Royalties are ongoing interests in the future production or production of a property and, depending on their terms and the laws applicable to the royalty and project, generally have the following characteristics: For the licensee, NSR royalties are attractive assets that represent several benefits beyond leverage on commodity prices, including lower risk and lower incomes. Liquidity. NSR royalties confer the cash flow advantage without being exposed to the risks of fluctuating operating costs at the mine or the need for additional capital costs such as those related to exploration or development. The licensee is not responsible for operating and capital costs or environmental and recovery liabilities. The licensee may still be involved in the benefits of the property, but at no additional cost. «You don`t have to pay for cost overruns,» says Adrian Day, founder of Adrian Day Asset Management. «If the government raises taxes, you don`t have to pay them. If the groundwater level breaks and the mine shaft is flooded, you don`t have to pay to fix it. You mitigate the risk by avoiding all those unforeseen additional costs. The owner of a royal family just needs to be a little patient and wait for the mine to finally be built and produce gold. That`s a big advantage. Payments to NSR holders begin as soon as the mining product is delivered to the smelter, while NPI holders do not receive payments until the operator has recovered all pre-production expenses and other capital investments – rising operating costs can also delay the start of NPI payments.
For the operator, NSR royalties are preferable to NPI royalties because they consume much less cash from a producer and offer more leeway to finance growth through exploration and development – also a victory for the NSR holder. There is also a lower probability of manipulating the factors involved in the calculation of the NSR compared to the NPI, which has sometimes been referred to as the «no-purpose payment» fee due to published accounting scandals. NSRs also provide better liquidity. «There are fewer factors that go into calculating an NSR that can change, so its value can be estimated at any time with more certainty than an NPI,» says law firm Lawson Lundell. «This may give the NSR holder an advantage that they would not have as a NPI holder if a decision were made to sell the royalty.» For-profit interest royalties are based on operating income as defined in the royalty agreement. Often, royalty payments do not begin until after the operator has recovered its capital costs. The net profit interest charge («NPI») is the most common form of such royalties. Like an NPI, interest net of royalties («NRN») less operating and investment costs is paid.
1. The Stream Royalty or Property shall not cover all mineral reserves or mineral resources declared by the operator. Franco-Nevada management will provide its best estimate for each asset in terms of the reasonable percentage of mineral reserves and mineral resources that should be considered when estimating applicable royalties in ounces. What is a mining licence fee? A royalty is the ownership of a portion of a mineral resource or the resulting revenues. The royalty holder has the right to participate in the production of the mining property. In Canada, the three main types of royalties held are the Smelter Net Returns Royalty (NSR), the Net Profit Interest Royalty (NPI) and the Preponderant Gross Royalty (GOR). When drafting your license agreement and related documents, there are no magic words that show a clear intention to spark an interest in the land. Rather, a court will consider the agreement as a whole and the circumstances that accompany it to determine the intention of the parties.
There are steps that licensees can take to ensure that their interest in the land is clearly stated in the contract. The contract must explicitly state that the royalty is intended to be a land interest. The licensee should be granted, under the agreement, rights that would allow him to act as owner, such as.B. the right to consent to the transfer of ownership. Finally, if you own a royalty that constitutes a land interest, registration practices vary by province and federal government, and it takes diligence and care to ensure a valid registration to protect your interests. In 2002, the Supreme Court of Canada recognized the commercial reality of mining royalties with the country and updated customary law to reflect contemporary business practices. Prior to the Supreme Court of Canada`s decision in Dynex,[3] a royalty could not constitute a land interest if it did not entail the right to remove resources from the land. Dynex transferred customary law to Canada to allow for ownership-free shares of land to be granted on the property`s resources. The court noted that a land interest can be established if that is the intention of the parties. In Third Eye Capital,[4] the Ontario Court of Appeal interpreted and applied the Supreme Court`s test that a king represented an interest in land. To determine whether a royalty is a land interest: (1) The contract must use accurate language to demonstrate that the parties intended the royalty to be a grant of interest in land; and (2) the purpose of the royalty itself must be a land interest.[5] The second part of the test is rarely controversial, as it is often clear and obvious whether the ownership or claims to minerals on the property represent an interest in the land.
Whether a land interest is justified depends on whether the parties can demonstrate their intention to establish a land interest. The Ontario Court of Appeal ruled that the wording of the contract is sufficient to demonstrate its intention to grant an interest in land by stating, «The parties intend that the GOR constitutes an agreement and interest in land developed with the mine property and claims and all sequences thereof.» [6] A net smelter royalty is calculated on the proceeds from the sale of the ore. Produced at the wastewater treatment plant and can be payable in cash or in kind. There may be deductions for costs incurred before the sale of the product and after leaving the mining property, such as.B. transportation, insurance or security costs, penalties, sampling and analysis, refining and smelting, and marketing[1]. A higher gross royalty entitles the owner to a share of the market price of the extracted product as soon as it is available, less the costs incurred by the operator in bringing the product to the point of sale. These deductions include the cost of marketing the products and delivering them to the market. This decision was followed by the Alberta Court of Queen`s Bench in the Manitok Energy case in 2018[7] and in Accel Canada in 2020[8]. In both decisions, the Court of Queen`s Bench adopted the reasoning in Third Eye Capital. For there to be an interest in real property, the parties must have met the criteria set out in Dynex.
In Manitok, the Court held that the wording of the contract showed the intention of the parties to create an interest in immovable property. The license agreement: «preserve the existence of the production royalty until the expiry of the ownership documents. [9] In addition, the court found no interest in the land. Accel could not prove that the parties intended the royalty to be a land interest and instead determined that it was a security right. Therefore, licensees are always interested in obtaining royalties as an interest in the land. Canadian courts have considered the case in two recent decisions, one from the Ontario Court of Appeal and the other from the Alberta Court of Queen`s Bench. These decisions have allowed business owners to clarify when a mining license develops an interest in the land. A net profit-based royalty is calculated using a fixed percentage of the revenues of a mine plant complex minus the expenses incurred to generate the revenues. .