Royal Gold agrees to buy International Royalty
By: Liezel Hill
18th December 2009
TORONTO (miningweekly.com) – Nasdaq-listed royalty firm Royal Gold has agreed to buy International Royalty Corporation (IRC) in a friendly deal worth C$749-million, the companies announced on Friday.
Shares in IRC rose on the news, and were up 4,64% in Toronto by 9:44.
Royal Gold will offer either C$7.451 in cash or 0.1385 in shares, or a combination of the two, for each share of IRC, topping an earlier hostile bid from Canada's Franco-Nevada Corporation.
All three companies provide upfront funds to mining and development firms in need of cash for project development, in return for a share of future revenue streams
Franco-Nevada said earlier this month it would offer C$6.75 a share in cash for IRC, which owns 84 royalties, including a net smelter return royalty on Vale Inco's Voisey's Bay nickel mine, in Canada, and a sliding scale royalty on the Chilean portion of Barrick Gold's massive Pascua Lama project.
News of a rival bid for IRC first emerged on Tuesday this week, when Franco-Nevada filed the circular for its offer, disclosuring that IRC had received another "very attractive" offer.
IRC's board, management and shareholders representing almost 27% of the company's shares have already agreed to back the Royal Gold transaction, the companies said on Friday.
The acquisition requires approval by two-thirds of IRC shareholders, and CEO Douglas Silver said on a conference call that he expects the deal could close in February.
Silver was confident IRC had secured the best offer available.
“This has been a process that we have been involved with for well over a month, and everybody that was interested always had the opportunity to put their best bid forward, and it's clear that Royal gave us the best offer,” he said.
“We were comfortable with it because it wasn't as though there wasn't a process going on, and this came out of the blue. It was an organised process.”
If the Royal Gold transaction succeeds, the combined company's portfolio would include 31 producing royalty properties, 20 development stage properties, and 143 evaluation and exploration projects, mainly in Canada, Chile and Australia
"The combination of Royal Gold and IRC brings together a portfolio of nearly 200 royalty interests and creates a combined company that would hold royalty interests on some of the highest quality mines in the world,” said Royal Gold CEO Tony Jensen.
“Seldom will we have the opportunity to acquire this many royalties in one spot,” he told analysts and investors.
The companies are already pretty familiar with the other's assets, because they had, at one point or another, considered many of the royalties for acquisition themselves, commented Silver.
“So hopefully they will enjoy ours as much as we will enjoy theirs,” he quipped.
Because of the Voisey's Bay nickel royalty, IRC has not enjoyed the precious-metals exposure that companies like Franco-Nevada and Royal Gold have built up.
However, this will change when Barrick starts up the large Pascua Lama gold/silver mine, which is scheduled to begin production in 2013.
By that point, the combined company would generate an estimated 74% of revenue from precious metals, Jensen said.
Under the plan of arrangement, shareholders can opt for cash or shares, or a combination of the two, subject to a cap of $350-million on the cash portion and a maximum of 7.75-million Royal Gold being issued.
The offer represents a premium of about 70% over IRC's 20-day volume-weighted average trading price on the TSX up to December 4, 2009, which was the last trading day before Franco-Nevada announced its bid.
IRC has also agreed to pay a $32-million break fee if the deal is not completed, which could prove a deterrent to Franco-Nevada.
Franco-Nevada did not comment on the Royal Gold offer.
Shares in IRC rose C$0.34, to C$7.66 apiece in early trade on Friday, surpassing the cash value of both Royal Gold and Franco-Nevada's offers, which may indicate investors expect a higher bid.
Franco-Nevada was also up 3.56%, to C$27.03 a share by 9:48, and Royal Gold gained 1.91%, to trade at $47.90 in New York.
Edited by: Liezel Hill
