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What is a Royalty?
A Net Smelter Return Royalty (NSR) involves royalty payments to a third party that are a fixed or variable percentage of the sales price or gross revenue the mine operator receives from the sale of mineral commodities from a specific mining operation.
The mine operator's gross revenue in metal mines is often referred to as an NSR because mineral products are generally produced at a mine site in a form (i.e. mineral concentrates containing gold) that require further processing by a smelter or refinery.
The NSR is the amount of money the smelter or refinery pays the mine operator for a specific mineral product and is usually based on a spot or current price of the mineral with deductions for the costs associated with further processing.
NSR payments are fairly simple to calculate and administer in that only the selling price and quantity of mineral product produced or sold are required to determine the final payment. This type of royalty will usually have the highest market value of all the royalty types in the event the royalty holder chooses to sell it to a royalty buying company. Royalty companies are generally valued higher in the marketplace given the security of their earnings and low corporate overhead.
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