Back to Publications

Drafting Gold Royalty Clauses For Maximum Marketing Flexibility

Michael W. Coriden, Gold Mine Financing (1988)

Net smelter returns, net profits clauses, and even taking production in kind have been used by the mining industry to calculate royalties owed to lessors and royalty owners. The lessor or royalty owner wants to receive the agreed-upon royalty promptly and without fear of being short-changed by a mining company accountant with a sharp pencil. The lessee or operator wants to retain maximum flexibility and take full advantage of the changing gold market, forward sales of production, and even gold loans. This paper will address some basic gold marketing techniques, describe royalty clauses common in the contemporary gold mining industry, discuss commodity marketing issues which should be addressed in royalty clauses, and present several examples of new royalty language which have been developed recently to address the commodity marketing issues.

A second purpose of this paper is to discuss how “traditional” royalty language is evolving to meet the needs of both royalty owners and mine operators in light of today's marketing techniques; in particular, the use of commodity markets for precious metals sales. As mine operators become more sophisticated in marketing their production, royalty clauses must evolve to allow such marketing techniques without creating conflicts between royalty owners and mine operators.

Traditionally, gold mining companies have d