Royal Gold buying Kennecott royalties

Vancouver — Royal Gold (RGL-T, RGLD-Q) is expanding its portfolio by spending US$25 million for a pair of royalties owned by Kennecott, a subsidiary of Rio Tinto (RTP-N).

The royalties consist of a 3% net smelter return (NSR) on the Robinson copper-gold mine in eastern Nevada and a sliding-scale NSR on the soon-to-be-producing Mulatos gold mine in Sonora state, Mexico.

The open-pit Robinson mine, owned by Quadra Mining (QUA-T), is expected to produce about 145 million lbs. (more than 65,000 tonnes) copper and 65,000 oz. gold in 2005 from ore averaging 0.55% copper and 0.35 gram gold per tonne. Construction of a molybdenum circuit should be completed by year-end and is expected to recover up to 1.6 million lbs. moly in 2006 at an operating cost of about US$2.50 per lb.

Quadra acquired Robinson in early-2004 from BHP Billiton (BHP-N) for almost US$15 million and re-launched production. BHP built the operation in 1994 at a reported cost of US$480 million. The mine operated from 1996-99, when it was placed on care and maintenance, owing to low metal prices.

Proven and probable reserves at Robinson stand at 129.4 million tonnes grading 0.69% copper and 0.29 gram gold.

Royal Gold expects to have revenue from its Robinson NSR once a US$20-million reclamation trust is funded by Quadra, some time in 2006.

At the Mulatos project in Mexico, owned by Alamos Gold (AGI-T, AGIGF-Q), the Estrella open-pit, heap-leach gold operation is being built and should be in production in early-2006. With proven and probable reserves of 36.4 million tonnes averaging 1.6 grams gold (1.9 million contained ounces), the mine is expected to produce about 150,000 oz. gold annually.

The Mulatos royalty is a sliding scale version, with the NSR capped at 1.5% with a gold price of US$400 per oz. or higher.

Royal Gold holds precious metal royalty interests in several producing mines in the western U.S. (mostly in Nevada) and Argentina, and NSRs on a number of advanced-stage projects. With its 23.3 million shares outstanding, the company posts a $915-million market capitalization at its recent trading level of $39.30 per share, almost a 3-year high.