UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 18, 2010
ROYAL GOLD, INC.
(Exact Name of Registrant as Specified in its Charter)
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Delaware
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001-13357
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84-0835164
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(State or other Jurisdiction
of Incorporation)
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(Commission File Number)
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(I.R.S. Employer
Identification No.)
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1660 Wynkoop Street, Suite 1000, Denver, CO
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80202-1132
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(Address of Principal Executive Offices)
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(Zip Code)
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Registrants telephone number, including area code:
303-573-1660
N/A
(Former name or former address, if changed from last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy
the filing obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
TABLE OF CONTENTS
Explanatory Note
This Amendment No. 1 to Form 8-K is an amendment to the Current Report on Form 8-K filed by Royal
Gold, Inc. (Royal Gold) on February 18, 2010 (the Original 8-K), which Original 8-K provided
the historical audited and unaudited financial information and unaudited pro forma financial
information that was required to be filed under Item 9.01 of Form 8-K in connection with the
anticipated completion of the business combination transaction described in the Original 8-K.
Since the business combination transaction described in the Original 8-K has now been consummated,
Royal Gold is filing this Amendment No. 1 to Form 8-K to supplement the Original 8-K with
additional information required to be disclosed on Form 8-K in respect of the business combination
transaction.
Item 1.01. Entry into a Material Definitive Agreement.
Consummation of Plan of Arrangement
On February 22, 2010 Royal Gold and International Royalty Corporation (IRC) consummated their previously announced Plan of Arrangement (the Plan of
Arrangement), whereby Royal Gold, through RG Exchangeco Inc. (formerly known as 7296355 Canada
Ltd.), a wholly-owned Canadian subsidiary of Royal Gold (Canco), acquired all of the issued and
outstanding common shares of IRC (IRC Common Shares). Pursuant to the Plan of Arrangement, IRC
shareholders will receive, in the aggregate: (i) cash
consideration of approximately C$313.6 million and US$49.1
million, (ii) 5,234,086 common shares of Royal Gold (Royal Gold Shares), and
(iii) 1,806,649 exchangeable shares of Canco (the Exchangeable Shares), which
Exchangeable Shares are redeemable and exchangeable on a one-for-one basis for common shares of
Royal Gold. Due to the prorationing mechanism in the Plan of Arrangement, IRC shareholders who
elected all cash consideration will receive C$4.20 of their consideration in cash (or the US$
equivalent thereof based on the Bank of Canada noon spot rate of $1.0420, as of February 19, 2010,
if they elected to receive their cash consideration denominated in US$) and 0.0593 Royal Gold
Shares or Exchangeable Shares for each IRC Common Share properly submitted. IRC shareholders who
elected all share consideration will receive 0.1385 Royal Gold Shares or Exchangeable Shares per
IRC Common Share. Holders who elected or were deemed to have elected a combination of cash and
shares will receive their proportionate cash and share consideration as pro-rated under the Plan of
Arrangement.
Issuance of Royal Gold Shares
The Royal Gold Shares, the Exchangeable Shares and the Special Voting Stock (as defined below under
the heading Arrangements Relating to Exchangeable Shares) issued pursuant to the Plan of
Arrangement were issued pursuant to the exemption from the registration requirements of the
Securities Act of 1933, as amended (the Act), that is located within Section 3(a)(10) of the Act.
Section 3(a)(10) of the Act exempts the
2
issuance of securities that have been approved, after a hearing upon the fairness of the terms and
conditions at which all persons to whom it is proposed the securities will be issued shall have the
right to appear, by any court expressly authorized by law to grant such approval. On February 19,
2010, the Ontario Superior Court of Justice, following a hearing, issued a final order as to the
fairness of the Plan of Arrangement.
The common shares of Royal Gold issuable upon the exchange or redemption of the Exchangeable Shares
were separately registered on a Registration Statement on Form S-3 (333-164975) filed by Royal Gold
with the U.S. Securities and Exchange Commission on February 18, 2010.
Arrangements Relating to Exchangeable Shares
In connection with the consummation of the Plan of Arrangement, Royal Gold entered into (i) a
Support Agreement, dated as of February 22, 2010 (the Support Agreement), among Royal Gold, RG
Callco Inc., a wholly-owned Canadian subsidiary of Royal Gold, and
Canco, and (ii) a Voting and
Exchange Trust Agreement (the Trust Agreement), dated as of February 22, 2010, among Royal Gold,
Canco and Computershare Trust Company of Canada, a trust company incorporated under the laws of
Canada (the Exchangeable Share Trustee).
Pursuant to the Trust Agreement and the terms of the Special Voting Stock (as defined below), each
holder of an Exchangeable Share other than Royal Gold or Royal Golds affiliates will effectively
have the ability to cast votes at all Royal Gold stockholder meetings, or in connection with any
written consents of Royal Golds stockholders, along with holders of common shares of Royal Gold.
Pursuant to the Support Agreement and the rights, privileges, restrictions and conditions attaching
to the Exchangeable Shares, each such holder of Exchangeable Shares will have the right to receive
dividends, distributions and liquidation entitlements economically equivalent to those rights of a
holder of common shares of Royal Gold, and have the right to exchange such Exchangeable Shares for
common shares of Royal Gold.
The Exchangeable Shares may be redeemed for common shares of Royal Gold if, among other
circumstances, there are fewer than 750,000 Exchangeable Shares outstanding (other than
Exchangeable Shares held by Royal Gold and its affiliates).
On February 19, 2010 and in anticipation of the consummation of the Plan of Arrangement, Royal Gold
filed a Certificate of Designations, Preferences and Rights of the Special Voting Preferred Stock
of Royal Gold, Inc. (the Certificate of Designation) with respect to a series of preferred stock
of Royal Gold designated as the Special Voting Preferred Stock (the Special Voting Stock),
which consists of one share and has the rights, privileges, restrictions and conditions described
in the Certificate of Designation. No dividend will be payable to the holder of the Special Voting
Stock, although under the Support Agreement, Royal Gold will be required to deliver economically
equivalent dividends to holders of Exchangeable Shares through Canco. In the event of liquidation,
dissolution or winding up, the Special Voting Stock shall not be entitled to receive any assets of
Royal Gold available to its stockholders.
At each annual or special meeting of Royal Gold stockholders or upon any matters upon which written
consents are sought from Royal Gold stockholders, the holder of the
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Special Voting Stock will be entitled to vote on all matters submitted to a vote of the holders of
common shares of Royal Gold, voting together with the holders of common shares of Royal Gold as a
single class (except as otherwise provided by applicable law or in the Certificate of Designations
with respect to the Special Voting Stock). The holder of the Special Voting Stock will be entitled
to cast on any such matter a number of votes equal to the number of then outstanding Exchangeable
Shares less (a) the number of Exchangeable Shares that are owned by
Royal Gold or its affiliates, and (b) the number of Exchangeable
Shares as to which the holder of the
Special Voting Stock has not timely received voting instructions from the holders of such Exchangeable
Shares.
The Special Voting Stock will not be subject to redemption, except that at such time as no
Exchangeable Shares (other than those owned by Royal Gold and its affiliates) are outstanding, the
Special Voting Stock will be automatically cancelled.
In connection with the consummation of the Plan of Arrangement and pursuant to the Trust Agreement,
Royal Gold issued one share of Special Voting Stock to the Exchangeable Share Trustee on February
22, 2010.
The
foregoing descriptions of the Exchangeable Shares, the Support Agreement, the Trust Agreement and the Certificate of
Designation do not purport to be complete and are qualified in their entirety by reference to the
Support Agreement, the Trust Agreement, the Certificate of Designation
and the Provisions Attaching to the Exchangeable Shares, which are filed as
Exhibits 10.1, 10.2, 4.1 and 4.2, respectively, hereto and incorporated by reference into this Item
1.01.
Financing,
IRC Debentures, and IRC Credit Facility
Royal Gold financed the cash consideration payable under the Plan of Arrangement from its and IRCs
cash on hand and its $100 million term loan (the Term
Facility) and its $125 million revolving credit
facility (the Revolving Facility), each with HSBC Bank
USA, National Association and Scotiabanc Inc. The
descriptions of the Term Facility and the Revolving Facility set forth in Royal Golds Current
Reports on Form 8-K dated January 20, 2010 and October 30, 2008, respectively, are incorporated
herein by reference.
Also pursuant to the Plan of Arrangement, IRCs C$30 million of senior debentures (the IRC
Debentures) that mature on February 22, 2011 and bear interest at a rate of 5.5% per annum,
payable semi-annually on February 28 and August 31, remain outstanding. IRCs obligations under
the IRC Debentures are collateralized by a general security agreement over all of the assets of IRC
relating to the Voiseys Bay royalty. On November 25, 2008, IRC entered into an agreement with a
bank to fix the exchange rate to repay the principal balance of the IRC Debentures at C$1.00 to
US$0.834725, based on the settlement date of February 22, 2011.
On February 19, 2010, IRC and The Bank of Nova Scotia agreed to cancel the undrawn US$40
million credit facility that The Bank of Nova Scotia had made available to IRC pursuant to the
Credit Agreement dated as of January 8, 2007, as amended.
Item 2.01. Completion of Acquisition or Disposition of Assets.
The information set forth in Item 1.01 of this Current Report on Form 8-K in the section entitled
Consummation of Plan of Arrangement is incorporated herein by reference.
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Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
The information set forth in Item 1.01 of this Current Report on Form 8-K in the section entitled
Financing, IRC Debentures, and IRC Credit Facility is incorporated herein by reference.
Item 3.02. Unregistered Sales of Equity Securities.
The information set forth in Item 1.01 of this Current Report on Form 8-K in the sections entitled
Consummation of Plan of Arrangement and Issuance of Royal Gold Shares is incorporated herein by
reference.
Item 5.03. Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.
The information set forth in Item 1.01 of this Current Report on Form 8-K relating to the Special
Voting Stock and the Certificate of Designation in the section entitled Arrangements Relating to
Exchangeable Shares is incorporated herein by reference. The Certificate of Designation is filed
as Exhibit 4.1 hereto and is incorporated by reference into this Item 5.03.
Item 8.01. Other Events.
On February 22, 2010, Royal Gold and IRC announced completion of the Plan of Arrangement
between Royal Gold and IRC pursuant to which Royal Gold has acquired all of the outstanding
common shares of IRC. The press release is attached hereto as Exhibit 99.1 and is incorporated
by reference herein.
Item 9.01. Financial Statements and Exhibits.
(a)
Financial Statements of Business Acquired
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Audited Consolidated Financial Statements of IRC and its Subsidiaries
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The consolidated balance sheets of IRC as at December 31, 2008 and 2007 and the
consolidated statements of operations and comprehensive income, shareholders equity and
cash flows for each of the years in the three year period ended December 31, 2008 and the
effectiveness of internal controls over financial reporting of IRC as of December 31,
2008, and the auditors report contained thereon.
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The consolidated balance sheets of IRC as at December 31, 2007 and 2006 and the
consolidated statements of operations and comprehensive income, shareholders equity and
cash flows for each of the years in the three year period ended December 31, 2007 and the
effectiveness of internal controls over financial reporting of IRC as of December 31,
2007, and the auditors report contained thereon.
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Unaudited Consolidated Financial Statements of IRC and its Subsidiaries
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The unaudited consolidated balance sheet as at September 30, 2009 and unaudited
consolidated statements of operations, retained earnings and comprehensive income, and
cash flows for the three and nine month periods ended September 30, 2009 and 2008.
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(b)
Pro Forma Financial Information
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Unaudited Pro Forma, Combined, Condensed Financial Information of Royal Gold
(c)
Shell Company Transactions
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None.
(d)
Exhibits
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Exhibit No.
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Description
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4.1
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Certificate of Designations, Preferences and Rights of the
Special Voting Preferred Stock of Royal Gold, Inc.
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4.2
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Appendix I to Schedule B of the Amended and Restated Arrangement Agreement, dated
January 15, 2010 but made effective as of December 17, 2009, among Royal Gold, Inc., RG
Exchangeco Inc. and International Royalty Corporation (filed as Exhibit 2.1 to Royal Golds Form
8-K (Commission File No. 001-13357) dated January 22, 2010, and incorporated herein by
reference)
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10.1
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Support Agreement, dated as of February 22, 2010, among Royal
Gold, Inc., RG Callco Inc., and RG Exchangeco Inc.
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10.2
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Voting and Exchange Trust Agreement, dated as of February 22,
2010, among Royal Gold, Inc., RG Exchangeco Inc. and
Computershare Trust Company of Canada
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23.1
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Consent of PricewaterhouseCoopers LLP
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99.1
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Press Release dated February 22, 2010
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International Royalty Corporation
Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in thousands of U.S. dollars)
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MANAGEMENTS RESPONSIBILITY FOR FINANCIAL REPORTING CANADA
Management is responsible for the preparation and fair presentation of the consolidated financial
statements and other financial information relating to International Royalty Corporation (the
Company or IRC) included in this annual report. The consolidated financial statements have been
prepared in accordance with generally accepted accounting principles in Canada and necessarily
include amounts based on estimates and judgments of management. In this regard, management has
developed and maintains a system of accounting and reporting which provides for the necessary
internal controls to ensure that transactions are authorized, assets are safeguarded and proper
records are maintained.
PricewaterhouseCoopers LLP, our independent auditors, are engaged to express a professional opinion
on the consolidated financial statements. Their examination is conducted in accordance with
generally accepted Canadian auditing standards and includes tests and other procedures which allow
the auditors to report whether the consolidated financial statements prepared by management are
presented fairly, in all material respects, in accordance with generally accepted Canadian
accounting principles.
The Board of Directors is responsible for ensuring that management fulfils its responsibilities for
financial reporting and for reviewing and approving the consolidated financial statements. In
furtherance of the foregoing, the Board has appointed an Audit Committee composed of three
directors not involved in the daily operations of the Company.
The Audit Committee meets with the independent auditors to discuss the results of their audit and
their audit report prior to submitting the consolidated financial statements and annual report to
the Board of Directors for its consideration and approval for issuance to shareholders. On the
recommendation of the Audit Committee, the Board of Directors has approved the Companys
consolidated financial statements.
(signed) Douglas B. Silver
Chairman and Chief Executive Officer
(signed) Ray Jenner
Chief Financial Officer and Secretary
February 25, 2009
7
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of International Royalty Corporation is responsible for establishing and maintaining
adequate internal control over financial reporting. The Securities and Exchange Act of 1934 in Rule
13a-15(f ) and 15d-15(f ) defines this as a process designed by, or under the supervision of, the
Companys principal executive and principal financial officers and effected by the Companys Board
of Directors, management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles, and includes those policies
and procedures that:
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Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transaction and dispositions of the assets of the Company;
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Provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the Company are being made only in accordance with authorizations of management
and directors of the Company; and
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Provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisitions, use or disposition of the Companys assets that may have a material effect on the
consolidated financial statements.
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Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Projections of any evaluation of effectiveness to future periods are subject
to risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Companys internal control over financial reporting as
of December 31, 2008. In making this assessment, the Companys management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework.
Based upon our assessment and those criteria, management concluded that the Companys internal
control over financial reporting was effective as of December 31, 2008.
The effectiveness of the Companys internal control over financial reporting as of December 31,
2008 has been audited by PricewaterhouseCoopers LLP, our independent auditors, as stated in their
report which appears herein.
(signed) Douglas B. Silver
Chairman and Chief Executive Officer
(signed) Ray Jenner
Chief Financial Officer and Secretary
February 25, 2009
8
Independent Auditors Report
To the Shareholders of International Royalty Corporation
We have completed integrated audits of International Royalty Corporations 2008 and 2007
consolidated financial statements and of its internal control over financial reporting as at
December 31, 2008 and an audit of its 2006 consolidated financial statements. Our opinions, based
on our audits, are presented below.
Consolidated Financial statements
We have audited the accompanying consolidated balance sheets of International Royalty Corporation
as at December 31, 2008 and December 31, 2007, and the related consolidated statements of
operations and comprehensive income, shareholders equity and cash flows for each of the years in
the three year period ended December 31, 2008. These financial statements are the responsibility
of the Companys management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our 2008 and 2007 audits of the Companys financial statements in accordance with
Canadian generally accepted auditing standards and the standards of the Public Company Accounting
Oversight Board (United States). We conducted our 2006 audit in accordance with Canadian generally
accepted auditing standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit of financial statements includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. A financial statement audit also includes assessing
the accounting principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company as at December 31, 2008 and December 31,
2007 and the results of its operations and its cash flows for each of the years in the three year
period ended December 31, 2008 in accordance with Canadian generally accepted accounting
principles.
Internal control over financial reporting
We have also audited International Royalty Corporations internal control over financial reporting
as at December 31, 2008, based on criteria established in
Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Companys management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Managements Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Companys internal control over financial reporting
based on our audit.
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We conducted our audit of internal control over financial reporting in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. An audit of
internal control over financial reporting includes obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we consider necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as at December 31, 2008 based on criteria established in Internal Control
Integrated Framework issued by the COSO.
(signed) PricewaterhouseCoopers LLP
Chartered Accountants
Vancouver, B.C.
February 25, 2009
10
International Royalty Corporation
Consolidated Balance Sheets
As at December 31, 2008 and 2007
(expressed in thousands of U.S. dollars)
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2008
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2007
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$
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$
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Assets
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Current assets
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Cash and cash equivalents
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3,444
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12,742
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Restricted cash (note 3)
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371
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969
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Royalties receivable, net of allowance of $45 (2008)
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7,476
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10,309
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Prepaid expenses and other current assets
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195
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173
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11,486
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24,193
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Royalty interests in mineral properties, net
(note 3)
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355,093
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333,739
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Investments
(note 4)
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6,207
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7,244
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Furniture and equipment, net
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145
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119
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Other long-term assets
(notes 5 and 10)
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3,639
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19,187
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376,570
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384,482
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Liabilities
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Current liabilities
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Accounts payable and accrued liabilities
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1,693
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1,852
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Income taxes
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7,753
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9,854
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Future income taxes
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4,226
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4,850
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13,672
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16,556
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Revolving credit facility
(note 6)
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3,000
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Senior secured debentures
(note 7)
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21,662
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26,595
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Foreign currency contract
(note 7)
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493
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Future income taxes
(note 8)
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40,463
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45,652
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79,290
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88,803
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Shareholders Equity
(note 9)
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Common shares
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Authorized unlimited common shares without par value
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Issued - 78,480,356 (2007 - 78,476,856) common shares
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275,464
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275,450
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Contributed Surplus
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9,896
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8,525
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Retained earnings
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11,920
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11,531
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Accumulated other comprehensive income
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173
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297,280
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295,679
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376,570
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384,482
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Nature of operations
(note 1)
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Commitments and contingencies
(note 3)
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Approved by the Board of Directors
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(signed) Douglas B. Silver
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Director
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(signed) Christopher Daly
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Director
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See accompanying notes to the consolidated financial statements.
