International Royalty Takes Vale To Court Over Royalty Spat

International Royalty (IRC-T, ROY-X) and Altius Minerals (ALS-T, ATUSF-O) are taking Vale (VALE-N) to court over royalty payments they claim shortchanged them by more than US$26 million.

International Royalty holds a 90% stake and Altius a 10% stake in the Labrador Nickel Royalty Partnership, which holds a 3% net smelter return (NSR) royalty covering Vale’s Voisey’s Bay nickel-copper-cobalt mine in Labrador.

The statement of claim filed in the Supreme Court of Labrador states that Vale has underpaid royalties due to the partnership and includes an order to correct the calculation in future payments.

The two companies claim that payments did not represent fair market value and that Vale incorrectly calculated the NSR paid through its contracts. It also claims that Vale deducted certain income taxes that it pays to the province of Newfoundland and Labrador in determining the NSR, which is not allowable under the royalty agreement.

Vale spokesman Bob Carter told The Northern Miner he could not comment on the claim because the matter was before the courts.

Peter Zinc, president of International Royalty, says his company had reservations about the calculation of the payments as early as 2006, but that it took management time to research the market and determine precisely what was at fault with the contract.

“It took a while to do the research to find appropriate experts in the business who could help with the research and piece all the facts together,” Zinc says.

“Royalties are tied to the value of the mineral in the concentrate, so as nickel prices and cobalt and copper prices vary over time, as does production, the fair market value in that concentrate will vary,” he says. “We believe that the value that the mine received for that concentrate should have been higher and that would have obviously paid us a higher royalty.”

In addition, “there are certain taxes based on income that we don’t think ought to be deducted under the contract.”

Zinc adds that International Royalty could not sort out its issues with Vale satisfactorily and came to the conclusion that taking the dispute to the courts was the only way forward.

“It’s not unusual at all in the royalty business for the royalty holder to question the operator as to the calculation of royalties,” he says, noting that it is unlikely to sour International Royalty’s future business dealings with Vale.

Apart from its 2.7% NSR on the Voisey’s Bay mine (Altius holds the remaining 0.3% of the NSR), International Royalty has a sliding- scale NSR on the Pascua- Lama gold project in Chile, a 1.5% NSR on the Las Cruces copper project in Spain and a 1.5% NSR on about 3 million acres of gold lands in Western Australia.