Int’l Royalty to Buy Nsr on Pascua-Lama

Vancouver — International Royalty (IRC-T, ROY-X) has inked a deal to purchase a sliding-scale net smelter return (NSR) royalty on Barrick Gold’s (ABX-T, ABX-N) monstrous Pascua-Lama gold deposit, which straddles the border of Chile’s Region III and Argentina’s San Juan province.

International Royalty (IRC) will pony up US$37.4 million for the variable NSR on the first 14 million oz. of gold produced from the Chilean side of the deposit, which contains about 80% of the orebody. IRC will also have to make two one-time US$4-million payments if gold prices exceed US$550 and US$600 per oz. for any 6-month period within three years once production begins.

IRC also gets an option to acquire up to 50% of the royalty seller’s proportional interests in the project’s upside potential (beyond the initial 14 million oz. of gold production) on the surrounding 500 sq. km for an additional $4 million.

The sliding-scale royalty provides IRC with significant exposure to any rise in the price of gold.

Based on anticipated annual gold output of 600,000-620,000 oz. derived from the Chilean side, IRC will receive:

* an effective NSR of 0.675% when gold is at US$400 per oz., delivering a royalty of US$2.70 per oz. or about US$1.65 million annually;

* at US$600-per-oz. gold, a 1.53% effective NSR equals US$9.18 per oz. or about US$5.6 million per year; and

* with gold at US$800 per oz., the effective NSR of 2.25% gives US$18 per oz., or about US$11 million per year.

IRC chairman and CEO Douglas Silver describes the Pascua-Lama royalty as “truly a marquee asset.”

Barrick’s updated feasibility study on the 18.3-million-oz. deposit, completed in mid-2004, estimated construction costs of about US$1.5 billion for a large open-pit operation, scheduled to begin in 2010. Cash costs have been projected at about US$135 per oz. gold for the first 10 years of the project’s expected 20-year life. Barrick estimates an additional investment of US$250 million will be needed in the first three years after production startup to boost processing capacity to 40,000 tonnes per day from 30,000 and for a flotation plant.

After orchestrating a cross-border mining treaty with Chile and Argentina for the controversial project, Barrick has attracted the scrutiny of numerous environmental groups concerned about the sensitivity of the area and regional water supply. The major conducted major studies and reviews, and has gone to great lengths in its public relations campaign to assure its mining activities will not significantly affect water quality or quantity in the Huasco Valley.

IRC holds royalties on a number of nickel, copper, zinc, gold, diamond and coal projects. Its flagship asset is a 2.7% NSR on production from the Voisey’s Bay nickel-copper-cobalt mine operated by Companhia Vale do Rio Doce (RIO-N) subsidiary Inco.

Shares of IRC closed at around $5.90 on news of the royalty purchase. Based on its 57.4 million shares outstanding, the company posts a $340-million market cap.