Breakwater Sells Royalties At Myra Falls

Breakwater Resources (BWR-T, BWLFR-O) has sold royalties on a portion of the zinc produced over the life of its Myra Falls zinc, lead, silver, gold and copper mine, about 90 km from the port of Campbell River in a provincial park on Vancouver Island in B.C.

The Toronto-based company signed agreements with Red Mile Resources and Ronpam Resources, receiving $69.4 million in cash, which includes royalty income of $62.6 million, and fees and interest of $6.8 million.

Breakwater must pay royalties at fixed amounts per pound of payable zinc produced. Over the first 11 years of the contract, the royalties range from 2.2¢ per lb. to 19.3¢ per lb. for the Red Mile royalty, and from 1.5¢ per lb. to 4.3¢ per lb. for the Ronpam royalty.

Under the deal, if the price of zinc in a given year (2015-2019) averages above US$4,250, US$4,500 or US$4,750 per tonne, Breakwater grants Red Mile a net profit interest of 4.5%, 4.7% or 4.9%, respectively, and Ronpam a net profit interest of 0.75%, 1% or 1.25%, respectively.

Of the cash received, $62.6 million was given to a financial institution, for which Breakwater took back promissory notes. Interest earned from the promissory notes will be used to pay the royalty payments during the first years of the agreements. Over the remaining years, interest and principal from the promissory notes will be used to fund the royalty payments.

The balance, or $6.8 million, will be used for general corporate purposes, according to Breakwater.

As of Dec. 31, 2008, Myra Falls had proven and probable reserves of 6.29 million tonnes grading 5.2% zinc, 0.5% lead, 0.9% copper, 44 grams silver per tonne and 1.3 grams gold per tonne.

Measured and indicated resources tallied 6.79 million tonnes grading 6.9% zinc, 0.6% lead, 1.2% copper, 57 grams silver and 1.7 grams gold.

In addition, the mine has an inferred resource of 3.12 million tonnes grading 8.2% zinc, 0.9% lead, 1.1% copper, 110 grams silver and 2.3 grams gold.

Breakwater has three producing zinc mines in Canada, Honduras and Chile, all of which were hit hard by falling zinc prices during the financial crisis.

Its Langlois mine in Quebec is currently on temporary care and maintenance.

The junior is currently trading at about 44.5¢ per share and has a 52- week trading range of 8.5¢-47.5¢ per share with 683.5 million shares outstanding.