Franco-Nevada gives analysts and investors clues about how the company estimates license ounces for a wide range of its assets. The objective of one ounce of royalty for each property is that it should be a reasonable comparison with a calculation of the number of attributable NSR licence ounces that Franco-Nevada could have with a typical simple gold royalty that covers all of the operator`s declared mineral reserves and mineral resources. The use of royalty ounces provides a common basis for comparison between different types of assets and royalty property hedges. To obtain comparable figures on royalties in ounces, projections and adjustments from Franco-Nevada management are required in the following circumstances: An advantage of NSR royalties over other royalties is that payments tend to be higher in the short term because capital costs and exploration costs cannot be used as deductions (some royalties do not have to be paid. than after other costs such as loans/amortization. are done). In addition, mine life expiry dates and royalties must be taken into account. The royalty may be called a net worth charge if the deductions are based solely on the contract. [1] For the licensee, NSR royalties are attractive assets that have several benefits beyond leverage on commodity prices, including income with lower risk and 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.» Smelter net return (NSR) is the net income that the owner of a mining property receives from the sale of the mine`s metal or non-metallic products, less transportation and refining costs. As a royalty, this is the portion of the net return of the smelter that a mine operator must pay to the owner of the licence agreement. The royalty is paid in variable or fixed payments based on the proceeds of sales received by a mining operator in exchange for mine production. It depends only on the selling price and the quantity of the product sold. [1] A net royalty for the reimbursement of metallurgical revenues is calculated on the basis of the proceeds from the sale of the mineral product at the processing plant and may be paid 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. the cost of transportation, insurance or security, penalties, sampling and analysis, refining and smelting, and marketing[1]. .