11
International Royalty Corporation
Consolidated Statements of Operations and Comprehensive Income
(expressed in thousands of U.S. dollars)
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Year ended December 31,
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2008
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2007
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2006
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$
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$
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$
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Revenues
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Royalty revenues
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41,719
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49,857
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20,346
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Other (note 4)
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849
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41,719
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50,706
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20,346
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Expenses
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|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
14,676
|
|
|
|
10,996
|
|
|
|
6,005
|
|
Business development
|
|
|
1,739
|
|
|
|
2,585
|
|
|
|
534
|
|
General and administrative (note 9)
|
|
|
6,700
|
|
|
|
6,325
|
|
|
|
5,360
|
|
Impairment of royalty interests in
mineral properties (note 3)
|
|
|
6,909
|
|
|
|
2,142
|
|
|
|
358
|
|
Impairment of investments (note 4)
|
|
|
833
|
|
|
|
|
|
|
|
|
|
Impairment of long-term assets (notes 5
and 10)
|
|
|
839
|
|
|
|
|
|
|
|
|
|
Royalty taxes
|
|
|
7,661
|
|
|
|
9,532
|
|
|
|
3,812
|
|
|
|
|
|
|
|
39,357
|
|
|
|
31,580
|
|
|
|
16,069
|
|
|
|
|
Earnings from operations
|
|
|
2,362
|
|
|
|
19,126
|
|
|
|
4,277
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (note 11)
|
|
|
(3,155
|
)
|
|
|
(3,750
|
)
|
|
|
(2,338
|
)
|
Interest income
|
|
|
399
|
|
|
|
494
|
|
|
|
332
|
|
Foreign currency gain (loss) (note 2)
|
|
|
5,053
|
|
|
|
(6,206
|
)
|
|
|
351
|
|
Unrealized loss on fair market value of
foreign currency contract (note 7)
|
|
|
(493
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,804
|
|
|
|
(9,462
|
)
|
|
|
(1,655
|
)
|
|
|
|
Earnings before income taxes
|
|
|
4,166
|
|
|
|
9,664
|
|
|
|
2,622
|
|
Income taxes
(note 8)
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income tax expense
|
|
|
(8,647
|
)
|
|
|
(8,812
|
)
|
|
|
|
|
Recovery of future income tax
|
|
|
7,617
|
|
|
|
10,381
|
|
|
|
9,056
|
|
|
|
|
|
|
|
(1,030
|
)
|
|
|
1,569
|
|
|
|
9,056
|
|
|
|
|
Net earnings
|
|
|
3,136
|
|
|
|
11,233
|
|
|
|
11,678
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in the value on
available-for-sale investments, net of
tax benefit of $30 (2008) and tax
expense of $30 (2007)
|
|
|
(173
|
)
|
|
|
173
|
|
|
|
|
|
|
|
|
Total earnings and comprehensive income
|
|
|
2,963
|
|
|
|
11,406
|
|
|
|
11,678
|
|
|
|
|
Basic and diluted earnings per share
|
|
|
0.04
|
|
|
|
0.16
|
|
|
|
0.20
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
78,479,954
|
|
|
|
68,249,204
|
|
|
|
57,307,592
|
|
|
|
|
Diluted weighted average shares
outstanding
|
|
|
78,590,395
|
|
|
|
70,056,532
|
|
|
|
58,086,569
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
12
International Royalty Corporation
Consolidated Statements of Shareholders Equity
(expressed in thousands of U.S. dollars, except number of shares amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Deficit)
|
|
|
other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
|
|
|
retained
|
|
|
comprehensive
|
|
|
shareholders
|
|
|
|
Common shares
|
|
|
surplus
|
|
|
earnings
|
|
|
income
|
|
|
equity
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2005
|
|
|
57,027,568
|
|
|
|
164,176
|
|
|
|
5,071
|
|
|
|
(9,353
|
)
|
|
|
|
|
|
|
159,894
|
|
Stock options
|
|
|
|
|
|
|
|
|
|
|
960
|
|
|
|
|
|
|
|
|
|
|
|
960
|
|
Warrants exercised
|
|
|
980,880
|
|
|
|
1,997
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
1,951
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,678
|
|
|
|
|
|
|
|
11,678
|
|
|
|
|
Balance at December 31,
2006
|
|
|
58,008,448
|
|
|
|
166,173
|
|
|
|
5,985
|
|
|
|
2,325
|
|
|
|
|
|
|
|
174,483
|
|
Warrants exercised
|
|
|
1,694,408
|
|
|
|
6,973
|
|
|
|
(315
|
)
|
|
|
|
|
|
|
|
|
|
|
6,658
|
|
Unit offering, net of
expenses and tax impact
|
|
|
8,334,000
|
|
|
|
34,831
|
|
|
|
1,565
|
|
|
|
|
|
|
|
|
|
|
|
36,396
|
|
Exercise of stock options
|
|
|
40,000
|
|
|
|
227
|
|
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
|
|
162
|
|
Offering, net of expenses
and tax impact
|
|
|
10,400,000
|
|
|
|
67,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,246
|
|
Stock options
|
|
|
|
|
|
|
|
|
|
|
1,355
|
|
|
|
|
|
|
|
|
|
|
|
1,355
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,027
|
)
|
|
|
|
|
|
|
(2,027
|
)
|
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,233
|
|
|
|
|
|
|
|
11,233
|
|
Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
173
|
|
|
|
173
|
|
|
|
|
Balance at December 31,
2007
|
|
|
78,476,856
|
|
|
|
275,450
|
|
|
|
8,525
|
|
|
|
11,531
|
|
|
|
173
|
|
|
|
295,679
|
|
Exercise of stock options
|
|
|
3,500
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
Stock options
|
|
|
|
|
|
|
|
|
|
|
1,371
|
|
|
|
|
|
|
|
|
|
|
|
1,371
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,747
|
)
|
|
|
|
|
|
|
(2,747
|
)
|
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,136
|
|
|
|
|
|
|
|
3,136
|
|
Other Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(173
|
)
|
|
|
(173
|
)
|
|
|
|
Balance at December 31,
2008
|
|
|
78,480,356
|
|
|
|
275,464
|
|
|
|
9,896
|
|
|
|
11,920
|
|
|
|
|
|
|
|
297,280
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
13
International Royalty Corporation
Consolidated Statements of Cash Flows
(expressed in thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
Cash flows provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings for the year
|
|
|
3,136
|
|
|
|
11,233
|
|
|
|
11,678
|
|
Items not affecting cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
14,716
|
|
|
|
11,037
|
|
|
|
6,041
|
|
Impairment of royalty interests in mineral properties
|
|
|
6,909
|
|
|
|
2,142
|
|
|
|
358
|
|
Impairment of long-term assets
|
|
|
839
|
|
|
|
|
|
|
|
|
|
Impairment of investments
|
|
|
833
|
|
|
|
|
|
|
|
|
|
Amortization of deferred debenture costs
|
|
|
278
|
|
|
|
249
|
|
|
|
222
|
|
Accretion of debenture discount
|
|
|
822
|
|
|
|
736
|
|
|
|
657
|
|
Future income tax
|
|
|
(7,617
|
)
|
|
|
(10,381
|
)
|
|
|
(9,056
|
)
|
Non-cash foreign currency contract
|
|
|
493
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
1,371
|
|
|
|
1,355
|
|
|
|
960
|
|
Interest income
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
(849
|
)
|
|
|
|
|
Changes in non-cash working capital
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in royalties receivable
|
|
|
2,734
|
|
|
|
(2,496
|
)
|
|
|
(7,627
|
)
|
Decrease (increase) in prepaid expenses and other assets
|
|
|
37
|
|
|
|
122
|
|
|
|
(32
|
)
|
Increase (decrease) in accounts payable and accrued
liabilities
|
|
|
(103
|
)
|
|
|
23
|
|
|
|
739
|
|
Increase (decrease) in income taxes
|
|
|
(2,101
|
)
|
|
|
9,854
|
|
|
|
|
|
|
|
|
|
|
|
22,338
|
|
|
|
23,025
|
|
|
|
3,940
|
|
|
|
|
Cash flows used in investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of royalty interests in mineral properties
|
|
|
(25,304
|
)
|
|
|
(119,191
|
)
|
|
|
(10,026
|
)
|
Proceeds from the sale of royalty interests in mineral properties
|
|
|
|
|
|
|
6,000
|
|
|
|
|
|
Purchases of furniture and equipment
|
|
|
(67
|
)
|
|
|
(8
|
)
|
|
|
(67
|
)
|
Other long-term assets relating to royalty acquisition
|
|
|
|
|
|
|
(17,878
|
)
|
|
|
|
|
Proceeds from (investment in) short-term investments
|
|
|
|
|
|
|
|
|
|
|
1,779
|
|
Acquisition of investments
|
|
|
|
|
|
|
(157
|
)
|
|
|
|
|
Increase in other long-term assets
|
|
|
(2,240
|
)
|
|
|
(55
|
)
|
|
|
(211
|
)
|
Restricted cash
|
|
|
|
|
|
|
(544
|
)
|
|
|
1,493
|
|
|
|
|
|
|
|
(27,611
|
)
|
|
|
(131,833
|
)
|
|
|
(7,032
|
)
|
|
|
|
Cash flows provided by financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of common shares
|
|
|
|
|
|
|
101,675
|
|
|
|
|
|
Net borrowings from the revolving credit facility
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
14
|
|
|
|
162
|
|
|
|
|
|
Proceeds from exercise of warrants
|
|
|
|
|
|
|
6,659
|
|
|
|
1,951
|
|
Payment of dividends
|
|
|
(2,747
|
)
|
|
|
(2,027
|
)
|
|
|
|
|
|
|
|
|
|
|
267
|
|
|
|
106,469
|
|
|
|
1,951
|
|
|
|
|
Effect of currency translation on cash balances
|
|
|
(4,292
|
)
|
|
|
3,506
|
|
|
|
(19
|
)
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(9,298
|
)
|
|
|
1,167
|
|
|
|
(1,160
|
)
|
Cash and cash equivalents beginning of year
|
|
|
12,742
|
|
|
|
11,575
|
|
|
|
12,735
|
|
|
|
|
Cash and cash equivalents end of year
|
|
|
3,444
|
|
|
|
12,742
|
|
|
|
11,575
|
|
|
|
|
Supplemental cash flow information
(note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
14
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
1
|
|
Nature of operations
|
|
|
|
International Royalty Corporation (IRC or the Company) was incorporated under the laws
of Yukon, Canada on May 7, 2003 and was continued under the
Canada Business Corporations Act
on
November 12, 2004. It was formed for the purpose of acquiring and creating natural resource
royalties with a specific emphasis on mineral royalties.
|
|
|
|
During 2008 and 2007, approximately 91 and 95 percent, respectively, of the Companys revenues
were generated from the Voiseys Bay Royalty (note 3). The Company is economically dependent
upon the operator of the Voiseys Bay property and the expected revenues therefrom.
|
2
|
|
Summary of significant accounting policies
|
|
|
|
Basis of consolidation and presentation
|
|
|
|
The consolidated financial statements include the accounts of IRC and all of its wholly-owned
subsidiaries. The material subsidiaries include IRC (U.S.) Management Inc., Archean Resources
Ltd. (Archean) and IRC Nevada Inc. All intercompany balances and transactions have been
eliminated upon consolidation. The consolidated financial statements and notes thereto are
prepared in accordance with accounting principles generally accepted in Canada and are
expressed in United States dollars, unless otherwise noted. As described in note 12, accounting
principles generally accepted in Canada differ in certain respects from accounting principles
in the United States.
|
|
|
|
Use of estimates
|
|
|
|
The preparation of financial statements in conformity with Canadian generally accepted
accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts of revenues and expenses
during the reporting period. The Companys most significant estimates include assessing the
recoverability of the carrying value of royalty interests in mineral properties and
investments, the calculation of the fair value of stock-based compensation and warrants and the
calculation of future income taxes. Actual results could differ from those estimates by a
material amount.
|
|
|
|
Managements estimate of mineral prices, operators estimates of proven and probable reserves
related to royalty properties and operators estimates of operating, capital and reclamation
costs, upon which the Company relies, are subject to significant risks and uncertainties. These
estimates affect amortization of royalty interests in mineral properties and the assessment of
the recoverability of the royalty interest in mineral properties. Although management has made
its best assessment of these factors based upon current conditions,
it is possible that changes could occur, which could materially affect the amounts contained in
these consolidated financial statements.
|
15
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
Cash and cash equivalents
|
|
|
|
Cash and cash equivalents consist of cash on deposit and highly liquid money market securities
and investment deposits, with maturity dates of less than three months at the time of
acquisition and which are readily convertible into cash.
|
|
|
|
Cash and cash equivalents are designated as held for trading and are measured at carrying
value which approximates fair value due to the short-term nature of these instruments.
|
|
|
|
Royalty interests
|
|
|
|
Royalty interests include acquired royalty interests in production stage, development stage,
feasibility stage, and exploration stage properties. The royalty interests are recorded at cost
and capitalized as tangible assets, unless such interests are considered to be a financial
asset or a derivative instrument.
|
|
|
|
Acquisition costs of production stage royalty interests are amortized using the units of
production method over the life of the mineral property, which is determined using available
estimates of proven and probable reserves. Acquisition costs of royalty interests on
development, feasibility and exploration stage mineral properties are not amortized. At such
time as the associated mineral interests are placed into production, the cost basis is
amortized using the units of production method over available estimates of proven and probable
reserves. Amortization rates are adjusted on a prospective basis for all changes to estimates
of proven and probably reserves.
|
|
|
|
Furniture and equipment
|
|
|
|
The Company initially records furniture and equipment at cost and provides for depreciation
over their estimated useful lives ranging from three to seven years, using the straight-line
method. Upon retirement or disposition of furniture and equipment, related gains or losses are
recorded in operations.
|
|
|
|
Investments
|
|
|
|
Investments classified as available-for-sale are reported at fair market value (or marked to
market) based on quoted market prices with unrealized gains or losses excluded from earnings
and reported as other comprehensive income or loss. Investments in equities classified as
available-for-sale that do not have a quoted market price in an active market are measured at
cost. Investments classified as held-to-maturity are measured at amortized cost using the
effective interest method. If a decline in fair value is determined to be other than
temporary, an impairment is recognized and the related loss is charged to operations.
|
|
|
|
Impairment of long-lived assets
|
|
|
|
The Company evaluates long-lived assets for impairment when events or circumstances indicate
that the related carrying amounts may not be recoverable. The recoverability of the carrying
value of royalty interests in
production and development stage mineral properties is evaluated based upon estimated future
undiscounted net cash flows from each royalty interest property using available estimates of
proven and probable reserves.
|
16
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
The Company evaluates the recoverability of the carrying value of royalty interests in
feasibility and exploration stage mineral properties in the event of significant decreases in
the price of the underlying mineral, and whenever new information regarding the mineral
property is obtained from the operator that could affect the future recoverability of the
royalty interest, such as updated drilling results, operator decisions to cease further
expenditures or the expiration of claims, licenses or permits. The recoverability is evaluated
based upon estimated future undiscounted net cash flows from each royalty interest property
using available public information on estimates of proven and probable reserves or other
available information.
|
|
|
|
Impairments in the carrying value of each royalty interest are measured and recorded to the
extent that the carrying value in each royalty interest exceeds its estimated fair value, which
is calculated using future discounted cash flows.
|
|
|
|
Financial Instruments
|
|
|
|
Effective January 1, 2008, the Company adopted CICA Section 3862, Financial Instruments
Disclosures and Section 3863 Financial Instruments Presentation. Section 3862 requires an
increased emphasis on disclosing the nature and the extent of risk arising from financial
instruments and how the Company manages those risks (Note 16). Section 3863 established
standards for presentation of financial instruments and non-financial derivatives. The
adoption of these new standards has been incorporated into the Companys financial
presentation.
|
|
|
|
Effective January 1, 2007, the Company adopted CICA Section 3855 Financial Instruments -
Recognition and Measurement. Section 3855 requires that all financial assets, except those
classified as held to maturity, and derivative financial instruments, must be measured at fair
value. All financial liabilities must be measured at fair value when they are classified as
held for trading; otherwise, they are measured at amortized cost. Investments classified as
available for sale are reported at fair market value (or marked to market) based on quoted
market prices with unrealized gains or losses excluded from earnings and reported as other
comprehensive income or loss.
|
|
|
|
The adoption of Section 3855 had an impact on the January 1, 2007 balance sheet of the Company.
Financing charges related to the Senior Secured Debentures (the Debentures) of $1,257,000
(net of amortization) at December 31, 2006 previously were reported as other assets on the
balance sheet and were being amortized to interest expense using the effective interest rate
method. Upon adoption of Section 3855, the Companys new policy regarding these finance
charges is to record these charges as a reduction of the carrying value of the Debentures,
which are being accreted to their maturity value through charges to interest expense over the
term of the Debentures based on the effective yield method. The adjustment was reported as a
reduction of the opening balances in other assets and Senior Secured Debentures as of January
1, 2007.
|
|
|
|
Financing charges
|
|
|
|
Financing charges related to the issuance of the Senior Secured Debentures have been recorded
as a reduction of the carrying value of the Senior Secured Debentures, which are being accreted
to their maturity value
through charges to interest expense over the term of the Debentures using the effective yield
method (see below).
|
17
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
Senior Secured Debentures
|
|
|
|
Proceeds from the Unit Offering were allocated into debt and equity components based upon their
respective fair market values. The carrying value of the Senior Secured Debentures is being
accreted to their maturity value through charges to interest expense over the expected life of
the Debentures based on the effective yield method.
|
|
|
|
Derivative financial instruments
|
|
|
|
Derivative instruments are utilized by the Company to manage market risk against the volatility
in foreign exchange rates. The Companys policy is not to utilize derivative instruments for
speculative purposes. The Company may choose to designate derivative instruments as hedges.
No hedge accounting has been applied by the Company to date.
|
|
|
|
All derivative instruments are recorded on the balance sheet at fair value. Freestanding
derivative instruments are classified as held-for-trading financial instruments. Gains and
losses on these instruments are recorded in other expenses in the consolidated statements of
earnings in the period they occur.
|
|
|
|
Fair value of the derivatives is based on quoted market prices where available. The fair values
of forward contracts are based on forward market prices. If a forward price is not available
for a forward contract, a forward price is estimated using an existing forward price adjusted
for quality or location.
|
|
|
|
Stock options
|
|
|
|
The Company determines the fair value of awards to employees using the Black-Scholes valuation
model. The fair value of the stock options is recognized as compensation expense over the
vesting period of the related option.
|
|
|
|
Revenue
|
|
|
|
Royalty revenue is recognized when management can estimate the payable production from mine
operations, when the underlying price is determinable and when collection is reasonably assured
pursuant to the terms of the royalty agreements.
|
|
|
|
Royalty taxes
|
|
|
|
Voiseys Bay royalty revenues are subject to the Mining and Mineral Rights Tax Act of
Newfoundland and Labrador of 20%, which is recognized at the time of revenue recognition.
Since the Company is ultimately obligated to pay this tax, the revenues received are reported
gross, before the Mineral Rights Tax.
|
18
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
Translation of foreign currencies
|
|
|
|
The United States dollar is the functional currency of IRC and its subsidiaries.
|
|
|
|
Monetary assets and liabilities are translated at the exchange rate in effect at the balance
sheet date and non-monetary assets and liabilities at the exchange rates in effect at the time
of acquisition or issue. Revenues and expenses are translated at rates approximating exchange
rates in effect at the time of the transactions. Exchange gains or losses arising on
translation are included in income or loss for the year.
|
|
|
|
Income taxes
|
|
|
|
Income taxes are accounted for using the liability method. Temporary differences arising from
the difference between the tax basis of an asset or liability and its carrying amount on the
balance sheet are used to calculate future income tax liabilities or assets. Future income tax
liabilities or assets are calculated using the tax rates anticipated to apply in the periods
that the temporary differences are expected to reverse. Future income tax assets are evaluated
and, if realization is not considered more likely than not, a valuation allowance is provided.
|
|
|
|
Comprehensive Income
|
|
|
|
The Company has adopted CICA Section 1530 Comprehensive Income. Comprehensive income is the
change in the Companys net assets that results from transactions, events and circumstances
from sources other than the Companys shareholders and includes items that would not normally
be included in net earnings such as unrealized gains or losses on available-for-sale
investments, which are not included in net earnings until realized. If an unrealized loss has
been determined to be other than temporary, the amount is reversed out of other comprehensive
income and is included in earnings.
|
|
|
|
Earnings per share
|
|
|
|
Basic earnings per share is computed by dividing the net income or loss by the weighted average
number of common shares outstanding during each period. Diluted earnings per share reflects the
effect of all potentially dilutive common stock equivalents.
|
|
|
|
Changes in accounting pronouncements
|
|
|
|
Effective January 1, 2008, the Company adopted CICA Section 3862, Financial Instruments
Disclosures, Section 3863, Financial Instruments Presentation, and Section 1535, Capital
Disclosures. Section 3862 requires an increased emphasis on disclosing the nature and the
extent of risk arising from financial instruments and how the Company manages those risks (Note
16). Section 3863 established standards for presentation of financial instruments and
non-financial derivatives. Sections 3862 and 3863 replace Section 3861, Financial Instruments
Disclosures and Presentation. Section 1535 requires the Company to disclose information to
enable users of its financial statements to evaluate the Companys objectives, policies and
processes for managing capital. The adoption of these new standards has been incorporated into
the Companys financial presentation.
|
19
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
Effective January 1, 2008, the Company adopted CICA Section 1400 General Standards of
Financial Statement Presentation The revision to this section provides additional guidance
related to managements assessment of the Companys ability to continue as a going concern.
This revision is effective as of January 1, 2008. The Company has completed an assessment and
as a result has prepared its consolidated financial statements under the assumption that it
will continue as a going concern.
|
|
|
|
Future changes in accounting pronouncements
|
|
|
|
The following new standards may affect the financial disclosures and results of operations of
the Company for interim and annual periods beginning January 1, 2009, unless otherwise noted.
The Company will adopt the requirements commencing in the interim period ended March 31, 2009:
|
|
|
|
Section 3064 Goodwill and Intangible Assets
This section was issued in February 2008 and
replaced CICA 3062, Goodwill and Intangible Assets, and Section 3450, Research and
Development. This new standard provides guidance on the recognition, measurement,
presentation and disclosure of goodwill and intangible assets. This section is effective as of
January 1, 2009. The Company does not expect that the adoption of this standard will have any
impact on its financial statements.
|
|
|
|
Section 1582 Business Combinations, Section 1601 Consolidations and Section 1602
Non-controlling Interests
These sections were issued in January 2009 and are harmonized with
International Financial Reporting Standards. Section 1582 specifies a number of changes,
including: an expanded definition of a business combination, a requirement to measure all
business acquisition at fair value, a requirement to measure non-controlling interests at fair
value, and a requirement to recognize acquisition-related costs as expenses. Section 1601
establishes the standards for preparing consolidated financial statements. Section 1602
specifies that non-controlling interests be treated as a separate component of equity, not as a
liability or other item outside of equity. These new standards are effective for 2011. Early
adoption is permitted. The Company does not expect that the adoption of this standard will
have any impact on its financial statements.
|
|
|
|
International Financial Reporting Standards (IFRS)
On February 13, 2008, the Canadian
Accounting Standards Board confirmed that publicly accountable entities will be required to
prepare financial statements in accordance with IFRS for interim and annual financial
statements for fiscal years beginning on or after January 1, 2011 with appropriate comparative
data from the prior year. Under IFRS, there is significantly more disclosure required,
specifically for quarterly reporting. Further, while IFRS uses a conceptual framework similar
to Canadian GAAP, there are significant differences in accounting policies that will need to be
address by management. The Company is currently in the process of developing a conversion
implementation plan and is assessing the impacts of the conversion on its consolidated
financial statements.
|
20
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
3 Royalty interests and measurement uncertainties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Cost
|
|
|
Impairments
|
|
|
amortization
|
|
|
Net
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
Production stage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voiseys Bay
|
|
|
225,726
|
|
|
|
|
|
|
|
(28,762
|
)
|
|
|
196,964
|
|
Avebury
|
|
|
12,490
|
|
|
|
(6,096
|
)
|
|
|
(394
|
)
|
|
|
6,000
|
|
Gwalia
|
|
|
3,546
|
|
|
|
|
|
|
|
(36
|
)
|
|
|
3,510
|
|
Southern Cross
|
|
|
2,544
|
|
|
|
|
|
|
|
(1,467
|
)
|
|
|
1,077
|
|
Skyline
|
|
|
2,288
|
|
|
|
|
|
|
|
(250
|
)
|
|
|
2,038
|
|
Williams Mine
|
|
|
2,168
|
|
|
|
|
|
|
|
(1,358
|
)
|
|
|
810
|
|
Meekatharra Yaloginda
|
|
|
697
|
|
|
|
|
|
|
|
(171
|
)
|
|
|
526
|
|
Other
|
|
|
79
|
|
|
|
|
|
|
|
(21
|
)
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
249,538
|
|
|
|
(6,096
|
)
|
|
|
(32,459
|
)
|
|
|
210,983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development stage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pascua
|
|
|
56,513
|
|
|
|
|
|
|
|
|
|
|
|
56,513
|
|
Las Cruces
|
|
|
42,203
|
|
|
|
|
|
|
|
|
|
|
|
42,203
|
|
Wolverine
|
|
|
19,819
|
|
|
|
|
|
|
|
|
|
|
|
19,819
|
|
Belahouro
|
|
|
817
|
|
|
|
|
|
|
|
|
|
|
|
817
|
|
Belcourt
|
|
|
527
|
|
|
|
|
|
|
|
|
|
|
|
527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119,879
|
|
|
|
|
|
|
|
|
|
|
|
119,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration / Feasibility stage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pinson
|
|
|
6,977
|
|
|
|
|
|
|
|
|
|
|
|
6,977
|
|
Bell Creek
|
|
|
4,029
|
|
|
|
|
|
|
|
|
|
|
|
4,029
|
|
Aviat One
|
|
|
2,211
|
|
|
|
|
|
|
|
|
|
|
|
2,211
|
|
High Lake
|
|
|
2,007
|
|
|
|
|
|
|
|
|
|
|
|
2,007
|
|
Horizon
|
|
|
1,530
|
|
|
|
|
|
|
|
|
|
|
|
1,530
|
|
Tarmoola
|
|
|
1,486
|
|
|
|
|
|
|
|
|
|
|
|
1,486
|
|
South Laverton
|
|
|
912
|
|
|
|
|
|
|
|
|
|
|
|
912
|
|
Gold Hill
|
|
|
670
|
|
|
|
|
|
|
|
|
|
|
|
670
|
|
Merlin Orbit
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
504
|
|
Other
|
|
|
4,718
|
|
|
|
(813
|
)
|
|
|
|
|
|
|
3,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,044
|
|
|
|
(813
|
)
|
|
|
|
|
|
|
24,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
394,461
|
|
|
|
(6,909
|
)
|
|
|
(32,459
|
)
|
|
|
355,093
|
|
|
|
|
21
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Cost
|
|
|
Impairments
|
|
|
amortization
|
|
|
Net
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
Production stage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voiseys Bay
|
|
|
225,726
|
|
|
|
|
|
|
|
(15,314
|
)
|
|
|
210,412
|
|
Southern Cross
|
|
|
2,544
|
|
|
|
|
|
|
|
(1,196
|
)
|
|
|
1,348
|
|
Williams Mine
|
|
|
2,168
|
|
|
|
|
|
|
|
(1,240
|
)
|
|
|
928
|
|
Meekatharra Yaloginda
|
|
|
1,421
|
|
|
|
(724
|
)
|
|
|
(26
|
)
|
|
|
671
|
|
Other
|
|
|
79
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
70
|
|
|
|
|
|
|
|
231,938
|
|
|
|
(724
|
)
|
|
|
(17,785
|
)
|
|
|
213,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development stage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pascua
|
|
|
56,513
|
|
|
|
|
|
|
|
|
|
|
|
56,513
|
|
Las Cruces
|
|
|
42,144
|
|
|
|
|
|
|
|
|
|
|
|
42,144
|
|
Belahouro
|
|
|
817
|
|
|
|
|
|
|
|
|
|
|
|
817
|
|
Other
|
|
|
293
|
|
|
|
|
|
|
|
|
|
|
|
293
|
|
|
|
|
|
|
|
103,313
|
|
|
|
|
|
|
|
|
|
|
|
103,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration / Feasibility stage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pinson
|
|
|
4,086
|
|
|
|
|
|
|
|
|
|
|
|
4,086
|
|
Aviat One
|
|
|
2,211
|
|
|
|
|
|
|
|
|
|
|
|
2,211
|
|
High Lake
|
|
|
2,007
|
|
|
|
|
|
|
|
|
|
|
|
2,007
|
|
Horizon
|
|
|
1,530
|
|
|
|
|
|
|
|
|
|
|
|
1,530
|
|
Tarmoola
|
|
|
1,486
|
|
|
|
|
|
|
|
|
|
|
|
1,486
|
|
South Laverton
|
|
|
912
|
|
|
|
|
|
|
|
|
|
|
|
912
|
|
Gold Hill
|
|
|
660
|
|
|
|
|
|
|
|
|
|
|
|
660
|
|
Other
|
|
|
5,523
|
|
|
|
(1,418
|
)
|
|
|
|
|
|
|
4,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,415
|
|
|
|
(1,418
|
)
|
|
|
|
|
|
|
16,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
353,666
|
|
|
|
(2,142
|
)
|
|
|
(17,785
|
)
|
|
|
333,739
|
|
|
|
|
During the years ended December 31, 2008, 2007 and 2006, the Company recorded $14,676,000,
$10,996,000 and $6,005,000, respectively, in amortization expense.
