How does a price-variable royalty change all-in sustaining cost?
A royalty or stream priced as a percentage of revenue changes in dollar terms at every price assumption, so its cost per ounce has to be derived separately at each scenario price rather than calculated once and carried across.
A price-variable cost is any royalty, net smelter return, streaming arrangement or production payment where the amount owed is expressed as a percentage of revenue, a percentage of spot price, or a sliding scale tied to the metal price. What these have in common is that the dollar cost per ounce is a function of the price assumption, not a constant.
This matters because valuation work on a development-stage or producing miner is normally run across a range of metal price scenarios. If the royalty is derived once — conventionally at the base case — and the same dollar figure is carried into the higher scenarios, all-in sustaining cost is understated at exactly the price levels where the investment case is most attractive.
The required procedure is to identify the rate schedule from primary sources — the technical report, the mining agreement, the relevant filing — then at each scenario tier compute rate × scenario price to get a cost per ounce, add that cost to all-in sustaining cost at that tier, and show the derivation explicitly in the cost table.
Four prohibited patterns
- Applying a single blended royalty rate or dollar cost across all three scenario price tiers.
- Deriving the royalty cost at the base price and copying it to the mid and high cases.
- Omitting the royalty from any scenario tier’s all-in cost derivation.
- Using a flat per-ounce estimate when the underlying rate is percentage-based.
Worked example — a sliding-scale royalty of 8% plus one point per $500 above $3,500
| Scenario price | Effective rate | Royalty cost per ounce |
|---|---|---|
| BASE $6,000 | 13% | $780 |
| MID $7,000 | 15% | $1,050 |
| HIGH $8,000 | 17% | $1,360 |
Between the base and high cases the gold price rises $2,000 per ounce and the royalty cost rises $580 — so roughly 29% of the incremental price is absorbed by the royalty before it reaches the operator.
Worked example — flat NSR
A 1% net smelter return on the same deck: $60 per ounce at $6,000, $70 at $7,000, $80 at $8,000. Smaller in magnitude, identical in structure, and still misstated if derived once and carried.
Where this rule stops
It does not apply to fixed per-ounce royalties, or to streams with a fixed delivery price. A stream delivering at a fixed $400 per ounce is a constant add-on to all-in cost and requires no per-tier recalculation. Rules that do not say where they stop get applied by intuition, which defeats the purpose of writing them down.
In the GSA methodology
This is PATTERN-030 in the Gold Silver Analytics rule library, the set of numbered methodology rules loaded into every analysis run across the coverage universe. It works alongside PATTERN-031, the prohibition on data locks, which requires every number to be re-derived from current sources each cycle rather than carried forward.
Related methodology
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