Int’l Royalty launches IPO raising $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 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 (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 $3.00 apiece. The NSR has paid about $500,000 annually over the past few years.

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.

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:

• 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.
• From Hecla Mining (NL-N), IRC has agreed to acquire 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.
• 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.
• 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.

With planned future revenues, the company has a dividend policy in place 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 royalties on a number of mining projects. 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.

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, giving a market capitalization of $247 million.