22
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
On October 9, 2008, the Company acquired three additional royalties on the Pinson gold project
in Nevada, United States. The Company paid $2.8 million in cash for a 16.842% share of the
variable (0.5% to 5.0%) net smelter returns (NSR) Rayrock royalty and a 40% share of the
Cordilleran 3.0% and 5.0% NSR royalties (Cordex). With this purchase, the Company owns 97.9%
of the Rayrock royalty and 100% of the Cordex royalties.
|
|
|
Skyline Coal Royalty Interest
|
|
|
On September 11, 2008, the Company acquired an overriding royalty interest on the Skyline Coal
Mine located in Utah, United States. The acquisition cost as of the June 1, 2008 effective date
of the transaction was $2.6 million; royalty revenues received and receivable totaling $341,192
from June 1, 2008 through September 11, 2008 were treated as a reduction to the purchase price.
The royalty acquired represents a 77.424% interest in the underlying 1.825% overriding
royalty, providing an effective 1.413% royalty to the Company.
|
|
|
Atna Resources Royalty Interests
|
|
|
On September 4, 2008, the Company entered into a definitive purchase and sale agreement to
acquire four mineral royalties from Atna Resources Ltd. (Atna) for $20.0 million in cash. The
portfolio includes a NSR interest in all precious metals produced from the development-stage
Wolverine massive sulphide project in the Yukon. The Wolverine royalty is a sliding-scale, NSR
on all silver and gold production. The royalty rate is a step function based on the price of
silver. At silver prices below $5.00 per ounce, there is no royalty payment; at silver prices
between $5.00 and $7.50 per ounce, the rate is 3.778%; and at prices above $7.50 per ounce, the
rate is 9.445%.
|
|
|
The portfolio also included 1) a 3.0% NSR royalty on the feasibility-stage McDonald-Keep Cool
epithermal gold deposit in Montana, United States (the royalty applies to the exploration lands
surrounding the current McDonald deposit as well as approximately two-thirds of the entire Keep
Cool deposit); 2) a 0.4% NSR royalty on the exploration-stage Minera Hispaniola copper and gold
project in the Dominican Republic; and 3) a 2.5% NSR royalty on the exploration-stage Mina
Cancha precious metals project in Argentina.
|
|
|
This transaction closed in two parts. The acquisition of the Wolverine, McDonald and Minera
Hispaniola royalties closed on September 4, 2008 and $19.9 million in cash was paid to Atna.
The acquisition of the Mina Cancha royalty closed on October 9, 2008, upon resolution of an
outstanding right of first refusal, and $100,000 in cash was paid to Atna.
|
|
|
Horizon and Belcourt Coal Royalty Interests
|
|
|
In April 2007, the Company agreed to acquire from private parties royalties on the Belcourt and
Horizon metallurgical coal projects located in northeastern British Columbia. The Horizon
interest was closed in April for cash of $1.5 million and represents a 0.5% gross royalty on
coal sales revenue from the future Horizon Mine. The Belcourt piece of the acquisition closed
in January 2008 for cash of $500,000. The Belcourt royalty
|
23
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
is a 0.103% interest in the revenues from the Belcourt property, which is a pre-feasibility
stage metallurgical coal project. In addition, the Company has agreed to make an additional
$0.8 million payment within 10 days of the announcement of a construction decision on the
Belcourt property.
|
|
|
Rio Tinto Australian Royalty Interests
|
|
|
On December 21, 2007, the Company entered into a definitive purchase and sale agreement to
acquire 16 mineral royalties from Rio Tinto PLC (Rio Tinto), including interests on the Las
Cruces copper mine and the Avebury nickel mines, for $61.5 million in cash, plus a potential
contingency payment. In addition to the royalties on the Las Cruces and Avebury projects, the
acquisition included three feasibility-stage and 11 exploration-stage royalties.
|
|
|
This transaction closed in two parts. The acquisition of the eleven non-Australian royalties
of the agreement closed on December 21, 2007. The acquisition of the five Australian royalties
(Avebury, Bell Creek, Melba Flats, Merlin and Westmoreland) (the Australian Royalties) closed
on June 16, 2008, upon receiving approval from the Australian Foreign Investment Review Board
and upon resolution of outstanding rights of first refusal.
|
|
|
The Company paid the full acquisition cost of $61.5 million to Rio Tinto on December 21, 2007.
The total cost allocated to the Australian Royalties of $17.1 million (including acquisition
costs) was included in other assets as of December 31, 2007 and was transferred to royalty
interests in mineral properties on June 16, 2008.
|
|
|
Additionally, if the Las Cruces deposit is shown to contain a suspected deep primary sulphide
resource, the Company will make a contingency payment to Rio Tinto of $0.005 for each pound of
identified recoverable copper in the sulphide reserve at the commencement of production.
|
|
|
A summary of all of the royalties acquired and the original allocated acquisition costs of
$61.835 million, including acquisition costs of $335,000, are listed in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost Allocation
|
Project
|
|
Royalty
|
|
Status
|
|
Commodity
|
|
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las Cruces
|
|
1.5% NSR
|
|
Development
|
|
Copper
|
|
|
42,203
|
|
Avebury
|
|
2.0% NSR
|
|
Production
|
|
Nickel
|
|
|
12,490
|
|
Bell Creek
|
|
AU$1.00/$2.00/t
|
|
Feasibility
|
|
Nickel, Copper
|
|
|
4,029
|
|
High Lake
|
|
1.5% NSR
|
|
Feasibility
|
|
Copper, Zinc, Silver, Gold
|
|
|
2,007
|
|
Merlin Orbit
|
|
1.0% GOR
|
|
Exploration
|
|
Diamonds
|
|
|
504
|
|
All other
|
|
|
|
|
|
Various
|
|
Various
|
|
|
602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
On December 13, 2007, the Company purchased four royalties from Goldcorp Inc. (Goldcorp) for
US$4.0 million in cash. These four royalties include:
|
|
|
|
An effective 0.28% to 2.79% NSR royalty on the Pinson gold project (Pinson)
located in Nevada.
|
|
|
|
|
A 0.63% NSR royalty that covers a portion of the Gold Hill Deposit located in
Nevada.
|
|
|
|
|
A 0.526% working interest in one well and a 2.612% working interest in two oil
wells, located in Sheridan County, Montana.
|
|
|
|
|
A 4.00% NSR royalty on Radius Golds Tambor gold property in Guatemala.
|
|
|
Over a series of transactions during 2007, IRC acquired a 32.1% interest in the Pascua royalty
from a Chilean family. The Pascua royalty is a sliding-scale royalty on the Pascua-Lama gold
project operated by Barrick Gold Corporation on the border of Chile and Argentina. The total
cost of the acquisitions was $56.5 million in cash and transaction costs. In addition, IRC
will make a one time payment of $4.0 million if gold prices exceed $550 per ounce for any
six-month period within the first 36 months after commercial production and additional payments
totalling $6.4 million if gold prices exceed $600 per ounce for any six-month period within the
first 36 months after commercial production. The royalties are limited to the first 14 million
ounces of gold produced from the Pascua project after which the royalties will revert to the
sellers (except with respect to the royalty interest obtained in the first closing (a 7.65%
interest, or 23.8% of the total royalty acquired) IRC will retain 50% of the royalty after the
first 14 million ounces of gold are produced). IRC has an option, within 36 months of the
commencement of commercial production, to acquire up to 50% of the interest obtained in the
remaining closings that would otherwise revert to the original royalty sellers, for up to $6.4
million. IRC also retains a right of first refusal to acquire additional royalty interests in
the event the owners decide to further reduce their ownership.
|
|
|
The Pascua royalties acquired apply to the gold and copper produced from the Pascua, the
Chilean side of the Pascua-Lama project. IRCs share of the royalty is a linear sliding-scale
NSR royalty ranging from 0.4725% at a gold price of $300 per ounce or below to 3.15% at a gold
price of $800 per ounce. The royalty remains at 3.15% at gold prices above $800 per ounce.
|
|
|
Pending Royalty Acquisitions
|
|
|
On December 7, 2004, the Company signed a letter agreement with David Fawcett (superseded by a
royalty purchase agreement dated February 22, 2005) to acquire 20.3% of a 1.0% royalty interest
on four coal licenses in British Columbia for total consideration of CA$312,500 in cash and
CA$937,500 in Common Shares valued at the offering price of the IPO of CA$4.30. Pursuant to an
agreement dated February 22, 2005, the cash and 218,023 Common Shares were placed in escrow
pending receipt of executed royalty assignment agreements from the property owner, Western
Canadian Coal Corp. (Western). The cash has been recorded as restricted cash as of December
31, 2008 and 2007, and will be transferred to royalty interests in mineral properties upon
closing of the transaction. The value of the Common Shares has been included in other
long-term assets at
|
25
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
December 31, 2008 and 2007, and will be transferred to royalty interests in mineral properties
upon closing of the transaction. Should the transaction not close, the cash will revert back
to the Company and the shares will be retired.
|
|
|
On March 21, 2005, Western filed a petition with the Supreme Court of British Columbia to have
the underlying royalty sharing agreement set aside. On February 24, 2006, the Supreme Court of
British Columbia upheld the underlying royalty sharing agreement between David Fawcett and
Western. On March 24, 2006, Western filed a notice to appeal the decision. On October 23,
2006, Western announced that it was unilaterally discontinuing the appeal but would be taking
the position that based on the circumstances in which the 1.0% royalty was entered into, that
any payment on the 1.0% royalty over the sum of $500,000 would constitute the payment of
interest in excess of 60% and would be illegal under Section 347 of the Criminal Code of
Canada. Accordingly, Western indicated that it would make no payments on the 1.0% royalty over
and above $500,000. If correct, this would restrict the payments on that portion of the
royalty to be assigned by Fawcett to the Company to $101,500. Fawcett has commenced proceedings
challenging this position and seeking a declaration that the 1.0% royalty is not subject to
Section 347 of the Criminal Code. After several procedural efforts by Western to dismiss the
action, an administrative hearing before the Supreme Court of British Columbia was conducted
during September 2008. The parties are awaiting a decision by the Supreme Court Justice
conducting the hearing.
|
|
|
Impairments and Measurement Uncertainty
|
|
|
During the year ended December 31, 2008, as a result of managements assessment, the Company
impaired royalties on five diamond exploration properties in Canada (Aviat Pipe Two, Dirty
Shovel, Melville Regional, Quilliq and Fury Scarpa and Gem) totaling $813,000 due to the
expiration of exploration permits at the end of statutory time limits.
|
|
|
The Company recorded a partial impairment of the Avebury nickel project in Western Australia of
$6.1 million after evaluating a new reserve report provided by the operator indicating lower
reserves and resources, the operators decision to suspend operations and put the mine on care
and maintenance due to declining nickel prices and certain other financial indicators regarding
the operators financial condition. The Company updated its calculation of the net present
value of future cash flows based upon the new reserve report using a range of nickel prices
from $3.50 per pound ($1.00 below the current nickel price at December 31, 2008) to $7.15 per
pound (our assessment of analysts median long-term estimate for nickel prices). Considering a
range of discounts rate from 6.0% to 10.0%, it was determined that the value of the investment
in Avebury was $6.0 million. Significant changes in the underlying assumptions in managements
cash flow analysis could have a material impact on the Company.
|
|
|
During the year ended December 31, 2008, the Company recorded impairments of royalty interests
in mineral properties totaling $6.9 million.
|
|
|
During the year ended December 31, 2007, the Company impaired royalties on five diamond
exploration properties (Jubilee, Bear, Peregrine, Jewel and Repulse Bay) totaling $1,418,000
due to the operators actual or stated intent to drop these properties. The Company also
recorded a partial impairment of the Yaloginda property in Western Australia of $724,000 after
concluding that the payable ounces on the project were less than originally estimated.
|
26
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
As of December 31, 2008, the market price for nickel and copper in concentrates, the primary
commodities generated from the Voiseys Bay mine, the Companys largest royalty interest, had
decreased significantly from 2007. This decrease in realized nickel and copper prices prompted
the Company to evaluate its investment in Voiseys Bay. The Company updated its calculation of
the future cash flows using a variety of nickel prices ranging from $3.50 per pound ($1.00
below the current nickel price at December 31, 2008) to $7.15 per pound (our assessment of
analysts median long-term estimate for nickel prices). The Companys cash flow analysis
considered public information on proven and probable reserves as well as resources relating to
the Voiseys Bay property. In all scenarios, the net present value of the future cash flows
was greater than the net book value of the Companys investment in Voiseys Bay as of December
31, 2008.
|
|
|
As of December 31, 2008, the Company evaluated its investment in Meekatharra Yaloginda due
to the operator of the mine, Mercator Gold Plc (Mercator), being placed in voluntary
administration during the fourth quarter of 2008. Mercator is currently operating under a Deed
of Arrangement. The Company considered all public information available and has determined no
impairment is necessary as of December 31, 2008.
|
|
|
Investments as of December 31, 2008 and 2007 consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Rocks of Genoa Holding Company, LLC
|
|
|
6,053
|
|
|
|
6,053
|
|
Investment in New Horizon Uranium Corporation
|
|
|
15
|
|
|
|
1,052
|
|
Other
|
|
|
139
|
|
|
|
139
|
|
|
|
|
|
|
|
6,207
|
|
|
|
7,244
|
|
|
|
|
|
|
Preferred Rocks of Genoa Holding Company, LLC (Genoa)
|
|
|
On February 22, 2007, the Company announced that it had entered into an agreement to acquire a
royalty on the Legacy Sand Project (Legacy) in Nance County, Nebraska for $12.0 million in
cash. The Royalty was styled as a production payment in its primary term, changing to a
percentage of sales basis after 12 years. Legacy is a new operation which intends to produce a
range of high-quality industrial sand products.
|
|
|
During 2007, the Company restructured its interest in Legacy, originally a fixed royalty of
$4.75 per ton on the first 500,000 tons produced annually for a period of 12 years and a 2%
gross royalty thereafter, as well as a security interest in the sand lease. On December 24,
2007, the Company and the Buyer completed the following restructuring of its interest in
Legacy:
|
27
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
|
The Company received the following:
|
|
|
|
$6.0 million in cash,
|
|
|
|
|
a membership interest in Genoa paying a 10% preferred return on a deemed $8.0
million investment, including return of all capital before distribution of any cash to
the Manager, and
|
|
|
|
|
a residual net profits interest of 5.25% in the restructured Legacy project.
|
|
|
|
Any cash received on the deemed investment will be paid only to the extent of excess available funds.
|
|
|
|
The Company will not be required to contribute any additional capital to
Genoa, such as for construction cost overruns, and will experience no dilution of its net
profits interest.
|
|
|
The Companys investment in Genoa has been classified as available-for-sale, and accordingly
was initially recorded at its fair market value, which approximated cost. There is no quoted
market price in an active market for the investment in Genoa, and accordingly, this investment
was measured at cost.
|
|
|
As of December 31, 2008, the market price and demand for frac sand and other products had
decreased significantly during 2008. This decrease prompted the Company to assess an
impairment analysis on its investment in Legacy. Due to the lack of a quoted market price, the
Company updated its calculation of the net present value of the future cash flows based on
discussions with management of Genoa and using a variety of commodity prices (from $60.00 per
tonne to $90.00 per tonne), production rates and discount rates (from 6.0% to 12.0%). In its
cash flow model, the Company assumed that the projected production rates would allow Genoa to
refinance its current debt to a lower interest rate upon maturity in 2012. In all scenarios,
the net present value of the future cash flows was greater than the net book value of the
Companys investment in Genoa as of December 31, 2008. Changes in the underlying assumptions
could be material to the Company.
|
|
|
New Horizon Uranium Corporation
|
|
|
In October 2005, the Company agreed to loan $200,000 to New Horizon Uranium Corporation
(NHU), and since that time has provided financial and management services to NHU to assist
NHU in the financing of its operations. In consideration for these services, NHU agreed to
give the Company 2,150,000 shares of NHU in the event of a successful public listing of its
shares, and to pay the Company a royalty of $0.75/lb on all future production of Uranium by
NHU. On April 12, 2007, NHU completed a reverse take-over of Crossroads Exploration Inc.,
which is traded on the TSX Venture Exchange (now New Horizon Uranium Corporation). Upon
completion of the reverse take-over, NHU issued the 2,150,000 shares and re-paid the loan to
the Company. This transaction was recorded as a gain on the Companys books in the second
quarter of 2007 in the amount of the initial value of the shares of $849,000 as of April 12,
2007 and is included in other revenue in the consolidated statements of operations.
|
|
|
In November 2008, the Company elected to return 215,000 shares of NHU in exchange for no
consideration. The fair market value of the shares were approximately $4,000 and has been
included in as an impairment of investments in the consolidated statement of operations.
|
|
|
The investment in NHU has been classified as available-for-sale and accordingly was initially
recorded at fair market value. From April 12, 2008 through December 31, 2008, the Company
recorded the unrealized gain (loss) on the investment as other comprehensive income (loss), net of income taxes. On
December 31, 2008,
|
28
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
the Company determined that the decline in fair market value of the
investment in NHU was other than temporary and the accumulated other comprehensive loss of
$833,000 was recognized as an impairment of investments in the consolidated statement of
operations. Future changes to the fair market value of the Companys investment in NHU will be
recorded as other comprehensive income, net of taxes, unless the decline is determined to be
other than temporary.
|
|
|
Other assets as of December 31, 2008 and 2007 consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
$
|
|
|
$
|
|
|
|
|
Acquisition costs related to the Australian royalties acquired
from Rio Tinto (note 3)
|
|
|
|
|
|
|
17,058
|
|
Advances to CFT Capital Limited
|
|
|
1,944
|
|
|
|
337
|
|
Deferred amounts directly relating to potential acquisition
|
|
|
832
|
|
|
|
|
|
Deferred amounts relating to pending royalty acquisitions (note 3)
|
|
|
854
|
|
|
|
835
|
|
Note receivable South American Metals, net of allowance
|
|
|
|
|
|
|
810
|
|
Other
|
|
|
9
|
|
|
|
147
|
|
|
|
|
|
|
|
3,639
|
|
|
|
19,187
|
|
|
|
|
|
|
Advances to CFT Capital Limited (CFT) represent gross amounts of $2.1 million loaned to CFT,
an unrelated third party, for a potential acquisition of McWatters Mining, Inc. (McWatters).
Upon closing of the transaction, these advances are repayable over five years with interest at
1.0%. The Company has determined costs relating the McWatters transaction are direct and
incremental in nature. The Company has established the fair value of the advances and
determined the difference between the net present value of advances and the gross amount as a
deferred cost relating to McWatters.
|
|
|
During the year ended December 31, 2008, the Company determined collection of the note
receivable from South American Metals was uncertain and elected to provide for impairment of
its investment of $839,000.
|
6
|
|
Revolving Credit Facility
|
|
|
The Company entered into a credit agreement dated January 8, 2007 with The Bank of Nova
Scotia establishing a revolving credit facility (the Revolving Facility) in favour of the
Company in the amount of up to $20 million. This amount was increased to $40 million on May 17,
2007. The Revolving Facility is used to provide funds for general corporate purposes,
including acquisitions of royalties on mining properties.
|
29
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
The Revolving Facility is a two-year revolving loan which is available in multiple currencies
through prime rate, base rate and LIBOR advances and through bankers acceptances, priced at
the applicable rate plus an applicable margin that ranges from 1% to 2%. The rate on the
outstanding borrowings as of December 31, 2008 was 2.33%. The Company pays a standby fee of 1%
per annum on the undrawn amount of the Revolving Facility.
|
|
|
During 2008, the Revolving Facility was extended for an additional year and matures January 8,
2010.
|
|
|
The Revolving Facility is subject to customary terms and conditions for borrowers of this
nature, including limits on incurring additional indebtedness, granting liens or selling assets
without the consent of the lenders. The Company is also required to maintain certain financial
ratios as well as a minimum tangible net worth. Pursuant to the Revolving Facility, the Company
granted a second charge over substantially all of its current and future assets. Archean and
IRC Nevada Inc. guaranteed the indebtedness of the Company under the Revolving Facility. IRC
Nevada Inc. provided a first charge over all of its assets pursuant to a general security
agreement and Archean provided a second charge over all of its assets (except for its equity
interest in Voiseys Bay Holding Corporation which was not pledged) pursuant to a general
security agreement.
|
7
|
|
Senior Secured Debentures
|
|
|
On February 22, 2005, the Company completed a Unit Offering for gross proceeds of CA$30
million. The Unit Offering consisted of CA$30 million of 5.5% Senior Secured Debentures (the
Debentures) due February 22, 2011 and 1,395,360 Common Shares. The obligations of the Company
under the Debentures are collateralized by a general security agreement over all of the assets
of the Company relating to the Voiseys Bay Royalty.
|
|
|
Interest on the Debentures is payable semi-annually, on February 28 and August 31. Interest
paid by the Company for the years ended December 31, 2008, 2007 and 2006 was approximately
$1,616,000, $1,479,000 and $1,455,000, respectively.
|
|
|
The proceeds received from the Debentures were reduced by the fair value of the Common Shares
issued of $4.9 million. Details of the balance are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
December 31, 2007
|
|
|
|
CA$
|
|
|
US$
|
|
|
CA$
|
|
|
US$
|
|
|
|
|
Senior Secured Debentures payable
|
|
|
30,000
|
|
|
|
24,549
|
|
|
|
30,000
|
|
|
|
30,582
|
|
Unaccreted discount
|
|
|
(2,655
|
)
|
|
|
(2,157
|
)
|
|
|
(3,667
|
)
|
|
|
(2,979
|
)
|
Unaccreted financing charges
(note 2)
|
|
|
(898
|
)
|
|
|
(730
|
)
|
|
|
(1,240
|
)
|
|
|
(1,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,447
|
|
|
|
21,662
|
|
|
|
25,093
|
|
|
|
26,595
|
|
|
|
|
|
|
The Companys contractual obligation for future principal payments is one lump sum payment of
$24,549,000 to be made on February 22, 2011. The obligation is denominated in CA$. The
Debentures as of December 31, 2008 were converted to US$ equivalents using an exchange rate of
CA$1.00 to US$0.8183, the exchange rate as of December 31, 2008. The Debentures as of December
31, 2007 were converted to US$ equivalents using an exchange rate of CA$1.00 to US$1.0194, the
exchange rate as of December 31, 2007.
|
30
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
Foreign Currency Contract
|
|
|
On November 25, 2008, the Company entered into an agreement with a bank to fix the exchange
rate to repay the principal balance of the Senior Secured Debentures at CA$1.00 to US$0.834725,
based on the settlement of February 22, 2011. The fair value of the derivative as of December
31, 2008 is $493,000.
|
|
|
The foreign currency contract liability is a derivative and thus, has been classified as
held-for-trading and was recorded at fair value on the date of acquisition and then
marked-to-market at the balance sheet date. The change in fair value of the foreign currency
contract liability has been recognized as an unrealized loss on fair market value of foreign
currency contract on the consolidated statements of operations.
|
|
|
During 2007, the Canadian Federal government enacted legislation that lowers the Federal
income tax rate from 19.0% (rate effective as of January 1, 2010) to 18.5% effective on January
1, 2011. On December 14, 2007, the Canadian Federal government enacted additional legislation
that incrementally lowers the Federal income tax rate from the current rate of 21% to 15% on
January 1, 2012. As a result of these changes, the Company has reflected its future tax
liabilities at the new enacted rates, resulting in the realization of a future income tax
recovery of $7,042,000 during the year ended December 31, 2007.
|
|
|
Effective April 1, 2006 the Province of Alberta lowered its provincial income tax rate from
11.5% to 10.0%. In addition, the Canadian Federal government also enacted legislation in June
2006 that eliminates the Federal surtax of 1.12% on January 1, 2008 and also incrementally
lowers the Federal income tax rate from the current rate of 21% to 19% on January 1, 2010. As a
result of these changes, and the Companys permanent establishment in Alberta, the Company has
reflected its future tax liabilities at the new enacted rates, resulting in the realization of
a future income tax recovery of $9,707,000 during the year ended December 31, 2006.
|
|
|
On November 10, 2008, the Canadian Department of Finance released draft legislation amending
section 261 of the
Income Tax Act,
which provides new tax calculating currency rules that
taxpayers must use when determining their Canadian tax results. These new currency rules allow
the Company to prepare its corporate tax return using US dollars instead of translating the
annual activity into Canadian dollars. As of December 31, 2008, the draft legislation has not
been finalized; however, the Company expects this legislation to be effective for its 2008 tax
returns. Management is currently assessing the impact of this legislation on the Company.
|
|
|
The Canadian Department of Finance allows a tax loss to be carried forward for a period of
seven years if it arose in a tax year ending before March 23, 2004; ten years if it arose in a
tax year ending after March 22, 2004 and before 2006; and twenty years if it arose in a tax
year ending after 2005.
|
31
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
Income tax expense varies from the amount that would be computed by applying the combined
federal and provincial income tax rate of 29.50% (32.12% in 2007 and 2006) to earnings before
income taxes as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
4,166
|
|
|
|
9,664
|
|
|
|
2,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax expense (recovery)
|
|
|
1,229
|
|
|
|
3,104
|
|
|
|
842
|
|
Tax effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in income tax rates
|
|
|
162
|
|
|
|
(7,042
|
)
|
|
|
(9,707
|
)
|
Stock-based compensation
|
|
|
405
|
|
|
|
435
|
|
|
|
308
|
|
Expiration of unexercised warrants
|
|
|
189
|
|
|
|
|
|
|
|
|
|
Impairment of long-term assets
|
|
|
124
|
|
|
|
|
|
|
|
|
|
Non-deductible royalty taxes
|
|
|
(101
|
)
|
|
|
|
|
|
|
|
|
Foreign accrual property income
|
|
|
45
|
|
|
|
|
|
|
|
|
|
Foreign currency
|
|
|
(1,491
|
)
|
|
|
1,993
|
|
|
|
(113
|
)
|
Other
|
|
|
468
|
|
|
|
(59
|
)
|
|
|
(386
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,030
|
|
|
|
(1,569
|
)
|
|
|
(9,056
|
)
|
|
|
|
At December 31, 2008, the Company has unused Canadian net operating losses of approximately
$49,568,000, which expire as follows:
|
|
|
|
|
|
|
$
|
|
2010
|
|
|
565
|
|
2011
|
|
|
|
|
2012
|
|
|
|
|
2013
|
|
|
|
|
2014
|
|
|
891
|
|
2015 and thereafter
|
|
|
48,112
|
|
The Company has recorded a future income tax liability as a component of the cost of the
Archean acquisition (Voiseys Bay Royalty) and the Hunter Portfolio to reflect the fact that
the Company has no amortizable basis in these assets for Canadian income tax purposes.
