Khareema,

Good thoughts. You spurred my interest in this, so I looked up the exact determination of an NSR. I thought it was netted out against expenses, but I think that would be a Net Proceeds Royalty. Thank goodness we don't have a Net Profits Royalty.

Either way, I still think the NPV of the NSR would be relevant. Unfortunately, maybe to our disadvantage. I worry that some people think the NSR is far more valuable to us than it is in reality. A proper third-party valuation of KWG will have to calculate that, and if the professionals' estimated "true" value of the NSR is lower than we hope, then that's going to lead to a lower overall valuation. And right now, we need a valuation of at LEAST about 15 cents per share, in order to counter the current third-inning offer for SPQ from Cliffs. Of course, we also need that valuation quickly.

I found these definitions on one website, that would be of interest:

The Gross, or Net Smelter Return (NSR) Royalty, is characterized by royalty payments that are a fixed or variable percentage of the sales price, or gross revenue, the mining operator receives from the sale of mineral product from the property. The mining operator's gross revenue, in metal mines, is often referred to as Net Smelter Return because it is common for the mining operator to sell the mineral product in a form that requires further processing by a smelter or refinery. The Net Smelter Return is the amount of money which the smelter or refinery pays the mining operator for the mineral product and is usually based on a spot, or current price of the mineral, with deductions for the costs associated with further processing. In non-metal mines the selling price is usually 'fob mine site' because of the transportation costs involved in delivering the mineral product to the buyer.

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. Because the mineral price and quantity of mineral produced or sold may vary considerably during a royalty accounting period, the mining lease must also provide details about 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. Depending upon the amount of the allowable deductions, a Net Revenue Royalty may be able to be sold to a royalty buying company for a lump sum cash payment.

A Net Profits Royalty is similar to a Net Revenue Royalty in that certain production costs are allowed to be deducted prior to determination of the royalty payment. But, the allowable cost deductions in a Net Profits royalty may include all of the costs that can be tied to a particular mining operation, including exploration, corporate overhead, depreciation, depletion, amortization and any and all taxes. There seem to be two basic types of net profits royalties, one that is based on direct cash production costs, and one that is based on all production costs, direct and indirect and cash and non-cash, and may or may not be based on after income tax profit. In periods of high mineral prices, a net profits royalty may provide the mineral property owner with an attractive payment level because mineral production costs are usually the same regardless of the mineral's selling price. In periods of average to low mineral prices, net profits royalty payments can become quite small or disappear altogether. There are virtually no buyers for this type of royalty because of the creative accounting that the mining operator can use to depress the royalty payment amount. The distinguishing feature of a net profits royalty is that, depending upon the exact definitions in the mining lease and the actual calculations, it will very often be zero.