Gross, or NSR, royalty payments are also fairly simple to calculate and administer in that only the selling price and quantity of mineral product produced or sold are required for their determination. A mining lease clause usually specifies the selling price that is to be used because of the differences in price among the spot, contract and forward markets that exist for different mineral products. Because the mineral price and quantity of mineral produced or sold may vary considerably during a royalty accounting period, the mining lease must provide details regarding the amount of information that is supplied to the mineral property owner in order for the owner to verify, or audit, the royalty payment amounts. This type of royalty will usually have the highest market value of all the royalty types in the event the royalty owner should want to sell it to a royalty buying company. A Net Revenue, or Net Proceeds Royalty is often interpreted to mean that some operating costs associated with the on-site mining and processing of the mineral are allowed to be deducted from the gross revenue before calculation of the royalty.
Net revenue is defined as gross revenue less allowable production costs.
Net Revenue royalties are usually a fixed or variable percentage of this net revenue. It is usual for these allowable production costs to be actual direct cash costs at the mine site and not 'accounting' or 'standard' costs that include indirect expenses such as exploration and corporate overhead. The costs of production which are allowed to be deducted must be accurately described in the mining lease to eliminate future disagreements about the amount of the royalty payment. Some mining leases will contain an exhibit, that describes by example, exactly which mining and processing costs are allowable deductions, how these allowable costs will be determined, and the calculations used to arrive at the net revenue and royalty amounts. As in the Gross Royalty, a mining lease clause usually specifies the price that is to be used because of the differences in price among the spot, contract and forward markets that exist for different mineral products.