Recording of the future income tax liability has been offset by a corresponding recognition of
tax benefits related to the Companys tax net operating losses, and certain expenses of the IPO
and the Unit Offering. Future tax (assets) liabilities include the following components:
32
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty interests in mineral properties
|
|
|
56,663
|
|
|
|
57,553
|
|
Deferred income
|
|
|
4,141
|
|
|
|
4,850
|
|
Share issue costs
|
|
|
(1,975
|
)
|
|
|
(2,805
|
)
|
Deferred gain on Legacy transaction (note 4)
|
|
|
(783
|
)
|
|
|
(783
|
)
|
Net operating loss carry-forward
|
|
|
(13,594
|
)
|
|
|
(8,245
|
)
|
Other
|
|
|
237
|
|
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,689
|
|
|
|
50,502
|
|
|
|
|
9 Shareholders equity
Activity in Common Shares was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
Amount
|
|
|
|
Shares
|
|
|
$
|
|
|
Shares
|
|
|
$
|
|
|
Shares
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Beginning of year
|
|
|
78,476,856
|
|
|
|
275,450
|
|
|
|
58,008,448
|
|
|
|
166,173
|
|
|
|
57,027,568
|
|
|
|
164,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued in connection with
the unit offering (net of
issuance costs)
|
|
|
|
|
|
|
|
|
|
|
8,334,000
|
|
|
|
34,831
|
|
|
|
|
|
|
|
|
|
Shares issued in connection with
the offering (net of issuance
costs)
|
|
|
|
|
|
|
|
|
|
|
10,400,000
|
|
|
|
67,246
|
|
|
|
|
|
|
|
|
|
Exercise of warrants issued in
connection with unit offering
|
|
|
|
|
|
|
|
|
|
|
751,630
|
|
|
|
4,710
|
|
|
|
|
|
|
|
|
|
Exercise of financing warrants
|
|
|
|
|
|
|
|
|
|
|
469,042
|
|
|
|
1,207
|
|
|
|
75,858
|
|
|
|
202
|
|
Exercise of compensation warrants
|
|
|
|
|
|
|
|
|
|
|
89,736
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
Shares issued into escrow (note 5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of Williams mine warrants
|
|
|
|
|
|
|
|
|
|
|
384,000
|
|
|
|
988
|
|
|
|
566,000
|
|
|
|
1,518
|
|
Exercise of stock options
|
|
|
3,500
|
|
|
|
14
|
|
|
|
40,000
|
|
|
|
227
|
|
|
|
|
|
|
|
|
|
Other activity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
339,022
|
|
|
|
277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance End of year
|
|
|
78,480,356
|
|
|
|
275,464
|
|
|
|
78,476,856
|
|
|
|
275,450
|
|
|
|
58,008,448
|
|
|
|
166,173
|
|
|
|
|
33
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
Activity in accumulated other comprehensive income was as follows:
|
|
|
|
|
(in thousands of US$)
|
|
Amount
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
173
|
|
Other comprehensive loss, net of tax benefit of $30
|
|
|
(173
|
)
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
|
|
|
|
|
|
A summary of accumulated other comprehensive income and retained earnings was as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
2008
|
|
2007
|
Beginning balance
|
|
$
|
173
|
|
|
$
|
|
|
Unrealized gains (losses) on available-for-sale investments
|
|
|
(203
|
)
|
|
|
203
|
|
Future tax effect on unrealized gains
|
|
|
30
|
|
|
|
(30
|
)
|
|
|
|
Total accumulated other comprehensive income (loss)
|
|
|
|
|
|
|
173
|
|
Retained earnings
|
|
|
11,920
|
|
|
|
11,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
11,920
|
|
|
$
|
11,704
|
|
|
|
|
Offerings
On February 12, 2007 (the Closing Date), the Company completed a unit offering of 8,334,000
units (Units) of the Company at a price of CA$5.40 per Unit. Each Unit was comprised of one
Common Share and one-half of one common share purchase warrant of the Company (each whole
warrant, a Warrant), with each Warrant entitling the holder thereof to acquire a further
Common Share (each, a Warrant Share) at a price of CA$6.50 per Warrant Share for a period of
nine months after the Closing Date and at CA$7.00 per Warrant Share from the date that is nine
months after the Closing Date until the date that is 18 months after the Closing Date. The
expiry date of the Warrants was subject to acceleration if the Common Shares have a closing
price at or above CA$8.00 or CA$8.50 during the first or second nine-month period,
respectively, for 20 consecutive trading days. Net proceeds to the Company, after agents
commission and expenses of the offering was CA$42,118,000, or $35,659,000. The Company has
allocated the net proceeds of the offering between the Common Shares and the Warrants based
upon their relative fair values on the Closing Date. The fair value of the warrants were
determined using the Black-Scholes Option Pricing Model, with an assumed risk free interest
rate of 4.0% and expected price volatility of the Companys Common Shares of 38%.
On November 5, 2007, the Company completed an offering of 10,400,000 common shares of the
Company (including an underwriter over-allotment of 400,000 Common Shares) at a price of
CA$6.30 per share. Net proceeds to the Company, after agents commissions and estimated
expenses of the offering were CA$61,664,000, or $66,017,000.
34
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
Unit Offering Warrants
In connection with the offering completed on February 12, 2007 (the Closing Date), the
Company issued 4,167,000 warrants (Warrants) to purchase common shares of the Company at a
price of CA$6.50 per Warrant for a period of nine months after the Closing Date and at CA$7.00
per Warrant Share from the date that is nine months after the Closing Date until the date that
is 18 months after the Closing Date. The expiry date of the Warrants is subject to acceleration
if the Common Shares have a closing price at or above CA$8.50 for 20 consecutive trading days.
During 2007, the Company received net proceeds of $4,654,767 from the exercise of 751,630
Warrants.
On August 12, 2008, 3,415,370 warrants to purchase common shares, valued at approximately $1.3
million, expired unexercised. As of December 31, 2008, the Company recognized a current tax
expense totalling $189,000 related to the expiration of these warrants.
As of December 31, 2008, the Company has no outstanding warrants.
Stock options
On June 8, 2004, the Board of Directors of the Company adopted a stock option plan (the Plan)
pursuant to which the Company may grant incentive stock options to directors, officers,
employees of and consultants to the Company and any affiliate of the Company, at the Board of
Directors discretion. The exercise price and vesting period of any option granted is fixed by
the Board of Directors of the Company when such option is granted. The plan was updated and
approved by the shareholders in May 2008.
All options are non-transferable. The term of the options is at the discretion of the Board of
Directors, but may not exceed 10 years from the grant date. The options expire on the earlier
of the expiry date or the date which is 90 days following the day on which the option holder
ceases to be a director, officer, employee of or consultant to the Company and any affiliate of
the Company. The options will be adjusted in the event of a share consolidation or subdivision
or other similar change to the Companys share capital. The aggregate number of Common Shares
in respect of which options have been granted and remain outstanding under the Plan shall not
at any time exceed 10% of the then issued and outstanding Common Shares, or exceed 5% of such
amount to any one optionee.
During 2008, the Company received proceeds from the exercise of 3,500 stock options totalling
$14,000. During 2007, the Company received proceeds from the exercise of 40,000 stock options
totalling $162,000.
35
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
The following table presents the composition of options outstanding and exercisable as of
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Options
|
|
|
Price*
|
|
|
Options
|
|
|
Price*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, beginning of year
|
|
|
5,574,000
|
|
|
|
4.47
|
|
|
|
5,102,000
|
|
|
|
4.31
|
|
Granted
|
|
|
625,000
|
|
|
|
2.29
|
|
|
|
562,000
|
|
|
|
5.81
|
|
Forfeited/cancelled
|
|
|
|
|
|
|
|
|
|
|
(50,000
|
)
|
|
|
4.46
|
|
Exercised
|
|
|
(3,500
|
)
|
|
|
3.75
|
|
|
|
(40,000
|
)
|
|
|
3.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of year
|
|
|
6,195,500
|
|
|
|
4.24
|
|
|
|
5,574,000
|
|
|
|
4.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Price reflects the weighted average exercise price in Canadian dollars.
|
The Company uses the fair value based method of accounting for all stock-based compensation
awards using the Black-Scholes Option Pricing Model. The Company recognized stock-based
compensation expense of $1,371,000 in 2008, $1,355,000 in 2007 and $960,000 in 2006 which is
recorded in general and administrative expense.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Valuation assumptions:
|
|
|
|
|
|
|
|
|
Risk free interest rate
|
|
|
3.8
|
%
|
|
|
4.5
|
%
|
Expected dividend yield
|
|
|
1.0
|
%
|
|
|
.5
|
%
|
Expected price volatility of the Companys Common Shares
|
|
|
49
|
%
|
|
|
44
|
%
|
Expected life of the option
|
|
3.5 years
|
|
3.5 years
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
625,000
|
|
|
|
562,000
|
|
Weighted average exercise price
|
|
CA$2.29
|
|
CA$5.81
|
Vesting period
|
|
3 years
|
|
3 years
|
Weighted average fair value per stock option
|
|
$
|
0.77
|
|
|
$
|
2.22
|
|
Option pricing models require the input of highly subjective assumptions including the expected
price volatility. Changes in the subjective input assumptions can materially affect the fair
value estimate, and therefore, the existing models do not necessarily provide a reliable
measure of the fair value of the Companys stock options.
36
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
The following summarizes stock options outstanding as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise price
|
|
Number
|
|
|
Remaining
|
|
Number
|
|
CA$
|
|
outstanding
|
|
|
contractual life
|
|
exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.50
|
|
|
500,000
|
|
|
4.9 years
|
|
|
|
|
3.67
|
|
|
50,000
|
|
|
1.5 years
|
|
|
50,000
|
|
3.75
|
|
|
974,500
|
|
|
1.9 years
|
|
|
974,500
|
|
3.97
|
|
|
100,000
|
|
|
1.3 years
|
|
|
100,000
|
|
4.27
|
|
|
50,000
|
|
|
2.7 years
|
|
|
33,333
|
|
4.30
|
|
|
2,510,000
|
|
|
1.1 years
|
|
|
2,510,000
|
|
4.80
|
|
|
300,000
|
|
|
1.2 years
|
|
|
300,000
|
|
4.80
|
|
|
1,024,000
|
|
|
2.9 years
|
|
|
682,667
|
|
5.24
|
|
|
100,000
|
|
|
4.2 years
|
|
|
|
|
5.81
|
|
|
562,000
|
|
|
3.9 years
|
|
|
187,333
|
|
6.25
|
|
|
25,000
|
|
|
4.2 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,195,500
|
|
|
|
|
|
|
|
4,837,833
|
|
|
|
|
|
|
|
|
|
|
|
|
10 Related party transactions
Effective January 31, 2008, an officer and director of the Company (the Officer)
resigned his employment and stepped down from the Board of Directors in order to pursue other
business opportunities. The Officer was retained as a consultant to the Company through 2008.
As part of his resignation agreement, the officer guaranteed the repayment of a promissory note
from South American Metals (note 5). In September 2008, the Company determined collection of
the note receivable from South American Metals was uncertain and has provided for impairment of
its investment of $839,000. ($810,000 at December 31, 2007). The Company is currently pursuing
collection of the advances.
There were no amounts due from or to related parties at December 31, 2008 and 2007.
11 Financial instruments
Fair value
Effective January 1, 2007, all financial instruments have been classified into one of five
categories: held-for-trading assets or liabilities, held-to-maturity investments, loans and
receivables, available-for-sale financial assets or other financial liabilities.
Held-for-trading financial instruments are measured at fair value and all gains and losses are
included in net income in the period in which they arise. Available-for-sale financial
instruments are measured at fair value with revaluation gains and losses included in
accumulated other comprehensive income until the instruments are derecognized or impaired.
Loans and receivable, investments held-to-maturity and other financial liabilities are measured
at amortized cost using the effective interest method.
37
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
The Companys cash and cash equivalents and restricted cash are classified as held-for-trading,
royalties receivable have been classified as loans and receivables and accounts payable and
accrued liabilities have been classified as other financial liabilities.
The Companys investment in Genoa has been classified as available-for-sale, and accordingly
was initially recorded at its fair market value. There is no quoted market price in an active
market for the investment in Genoa, and accordingly, this investment is measured at cost. The
investment in New Horizon Uranium Corporation has been classified as available-for-sale and has
been recorded at fair market value.
The Senior Secured Debentures and the Revolving Credit Facility have been classified as loans
and receivables and have been recorded at amortized cost. The fair value of the Senior Secured
Debentures as of December 31, 2008 and 2007 was approximately $22,400,000 and $28,400,000,
respectively.
The foreign currency contract has been classified as held-for-trading and has been recorded at
its fair value.
Interest expense
Details of interest expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands of US$)
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of debenture discount and financing charges
|
|
$
|
1,100
|
|
|
$
|
984
|
|
|
$
|
880
|
|
Cash interest expense
|
|
|
1,662
|
|
|
|
1,805
|
|
|
|
1,458
|
|
Commitment and standby fees
|
|
|
393
|
|
|
|
961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,155
|
|
|
$
|
3,750
|
|
|
$
|
2,338
|
|
|
|
|
12 Reconciliation of Canadian and United States Generally Accepted Accounting Principles
Canadian generally accepted accounting principles (Canadian GAAP) varies in certain
significant respects from the principles and practices generally accepted in the United States
(US GAAP). As required by the United States Securities and Exchange Commission (the SEC), the
effect of these principal differences on the Companys consolidated financial statements is
quantified below and described in the accompanying notes.
38
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
Adjustments to the statement of operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Expressed in thousands of U.S. dollars, except per share amounts
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings for the year under Canadian GAAP
|
|
|
3,136
|
|
|
|
11,233
|
|
|
|
11,678
|
|
Derivative mark-to-market adjustments (a)
|
|
|
400
|
|
|
|
201
|
|
|
|
(2,907
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings for the year under US GAAP
|
|
|
3,536
|
|
|
|
11,434
|
|
|
|
8,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.05
|
|
|
|
0.17
|
|
|
|
0.15
|
|
Diluted
|
|
|
0.04
|
|
|
|
0.16
|
|
|
|
0.15
|
|
Adjustments to the balance sheet:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Expressed in thousands of U.S. dollars
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities reported under Canadian GAAP
|
|
|
79,290
|
|
|
|
88,803
|
|
Derivative for share purchase warrants (a)
|
|
|
|
|
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities reported under US GAAP
|
|
|
79,290
|
|
|
|
89,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity reported under Canadian GAAP
|
|
|
297,280
|
|
|
|
295,679
|
|
Derivative for share purchase warrants (a)
|
|
|
|
|
|
|
(400
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity reported under US GAAP
|
|
|
297,280
|
|
|
|
295,279
|
|
|
|
|
|
a)
|
|
Share purchase warrants
|
As disclosed under recent accounting pronouncements below, EITF 07-5 provides guidance of
the U.S. GAAP accounting for the Companys warrants. The Company had recorded a liability
of $400,000 in 2007 relating to outstanding warrants, which reversed in the current year as
the warrants expired unexercised.
39
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
The Company used the Black-Scholes Option Pricing Model to determine the fair value of the
warrants with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Risk free interest rate
|
|
|
n/a
|
|
|
|
3.8
|
%
|
Expected dividend yield
|
|
|
n/a
|
|
|
|
.5
|
%
|
Expected price volatility of the Companys Common Shares
|
|
|
n/a
|
|
|
|
44
|
%
|
Expected remaining life of the warrants
|
|
|
n/a
|
|
|
0.6 years
|
During 2008, all outstanding warrants expired unexercised.
The Financial Accounting Standards Board (FASB) has initiated a project to determine the
accounting treatment for convertible debt with elements of foreign currency risk. This
project is expected to provide further US GAAP guidance in respect of accounting for share
purchase warrants.
b)
|
|
Recent accounting pronouncements
|
|
|
|
U.S. GAAP Standards
|
|
|
|
In June 2008, the FASB ratified EITF Issue No. 07-5, Determining Whether an Instrument (or
an Embedded Feature) Is Indexed to an Entitys Own Stock (EITF 07-5). EITF 07-5 provides
that an entity should use a two step approach to evaluate whether an equity-linked
financial instrument (or embedded feature) is indexed to its own stock, including
evaluating the instruments contingent exercise and settlement provisions. It also
clarifies on the impact of foreign currency denominated strike prices and market-based
employee stock option valuation instruments on the evaluation. EITF 07-5 is effective for
fiscal years beginning after December 15, 2008. The Company does expect the implementation
of this standard to have a material impact on its consolidated financial position and
results of operations.
|
|
|
|
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles (SFAS No. 162). SFAS No. 162 identifies the sources of accounting principles
and the framework for selecting the principles used in the preparation of financial
statements. SFAS No. 162 is effective 60 days following the SECs approval of the Public
Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present
Fairly in Conformity with Generally Accepted Accounting Principles. The implementation of
this statement did not have a material impact on our consolidated financial position and
results of operations.
|
|
|
|
In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments
and Hedging Activities an amendment of FASB Statement No. 133 (SFAS 161). SFAS 161
intends to improve financial reporting about derivative instruments and hedging activities
by requiring enhanced disclosures to enable investors to better understand their effects on
an entitys financial position, financial performance and cash flows. SFAS 161 also
requires disclosure about an entitys strategy and objectives for using derivatives, the
fair values of derivative instruments and their related gains and losses. SFAS 161 is
effective for fiscal years and interim periods beginning after November 15, 2008, and will
be
|
40
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
applicable to the Company beginning on January 1, 2009. The Company does expect the
adoption of this statement to have a material impact on its consolidated financial
statements.
In December 2007, the FASB issued Statement No. 141 (revised 2007), Business
Combinations, (SFAS 141R), which significantly changes the ways companies account for
business combinations and will generally require more assets acquired and liabilities
assumed to be measured at their acquisition date fair value. Under SFAS 141R, legal fees
and other transaction-related costs are expensed as incurred and are no longer included in
goodwill as a cost of acquiring the business. SFAS 141R also requires, among other things,
acquirers to estimate the acquisition date fair value of any contingent consideration and
to recognize any subsequent changes in the fair value of contingent consideration in
earnings. In addition, restructuring costs the acquirer expected, but was not obligated to
incur, will be recognized separately from the business acquisition. SFAS No. 141R is
effective, on a prospective basis, for fiscal years beginning after December 15, 2008. The
Company does expect the adoption of this statement to have a material impact on its
consolidated financial position and results of operations.
In December 2007, the FASB issued Statement No. 160, Non-controlling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51 (SFAS 160). SFAS 160
requires all entities to report non-controlling interests in subsidiaries as a separate
component of equity in the consolidated financial statements. SFAS 160 establishes a single
method of accounting for changes in a parents ownership interest in a subsidiary that do
not result in deconsolidation. Companies will no longer recognize a gain or loss on partial
disposals of a subsidiary where control is retained. In addition, in partial acquisitions,
where control is obtained, the acquiring company will recognize and measure at fair value
100 percent of the assets and liabilities, including goodwill, as if the entire target
company had been acquired. SFAS No. 160 is effective, on a prospective basis, for fiscal
years beginning after December 15, 2008. However, presentation and disclosure requirements
must be retrospectively applied to comparative financial statements. The Company does
expect the adoption of this statement to have a material impact on its consolidated
financial position and results of operations.
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (FAS 157).
FAS 157 defines fair value, establishes a framework for measuring fair value and expands
disclosures regarding fair value measurements. It is applicable whenever another standard
requires or permits assets or liabilities to be measured at fair value, but it does not
expand the use of fair value to any new circumstances. FAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007. On February 12,
2008, the FASB Staff issued FASB Staff Position FAS 157-2 (FAS 157-2) which defers the
effective date of FAS 157 for all nonfinancial assets and liabilities, except those that
are recognized or disclosed at fair value in the financial statements on a recurring basis.
FSP 157-2 defers the effective date of FAS 157 to fiscal years beginning after November
15, 2008, for items within the scope of FSP 157-2. The Company does expect the adoption of
this statement to have a material impact on its consolidated financial position and results
of operations.
13 Segment information
The Company operates in one industry segment, with all revenue from mineral royalties.
41
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
14 Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
Cash paid for interest
|
|
|
2,067
|
|
|
|
2,766
|
|
|
|
1,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for taxes
|
|
|
7,426
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2008, the Company transferred $17,123 from other assets to
royalty interest in mineral properties upon completion of the second closing of the Rio Tinto
Australian Royalty Interests (note 3).
During the year ended December 31, 2008, the Company transferred $788 from restricted cash to
other assets.
During the year ended December 31, 2007, the Company transferred $6,035 from royalty interest
in mineral properties to investments upon completion of the restructuring of its interest in
Legacy (note 4).
Cash and cash equivalents as of December 31 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash in bank
|
|
|
644
|
|
|
|
776
|
|
Short-term deposits
|
|
|
2,800
|
|
|
|
11,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,444
|
|
|
|
12,742
|
|
|
|
|
The effective interest rate on short-term deposits was 0.4% and has an average maturity of 7
days.
