Stephenson Harwood to Norton Rose Fulbright, on behalf of David Haigh
Guide to mining projects and mining finance in Canada · 01 Norton Rose Fulbright – October 2013...
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Norton Rose Fulbright – October 2013 01 01 Norton Rose Fulbright – October 2013 Guide to mining projects and mining finance in Canada Royalties A royalty is a right to receive payment based on a percentage of the minerals or other products produced at a mine or of the revenues or profits generated from the sale of those minerals or other products at a mine. Typically a royalty is granted as part of the consideration paid to land owners (either private or public entities) for the mining rights or the interests in land that the mining company acquires, in exchange for capital or as a result of converting some other interest into a royalty, such as a joint venture interest or streaming interest. While royalties are used frequently in the mining industry, it is not possible to say that there is a “standard form” of a royalty. The mechanics of a royalty will be determined by agreement between the parties and may vary greatly. However, it is possible to class royalties into four general headings: • Profit Based Royalties: are based on the profit generated by the mining operation; typically net profits. It is important to identify the costs that may be deducted in order to calculate the net profits of the operation. These are generally restricted to the costs of production after capital costs have been fully recovered. • Net Smelter Return (NSR) or Gross Revenue Royalties: are very common royalties for precious metals and are based on the value of production or net proceeds received from a smelter or refinery (or purchaser). The proceeds received from the smelter, refinery or purchaser may be subject to deductions for insurance, transport, refining and smelting costs, sampling and assaying and marketing as set out in the royalty agreement. From the royalty holder’s perspective, an NSR provides the advantage of providing an income stream that is independent of operational costs of the mine, which are totally the responsibility of the payor. • Production Royalty (Fixed Rate Royalty): are less common as they provide a fixed payment per tonne of production and therefore essentially equate to a fixed cost of production without reference to increases or decreases in market prices or operating costs. In certain cases such royalties can make some deposits uneconomical to mine. • Royalty in Kind: such as a stream, grant rights to the holder to take delivery and/or purchase a percentage of production. For more information or to obtain a copy of our Guide entitled Focus on Mining Royalty, please contact us. Robert Mason Partner Norton Rose Fulbright +1 416.216.2967 [email protected] Janet Howard Partner Norton Rose Fulbright +1 416.216.1918 [email protected] Michael Sabusco Partner Norton Rose Fulbright +1 416.202.6731 [email protected] David McIntyre Partner Norton Rose Fulbright +1 416.216.4090 [email protected] Robert Eberschlag Partner Norton Rose Fulbright +1 416.202.6710 [email protected]
Transcript of Guide to mining projects and mining finance in Canada · 01 Norton Rose Fulbright – October 2013...
Norton Rose Fulbright – October 2013 0101 Norton Rose Fulbright – October 2013
Guide to mining projects and mining finance in Canada
RoyaltiesA royalty is a right to receive payment based on a percentage of the minerals or other products produced at a mine or of the revenues or profits generated from the sale of those minerals or other products at a mine. Typically a royalty is granted as part of the consideration paid to land owners (either private or public entities) for the mining rights or the interests in land that the mining company acquires, in exchange for capital or as a result of converting some other interest into a royalty, such as a joint venture interest or streaming interest.
While royalties are used frequently in the mining industry, it is not possible to say that there is a “standard form” of a royalty. The mechanics of a royalty will be determined by agreement between the parties and may vary greatly. However, it is possible to class royalties into four general headings:
• Profit Based Royalties: are based on the profit generated by the mining operation; typically net profits. It is important to identify the costs that may be deducted in order to calculate the net profits of the operation. These are generally restricted to the costs of production after capital costs have been fully recovered.
• Net Smelter Return (NSR) or Gross Revenue Royalties: are very common royalties for precious metals and are based on the value of production or net proceeds received from a smelter or refinery (or purchaser). The proceeds received from the smelter, refinery or purchaser may be subject to deductions for insurance, transport, refining and smelting costs, sampling and assaying and marketing as set out in the royalty agreement. From the royalty holder’s perspective, an NSR provides the advantage of providing an income stream that is independent of operational costs of the mine, which are totally the responsibility of the payor.
• Production Royalty (Fixed Rate Royalty): are less common as they provide a fixed payment per tonne of production and therefore essentially equate to a fixed cost of production without reference to increases or decreases in market prices or operating costs. In certain cases such royalties can make some deposits uneconomical to mine.
• Royalty in Kind: such as a stream, grant rights to the holder to take delivery and/or purchase a percentage of production.
For more information or to obtain a copy of our Guide entitled Focus on Mining Royalty, please contact us.
Robert Mason Partner Norton Rose Fulbright +1 416.216.2967 [email protected]
Janet Howard Partner Norton Rose Fulbright +1 416.216.1918 [email protected]
Michael Sabusco Partner Norton Rose Fulbright +1 416.202.6731 [email protected]
David McIntyre Partner Norton Rose Fulbright +1 416.216.4090 [email protected]
Robert Eberschlag Partner Norton Rose Fulbright +1 416.202.6710 [email protected]
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