## Facts

- A partition deed divided interests in land and minerals among multiple parties.
- The deed gave a group of mineral-interest owners the right to execute mineral leases, but it reserved to other interest holders (the plaintiffs) a one-eighth royalty on the value of minerals “mined or marketed” from the land.
- One mineral-interest owner later leased uranium rights to Lomex Corporation (a defendant).
- The uranium lease provided the mineral-interest owners a 7% royalty on all “yellowcake” sold from the operation.
- Lomex used solution mining to recover uranium, bringing to the surface a uranium-bearing liquid solution.
- Lomex sent the uranium-bearing liquid to a treatment plant, where the uranium was separated and processed into “yellowcake,” a uranium concentrate that was sold commercially.
- The plaintiffs (holders of the reserved one-eighth royalty under the partition deed) learned of the uranium lease and filed suit for a declaratory judgment defining the proper royalty base.
- The plaintiffs contended their one-eighth royalty should be calculated on the gross proceeds from yellowcake sales.
- The mineral-interest owners and Lomex contended that any reserved royalty should be valued at the mine based on the uranium-bearing solution, or, if yellowcake sales were used, the royalty base should be reduced to account for treatment-plant processing costs.
- The trial court entered judgment for the plaintiffs, declaring the reserved royalty was one-eighth of the value realized from yellowcake sales without subtracting the treatment-plant costs.
- The mineral-interest owners appealed.

## Issues

1. Under a partition deed reserving a one-eighth royalty on the value of minerals “mined or marketed,” is the reserved royalty measured by the value of yellowcake that is sold, rather than by the value of the uranium-bearing solution produced at the surface?
2. If yellowcake sales are the valuation point, may the payor reduce the reserved royalty base by the costs incurred at the treatment plant to process the uranium-bearing solution into yellowcake?

## Decision

- The appellate court affirmed the declaratory judgment for the plaintiffs.
- The reserved one-eighth royalty was properly measured by the value of the uranium product actually sold (yellowcake), not by an earlier-stage solution.
- The payor could not deduct treatment-plant processing costs from the plaintiffs’ royalty absent deed language authorizing such deductions.

## Legal Principles

- Royalty reservations are interpreted from the deed’s text, read as a whole, to determine the parties’ intent.
- When a reservation is tied to the value of minerals “mined or marketed,” and the mineral is not sold in the form first produced, the valuation may be based on the first commercially sold product.
- Unless the deed clearly shifts processing or similar expenses to the royalty owner, costs required to convert production into the marketed product used for valuation are not charged against the reserved royalty by reducing the royalty base.
- In determining the valuation point, courts focus on the substance and form in which the mineral is actually marketed from the property, not a theoretical value at an earlier stage if that earlier-stage product is not what is sold.

## Conclusion

In *Lomex Corp. v. McBryde*, reserved royalty owners under a partition deed sought a declaration that their one-eighth royalty on minerals “mined or marketed” should be calculated on the proceeds from uranium “yellowcake” sales produced through solution mining and treatment-plant processing. The mineral-interest owners and Lomex argued for valuation at the mine based on the uranium-bearing solution or, alternatively, for deduction of treatment-plant costs from any yellowcake-based valuation. The trial court declared the royalty was one-eighth of the yellowcake sales value without processing-cost deductions, and the appellate court affirmed.


Lomex Corp. v. McBryde, 696 S.W.2d 200 (1985)