15 Management of capital
The Companys objectives when managing capital are to safeguard the Companys ability to
continue as a going concern in order to pursue the development of its royalty interests in
mineral properties portfolio, and to maintain a flexible capital structure which optimizes the
costs of capital at an acceptable risk.
In the management of capital, the Company includes the components of shareholders equity,
Senior Secured Debentures, revolving credit facility and investments.
42
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
Total capital as of December 31, 2008 is as follows:
|
|
|
|
|
Stockholders equity
|
|
$
|
297,280
|
|
Senior Secured Debentures
|
|
|
21,662
|
|
Revolving credit facility
|
|
|
3,000
|
|
Cash and cash equivalents
|
|
|
(3,444
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
318,498
|
|
|
|
|
|
The Company manages the capital structure and makes adjustments to it in light of changes in
economic conditions and the risk characteristics of the underlying assets. To maintain or
adjust the capital structure, the Company may attempt to issue new shares, issue new debt,
acquire or dispose of assets or adjust the amount of cash and cash equivalents.
In order to facilitate the management of its capital requirements, the Company prepares annual
expenditure budgets that are updated as necessary depending on various factors, including
successful capital deployment and general industry conditions. The annual budget is approved
by the Board of Directors.
The Companys investment policy is to invest its cash in highly liquid short-term
interest-bearing investments with maturities 90 days or less from the original date of
acquisition, selected with regards to the expected timing of expenditures from continuing
operations.
The Company expects its current capital resources will be sufficient to carry its business
development plans and operations through its current operating period.
The Company maintains a Revolving Credit Facility in order to provide additional liquidity.
The Revolving Credit Facility is subject to customary terms and conditions for borrowers of
this nature, including limits on incurring additional indebtedness, granting liens or selling
assets without the consent of the lenders. Pursuant to the Revolving Credit Facility, the
Company granted a second charge over substantially all of its current and future assets.
Archean and IRC Nevada Inc. guaranteed the indebtedness of the Company under the Revolving
Facility. IRC Nevada Inc. provided a first charge over all of its assets pursuant to a general
security agreement and Archean provided a second charge over all of its assets (except for its
equity interest in Voiseys Bay Holding Corporation which was not pledged) pursuant to a
general security agreement. The Company is also required to maintain certain financial ratios
(such as gross debt ratio, interest coverage ratio, Debt to Voiseys Bay revenue ratio and a
Adjusted Indebtedness to Paid-Up Capital ratio) as well as a minimum tangible net worth. The
Company was in compliance with all required financial ratios as of December 31, 2008 and 2007.
16 Management of financial risk
The Company is exposed to certain financial risks, including currency risk, credit risk,
liquidity risk, interest risk and commodity price risk.
43
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
Currency risk
The Company is exposed to the financial risk related to the fluctuation of foreign exchange
rates. The Company owns royalty interests on mineral properties in various countries
throughout the world and revenues and expenses are incurred in foreign currencies such as
Canadian dollars, Australian dollars and Euros. A significant change in currency exchange
rates could have a significant impact on the Companys results of operations, financial
position or cash flows. Bank accounts are maintained in the local currency of several
countries in order to minimize the impact of exchange rate fluctuations. As of December 31,
2008, the Company has U.S dollar cash and cash equivalents in the United States, Canada and
Australia of $2,887,000, $35,000 and $521,000, respectively.
The Companys Senior Secured Debentures are denominated in Canadian dollars which exposes the
Company to fluctuations in foreign currency rates. On November 25, 2008, the Company entered
into an agreement with a bank to fix the exchange rate to repay the principal balance of the
Senior Secured Debentures at CA$1.00 to US$0.834725. The Company has recorded the difference
in the value of the Debentures at December 31, 2008 using the contract exchange rate at
February 22, 2011 (the date of settlement) and the value of the Debentures at the December 31,
2008 forward rate totalling $493,000 as a derivative loss. The foreign currency contract
liability is a derivative and thus, has been classified as held-for-trading and was recorded
at fair value on the date of acquisition and then marked-to-market at the balance sheet date.
The change in fair value of the foreign currency contract liability has been recognized as an
unrealized loss on fair market value of foreign currency contract on the consolidated
statements of operations.
On November 10, 2008, the Canadian Department of Finance released draft legislation amending
section 261 of the
Income Tax Act,
which provides new tax calculating currency rules that
taxpayers must use when determining their Canadian tax results. These new currency rules allow
the Company to prepare its corporate tax return using US dollars instead of translating the
annual activity into Canadian dollars. As of December 31, 2008, the draft legislation has not
been finalized; however, the Company expects this legislation to be effective for its 2008 tax
returns. If finalized, the Company will no longer need to complete the translation of its
activity from US dollars to Canadian dollars.
Credit risk
Credit risk is the risk that a contracting party will not complete its obligations under a
financial instrument and cause the Company to incur a financial loss.
The Companys cash and cash equivalents are held through large financial institutions with no
known liquidity problems.
The Companys royalties receivable consist primarily of royalty payments due in accordance with
contract agreements with large international mining companies. The Company continually monitors
the public filings and websites in order to assess the financial position of the mining
companies. In the current market and credit environment, management believes that all of its
royalty payments are collectible.
Advances to CFT consist of amounts advanced to an unrelated third party in connection with the
potential acquisition of all of a company. These advances will be repaid in five annual
instalments with interest at 1.0% upon the closing of the transaction. If the transaction is
not completed, the Company expects to receive
44
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2008 and 2007
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
repayment of the advances upon the sale of CFT for which offers have already been made. The
Company believes the credit risk associated with the advances to CFT is low as these amounts
will be realized upon completion of the McWatters acquisition.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations
as they become due. The Company manages liquidity risk through the management of its capital
structure and financial leverage as outlined in Note 15 to the consolidated financial
statements.
Accounts payable and accrued liabilities are due within the current operating period.
The Companys Senior Secured Debentures are due in one lump sum payment on February 22, 2011.
The Companys Revolving Credit Facility is due in monthly instalments of interest only with the
principal balance due on January 8, 2010. The Company periodically borrows funds to take
advantage of acquisition opportunities or to meet its operating cash flow needs. The Company
intends to repay the principal balance as soon as the royalty receivables are collected.
The Companys foreign currency contract is with a large financial institution with no known
liquidity problems.
Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market interest rates.
The risk that the Company will realize a loss as a result of a decline in the fair value of the
investments included in cash and cash equivalents is limited because these investments,
although available for sale, are generally held to maturity.
Commodity price risk
|
|
The Company is exposed to price risk with respect to commodity prices. The Company closely
monitors commodity prices to determine the appropriate course of action, if any, to be taken by
the Company.
|
45
International Royalty Corporation
Consolidated Financial Statements
December 31, 2007 and 2006
(expressed in thousands of U.S. dollars)
46
MANAGEMENTS RESPONSIBILITY FOR FINANCIAL REPORTING CANADA
Management is responsible for the preparation and fair presentation of the consolidated financial
statements and other financial information relating to International Royalty Corporation (the
Company or IRC) included in this annual report. The consolidated financial statements have been
prepared in accordance with generally accepted accounting principles in Canada and necessarily
include amounts based on estimates and judgments of management. In this regard, management has
developed and maintains a system of accounting and reporting which provides for the necessary
internal controls to ensure that transactions are authorized, assets are safeguarded and proper
records are maintained.
PricewaterhouseCoopers LLP, our independent auditors, are engaged to express a professional opinion
on the consolidated financial statements. Their examination is conducted in accordance with
generally accepted Canadian auditing standards and includes tests and other procedures which allow
the auditors to report whether the consolidated financial statements prepared by management are
presented fairly, in all material respects in accordance with generally accepted Canadian
accounting principles.
The Board of Directors is responsible for ensuring that management fulfils its responsibilities for
financial reporting and for reviewing and approving the consolidated financial statements. In
furtherance of the foregoing, the Board has appointed an Audit Committee composed of three
directors not involved in the daily operations of the Company.
The Audit Committee meets with the independent auditors to discuss the results of their audit and
their audit report prior to submitting the consolidated financial statements and annual report to
the Board of Directors for its consideration and approval for issuance to shareholders. On the
recommendation of the Audit Committee, the Board of Directors has approved the Companys
consolidated financial statements.
(signed) Douglas B. Silver
Chairman and Chief Executive Officer
(signed) Ray Jenner
Chief Financial Officer and Secretary
March 10, 2008
47
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING US
The management of International Royalty Corporation is responsible for establishing and maintaining
adequate internal control over financial reporting. The Securities and Exchange Act of 1934 in Rule
13a-15(f ) and 15d-15(f ) defines this as a process designed by, or under the supervision of, the
Companys principal executive and principal financial officers and effected by the Companys Board
of Directors, management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles, and includes those policies
and procedures that:
|
|
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transaction and dispositions of the assets of the Company;
|
|
|
|
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the Company are being made only in accordance with authorizations of management
and directors of the Company; and
|
|
|
|
Provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisitions, use or disposition of the Companys assets that may have a material effect on the
consolidated financial statements.
|
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Projections of any evaluation of effectiveness to future periods are subject
to risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Companys internal control over financial reporting as
of December 31, 2007. In making this assessment, the Companys management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework.
Based upon our assessment and those criteria, management concluded that the Companys internal
control over financial reporting was effective as of December 31, 2007.
The Company employs knowledgeable staff and consults with other accounting professionals and its
legal counsel when preparing its U.S. GAAP reconciliation.
(signed) Douglas B. Silver
Chairman and Chief Executive Officer
(signed) Ray Jenner
Chief Financial Officer and Secretary
March 10, 2008
48
Independent Auditors Report
To the Shareholders of International Royalty Corporation
We have completed an integrated audit of International Royalty Corporations 2007 consolidated
financial statements and of its internal control over financial reporting as at December 31,
2007, and audits of its 2006 and 2005 consolidated financial statements. Our opinions, based on
our audits, are presented below.
Consolidated Financial statements
We have audited the accompanying consolidated balance sheets of International Royalty Corporation
as at December 31, 2007 and December 31, 2006, and the related consolidated statement of
operations and comprehensive income, shareholders equity and cash flows for each of the years
then ended. These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits of the Companys financial statements in accordance with Canadian
generally accepted auditing standards and the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform an audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit of financial statements includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. A financial statement audit
also includes assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company as at December 31, 2007 and December 31,
2006, and the results of its operations and its cash flows for each of the years in the three
year period ended December 31, 2007 in accordance with Canadian generally accepted accounting
principles.
Internal control over financial reporting
We have also audited International Royalty Corporations internal control over financial
reporting as at December 31, 2007, based on criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Companys management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Managements Responsibility for Financial
Reporting report
.
Our responsibility is to express an opinion on the effectiveness of the
Companys internal control over financial reporting based on our audit.
We conducted our audit of internal control over financial reporting in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. An audit of
internal control over financial reporting includes obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating
49
effectiveness of internal control based on the assessed risk, and performing such other
procedures as we consider necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as at December 31, 2007 based on criteria established in Internal Control
Integrated Framework issued by the COSO.
(signed) PricewaterhouseCoopers LLP
Chartered Accountants
Vancouver, B.C.
March 10, 2008
Comments by Auditors for U.S. Readers on Canada U.S. Reporting Difference
In the United States, reporting standards for auditors require the addition of an explanatory
paragraph (following the opinion paragraph) when there is a change in accounting principles that
has a material effect on the comparability of the Companys financial statements, such as the
change in accounting policy for financial instruments as described in note 2 to the consolidated
financial statements. Our report to the shareholders dated March 10, 2008, is expressed in
accordance with Canadian reporting standards which do not require a reference to such a change in
accounting policy in the auditors report when its properly accounted for and adequately disclosed
in the financial statements.
(signed) PricewaterhouseCoopers LLP
Chartered Accountants
Vancouver, B.C.
March 10, 2008
50
International Royalty Corporation
Consolidated Balance Sheets
As at December 31, 2007 and 2006
(expressed in thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
$
|
|
|
$
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
12,742
|
|
|
|
11,575
|
|
Restricted cash (note 3)
|
|
|
969
|
|
|
|
354
|
|
Royalties receivable
|
|
|
10,309
|
|
|
|
7,751
|
|
Prepaid expenses and other current assets
|
|
|
173
|
|
|
|
292
|
|
|
|
|
|
|
|
24,193
|
|
|
|
19,972
|
|
Royalty interests in mineral properties, net
(note 3)
|
|
|
333,739
|
|
|
|
240,168
|
|
Investments
(note 4)
|
|
|
7,244
|
|
|
|
|
|
Furniture and equipment, net
|
|
|
119
|
|
|
|
153
|
|
Other long-term assets
(notes 5 and 10)
|
|
|
19,187
|
|
|
|
2,438
|
|
|
|
|
|
|
|
384,482
|
|
|
|
262,731
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
1,852
|
|
|
|
2,072
|
|
Income taxes
|
|
|
9,854
|
|
|
|
|
|
Future income taxes
|
|
|
4,850
|
|
|
|
|
|
|
|
|
|
|
|
16,556
|
|
|
|
2,072
|
|
Senior secured debentures
(note 7)
|
|
|
26,595
|
|
|
|
22,028
|
|
Future income taxes
(note 8)
|
|
|
45,652
|
|
|
|
64,148
|
|
|
|
|
|
|
|
88,803
|
|
|
|
88,248
|
|
|
|
|
Shareholders Equity
(note 9)
|
|
|
|
|
|
|
|
|
Common shares
|
|
|
|
|
|
|
|
|
Authorized
|
|
|
|
|
|
|
|
|
Unlimited common shares without par value
|
|
|
|
|
|
|
|
|
Issued
|
|
|
|
|
|
|
|
|
78,476,856 (2006 - 58,008,448) common shares
|
|
|
275,450
|
|
|
|
166,173
|
|
Contributed Surplus
|
|
|
8,525
|
|
|
|
5,985
|
|
Retained earnings
|
|
|
11,531
|
|
|
|
2,325
|
|
Accumulated other comprehensive income
|
|
|
173
|
|
|
|
|
|
|
|
|
|
|
|
295,679
|
|
|
|
174,483
|
|
|
|
|
|
|
|
384,482
|
|
|
|
262,731
|
|
|
|
|
Nature of operations
(note 1)
Commitments and contingencies
(note 3)
Subsequent events
(note 15)
Approved by the Board of Directors
|
|
|
|
|
|
(signed) Douglas B. Silver
|
|
Director
|
|
(signed) Rene G. Carrier
|
Director
|
|
|
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
51
International Royalty Corporation
Consolidated Statements of Operations and Other Comprehensive Income
(expressed in thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty revenues
|
|
|
49,857
|
|
|
|
20,346
|
|
|
|
425
|
|
Other (note 4)
|
|
|
849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,706
|
|
|
|
20,346
|
|
|
|
425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
10,996
|
|
|
|
6,005
|
|
|
|
363
|
|
Business development
|
|
|
2,585
|
|
|
|
534
|
|
|
|
263
|
|
General and administrative (notes 9 and 10)
|
|
|
6,325
|
|
|
|
5,360
|
|
|
|
7,272
|
|
Impairment of royalty interests in mineral
properties (note 3)
|
|
|
2,142
|
|
|
|
358
|
|
|
|
64
|
|
Royalty taxes
|
|
|
9,532
|
|
|
|
3,812
|
|
|
|
|
|
|
|
|
|
|
|
31,580
|
|
|
|
16,069
|
|
|
|
7,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations
|
|
|
19,126
|
|
|
|
4,277
|
|
|
|
(7,537
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency gain (loss) (note 2)
|
|
|
(6,206
|
)
|
|
|
351
|
|
|
|
(85
|
)
|
Interest expense (note 11)
|
|
|
(3,750
|
)
|
|
|
(2,338
|
)
|
|
|
(1,826
|
)
|
Interest income
|
|
|
494
|
|
|
|
332
|
|
|
|
374
|
|
|
|
|
|
|
|
(9,462
|
)
|
|
|
(1,655
|
)
|
|
|
(1,537
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes
|
|
|
9,664
|
|
|
|
2,622
|
|
|
|
(9,074
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
(note 8)
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income tax expense
|
|
|
(8,812
|
)
|
|
|
|
|
|
|
|
|
Recovery of future income tax
|
|
|
10,381
|
|
|
|
9,056
|
|
|
|
579
|
|
|
|
|
|
|
|
1,569
|
|
|
|
9,056
|
|
|
|
579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
11,233
|
|
|
|
11,678
|
|
|
|
(8,495
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on available-for-sale
investments, net of taxes of $30
|
|
|
173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
11,406
|
|
|
|
11,678
|
|
|
|
(8,495
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss) per share
|
|
|
0.16
|
|
|
|
0.20
|
|
|
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
68,249,204
|
|
|
|
57,307,592
|
|
|
|
49,903,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
70,056,532
|
|
|
|
58,086,569
|
|
|
|
49,903,355
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
52
International Royalty Corporation
Consolidated Statements of Shareholders Equity
(expressed in thousands of U.S. dollars, except number of shares amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Deficit)
|
|
|
other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
|
|
|
Retained
|
|
|
comprehensive
|
|
|
shareholders
|
|
|
|
Common shares
|
|
|
surplus
|
|
|
earnings
|
|
|
income
|
|
|
equity
|
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
Balance at December 31, 2004
|
|
|
5,849,433
|
|
|
|
2,058
|
|
|
|
1,558
|
|
|
|
(858
|
)
|
|
|
|
|
|
|
2,758
|
|
Shares issued in connection with the IPO
(net of issuance costs)
|
|
|
37,790,698
|
|
|
|
124,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124,253
|
|
Shares issued in connection with the Unit
Offering (net of issuance costs) (note 9)
|
|
|
1,395,360
|
|
|
|
4,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,588
|
|
Shares issued for the purchase of royalty
interests in mineral properties (note 3)
|
|
|
8,896,895
|
|
|
|
31,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,015
|
|
Exercise of special warrants
|
|
|
2,858,000
|
|
|
|
1,478
|
|
|
|
(1,478
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for services
|
|
|
2,249
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Shares issued into escrow (note 7)
|
|
|
218,023
|
|
|
|
760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
760
|
|
Stock options
|
|
|
|
|
|
|
|
|
|
|
4,992
|
|
|
|
|
|
|
|
|
|
|
|
4,992
|
|
Warrants exercised
|
|
|
16,910
|
|
|
|
16
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
15
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,495
|
)
|
|
|
|
|
|
|
(8,495
|
)
|
|
|
|
Balance at December 31, 2005
|
|
|
57,027,568
|
|
|
|
164,176
|
|
|
|
5,071
|
|
|
|
(9,353
|
)
|
|
|
|
|
|
|
159,894
|
|
Stock options
|
|
|
|
|
|
|
|
|
|
|
960
|
|
|
|
|
|
|
|
|
|
|
|
960
|
|
Warrants exercised
|
|
|
980,880
|
|
|
|
1,997
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
1,951
|
|
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,678
|
|
|
|
|
|
|
|
11,678
|
|
|
|
|
Balance at December 31, 2006
|
|
|
58,008,448
|
|
|
|
166,173
|
|
|
|
5,985
|
|
|
|
2,325
|
|
|
|
|
|
|
|
174,483
|
|
Warrants exercised
|
|
|
1,694,408
|
|
|
|
6,973
|
|
|
|
(315
|
)
|
|
|
|
|
|
|
|
|
|
|
6,658
|
|
Unit offering, net of expenses and tax impact
|
|
|
8,334,000
|
|
|
|
34,831
|
|
|
|
1,565
|
|
|
|
|
|
|
|
|
|
|
|
36,396
|
|
Exercise of stock options
|
|
|
40,000
|
|
|
|
227
|
|
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
|
|
162
|
|
Offering, net of expenses and tax impact
|
|
|
10,400,000
|
|
|
|
67,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67,246
|
|
Stock options
|
|
|
|
|
|
|
|
|
|
|
1,355
|
|
|
|
|
|
|
|
|
|
|
|
1,355
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,027
|
)
|
|
|
|
|
|
|
(2,027
|
)
|
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,233
|
|
|
|
|
|
|
|
11,233
|
|
Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
173
|
|
|
|
173
|
|
|
|
|
Balance at December 31, 2007
|
|
|
78,476,856
|
|
|
|
275,450
|
|
|
|
8,525
|
|
|
|
11,531
|
|
|
|
173
|
|
|
|
295,679
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
53
International Royalty Corporation
Consolidated Statements of Cash Flows
(expressed in thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
Cash flows provided by (used in) operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) for the year
|
|
|
11,233
|
|
|
|
11,678
|
|
|
|
(8,495
|
)
|
Items not affecting cash
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
11,037
|
|
|
|
6,041
|
|
|
|
380
|
|
Impairment of royalty interests in mineral properties
|
|
|
2,142
|
|
|
|
358
|
|
|
|
64
|
|
Amortization of deferred debenture costs
|
|
|
249
|
|
|
|
222
|
|
|
|
166
|
|
Accretion of debenture discount
|
|
|
736
|
|
|
|
657
|
|
|
|
492
|
|
Future income tax
|
|
|
(10,381
|
)
|
|
|
(9,056
|
)
|
|
|
(586
|
)
|
Non-cash foreign currency loss (gain)
|
|
|
3,506
|
|
|
|
(19
|
)
|
|
|
970
|
|
Stock-based compensation
|
|
|
1,355
|
|
|
|
960
|
|
|
|
4,992
|
|
Other
|
|
|
(849
|
)
|
|
|
|
|
|
|
|
|
Changes in non-cash working capital
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in royalty receivables
|
|
|
(2,496
|
)
|
|
|
(7,627
|
)
|
|
|
(17
|
)
|
Decrease (increase) in prepaid expenses and other
current assets
|
|
|
122
|
|
|
|
(32
|
)
|
|
|
(254
|
)
|
Increase in accounts payable and accrued liabilities
|
|
|
23
|
|
|
|
739
|
|
|
|
610
|
|
Increase in income taxes payable
|
|
|
9,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,531
|
|
|
|
3,921
|
|
|
|
(1,678
|
)
|
|
|
|
Cash flows used in investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of royalty interests in mineral properties
|
|
|
(119,191
|
)
|
|
|
(10,026
|
)
|
|
|
(125,567
|
)
|
Proceeds from the sale of royalty interests in mineral
properties
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
Purchases of furniture and equipment
|
|
|
(8
|
)
|
|
|
(67
|
)
|
|
|
(132
|
)
|
Other long-term assets relating to royalty acquisition
|
|
|
(17,878
|
)
|
|
|
|
|
|
|
(75
|
)
|
Proceeds from (investment in) short-term investments
|
|
|
|
|
|
|
1,779
|
|
|
|
(1,708
|
)
|
Acquisition of investments
|
|
|
(157
|
)
|
|
|
|
|
|
|
|
|
Decrease in other long-term assets
|
|
|
(55
|
)
|
|
|
(211
|
)
|
|
|
(111
|
)
|
Restricted cash
|
|
|
(544
|
)
|
|
|
1,493
|
|
|
|
(1,713
|
)
|
|
|
|
|
|
|
(131,833
|
)
|
|
|
(7,032
|
)
|
|
|
(129,306
|
)
|
|
|
|
Cash flows provided by financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from issuance of common shares
|
|
|
101,675
|
|
|
|
|
|
|
|
120,475
|
|
Net proceeds from unit offering
|
|
|
|
|
|
|
|
|
|
|
22,418
|
|
Proceeds from exercise of stock options
|
|
|
162
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of warrants
|
|
|
6,659
|
|
|
|
1,951
|
|
|
|
15
|
|
Payment of dividends
|
|
|
(2,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106,469
|
|
|
|
1,951
|
|
|
|
142,908
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
1,167
|
|
|
|
(1,160
|
)
|
|
|
11,924
|
|
Cash and cash equivalents Beginning of year
|
|
|
11,575
|
|
|
|
12,735
|
|
|
|
811
|
|
|
|
|
Cash and cash equivalents End of year
|
|
|
12,742
|
|
|
|
11,575
|
|
|
|
12,735
|
|
|
|
|
Supplemental cash flow information
(note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
54
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2007 and 2006
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
1
|
|
Nature of operations
|
|
|
|
International Royalty Corporation (IRC or the Company) was incorporated under the laws
of Yukon, Canada on May 7, 2003 and was continued under the
Canada Business Corporations Act
on
November 12, 2004. It was formed for the purpose of acquiring and creating natural resource
royalties with a specific emphasis on mineral royalties. Operating activities commenced on July
1, 2003.
|
|
|
|
During 2007 and 2006, approximately 95 and 94 percent, respectively, of the Companys revenues
were generated from the Voiseys Bay Royalty (note 3). The Company is economically dependent
upon the operator of the Voiseys Bay property and the expected revenues there from.
|
|
2
|
|
Summary of significant accounting policies
|
|
|
|
Basis of consolidation and presentation
|
|
|
|
The consolidated financial statements include the accounts of IRC and all of its wholly-owned
subsidiaries. The material subsidiaries include IRC (U.S.) Management Inc., Archean Resources
Ltd. (Archean) and IRC Nevada Inc. All intercompany balances and transactions have been
eliminated upon consolidation. The consolidated financial statements and notes thereto are
prepared in accordance with accounting principles generally accepted in Canada and are
expressed in United States dollars, unless otherwise noted. As described in note 12, accounting
principles generally accepted in Canada differ in certain respects from accounting principles
in the United States.
|
|
|
|
Use of estimates
|
|
|
|
The preparation of financial statements in conformity with Canadian generally accepted
accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts of revenues and expenses
during the reporting period. The Companys most significant estimates include the carrying
value of royalty interests in mineral properties and the calculation of the fair value of
stock-based compensation and warrants. Actual results could differ from those estimates by a
material amount.
|
|
|
|
Managements estimate of mineral prices, operators estimates of proven and probable reserves
related to royalty properties and operators estimates of operating, capital and reclamation
costs upon which the Company relies, are subject to significant risks and uncertainties. These
estimates affect amortization of royalty interests in mineral properties and the assessment of
the recoverability of the royalty interest in mineral properties. Although management has made
its best assessment of these factors based upon current conditions, it is
possible that changes could occur, which could materially affect the amounts contained in these
consolidated financial statements.
|
55
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2007 and 2006
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
Revenue
|
|
|
|
Royalty revenue is recognized when management can estimate the payable production from mine
operations, when the underlying price is determinable, when collection is reasonably assured
and pursuant to the terms of the royalty agreements.
|
|
|
|
Royalty taxes
|
|
|
|
Voiseys Bay royalty revenues are subject to the Mining and Mineral Rights Tax Act of
Newfoundland and Labrador of 20%, which is recognized at the time of revenue recognition.
