Int’l Royalty to buy NSR on Barrick’s Pascua-Lama

Vancouver – International Royalty (IRC-T, ROY-X) has inked a deal to purchase a sliding-scale net smelter return royalty (NSR) 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 ozs. 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 six-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 ozs. of gold production) on the surrounding 50,000 ha for an additional $4 million.

The sliding-scale royalty provides IRC with significant leverage to any rise in gold price. Based on an anticipated 600,000-to-620,000 ozs. of annual gold output derived from the Chilean side (80% of the 750,000-to-775,000 ozs. of total expected gold production in the initial 10 years), 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 equates to 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$18.00 per oz. or about US$11 million per annum.

IRC chairman and CEO Douglas Silver describes the Pascua-Lama royalty as a “truly a marquee asset,” in its addition to the company’s portfolio.

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 of about US$135 per oz. of gold have been projected for the mine in the initial 10 years of its expected 20-year life. Barrick estimates an additional investment of US$250 million will be needed in the first three years after production start-up to boost processing capacity from 30,000 tonnes-per-day to 40,000 tonnes-per-day and for a flotation plant.