Net Smelter Returns (NSRs) and alternative measures of the value of polymetallic mineralization

A Net Smelter Return (NSR) is a mine’s net revenues less off-site costs. Three procedures for computation of the NSR of polymetallic mineralization are in common use: calculated values, “soft” estimates, and “mine-specific” estimates. Calculated NSRs are the actual NSRs realized by a mine. The calculated NSR of a block of mineralization is not an inherent property of that mineralization: it will depend on who mines it. Calculated NSRs provide the basis for legal obligations such as financial reporting and royalty payments to outside parties. However, recipients of NSR royalties find it difficult to audit what they are paid. Thus, to avoid lawsuits, royalty payments should be based on Gross Revenues (GRRs) rather than NSRs. Soft estimates of NSRs, based on statistical analysis of comparable situations, can be used in exploration to clarify assays of complex mineralization. Mine-specific NSRs are increasingly used by mines to specify cut-off grades. However, NSRs were devised for accounting purposes and they cannot be used as the only basis for distinguishing ore from waste. This paper proposes that the use of “Net NSRs,” which include on-site costs as well as off-site costs, would be preferable for grade control. The use of Net NSRs would also permit grade-control geologists to function as the mine gate-keepers: alert to changes in profitability and environmental and health issues, both at the mine and among the mine’s neighbors and customers.