Since the Company is ultimately obligated to pay this tax, the revenues received are reported
gross, before the Mineral Rights Tax.
|
|
|
|
Translation of foreign currencies
|
|
|
|
The United States dollar is the functional currency of IRC and its subsidiaries.
|
|
|
|
Monetary assets and liabilities are translated at the exchange rate in effect at the balance
sheet date and non-monetary assets and liabilities at the exchange rates in effect at the time
of acquisition or issue. Revenues and expenses are translated at rates approximating exchange
rates in effect at the time of the transactions. Exchange gains or losses arising on
translation are included in income or loss for the year.
|
|
|
|
Income taxes
|
|
|
|
Income taxes are accounted for using the liability method. Temporary differences arising from
the difference between the tax basis of an asset or liability and its carrying amount on the
balance sheet are used to calculate future income tax liabilities or assets. Future income tax
liabilities or assets are calculated using the tax rates anticipated to apply in the periods
that the temporary differences are expected to reverse. Future income tax assets are evaluated
and, if realization is not considered more likely than not, a valuation allowance is provided.
|
|
|
|
Earnings (loss) per share
|
|
|
|
Basic earnings (loss) per share is computed by dividing the net income or loss by the weighted
average number of common shares outstanding during each period. Diluted earnings (loss) per
share reflects the effect of all potentially dilutive common stock equivalents.
|
|
|
|
The effect of the outstanding warrants and stock options (note 9) are not included in the
computation of diluted loss per share during 2005 as their inclusion would be anti-dilutive.
|
|
|
|
Cash and cash equivalents
|
|
|
|
Cash and cash equivalents consist of cash on deposit and highly liquid money market securities
and investment deposits, with maturity dates of less than three months at the time of
acquisition and which are readily convertible into cash.
|
|
|
|
Cash and cash equivalents are designated as held for trading and are measured at carrying
value which approximates fair value due to the short-term nature of these instruments.
|
56
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2007 and 2006
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
Royalty interests
|
|
|
|
Royalty interests include acquired royalty interests in production stage, development stage,
feasibility stage, and exploration stage properties. The royalty interests are recorded at cost
and capitalized as tangible assets, unless such interests are considered to be a financial
asset or a derivative instrument.
|
|
|
|
Acquisition costs of production stage royalty interests are amortized using the units of
production method over the life of the mineral property, which is determined using available
estimates of proven and probable reserves. Acquisition costs of royalty interests on
development, feasibility and exploration stage mineral properties are not amortized. At such
time as the associated mineral interests are placed into production, the cost basis is
amortized using the units of production method over available estimates of proven and probable
reserves.
|
|
|
|
Investments
|
|
|
|
Investments classified as available-for-sale are reported at fair market value (or marked to
market) based on quoted market prices with unrealized gains or losses excluded from earnings
and reported as other comprehensive income or loss. Equity investments classified as
available-for-sale that do not have a quoted market price in an active market are measured at
cost. Investments classified as held-to-maturity are measured at amortized cost using the
effective interest method.
|
|
|
|
Furniture and equipment
|
|
|
|
The Company initially records furniture and equipment at cost and provides for depreciation
over their estimated useful lives ranging from three to seven years, using the straight-line
method. Upon retirement or disposition of furniture and equipment, related gains or losses are
recorded in operations.
|
|
|
|
Impairment of long-lived assets
|
|
|
|
The Company evaluates long-lived assets for impairment when events or circumstances indicate
that the related carrying amounts may not be recoverable. The recoverability of the carrying
value of royalty interests in production and development stage mineral properties is evaluated
based upon estimated future undiscounted net cash flows from each royalty interest property
using available estimates of proven and probable reserves.
|
|
|
|
The Company evaluates the recoverability of the carrying value of royalty interests in
feasibility and exploration stage mineral properties in the event of significant decreases in
the price of the underlying mineral, and whenever new information regarding the mineral
property is obtained from the operator that could affect the future recoverability of the
royalty interest.
|
|
|
|
Impairments in the carrying value of each royalty interest are measured and recorded to the
extent that the carrying value in each royalty interest exceeds its estimated fair value, which
is calculated using future discounted cash flows.
|
57
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2007 and 2006
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
Financing charges
|
|
|
|
Financing charges related to the issuance of the Senior Secured Debentures have been recorded
as a reduction of the carrying value of the Debentures, which are being accreted to their
maturity value through charges to interest expense over the term of the Debentures using the
effective yield method (see below).
|
|
|
|
Senior Secured Debentures
|
|
|
|
Proceeds from the Unit Offering (note 7) were allocated into debt and equity components based
upon their respective fair market values. The carrying value of the Senior Secured Debentures
is being accreted to their maturity value through charges to interest expense over the expected
life of the Debentures based on the effective yield method.
|
|
|
|
Stock options
|
|
|
|
The Company determines the fair value of awards to employees using the Black-Scholes valuation
model. The fair value of the stock options is recognized as compensation expense over the
vesting period of the related option.
|
|
|
|
Financial Instruments
|
|
|
|
Effective January 1, 2007, the Company adopted CICA Section 3855 Financial Instruments -
Recognition and Measurement. Section 3855 requires that all financial assets, except those
classified as held to maturity, and derivative financial instruments, must be measured at fair
value. All financial liabilities must be measured at fair value when they are classified as
held for trading; otherwise, they are measured at amortized cost. Investments classified as
available for sale are reported at fair market value (or marked to market) based on quoted
market prices with unrealized gains or losses excluded from earnings and reported as other
comprehensive income or loss.
|
|
|
|
The adoption of Section 3855 had an impact on the January 1, 2007 balance sheet of the Company.
Financing charges related to the senior secured debentures (the Debentures) of $1,257,000
(net of amortization) at December 31, 2006 previously were reported as other assets on the
balance sheet and were being amortized to interest expense using the effective interest rate
method. Upon adoption of Section 3855, the Companys new policy regarding these finance
charges is to record these charges as a reduction of the carrying value of the Debentures,
which are being accreted to their maturity value through charges to interest expense over the
term of the Debentures based on the effective yield method. The adjustment was reported as a
reduction of the opening balances in other assets and senior secured debentures as of January
1, 2007.
|
|
|
|
Comprehensive Income
|
|
|
|
The Company has adopted CICA Section 1530 Comprehensive Income. Comprehensive income is the
change in the Companys net assets that results from transactions, events and circumstances
from sources other than the Companys shareholders and includes items that would not normally
be included in net earnings such as unrealized gains or losses on available-for-sale
investments, which are not included in net earnings (loss) until realized.
|
58
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2007 and 2006
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
Recent accounting pronouncements
|
|
|
|
The following new standards may affect the financial disclosures and results of operations of
the Company for interim and annual periods beginning January 1, 2008, unless otherwise noted.
The Company will adopt the requirements commencing in the interim period ended March 31, 2008
and is considering the impact this will have on the Companys financial statements.
|
|
|
|
Section 1535 Capital Disclosures
This Section establishes standards for disclosing
information about an entitys capital and how it is managed. Under this standard the Company
will be required to disclose the following, based on the information provided internally to the
entitys key management personnel:
|
|
(i)
|
|
qualitative information about its objectives, policies and processes for
managing capital;
|
|
|
(ii)
|
|
summary quantitative data about what it manages as capital;
|
|
|
(iii)
|
|
whether during the period it complied with any externally imposed capital
requirements to which it is subject; and
|
|
|
(iv)
|
|
when the Company has not complied with such externally imposed capital
requirements, the consequences of such non-compliance.
|
|
|
Section 3064 Goodwill and Intangible Assets
This section replaces CICA 3062 Goodwill and
Intangible Assets and establishes revised standards for the recognition, measurement,
presentation and disclosure of goodwill and intangible assets. The new standard also provides
guidance for the treatment of preproduction and start-up costs and requires that these costs be
expenses as incurred. This section is effective as of January 1, 2009.
|
|
|
|
Section 3862 Financial Instruments Disclosures
This Section requires entities to
provide disclosure of quantitative and qualitative information in their financial statements
that enable users to evaluate (a) the significance of financial instruments for the entitys
financial position and performance; and (b) the nature and extent of risks arising from
financial instruments to which the entity is exposed during the period and at the balance sheet
date, and managements objectives, policies and procedures for managing such risks. Entities
will be required to disclose the measurement basis or bases used, and the criteria used to
determine classification for different types of instruments.
|
|
|
|
The Section requires specific disclosures to be made, including the criteria for:
|
|
(i)
|
|
designating financial assets and liabilities as held for trading;
|
|
|
(ii)
|
|
designating financial assets as available-for-sale; and
|
|
|
(iii)
|
|
determining when impairment is recorded against the related financial asset or
when an allowance account is used.
|
59
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2007 and 2006
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Cost
|
|
|
amortization
|
|
|
Net
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production stage
|
|
|
|
|
|
|
|
|
|
|
|
|
Voiseys Bay
|
|
|
225,726
|
|
|
|
(15,314
|
)
|
|
|
210,412
|
|
Southern Cross
|
|
|
2,544
|
|
|
|
(1,196
|
)
|
|
|
1,348
|
|
Williams Mine
|
|
|
2,168
|
|
|
|
(1,240
|
)
|
|
|
928
|
|
Meekatharra Yaloginda
|
|
|
697
|
|
|
|
(26
|
)
|
|
|
671
|
|
Other
|
|
|
79
|
|
|
|
(9
|
)
|
|
|
70
|
|
|
|
|
|
|
|
231,214
|
|
|
|
(17,785
|
)
|
|
|
213,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development stage
|
|
|
|
|
|
|
|
|
|
|
|
|
Pascua
|
|
|
56,513
|
|
|
|
|
|
|
|
56,513
|
|
Las Cruces
|
|
|
42,144
|
|
|
|
|
|
|
|
42,144
|
|
Gwalia
|
|
|
3,546
|
|
|
|
|
|
|
|
3,546
|
|
Belahouro
|
|
|
817
|
|
|
|
|
|
|
|
817
|
|
Other
|
|
|
293
|
|
|
|
|
|
|
|
293
|
|
|
|
|
|
|
|
103,313
|
|
|
|
|
|
|
|
103,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration / Feasibility stage
|
|
|
|
|
|
|
|
|
|
|
|
|
Pinson
|
|
|
4,086
|
|
|
|
|
|
|
|
4,086
|
|
Aviat One
|
|
|
2,211
|
|
|
|
|
|
|
|
2,211
|
|
High Lake
|
|
|
2,007
|
|
|
|
|
|
|
|
2,007
|
|
Horizon
|
|
|
1,530
|
|
|
|
|
|
|
|
1,530
|
|
Tarmoola
|
|
|
1,486
|
|
|
|
|
|
|
|
1,486
|
|
South Laverton
|
|
|
912
|
|
|
|
|
|
|
|
912
|
|
Gold Hill
|
|
|
660
|
|
|
|
|
|
|
|
660
|
|
Other
|
|
|
4,105
|
|
|
|
|
|
|
|
4,105
|
|
|
|
|
|
|
|
16,997
|
|
|
|
|
|
|
|
16,997
|
|
|
|
|
|
|
|
351,524
|
|
|
|
(17,785
|
)
|
|
|
333,739
|
|
|
|
|
60
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2007 and 2006
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Cost
|
|
|
amortization
|
|
|
Net
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production stage
|
|
|
|
|
|
|
|
|
|
|
|
|
Voiseys Bay
|
|
|
225,726
|
|
|
|
(5,091
|
)
|
|
|
220,635
|
|
Southern Cross
|
|
|
2,544
|
|
|
|
(655
|
)
|
|
|
1,889
|
|
Williams Mine
|
|
|
2,168
|
|
|
|
(1,038
|
)
|
|
|
1,130
|
|
Other
|
|
|
32
|
|
|
|
(5
|
)
|
|
|
27
|
|
|
|
|
|
|
|
230,470
|
|
|
|
(6,789
|
)
|
|
|
223,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Development stage
|
|
|
|
|
|
|
|
|
|
|
|
|
Gwalia
|
|
|
3,546
|
|
|
|
|
|
|
|
3,546
|
|
Meekatharra Yaloginda
|
|
|
1,421
|
|
|
|
|
|
|
|
1,421
|
|
Belahouro
|
|
|
817
|
|
|
|
|
|
|
|
817
|
|
|
|
|
|
|
|
5,784
|
|
|
|
|
|
|
|
5,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration / Feasibility stage
|
|
|
|
|
|
|
|
|
|
|
|
|
Aviat One
|
|
|
2,211
|
|
|
|
|
|
|
|
2,211
|
|
Tarmoola
|
|
|
1,486
|
|
|
|
|
|
|
|
1,486
|
|
South Laverton
|
|
|
912
|
|
|
|
|
|
|
|
912
|
|
Pinson
|
|
|
820
|
|
|
|
|
|
|
|
820
|
|
Other
|
|
|
5,274
|
|
|
|
|
|
|
|
5,274
|
|
|
|
|
|
|
|
10,703
|
|
|
|
|
|
|
|
10,703
|
|
|
|
|
|
|
|
246,957
|
|
|
|
(6,789
|
)
|
|
|
240,168
|
|
|
|
|
|
|
During the years ended December 31, 2007, 2006 and 2005, the Company recorded $10,996,000,
$6,005,000 and $363,000, respectively, in amortization expense.
|
|
|
|
Royalty Acquisitions
|
|
|
|
Rio Tinto Royalty Interests
|
|
|
|
On December 21, 2007, the Company entered into a definitive purchase and sale agreement to
acquire 16 mineral royalties from Rio Tinto PLC (Rio Tinto), including interests on the
near-producing Las Cruces copper and Avebury nickel mines, for $61.5 million in cash, plus a
potential contingency payment. In addition to the royalties on the Las Cruces and Avebury
projects, the acquisition includes three feasibility-stage and 11 exploration-stage royalties.
|
|
|
|
This transaction is scheduled to close in two parts. The acquisition of the eleven
non-Australian royalties of the agreement closed on December 21, 2007. The acquisition of the
five Australian royalties (Avebury, Bell Creek, Melba Flats, Merlin and Westmoreland) (the
Australian Royalties) will close upon receiving approval
|
61
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2007 and 2006
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
from the Australian Foreign Investment Review Board (see note 15) and upon resolution of
outstanding rights of first refusal (see below). The Company paid the full acquisition cost of
$61.5 million to Rio Tinto on December 21, 2007. The total cost allocated to the Australian
Royalties of $17.1 million (including acquisition costs) are included in other assets as of
December 31, 2007 and will be transferred to royalty interests in mineral properties upon
closing. If for any reason the Australian Royalties do not close, Rio Tinto will return $16.5
million to IRC.
|
|
|
|
Operators on two of the royalties (Bell Creek and Merlin) have first rights of refusal which
are currently under consideration. The operator of Avebury and Melba Flats asserts that it is
entitled to a right of first refusal on the royalties. The Company believes that this is not
the case. Additionally, if the Las Cruces deposit is shown to contain a suspected deep primary
sulphide resource, the Company will make a contingency payment to Rio Tinto of $0.005 for each
pound of identified recoverable copper in the sulphide reserve at the commencement of
production.
|
|
|
|
A summary of all of the royalties (to be) acquired and the allocated acquisition costs of
$61.710 million, including acquisition costs of $210,000, are listed in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost Allocation
|
Project
|
|
Royalty
|
|
Status
|
|
Commodity
|
|
($ in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las Cruces
|
|
1.5% NSR
|
|
Development
|
|
Copper
|
|
|
42,144
|
|
Avebury
|
|
2.0% NSR
|
|
Development
|
|
Nickel
|
|
|
12,442
|
|
Bell Creek
|
|
AU$1.00/$2.00/t
|
|
Feasibility
|
|
Nickel, Copper
|
|
|
4,014
|
|
High Lake
|
|
1.5% NSR
|
|
Feasibility
|
|
Copper, Zinc, Silver, Gold
|
|
|
2,007
|
|
Merlin
|
|
1.0% GOR
|
|
Exploration
|
|
Diamonds
|
|
|
502
|
|
All other
|
|
|
|
|
|
Various
|
|
Various
|
|
|
601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goldcorp Royalties
|
|
|
|
On December 13, 2007, the Company purchased four royalties from Goldcorp Inc. (Goldcorp) for
US$4.0 million in cash. These four royalties include:
|
|
|
|
An effective 0.28% to 2.79% net smelter return (NSR) royalty on the Pinson
gold project (Pinson) located in Nevada. Barrick Gold Corporation is currently
completing feasibility studies on the Pinson project at a cost of $30 million, expected to
be completed by April, 2009.
|
|
|
|
|
A 0.63% NSR royalty that covers a portion of the Gold Hill Deposit located in
Nevada. This Barrick Gold / Kinross Gold project is in the pre-development stage with mine
and construction planning estimated to attain production in 2009 or 2010.
|
|
|
|
|
A 0.526% working interest in one well and a 2.612% working interest in two oil
wells, located in Sheridan County, Montana.
|
|
|
|
|
A 4.00% NSR royalty on Radius Golds Tambor gold property in Guatemala.
|
62
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2007 and 2006
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
Pascua Royalty Interests
|
|
|
|
Over a series of transactions during 2007, IRC acquired a 32.1% interest in the Pascua Royalty
from a Chilean family. The Pascua Royalty is a sliding-scale royalty on the Pascua gold
project in Chile operated by Barrick Gold Corporation. The total cost of the acquisitions was
$56.5 million in cash and transaction costs. In addition, IRC will make a one time payment of
$4.0 million if gold prices exceed $550 per ounce for any six-month period within the first 36
months after commercial production and additional payments totalling $6.4 million if gold
prices exceed $600 per ounce for any six-month period within the first 36 months after
commercial production. The royalties are limited to the first 14 million ounces of gold
produced from the Pascua after which the royalties will revert to the sellers (except with
respect to the royalty interest obtained in the first closing (a 7.65% interest, or 23.8% of
the total royalty acquired) IRC will retain 50% of the royalty after the first 14 million
ounces of gold are produced). IRC has an option, within 36 months of the commencement of
commercial production, to acquire up to 50% of the interest obtained in the remaining closings
that would otherwise revert to the original royalty sellers, for up to $6.4 million. The
Company also retains a right of first refusal to acquire additional royalty interests in the
event the owners decide to further reduce their ownership.
|
|
|
|
The Pascua royalties acquired apply to the gold and copper produced from the Pascua, the
Chilean side of the Pascua-Lama project. IRCs share of the royalty is a linear sliding-scale
NSR royalty ranging from 0.4725% at a gold price of $300 per ounce or below to 3.15% at a gold
price of $800 per ounce. The royalty remains at 3.15% at gold prices above $800 per ounce.
|
|
|
|
Horizon and Belcourt Coal Royalty Interests
|
|
|
|
In April 2007, the Company agreed to acquire from private parties royalties on the Belcourt and
Horizon metallurgical coal projects located in north eastern British Columbia. The Horizon
interest was closed in April for $1.5 million and represents a 0.5% gross royalty on coal sales
revenue from the future Horizon Mine. The Belcourt piece of the acquisition closed in January
2008 for $500,000. The Belcourt royalty is a .103% interest in the Belcourt property, which is
a pre-feasibility stage metallurgical coal project. In addition, the Company
has agreed to make an additional $.8 million payment within 10 days of the announcement of a
construction decision on the Belcourt property.
|
|
|
|
Western Australian Royalties
|
|
|
|
On June 12, 2006 the Company acquired a Western Australian gold (WAu) royalty for $10.0
million in cash from Resource Capital Fund III L.P. (RCF), a mining focused private equity
fund. The WAu royalty is a 1.5% net smelter return (NSR) and applies to more than 3.1 million
acres (approximately 1,600 mining tenements) located in the Laverton, Leonora, Meekatharra,
Murchison and Southern Cross-Marvel Loch districts of Western Australia. The acquisition was
effective as of January 1, 2006. Royalties earned to June 12, 2006 of $622,000, were credited
against the cost of the royalty. The transaction cost, including acquisition costs of $853,000
and less the royalty payments noted above, was allocated to the projects as follows:
|
63
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2007 and 2006
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
(in thousands of $)
|
|
|
|
allocation
|
|
Project
|
|
Operator
|
|
$
|
|
Southern Cross
|
|
St Barbara Limited
|
|
|
2,544
|
|
Tarmoola
|
|
St Barbara Limited
|
|
|
1,486
|
|
Gwalia
|
|
St Barbara Limited
|
|
|
3,546
|
|
Yaloginda
|
|
Mercator Gold PLC
|
|
|
1,421
|
|
South Laverton
|
|
Saracen Mineral Holdings, Ltd.
|
|
|
912
|
|
Other
|
|
Terrain, Mercator
|
|
|
322
|
|
|
|
|
|
|
|
|
|
|
|
|
10,231
|
|
|
|
|
|
|
|
|
|
Pending royalty acquisitions
|
|
|
|
Fawcett
|
|
|
|
On December 7, 2004, the Company signed a letter agreement with David Fawcett (superseded by a
royalty purchase agreement dated February 22, 2005) to acquire 20.3% of a 1.0% royalty interest
on four coal licenses in British Columbia for total consideration of CA$312,500 in cash and
CA$937,500 in Common Shares valued at the offering price of the IPO of CA$4.30. Pursuant to an
agreement dated February 22, 2005, the cash and 218,023 Common Shares were placed in escrow
pending receipt of executed royalty assignment agreements from the property owner, Western
Canadian Coal Corp. (Western). The value of the Common Shares has been included in other
long-term assets at December 31, 2007 and 2006 and will be transferred to royalty interests in
mineral properties upon closing of the transaction. Should the transaction not close, the cash
will revert back to the Company and the shares will be retired.
