minerals extracted inside their borders. The Federal Government wanting to get in on the action, couldn’t legally charge a Royalty nor wanted to impose another tax so they named it a resource rent.

5

Thanks UDS. The word rent seems to accrue to the government here. The mining companies are often foreign.

http://www.govafricajournal.org/articles/10.5334/gia.ah/print/

In this paper, we focus on extractive resources — minerals and energy commodities — which commonly comprise the largest proportion of resource rents accrued by governments, and which are most commonly identified with the resource curse.

“The World Bank study recommends that in order to reverse the trend ‘Zambia needs to capture a larger share of the resource rents (money from mines) and invest the money in the nation’s productivity.’”
http://www.cfr.org/africa-sub-saharan/beating-resource-curse-africa-global-effort/p28780

“Often countries with weak governance and abundant natural resources are prone to armed violence. For example, Sudan, where oil rents are equal to more than 18% of gross domestic product (GDP), and Nigeria, where oil rents amount to almost 30% of GDP, have been plagued by conflict.”

“In the case of privately owned land and areas in the private domain of the State or a public entity, the holder of mineral rights may only use the land upon obtaining the consent of the owners and/or possessors, in terms to be agreed between the holder and the owner (consent is deemed to be granted upon deposit of the annual rent and the posting of a provisional bond).”

6

Rents seems to accrue to the governments from my reading and examples.

7

Apart from the first quote, none of the others you offer specifically refer to rents accruing to the government, and even the first quote talks about “resource rents accrued by governments”, which I think implies - correctly - that there can be resource rents not accrued by governments.

The second quote talks about Zambia capturing a larger share of resource rents, which again implies that there is also a share of rents not captured by Zambia. Plus, capture by Zambia is not the same as capture by the Zambian government. If, for instance, miners paid larger royalties to Zambian landowners, that would increase the share of the resource rent captured by Zambia, but not by the Zambian government. (Not directly, at any rate; the Zambian landowners might of course pay more tax as a result of their increased royalty income.)

Resource rents may accrue to government, and there’s a widely-held view that in general at least a share of them ought to accrue to governments, and the imposition of a royalty due to the state is one way in which this can be brought about. But if the entire resource rent accrued to the state, private sector miners wouldn’t bother to mine, since their profits come from the resource rent, and they won’t mine if they can’t make any money by doing so.

8

Thanks USD. That clarifies things for me.