(1) The lessee shall pay a royalty to the state on all metalliferous minerals or gems produced, which shall be in cash unless the board at its option requires that the royalty be delivered in kind.

(2) The royalty for all ores bearing metalliferous minerals or gems which are mined, saved and removed from the leased premises shall be not more than eight percent (8%) or less than five percent (5%) of the returns from the metalliferous minerals or gems, as determined by the board on a case by case basis, but in no case shall be less than five percent (5%) of the fair market value of the metalliferous minerals or gems recovered. The returns are defined as the net amount received by the shipper after deducting reasonable transportation costs to the closest feasible point of sale, smelting charges and deductions and other treatment costs, not including as a deduction any cost of producing or treating at the mine. The fair market value is the value of the minerals or gems in raw crude form as recovered at the mine site.