|
|
|
|
On March 21, 2005, Western filed a petition with the Supreme Court of British Columbia to have
the underlying royalty sharing agreement set aside. On February 24, 2006, the Supreme Court of
British Columbia upheld the underlying royalty sharing agreement between David Fawcett and
Western. On March 24, 2006, Western filed a notice to appeal the decision. On October 23,
2006, Western announced that it was unilaterally discontinuing the appeal but would be taking
the position that based on the circumstances in which the 1.0% royalty was entered into, that
any payment on the 1.0% royalty over the sum of $500,000 would constitute the payment of
interest in excess of 60% and would be illegal under Section 347 of the Criminal Code of
Canada. Accordingly, Western indicated that it would make no payments on the 1.0% royalty over
and above $500,000. If correct, this would restrict the payments on that portion of the royalty
to be assigned by Fawcett to the Company to $101,500. Fawcett has commenced proceedings
challenging this position and seeking a declaration that the 1.0% royalty is not subject to
Section 347 of the Criminal Code.
|
|
|
|
Limpopo
|
|
|
|
On May 15, 2007, the Company announced an agreement to acquire two platinum-palladium royalties
in South Africa, subject to satisfactory due diligence and regulatory approvals. The agreement
calls for consideration of $13.0 million in cash, and applies to two royalties on Lonmin Plcs
(Lonmin) Limpopo PGM project, located on the east limb of the Bushveld layered mafic
intrusion complex, and comprising ores found in the Merensky and UG2 reefs.
|
64
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2007 and 2006
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
Closing on this acquisition has been delayed pending clarification of certain title and
contract issues with respect to the underlying royalty agreements (see note 15).
|
|
|
|
Impairments
|
|
|
|
During the year ended December 31, 2007, the Company impaired royalties on five diamond
exploration properties, Jubilee, Bear, Peregrine, Jewel and Repulse Bay totaling $1,418,000 due
to the operators actual, or stated intent to drop these properties. The Company also recorded
a partial impairment of the Yaloginda property in Western Australia of $724,000 after
concluding that the payable ounces on the project were less than originally estimated.
|
|
4
|
|
Investments
|
|
|
|
Investments as of December 31, 2007 and 2006 consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Rocks of Genoa Holding Company, LLC
|
|
|
6,053
|
|
|
|
|
|
Investment in New Horizon Uranium Corporation
|
|
|
1,052
|
|
|
|
|
|
Other
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
7,244
|
|
|
|
|
|
|
|
|
|
|
Preferred Rocks of Genoa Holding Company, LLC
|
|
|
|
On February 22, 2007, the Company announced that it had entered into an agreement to acquire a
royalty on the Legacy Sand Project (Legacy) in Nance County, Nebraska for $12.0 million in
cash. The Royalty was styled as a production payment in its primary term, changing to a
percentage of sales basis after 12 years. Legacy is a new operation which intends to produce a
range of high-quality industrial sand products.
|
|
|
|
The project began production in the second quarter of 2007, but has experienced problems in
reaching targeted output levels. Reasons for the delays center on unforeseen technical issues
related to the plant design and equipment. Resolution of these technical issues was stalled by
on-going disputes between the former owners of Legacy. To resolve the dispute, the partners
have sold all of their interests in Legacy to a privately-held purchaser (the Buyer). Under
the terms of the sale, the Buyer will become the Manager of a new limited liability company,
Preferred Rocks of Genoa Holding Company, LLC (Genoa), formed to finance, own and operate the
Legacy project. A detailed plan has been formed to address existing technical issues and at
the same time double the Legacy plant production capacity to 1,000,000 short tons per year of
frac and other products.
|
|
|
|
To enable the sale and new investment, the Company has restructured its interest in Legacy,
originally a fixed royalty of $4.75 per ton on the first 500,000 tons produced annually for a
period of 12 years and a 2% gross
|
65
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2007 and 2006
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
royalty thereafter, as well as a security interest in the sand lease. Accordingly, on December
24, 2007, the Company and the Buyer completed the following restructuring of its interest in
Legacy:
|
|
|
|
The Company received the following:
|
|
|
|
$6.0 million in cash,
|
|
|
|
|
a membership interest in Genoa paying a 10% preferred return on a deemed $8.0
million investment, including return of all capital before distribution of any cash to
the Manager, and
|
|
|
|
|
a residual net profits interest of 5.25% in the restructured Legacy project.
|
|
|
|
Any cash received on the deemed investment will be paid only to the extent of excess available funds.
|
|
|
|
|
The Company will not be required to contribute any additional capital to
Genoa, such as for construction cost overruns, and will experience no dilution of its net
profits interest.
|
|
|
The Companys investment in Genoa has been classified as available-for-sale, and accordingly
was initially recorded at its fair market value, which approximated cost. There is no quoted
market price in an active market for the investment in Genoa, and accordingly, this investment
will be measured at cost.
|
|
|
|
New Horizon Uranium Corporation
|
|
|
|
In October 2005, the Company agreed to loan $200,000 to New Horizon Uranium Corporation
(NHU), and since that time has provided financial and management services to NHU to assist
NHU in the financing of its operations. In consideration for these services, NHU agreed to
give the Company 2,150,000 shares of NHU in the event of a successful public listing of its
shares, and to pay the Company a royalty of $0.75/lb on all future production of Uranium by
NHU. On April 12, 2007, NHU completed a reverse take-over of Crossroads Exploration Inc.,
which is traded on the TSX Venture Exchange (now New Horizon Uranium Corporation). Upon
completion of the reverse take-over, NHU issued the 2,150,000 shares and re-paid the loan to
the Company. This transaction was recorded as a gain on the Companys books in the second
quarter of 2007 in the amount of the initial value of the shares of $849,000 as of April 12,
2007 and is included in other revenue in the consolidated statements of operations.
|
|
|
|
The investment in NHU has been classified as available-for-sale and accordingly was initially
recorded at fair market value. The unrealized gain on the investment of $173,000 (net of taxes
of $30,000) has been recorded as comprehensive income during the year ended December 31, 2007.
Future changes to the fair market value of the Companys investment in NHU will be recorded as
other comprehensive income, net of taxes.
|
66
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2007 and 2006
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
5
|
|
Other long-term assets
|
|
|
|
Other assets as of December 31, 2007 and 2006 consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
Acquisition costs related to the Australian royalties acquired
from Rio Tinto (note 3)
|
|
|
17,058
|
|
|
|
|
|
Deferred amounts relating to pending royalty acquisitions (note 3)
|
|
|
835
|
|
|
|
835
|
|
Note receivable South American Metals (note 10)
|
|
|
810
|
|
|
|
|
|
Financing costs related to issuance of the Debentures, net of
amortization of $388 in 2006 (note 7)
|
|
|
|
|
|
|
1,257
|
|
Other
|
|
|
484
|
|
|
|
346
|
|
|
|
|
|
|
|
19,187
|
|
|
|
2,438
|
|
|
|
|
|
|
The note receivable from South American Metals is classified as held-to-maturity and has been
initially recorded at its fair market value, which approximates its original cost. This note
will be measured at amortized cost using the effective interest method (note 10).
|
6
|
|
Revolving Credit Facility
|
|
|
|
The Company entered into a credit agreement dated January 8, 2007 with The Bank of Nova
Scotia establishing a revolving credit facility (the Revolving Facility) in favour of the
Company in the amount of up to $20 million. This amount was increased to $40 million on May 17,
2007. The Revolving Facility shall be used to provide funds for general corporate purposes,
including acquisitions of royalties on mining properties.
|
|
|
|
The Revolving Facility is a two-year revolving loan which is available in multiple currencies
through prime rate, base rate and LIBOR advances and through bankers acceptance, priced at the
applicable rate plus an applicable margin that ranges from 1% to 2%. The Company will pay a
standby fee of 1% per annum on the undrawn amount of the Revolving Facility. The Revolving
Facility is repayable in full on January 8, 2009.
|
|
|
|
The Revolving Facility is subject to customary terms and conditions for borrowers of this
nature, including limits on incurring additional indebtedness, granting liens or selling assets
without the consent of the lenders.
|
|
|
|
The Company is also required to maintain certain financial ratios as well as a minimum tangible
net worth. Pursuant to the Revolving Facility, the Company granted a second charge over
substantially all of its current and future assets. Archean and IRC Nevada Inc. guaranteed the
indebtedness of the Company under the Revolving Facility. IRC Nevada Inc. provided a first
charge over all of its assets pursuant to a general security agreement and Archean provided a
second charge over all of its assets (except for its equity interest in Voiseys Bay Holding
Corporation which was not pledged) pursuant to a general security agreement.
|
67
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2007 and 2006
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
7
|
|
Senior secured debentures
|
|
|
|
On February 22, 2005, the Company completed a Unit Offering for gross proceeds of CA$30
million. The Unit Offering consisted of CA$30 million of 5.5% Senior Secured Debentures (the
Debentures) due February 22, 2011 and 1,395,360 Common Shares. The obligations of the Company
under the Debentures are collateralized by a general security agreement over all of the assets
of the Company relating to the Voiseys Bay Royalty.
|
|
|
|
Interest on the Debentures is payable semi-annually, on February 28 and August 31, with the
principal of CA$30 million due at maturity in 2011. Under the terms of the Debentures, the
first three semi-annual interest payments were withheld and placed into an escrow account.
These payments were made from this account on August 31, 2005, February 28, 2006 and August 31,
2006. Interest paid by the Company for the years ended December 31, 2007, 2006 and 2005 was
approximately $1,459,000, $1,455,000 and $721,000, respectively.
|
|
|
|
The proceeds received from the Debentures were reduced by the fair value of the Common Shares
issued of $4.9 million. Details of the balance are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
CA$
|
|
|
US$
|
|
|
CA$
|
|
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Secured Debentures payable
|
|
|
30,000
|
|
|
|
30,582
|
|
|
|
30,000
|
|
|
|
25,743
|
|
Unaccreted discount
|
|
|
(3,667
|
)
|
|
|
(2,979
|
)
|
|
|
(4,583
|
)
|
|
|
(3,715
|
)
|
Unaccreted financing charges
(note 2)
|
|
|
(1,240
|
)
|
|
|
(1,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,093
|
|
|
|
26,595
|
|
|
|
25,417
|
|
|
|
22,028
|
|
|
|
|
|
|
The Companys contractual obligation for future principal payments is one lump sum payment of
$30,582,000 to be made on February 22, 2011. The obligation is denominated in CA$. The
Debentures as of December 31, 2007 were converted to US$ equivalents using an exchange rate of
CA$1.00 to US$1.0194, the exchange rate as of December 31, 2007. The Debentures as of December
31, 2006 were converted to US$ equivalents using an exchange rate of CA$1.00 to US$.8581, the
exchange rate as of December 31, 2006.
|
8
|
|
Income taxes
|
|
|
|
During 2007, the Canadian Federal government enacted legislation that lowers the Federal
income tax rate from 19.0% (rate effective as of January 1, 2010) to 18.5% effective on January
1, 2011. On December 14, 2007, the Canadian Federal government enacted additional legislation
that incrementally lowers the Federal income tax
rate from the current rate of 21% to 15% on January 1, 2012. As a result of these changes, the
Company has reflected its future tax liabilities at the new enacted rates, resulting in the
realization of a future income tax recovery of $7,042,000 during the year ended December 31,
2007.
|
|
|
|
Effective April 1, 2006 the Province of Alberta lowered its provincial income tax rate from
11.5% to 10.0%. In addition, the Canadian Federal government also enacted legislation in June
2006 that eliminates the Federal surtax of 1.12% on January 1, 2008 and also incrementally
lowers the Federal income tax rate from the current rate of 21% to 19% on January 1, 2010. As a
result of these changes, and the Companys permanent
|
68
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2007 and 2006
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
establishment in Alberta, the Company has reflected its future tax liabilities at the new
enacted rates, resulting in the realization of a future income tax recovery of $9,707,000
during the year ended December 31, 2006.
|
|
|
Income tax expense varies from the amount that would be computed by applying the combined
federal and provincial income tax rate of 32.12% (32.12% in 2006 and 33.62% in 2005) to
earnings (loss) before income taxes as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Earnings (loss) before income taxes
|
|
|
9,664
|
|
|
|
2,622
|
|
|
|
(9,074
|
)
|
|
|
|
Expected income tax expense (recovery)
|
|
|
3,104
|
|
|
|
842
|
|
|
|
(3,051
|
)
|
Tax effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance
|
|
|
|
|
|
|
|
|
|
|
(305
|
)
|
Change in income tax rates
|
|
|
(7,042
|
)
|
|
|
(9,707
|
)
|
|
|
|
|
Stock-based compensation
|
|
|
435
|
|
|
|
308
|
|
|
|
1,678
|
|
Debenture discount
|
|
|
|
|
|
|
|
|
|
|
818
|
|
Foreign currency
|
|
|
1,993
|
|
|
|
(113
|
)
|
|
|
29
|
|
Other
|
|
|
(59
|
)
|
|
|
(386
|
)
|
|
|
252
|
|
|
|
|
|
|
|
(1,569
|
)
|
|
|
(9,056
|
)
|
|
|
(579
|
)
|
|
|
|
|
|
At December 31, 2007, the Company has unused Canadian net operating losses of approximately
$33,575,000, which expire as follows:
|
|
|
|
|
|
|
|
$
|
|
|
2010
|
|
|
704
|
|
2011
|
|
|
1,110
|
|
2012
|
|
|
7,193
|
|
2013
|
|
|
7,469
|
|
2014
|
|
|
17,099
|
|
69
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2007 and 2006
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
The Company has recorded a future income tax liability as a component of the cost of the
Archean acquisition (Voiseys Bay Royalty) and the Hunter Portfolio to reflect the fact that
the Company has no amortizable basis in these assets for Canadian income tax purposes.
Recording of the future income tax liability has been offset by a corresponding recognition of
tax benefits related to the Companys tax net operating losses, and certain expenses of the IPO
and the Unit Offering. Future tax (assets) liabilities include the following components:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
$
|
|
|
$
|
|
|
|
|
Royalty interests in mineral properties
|
|
|
57,553
|
|
|
|
66,616
|
|
Deferred income
|
|
|
4,850
|
|
|
|
3,546
|
|
Share issue costs
|
|
|
(2,805
|
)
|
|
|
(2,144
|
)
|
Deferred gain on Legacy transaction (note 4)
|
|
|
(783
|
)
|
|
|
|
|
Net operating loss carry-forward
|
|
|
(8,245
|
)
|
|
|
(4,065
|
)
|
Other
|
|
|
(68
|
)
|
|
|
195
|
|
|
|
|
|
|
|
50,502
|
|
|
|
64,148
|
|
|
|
|
9
|
|
Shareholders equity
|
|
|
|
Activity in Common Shares was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
Amount
|
|
|
|
Shares
|
|
|
$
|
|
|
Shares
|
|
|
$
|
|
|
Shares
|
|
|
$
|
|
|
|
|
Outstanding Beginning of year
|
|
|
58,008,448
|
|
|
|
166,173
|
|
|
|
57,027,568
|
|
|
|
164,176
|
|
|
|
5,849,433
|
|
|
|
2,058
|
|
Shares issued in connection with
the IPO (net of issuance costs)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,790,698
|
|
|
|
124,253
|
|
Shares issued in connection with
unit offering (net of issuance
costs)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,395,360
|
|
|
|
4,588
|
|
Shares issued for the purchase of
royalty interests in mineral
properties (note 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,896,895
|
|
|
|
31,015
|
|
Shares issued in connection with
the unit offering (net of
issuance costs)
|
|
|
8,334,000
|
|
|
|
34,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued in connection with
the offering (net of issuance
costs)
|
|
|
10,400,000
|
|
|
|
67,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of warrants issued in
connection with unit offering
|
|
|
751,630
|
|
|
|
4,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of financing warrants
|
|
|
469,042
|
|
|
|
1,207
|
|
|
|
75,858
|
|
|
|
202
|
|
|
|
1,620
|
|
|
|
4
|
|
Exercise of initial financing
special warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,550,000
|
|
|
|
1,319
|
|
Exercise of compensation special
warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
308,000
|
|
|
|
159
|
|
Exercise of compensation warrants
|
|
|
89,736
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued into escrow (note 5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
218,023
|
|
|
|
760
|
|
Exercise of Williams mine warrants
|
|
|
384,000
|
|
|
|
988
|
|
|
|
566,000
|
|
|
|
1,518
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
40,000
|
|
|
|
227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other activity
|
|
|
|
|
|
|
|
|
|
|
339,022
|
|
|
|
277
|
|
|
|
17,539
|
|
|
|
20
|
|
|
|
|
Balance End of year
|
|
|
78,476,856
|
|
|
|
275,450
|
|
|
|
58,008,448
|
|
|
|
166,173
|
|
|
|
57,027,568
|
|
|
|
164,176
|
|
|
|
|
70
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2007 and 2006
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
Activity in accumulated other comprehensive income was as follows:
|
|
|
|
|
(in thousands of US$)
|
|
Amount
|
|
Balance at December 31, 2006
|
|
$
|
|
|
Comprehensive income
|
|
|
173
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
173
|
|
|
|
|
|
|
|
A summary of comprehensive income and retained earnings was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
December 31,
|
|
|
2007
|
|
2006
|
|
|
|
Unrealized gains on available for sale investments
|
|
$
|
203
|
|
|
$
|
|
|
Future tax effect on unrealized gains
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
173
|
|
|
|
|
|
Retained earnings
|
|
|
11,531
|
|
|
|
2,325
|
|
|
|
|
|
|
$
|
11,704
|
|
|
$
|
2,325
|
|
|
|
|
|
|
Offerings
|
|
|
|
On February 12, 2007 (the Closing Date), the Company completed a unit offering of 8,334,000
units (Units) of the Company at a price of CA$5.40 per Unit. Each Unit is comprised of one
Common Share and one-half of one common share purchase warrant of the Company (each whole
warrant, a Warrant), with each Warrant entitling the holder thereof to acquire a further
Common Share (each, a Warrant Share) at a price of CA$6.50 per Warrant Share for a period of
nine months after the Closing Date and at CA$7.00 per Warrant Share from the date that is nine
months after the Closing Date until the date that is 18 months after the Closing Date. The
expiry date of the Warrants is subject to acceleration if the Common Shares have a closing
price at or above CA$8.00 or CA$8.50 during the first or second nine-month period,
respectively, for 20 consecutive trading days. Net proceeds to the Company, after agents
commission and expenses of the offering was CA$42,118,000, or $35,659,000. The Company has
allocated the net proceeds of the offering between the Common Shares and the Warrants based
upon their relative fair values on the Closing Date. The fair value of the warrants were
determined using the Black-Scholes Option Pricing Model, with an assumed risk free interest
rate of 4.0% and expected price volatility of the Companys Common Shares of 38%.
|
|
|
|
On November 5, 2007, the Company completed an offering of 10,400,000 common shares of the
Company (including an underwriter over-allotment of 400,000 Common Shares) at a price of
CA$6.30 per share. Net proceeds to the Company, after agents commissions and estimated
expenses of the offering were CA$61,664,000, or $66,017,000.
|
|
|
|
Compensation Special Warrants and Compensation Warrants
|
|
|
|
In August 2003, the Company issued 308,000 Compensation Special Warrants and 440,000
Compensation Warrants to IRCs agent in a private placement. Each Compensation Special Warrant
allowed the holder to acquire one Common Share for no additional consideration and was recorded
at a total value of $159,000. The Compensation Special Warrants were automatically exercised
five business days after completion of the Companys IPO in February 2005 for 308,000 Common
Shares. Each Compensation Warrant allows the
|
71
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2007 and 2006
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
holder to acquire one Common Share at a price of
CA$0.80, for a period of two years from February 22, 2005. The Compensation Warrants were
valued at $36,000. As of December 31, 2007, all Compensation Warrants have been exercised.
|
|
|
Unit Offering Warrants
|
|
|
|
In connection with the offering completed on February 12, 2007 (the Closing Date), the
Company issued 4,167,000 warrants (Warrants) to purchase common shares of the Company at a
price of CA$6.50 per Warrant for a period of nine months after the Closing Date and at CA$7.00
per Warrant Share from the date that is nine months after the Closing Date until the date that
is 18 months after the Closing Date. The expiry date of the Warrants is subject to acceleration
if the Common Shares have a closing price at or above CA$8.50 for 20 consecutive trading days.
During 2007, the Company received net proceeds of $4,654,767 from the exercise of 751,630
Warrants.
|
|
|
|
Outstanding warrants were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
December 31, 2006
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
Amount
|
|
|
|
Number
|
|
|
$
|
|
|
Number
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing warrants
|
|
|
|
|
|
|
|
|
|
|
473,090
|
|
|
|
14,122
|
|
Williams mine warrants
|
|
|
|
|
|
|
|
|
|
|
384,000
|
|
|
|
11,463
|
|
Compensation warrants
|
|
|
|
|
|
|
|
|
|
|
85,688
|
|
|
|
6,856
|
|
Unit offering warrants
|
|
|
3,415,370
|
|
|
|
1,281,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,415,370
|
|
|
|
1,281,816
|
|
|
|
942,778
|
|
|
|
32,441
|
|
|
|
|
|
|
Stock options
|
|
|
|
On June 8, 2004, the Board of Directors of the Company adopted a stock option plan (the Plan)
pursuant to which the Company may grant incentive stock options to directors, officers,
employees of and consultants to the Company and any affiliate of the Company, at the Board of
Directors discretion. The exercise price and vesting period of any option granted is fixed by
the Board of Directors of the Company when such option is granted.
|
|
|
|
All options are non-transferable. The term of the options is at the discretion of the Board of
Directors, but may not exceed 10 years from the grant date. The options expire on the earlier
of the expiry date or the date which is 90 days following the day on which the option holder
ceases to be a director, officer, employee of or consultant to the Company and any affiliate of
the Company. The options will be adjusted in the event of a share consolidation or subdivision
or other similar change to the Companys share capital. The aggregate number of Common Shares
in respect of which options have been granted and remain outstanding under the Plan shall not
at any time exceed 10% of the then issued and outstanding Common Shares, or exceed 5% of such
amount to any one optionee.
|
|
|
|
During 2007, the Company received proceeds from the exercise of 40,000 stock options totalling
$162,000.
|
72
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2007 and 2006
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
The following table presents the composition of options outstanding and exercisable as of
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
Options
|
|
Price*
|
|
Options
|
|
Price*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, beginning of year
|
|
|
5,102,000
|
|
|
|
4.31
|
|
|
|
3,978,000
|
|
|
|
4.19
|
|
Granted
|
|
|
562,000
|
|
|
|
5.81
|
|
|
|
1,124,000
|
|
|
|
4.76
|
|
Forfeited/cancelled
|
|
|
(50,000
|
)
|
|
|
4.46
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(40,000
|
)
|
|
|
3.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of year
|
|
|
5,574,000
|
|
|
|
4.47
|
|
|
|
5,102,000
|
|
|
|
4.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Price reflects the weighted average exercise price in Canadian dollars.
|
|
|
The Company uses the fair value based method of accounting for all stock-based compensation
awards using the Black-Scholes Option Pricing Model. The Company recognized stock-based
compensation expense of $1,355,000 in 2007, $960,000 in 2006 and $4,992,000 in 2005 which is
recorded in general and administrative expense.
