NSR vs NPI vs GOR Royalties: Which to Model

The Royalty Type Matters More Than the Rate

Two royalties with the same headline percentage can be worth very different amounts, because the type determines what the percentage is applied to and who controls that base. A 2% NSR and a 2% NPI on the same mine are not comparable instruments. One is a claim on revenue with tightly defined deductions; the other is a claim on a profit figure the operator calculates.

This is the first question to settle when valuing any royalty portfolio: not “what is the rate?” but “what is the rate a percentage of?” Mistake an NPI for an NSR at the same headline rate and portfolio NAV on those positions alone can read a quarter or more too high.

This guide covers the five main royalty types, why NSR became the standard, and how to treat the others in a valuation model. For how royalties compare with streams as instruments, see Royalty vs Streaming Companies.

The Five Royalty Types

Type	Pays on	Deductions allowed	Modelling treatment
NSR (net smelter return)	Revenue net of offsite charges	Smelting, refining, transport only	Rate × (gross metal value − the contract’s deductions); size those deductions, do not assume them
GOR (gross overriding royalty)	Gross revenue	None	Rate × metal × price; worth more than the same-rate NSR by whatever the NSR deducts
NPI (net profits interest)	Mine profit as the operator defines it	Operating costs, capital recovery, often overhead and sustaining capex	Discount 20-30% against an equivalent NSR; cash flows start late
Sliding-scale NSR	Revenue, at a rate that steps with the metal price	As NSR	Model the contract steps, never a flat average rate
Production royalty	Units produced (fixed $/oz or $/t)	None	Volume × fixed payment; no commodity price exposure

NSR, GOR, and sliding-scale royalties all sit on revenue; NPI sits on profit; a production royalty is a fixed dollar per ounce or tonne. Royalty companies overwhelmingly prefer the revenue-based types, and how a portfolio splits across them is a quality signal in its own right.

NSR: Why It Became the Standard

NSR is the standard because the royalty base is a settlement statement from the smelter or refiner, an arm’s-length third-party document, less a short contractual list of offsite charges. Overhead is not deductible, so there is no argument about allocation. Franco-Nevada, the company that built the modern royalty model after its founding in 1983, bought its first major NSR on the Goldstrike property in 1986, and the structure has dominated new royalty creation ever since.

Typical NSR rates run from 0.5% to 3%. Above that level the royalty starts to weigh visibly on mine economics, which is why larger NSRs often carry buy-back clauses letting the operator repurchase a portion at a preset price.

The one modelling adjustment that matters is the deduction stack:

NSR cash flow = Rate × (gross metal value − the contract’s deductions)

Do not carry a standard percentage into that bracket, because there isn’t one. What the deductions cost depends on what leaves the mine gate.

A mine that pours doré ships an impure gold-silver bar that a refiner turns into saleable metal for a few dollars an ounce. Add freight and insurance and the whole stack comes to roughly 1% of gross value. At the $3,500/oz planning gold price in the shared Selborne deck, a 2% NSR on that mine pays about $69 an ounce, against $70 on gross revenue. The distinction barely matters.

A mine that ships concentrate is a different instrument, because the buyer has to smelt the stuff and charges for doing it. Three deductions stack. Payability is the share of the contained metal the smelter pays for at all: around 96.5% for copper, closer to 85% for zinc. The treatment charge is a fee per dry tonne of concentrate for smelting it. The refining charge is a further fee per payable pound of finished metal. Freight sits on top, and concentrate is bulky, low-value material to move. Work a copper concentrate at the deck’s $11,000/tonne and that stack runs near a tenth of gross value. On zinc, where payability is far lower and treatment charges are higher, a quarter is not unusual.

So the same 2% NSR is worth close to 2% of revenue on a doré producer and nearer 1.5% on a zinc mine. That is the number to establish before anything else, and it comes from the contract and the offtake terms, not from a rule of thumb. When the underlying mine produces several metals, convert production to a common unit first; the mechanics are covered in What Is a Gold Equivalent Ounce?.

GOR: NSR Without the Deductions

A gross overriding royalty pays on gross revenue with no deductions at all. Its premium over an NSR at the same rate is therefore exactly the deduction stack from the section above: negligible on a doré producer, a tenth or more of the cash flow on a concentrate mine. On a base-metal property, gross versus net separates two instruments that look identical on the term sheet.

GORs are less common than NSRs but appear regularly on Canadian properties and in older agreements. In a model they are the easiest type of all: rate times metal times price, no adjustments. Just confirm the contract genuinely allows no deductions; some instruments labelled “gross” permit transport charges, which quietly turns them back into NSRs.

NPI: Why It Deserves a 20-30% Discount

An NPI pays on mine profit, and the contract defines profit. This is the point most often missed: “net profits” here is not an accounting term. It is a negotiated schedule of allowable deductions, written when the royalty was created, and it can sit a long way from anything the operator reports as earnings. Two NPIs on identical mines at identical rates can be worth quite different amounts.

As a modelling convention we discount an NPI by 20 to 30% against an equivalent NSR, and lean towards the deeper end where the contract is generous to the operator. It is a convention rather than a standard, because there is no standard contract for it to be derived from.

Three mechanisms justify the discount:

Mechanism	Effect on the NPI holder
Capital recovery	The operator recoups development capital (often with interest) before any profit is declared; payments can start years after first production
Cost-base control	Operating costs, sustaining capex, and overhead allocations are charged against the profit pool at the operator’s discretion within the contract
Cost inflation pass-through	A revenue royalty is immune to cost inflation; an NPI absorbs all of it, so margins compress exactly when the operator’s do

The Cost-Base Trap

The recurring failure mode in NPI modelling is taking the operator’s cost definitions at face value. Operators have every incentive to load the NPI cost base: corporate overhead down to the mine level, sustaining capital booked as generously as the contract allows, nearby exploration charged against the pool. None of this is fraud; it is the rational use of contractual discretion. The NPI holder audits after the fact, and disputes over allowable deductions are a standing feature of these instruments.

For the model, the practical rule is this. Never project NPI cash flows off the mine’s headline margin. Build the profit pool from the contract’s own deduction list, assume the operator uses every deduction available, and apply the illustrative discount to whatever NAV comes out. If the contract allows overhead and sustaining capex deductions and you cannot see the operator’s historical charging pattern, lean towards the deeper end of the 20-30% range.

Sliding-Scale and Production Royalties

Sliding-scale NSRs step the royalty rate up or down with the metal price, which breaks the linear price-to-cash-flow assumption a flat-rate model relies on. They are increasingly common on development-stage deals and need to be modelled off the contract’s actual rate steps; the mechanics get their own treatment in How Sliding-Scale and Hybrid Royalties Change the Model.

Production royalties pay a fixed dollar amount per unit produced. They carry volume risk but zero commodity price exposure, which makes them closer to an amortising annuity than a royalty in the usual sense. In a portfolio NAV they are valued off the production profile alone, with no price sensitivity line.

What This Means for Portfolio Valuation

When a royalty company reports its portfolio, read the type mix before the asset count. A portfolio of producing NSRs is a different quality of book from one padded with development-stage NPIs, even if the headline rates and asset counts look similar. Franco-Nevada built the sector’s most valuable portfolio substantially on NSR instruments, and Royal Gold splits its own reporting between streams and royalties rather than quoting one blended rate, because the types do not aggregate.

The full sum-of-parts NAV framework, including discount rates by asset tier and the treatment of non-producing royalties, is in the Royalty & Streaming Sector Primer. The royalty-type adjustment described here is one input to that model, but it is the one most often skipped, and skipping it always flatters the answer.