International Royalty IPO raises $180 million

Vancouver — New mineral royalty company International Royalty (IRC-T) has hit the boards with one of the larger junior-mining initial public offerings (IPOs) recently seen, raising a total of $180 million.

The IPO, underwritten by a syndicate of brokerage firms co-led by Haywood Securities and GMP Capital (GMP-T), a subsidiary of GMP Securities, saw almost 34.9 million shares sold at $4.30 apiece for gross proceeds of $150 million. Additionally, the company completed an offering of $30-million in units consisting of shares and debentures.

The majority of funds raised by International Royalty (IRC) are already earmarked for acquisitions.

IRC’s first royalty purchase was back in mid-2003, shortly after the company’s inception. A 0.25% net smelter return royalty (NSR) was acquired on the Williams gold mine at Hemlo, a 50-50 joint venture between Teck Cominco (TEK-T) and Barrick Gold (ABX-T). The company raised funds to pay $2.9 million in cash plus issued 950,000 warrants exercisable into IRC shares at $3 apiece. The NSR has paid about $500,000 annually over the past few years. Current underground and open pit reserves at the Williams mine are sufficient for more than several years of continued operation.

IRC president Douglas Hurst remarked, “Our acquisition of the Williams royalty about 18 months ago kept us financed while we hunted for other projects.”

Although not yet cash generative, the principal royalty in IRC’s portfolio will be on future production from Inco’s (N-T) Voisey’s Bay nickel-copper-cobalt deposit in Labrador. In mid-2004, the IRC entered into an agreement to acquire all the shares of Archean Resources, a private company owned by Christopher Verbiski and Albert Chislett. The duo are being paid $180 million (payable as $152.5-million in cash and about 6.4 million shares) plus an additional one million IRC shares. Archean indirectly holds a 90% interest in the Voisey’s Bay 3% royalty, effectively a 2.7% NSR on future production.

Royalty interests were also recently acquired from John Livermore on two Nevada precious metals projects. A 3% NSR on Atna Resources‘ (ATN-T) and Barrick’s Pinson gold deposit and a 1.5% NSR on Vista Gold‘s (vgz-t) feasibility-stage Hasbrouck Mountain gold-silver project were purchased for a cash payment of US$520,000.

Atna has recently outlined a measured and indicated resource of about 1.6 million tonnes grading 10.3 grams gold per tonne at Pinson. Hasbrouck Mountain’s resource currently stands at about 18.4 million tonnes at 0.8 gram gold.

IRC has also entered into agreements to acquire four portfolios consisting of 58 royalties, for an aggregate cost of about $9.1 million, partly payable in common shares. The royalty portfolios include: two royalties on producing properties; six royalties on development stage projects; seven royalties on feasibility stage properties; and 43 royalties on exploration projects.

The specific portfolios are:

q From BHP Billiton (BHP-N), an agreement to acquire 22 royalty interests in precious and base metal, and diamond projects for US$1.25 million in cash and shares.

q From Hecla Mining (HL-N), IRC has agreed to buy variable royalties in 14 mineral properties, primarily in the western U.S., including minor interests in two producing oil and gas projects. The cost is US$550,000 payable in shares.

q From private company Hunter Exploration Group, IRC will acquire one-half of Hunter’s gross override royalties (GOR) for diamonds on 17 projects in Nunavut. The purchase price of $5 million is payable in shares.

q From David Fawcett, IRC is acquiring essentially one-fifth of a 1% royalty of coal produced from Western Canadian Coal‘s (wtn-v) Wolverine and Brazion projects located near Tumbler Ridge in northeastern British Columbia. The purchase price is $1.25 million payable in cash and shares.

The company intends to pay a dividend once consistent levels of cash flow are established.

One of the most successful examples of a royalty company was Franco-Nevada Mining. Created in 1982, Franco-Nevada acquired a large portfolio of mining royalties. Its crown jewels were the NSR and NPI (net profits interest) on Barrick’s Goldstrike mine in Nevada. Newmont Mining (NEM-N) acquired Franco-Nevada in 2002 for about US$2.3 billion.

Some of the other publicly-listed mineral royalty companies include Toronto-based Repadre Capital, part of Iamgold (IMG-T), and Denver-based Royal Gold (RGLD-Q).

Following the IPO and royalty acquisitions, IRC has about 51.2 million shares outstanding, exclusive of any warrant exercises. The issue saw a trading level established in the $4.75-$4.90 per share range, for a market capitalization of $247 million.