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation assumptions:
|
|
|
|
|
|
|
|
|
Risk free interest rate
|
|
|
4.5
|
%
|
|
|
4.1
|
%
|
Expected dividend yield
|
|
|
.5
|
%
|
|
Nil
|
|
Expected price volatility of the Companys Common Shares
|
|
|
44
|
%
|
|
|
38
|
%
|
Expected life of the option
|
|
3.5 years
|
|
3.5 years
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
562,000
|
|
|
|
1,124,000
|
|
Weighted average exercise price
|
|
CA$5.81
|
|
|
CA$4.76
|
|
Vesting period
|
|
3 years
|
|
3 years
|
Weighted average fair value per stock option
|
|
$
|
2.22
|
|
|
$
|
1.39
|
|
|
|
Option pricing models require the input of highly subjective assumptions including the expected
price volatility. Changes in the subjective input assumptions can materially affect the fair
value estimate, and therefore, the existing models do not necessarily provide a reliable
measure of the fair value of the Companys stock options.
|
73
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2007 and 2006
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
The following summarizes stock options outstanding as of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise price
|
|
Number
|
|
Remaining
|
|
Number
|
CA$
|
|
outstanding
|
|
contractual life
|
|
exercisable
|
3.67
|
|
|
50,000
|
|
|
2.5 years
|
|
|
50,000
|
|
3.75
|
|
|
978,000
|
|
|
2.9 years
|
|
|
652,000
|
|
3.97
|
|
|
100,000
|
|
|
2.3 years
|
|
|
100,000
|
|
4.27
|
|
|
50,000
|
|
|
3.8 years
|
|
|
16,667
|
|
4.30
|
|
|
2,510,000
|
|
|
2.2 years
|
|
|
2,510,000
|
|
4.80
|
|
|
300,000
|
|
|
2.2 years
|
|
|
300,000
|
|
4.80
|
|
|
1,024,000
|
|
|
3.9 years
|
|
|
341,333
|
|
5.81
|
|
|
562,000
|
|
|
4.9 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,574,000
|
|
|
|
|
|
|
|
3,970,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Related party transactions
|
|
|
|
Effective January 31, 2007, an officer and director of the Company (the Officer)
resigned his employment and stepped down from the Board of Directors in order to pursue other
business opportunities. The Officer will be retained as a consultant to the Company. As part
of his resignation agreement, the officer has guaranteed the repayment of a promissory note
from South American Metals (note 5) ($810,000 at December 31, 2007). The guarantee is secured
by the pledge of certain of the officers shares and stock options of the Company.
|
|
|
|
IRC subleased its corporate headquarters office space in Denver, Colorado from a company
controlled by the chairman and chief executive officer of the Company through May 2005. The
terms of the sublease were the same as the original underlying lease. Rent expense under the
sublease during 2005 was $10,000.
|
|
|
|
These amounts are recorded at the exchange amount, which is the amount of consideration
established and agreed to by the related parties. These expenses are included in general and
administrative expenses on the statement of operations.
|
|
|
|
There were no amounts due from or to related parties at December 31, 2007 and 2006.
|
|
11
|
|
Financial instruments
|
|
|
|
Fair value
|
|
|
|
The fair values of the Companys cash and cash equivalents, restricted cash, royalty
receivables and accounts payable and accrued liabilities approximate the carrying amounts due
to the short maturities of these instruments. The fair value of the Debentures as of December
31, 2007 and 2006 was approximately $28,400,000 and $23,900,000, respectively.
|
74
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2007 and 2006
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
Interest expense
Details of interest expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
(in thousands of US$)
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
Accretion of debenture discount and financing charges
|
|
$
|
984
|
|
|
$
|
880
|
|
|
$
|
659
|
|
Cash interest expense
|
|
|
1,805
|
|
|
|
1,458
|
|
|
|
1,167
|
|
Commitment and standby fees
|
|
|
961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,750
|
|
|
$
|
2,338
|
|
|
$
|
1,826
|
|
|
|
|
12
|
|
Reconciliation of Canadian and United States Generally Accepted Accounting Principles
|
|
|
|
Canadian generally accepted accounting principles (Canadian GAAP) varies in certain
significant respects from the principles and practices generally accepted in the United States
(US GAAP) in general. As required by the United States Securities and Exchange Commission (the
SEC), the effect of these principal differences on the Companys consolidated financial
statements is quantified below and described in the accompanying notes.
|
|
|
|
Adjustments to the statement of operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
Expressed in thousands of U.S. dollars, except
per share amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) for the year under
Canadian GAAP
|
|
|
11,233
|
|
|
|
11,678
|
|
|
|
(8,495
|
)
|
Derivative mark-to-market adjustments (a)
|
|
|
201
|
|
|
|
(2,907
|
)
|
|
|
(2,254
|
)
|
|
|
|
Earnings (loss) for the year under US
GAAP
|
|
|
11,434
|
|
|
|
8,771
|
|
|
|
(10,749
|
)
|
|
|
|
Earnings (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.17
|
|
|
|
0.15
|
|
|
|
(0.22
|
)
|
Diluted
|
|
|
0.16
|
|
|
|
0.15
|
|
|
|
(0.22
|
)
|
Adjustments to the balance sheet:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
$
|
|
|
$
|
|
|
|
|
Expressed in thousands of U.S. dollars
|
|
|
|
|
|
|
|
|
Total liabilities reported under Canadian GAAP
|
|
|
88,803
|
|
|
|
88,248
|
|
Derivative for share purchase warrants (a)
|
|
|
400
|
|
|
|
2,562
|
|
|
|
|
Total liabilities reported under US GAAP
|
|
|
89,203
|
|
|
|
90,810
|
|
|
|
|
Shareholders Equity reported under Canadian GAAP
|
|
|
295,679
|
|
|
|
174,483
|
|
Derivative for share purchase warrants (a)
|
|
|
(400
|
)
|
|
|
(2,562
|
)
|
|
|
|
Shareholders Equity reported under US GAAP
|
|
|
295,279
|
|
|
|
171,921
|
|
|
|
|
75
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2007 and 2006
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
a)
|
|
Share purchase warrants
|
|
|
|
|
The SEC has recently provided guidance to their interpretation of the US accounting rules
contained in the Statement of Financial Accounting Standards 133 (SFAS 133), Accounting
for Derivative Instruments and Hedging Activities as it relates to the accounting treatment
for the Companys share purchase warrants under US GAAP.
|
|
|
|
|
Under Canadian GAAP, share purchase warrants are accounted for as equity. Recent examples
of the SECs interpretation of SFAS 133 requires that when a Companys share purchase
warrants have an exercise price denominated in a currency other than a companys functional
currency, those share purchase warrants must be marked to fair value with any resulting
gains or losses being included in the calculation of US GAAP earnings. In these
circumstances a loss (gain) would be recorded by the Company when the value of the share
purchase warrants increases (decreases). Upon exercise, the relevant liability is
transferred to common shares.
|
|
|
|
|
The Company used the Black-Scholes Option Pricing Model to determine the fair value of the
warrants with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Risk free interest rate
|
|
|
3.8
|
%
|
|
|
4.1
|
%
|
Expected dividend yield
|
|
|
.5
|
%
|
|
Nil
|
|
Expected price volatility of the Companys Common Shares
|
|
|
44
|
%
|
|
|
38
|
%
|
Expected remaining life of the warrants
|
|
0.6 years
|
|
0.1 years
|
|
|
|
The Financial Accounting Standards Board (FASB) has initiated a project to determine the
accounting treatment for convertible debt with elements of foreign currency risk. This
project is expected to provide further US GAAP guidance in respect of accounting for share
purchase warrants.
|
|
|
b)
|
|
Recent accounting pronouncements
|
|
|
|
|
U.S. GAAP Standards
|
|
|
|
|
In September, 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 157 Fair Value Measurements (FAS 157). FAS 157
defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles (GAAP) and expands disclosures regarding fair value measurements.
This Statement is applicable whenever another standard requires or permits assets or
liabilities to be measured at fair value, but it does not expand the use of fair value to
any new circumstances. FAS 157 is effective for financial statements issued for fiscal
years beginning after November 15, 2007. On February 12, 2008, the FASB staff issued FASB
Staff Position FAS 157-2 (FAS 157-2) which defers the effective date of FAS 157 for all
nonfinancial assets and liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis. FSP 157-2 defers the effective
date of FAS 157 to fiscal years beginning after November
|
76
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2007 and 2006
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
|
|
15, 2008, for items within the
scope of FSP 157-2. The Company is in the process of determining the impact, if any, the
adoption of FAS 157 will have on its consolidated financial position or results of
operations, but does not believe the impact will be material.
|
|
|
|
In September, 2006, the FASB issued Statement 159 Fair Value Option for Financial Assets
and Financial Liabilities Including an amendment of FASB Statement 115. This Statement
permits entities to choose to measure many financial instruments and certain other items at
fair value. The objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring related assets
and liabilities differently without having to apply complex hedge accounting provisions.
This Statement is expected to expand the use of fair value measurement, which is consistent
with the Boards long-term measurement objectives for accounting
for financial instruments.
|
|
|
|
The Company does not expect the adoption of SFAS 159 to have a material
impact on the Companys consolidated results of operations or financial position.
|
|
13
|
|
Segment information
|
|
|
|
The Company operates in one industry segment, with all revenue from mineral royalties.
|
|
14
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
Cash paid for interest
|
|
|
2,766
|
|
|
|
1,458
|
|
|
|
1,167
|
|
|
|
|
Cash paid for taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer from royalty
interest in mineral
properties to
investments
|
|
|
6,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents as of December 31 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
$
|
|
|
$
|
|
|
|
|
Cash in bank
|
|
|
776
|
|
|
|
2,019
|
|
Short-term deposits
|
|
|
11,966
|
|
|
|
8,424
|
|
Banker acceptance
|
|
|
|
|
|
|
1,132
|
|
|
|
|
|
|
|
12,742
|
|
|
|
11,575
|
|
|
|
|
|
|
The effective interest rate on short-term deposits and banker acceptance amounts was 4.0% and
have an average maturity of 7 days.
|
77
International Royalty Corporation
Notes to Consolidated Financial Statements
December 31, 2007 and 2006
(expressed in U.S. dollars)
(figures in tables in thousands of dollars)
15
|
|
Subsequent events
|
|
|
|
On February 26, 2008, the Company received approval from the Australian Foreign Investment
Review Board regarding the Western Australia royalties acquired from Rio Tinto on December 21,
2007 (Note 3).
|
|
|
|
On February 29, 2008, the Companys Board of Directors declared a dividend of US$0.015 per
share. The dividend is payable to shareholders of record on March 14, 2008 and will be paid on
or about March 31, 2008.
|
|
|
|
On March 10, 2008, the Company announced that it has made the decision to terminate the Limpopo
letter of intent (discussed in Note 3) due to an unsatisfactory resolution to certain title
issues.
|
78
International Royalty Corporation
Consolidated Financial Statements
For the nine months ended September 30, 2009 and 2008
(unaudited, expressed in thousands of U.S. dollars)
79
International Royalty Corporation
Consolidated Balance Sheets
(unaudited, expressed in thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
51,344
|
|
|
$
|
3,444
|
|
Restricted cash
|
|
|
418
|
|
|
|
371
|
|
Royalties receivable, net of allowance of $47 (2008
$45)
|
|
|
5,630
|
|
|
|
7,476
|
|
Prepaid expenses and other current assets
|
|
|
265
|
|
|
|
195
|
|
|
|
|
|
|
|
57,657
|
|
|
|
11,486
|
|
Royalty interests in mineral properties
(note 3)
|
|
|
349,516
|
|
|
|
355,093
|
|
Investments
(note 4)
|
|
|
6,234
|
|
|
|
6,207
|
|
Furniture and equipment, net
|
|
|
111
|
|
|
|
145
|
|
Foreign currency contract
(note 7)
|
|
|
2,948
|
|
|
|
|
|
Other long-term assets
(note 5)
|
|
|
2,278
|
|
|
|
3,639
|
|
|
|
$
|
418,744
|
|
|
$
|
376,570
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
1,328
|
|
|
$
|
1,693
|
|
Other liabilities current portion (note 10)
|
|
|
149
|
|
|
|
|
|
Income taxes
|
|
|
2,075
|
|
|
|
7,753
|
|
Future income taxes
|
|
|
508
|
|
|
|
4,226
|
|
|
|
|
|
|
|
4,060
|
|
|
|
13,672
|
|
Revolving credit facility
(note 6)
|
|
|
|
|
|
|
3,000
|
|
Senior secured debentures
(note 7)
|
|
|
25,666
|
|
|
|
21,662
|
|
Foreign currency contract
(note 7)
|
|
|
|
|
|
|
493
|
|
Future income taxes
|
|
|
46,808
|
|
|
|
40,463
|
|
Other liabilities
(note 10)
|
|
|
3,725
|
|
|
|
|
|
|
|
|
|
|
|
80,259
|
|
|
|
79,290
|
|
|
|
|
Shareholders Equity
(note 9)
|
|
|
|
|
|
|
|
|
Common shares
|
|
|
|
|
|
|
|
|
Authorized unlimited common shares without
par value
Issued 94,695,356 (2008 78,480,356) common
shares
|
|
|
324,925
|
|
|
|
275,464
|
|
Contributed surplus
|
|
|
10,464
|
|
|
|
9,896
|
|
Retained earnings
|
|
|
3,079
|
|
|
|
11,920
|
|
Accumulated other comprehensive income
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
338,485
|
|
|
|
297,280
|
|
|
|
|
|
|
$
|
418,744
|
|
|
$
|
376,570
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
80
International Royalty Corporation
Consolidated Statements of Operations
(unaudited, expressed in thousands of U.S. dollars, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
Royalty Revenues
|
|
$
|
6,593
|
|
|
$
|
13,791
|
|
|
$
|
19,790
|
|
|
$
|
32,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
2,591
|
|
|
|
4,275
|
|
|
|
10,186
|
|
|
|
10,281
|
|
Business development
|
|
|
381
|
|
|
|
665
|
|
|
|
990
|
|
|
|
1,552
|
|
General and administrative
|
|
|
1,296
|
|
|
|
1,640
|
|
|
|
4,090
|
|
|
|
5,125
|
|
Impairment of royalty interests in
mineral properties (note 3)
|
|
|
|
|
|
|
813
|
|
|
|
|
|
|
|
813
|
|
Impairment of other long-term assets
|
|
|
|
|
|
|
839
|
|
|
|
|
|
|
|
839
|
|
Royalty taxes
|
|
|
1,000
|
|
|
|
2,593
|
|
|
|
3,145
|
|
|
|
6,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,268
|
|
|
|
10,825
|
|
|
|
18,411
|
|
|
|
24,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from operations
|
|
|
1,325
|
|
|
|
2,966
|
|
|
|
1,379
|
|
|
|
7,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency gain (loss)
|
|
|
(3,041
|
)
|
|
|
(904
|
)
|
|
|
(3,978
|
)
|
|
|
59
|
|
Unrealized gain on fair market value of
foreign currency contract (note 7)
|
|
|
2,114
|
|
|
|
|
|
|
|
3,441
|
|
|
|
|
|
Purchase transaction costs (note 10)
|
|
|
(55
|
)
|
|
|
|
|
|
|
(6,763
|
)
|
|
|
|
|
Interest expense (note 11)
|
|
|
(942
|
)
|
|
|
(795
|
)
|
|
|
(2,594
|
)
|
|
|
(2,359
|
)
|
Interest income
|
|
|
24
|
|
|
|
77
|
|
|
|
61
|
|
|
|
393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,900
|
)
|
|
|
(1,622
|
)
|
|
|
(9,833
|
)
|
|
|
(1,907
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes
|
|
|
(575
|
)
|
|
|
1,344
|
|
|
|
(8,454
|
)
|
|
|
6,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income tax
|
|
|
(4,383
|
)
|
|
|
9,377
|
|
|
|
(6,771
|
)
|
|
|
8,792
|
|
Future income tax
|
|
|
4,582
|
|
|
|
(8,493
|
)
|
|
|
3,694
|
|
|
|
(6,533
|
)
|
|
|
|
|
|
|
199
|
|
|
|
884
|
|
|
|
(3,077
|
)
|
|
|
2,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(774
|
)
|
|
$
|
460
|
|
|
$
|
(5,377
|
)
|
|
$
|
3,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings (loss)
per share
|
|
$
|
(0.01
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.06
|
)
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares
outstanding
|
|
|
91,844,704
|
|
|
|
78,480,356
|
|
|
|
82,984,092
|
|
|
|
78,479,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
outstanding
|
|
|
91,844,704
|
|
|
|
78,493,974
|
|
|
|
82,984,092
|
|
|
|
79,135,156
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
81
International Royalty Corporation
Consolidated Statements of Retained Earnings
(unaudited, expressed in thousands of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings at beginning of period
|
|
$
|
5,747
|
|
|
$
|
13,692
|
|
|
$
|
11,920
|
|
|
$
|
11,531
|
|
Net earnings (loss) for the period
|
|
|
(774
|
)
|
|
|
460
|
|
|
|
(5,377
|
)
|
|
|
3,798
|
|
Dividends
|
|
|
(1,894
|
)
|
|
|
(1,570
|
)
|
|
|
(3,464
|
)
|
|
|
(2,747
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings at end of period
|
|
$
|
3,079
|
|
|
$
|
12,582
|
|
|
$
|
3,079
|
|
|
$
|
12,582
|
|
|
|
|
Consolidated Statements of Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) for the period, before
comprehensive income
|
|
$
|
(774
|
)
|
|
$
|
460
|
|
|
$
|
(5,377
|
)
|
|
$
|
3,798
|
|
Unrealized gains (losses) on available for
sale investments (note 4)
|
|
|
2
|
|
|
|
(197
|
)
|
|
|
20
|
|
|
|
(865
|
)
|
Future tax effect on unrealized gains (losses)
|
|
|
(0
|
)
|
|
|
29
|
|
|
|
(3
|
)
|
|
|
127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
(772
|
)
|
|
$
|
292
|
|
|
$
|
(5,360
|
)
|
|
$
|
3,060
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
82
International Royalty Corporation
Consolidated Statements of Cash Flows
(unaudited, expressed in thousands of U.S. dollars, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
Cash flows provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) for the period
|
|
$
|
(774
|
)
|
|
$
|
460
|
|
|
$
|
(5,377
|
)
|
|
$
|
3,798
|
|
Items not affecting cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,604
|
|
|
|
4,284
|
|
|
|
10,223
|
|
|
|
10,309
|
|
Impairment of royalty interest in mineral
properties
|
|
|
|
|
|
|
813
|
|
|
|
|
|
|
|
813
|
|
Impairment of long-term assets
|
|
|
|
|
|
|
839
|
|
|
|
|
|
|
|
839
|
|
Accretion of debenture discount and financing
charges
|
|
|
313
|
|
|
|
278
|
|
|
|
920
|
|
|
|
816
|
|
Non-cash interest on other liabilities
|
|
|
152
|
|
|
|
|
|
|
|
258
|
|
|
|
|
|
Future income tax expense (benefit)
|
|
|
4,582
|
|
|
|
(8,493
|
)
|
|
|
3,694
|
|
|
|
(6,533
|
)
|
Non-cash foreign currency (gain) loss
|
|
|
2,250
|
|
|
|
595
|
|
|
|
3,247
|
|
|
|
(537
|
)
|
Non-cash foreign currency contract
|
|
|
(2,114
|
)
|
|
|
|
|
|
|
(3,441
|
)
|
|
|
|
|
Non-cash transaction costs (note 10)
|
|
|
(86
|
)
|
|
|
|
|
|
|
5,555
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
183
|
|
|
|
378
|
|
|
|
568
|
|
|
|
1,098
|
|
Decrease in other liabilities
|
|
|
(331
|
)
|
|
|
|
|
|
|
(331
|
)
|
|
|
|
|
Changes in non-cash working capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in royalties receivable
|
|
|
(418
|
)
|
|
|
(4,165
|
)
|
|
|
2,027
|
|
|
|
(832
|
)
|
(Increase) decrease in prepaid expenses and
other current assets
|
|
|
65
|
|
|
|
129
|
|
|
|
(42
|
)
|
|
|
(111
|
)
|
(Increase) decrease in other assets
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
59
|
|
Decrease in accounts payable and accrued
liabilities
|
|
|
(850
|
)
|
|
|
(184
|
)
|
|
|
(1,347
|
)
|
|
|
(595
|
)
|
Increase (decrease) in income taxes payable
|
|
|
(3,994
|
)
|
|
|
8,788
|
|
|
|
(6,771
|
)
|
|
|
510
|
|
|
|
|
|
|
|
1,582
|
|
|
|
3,703
|
|
|
|
9,183
|
|
|
|
9,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used in) investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of royalty interests in mineral properties
|
|
|
|
|
|
|
(22,203
|
)
|
|
|
(5,022
|
)
|
|
|
(22,838
|
)
|
Refund of stamp duty paid on royalty interests
|
|
|
|
|
|
|
|
|
|
|
413
|
|
|
|
|
|
Cash acquired in acquisition (note 10)
|
|
|
|
|
|
|
|
|
|
|
199
|
|
|
|
|
|
Purchase of furniture and equipment
|
|
|
|
|
|
|
(22
|
)
|
|
|
(2
|
)
|
|
|
(45
|
)
|
Increase in equity investment
|
|
|
(7
|
)
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
Restricted cash
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
(302
|
)
|
Other assets
|
|
|
484
|
|
|
|
(492
|
)
|
|
|
139
|
|
|
|
(1,366
|
)
|
|
|
|
|
|
|
477
|
|
|
|
(22,719
|
)
|
|
|
(4,280
|
)
|
|
|
(24,551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from bought deal financing, net of issuance
costs
|
|
|
49,461
|
|
|
|
|
|
|
|
49,461
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
Revolving credit facility
|
|
|
(300
|
)
|
|
|
4,996
|
|
|
|
(3,000
|
)
|
|
|
4,996
|
|
Dividends paid
|
|
|
(1,894
|
)
|
|
|
(1,570
|
)
|
|
|
(3,464
|
)
|
|
|
(2,747
|
)
|
|
|
|
|
|
|
47,267
|
|
|
|
3,426
|
|
|
|
42,997
|
|
|
|
2,262
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
49,326
|
|
|
|
(15,590
|
)
|
|
|
47,900
|
|
|
|
(12,655
|
)
|
Cash and cash equivalents beginning of period
|
|
|
2,018
|
|
|
|
15,677
|
|
|
|
3,444
|
|
|
|
12,742
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
51,344
|
|
|
$
|
87
|
|
|
$
|
51,344
|
|
|
$
|
87
|
|
|
|
|
See accompanying notes to the consolidated financial statements.
83
International Royalty Corporation
Notes to Interim Consolidated Financial Statements (unaudited)
September 30, 2009
1
|
|
Nature of business and basis of presentation
|
|
|
|
International Royalty Corporation (IRC or the Company) was incorporated under the laws
of Yukon, Canada on May 7, 2003 and was continued under the
Canada Business Corporations Act
on
November 12, 2004. It was formed for the purpose of acquiring and creating natural resource
royalties with a specific emphasis on mineral royalties.
|
|
|
|
These unaudited interim consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and notes to the consolidated financial
statements required by generally accepted accounting principles for complete financial
statements and should be read in conjunction with the Companys consolidated financial
statements for the year ended December 31, 2008. In the opinion of management, all adjustments
considered necessary for fair presentation have been included.
|
2
|
|
Significant accounting policies
|
|
|
|
The consolidated financial statements have been prepared using accounting policies
generally accepted in Canada (Canadian GAAP) for interim reporting and include the accounts
of its wholly-owned subsidiaries. The material subsidiaries include IRC (U.S.) Management Inc.,
Archean Resources Ltd. (Archean) and IRC Nevada Inc. In addition, the Company consolidates
variable interest entities for which it is determined to be the primary beneficiary. All
significant inter-company transactions are eliminated on consolidation.
|
|
|
|
The accounting policies followed by the Company are set out in note 2 to the audited
consolidated financial statements for the fiscal year ended December 31, 2008 and have been
consistently followed in the preparation of these consolidated financial statements except that
the Company has adopted the following CICA standards effective for the Companys first quarter
commencing January 1, 2009, with the exception of the variable interest entities policy which
became a significant policy during the quarter ended June 30, 2009:
|
|
|
|
Section 3064
Goodwill and Intangible Assets
This section was issued in February 2008 and
replaced CICA 3062, Goodwill and Intangible Assets, and Section 3450, Research and
Development. This new standard provides guidance on the recognition, measurement,
presentation and disclosure of goodwill and intangible assets. The adoption of this standard
had no effect on the consolidated financial statements.
|
|
|
|
Section 1582 Business Combinations, Section 1601 Consolidations and Section 1602
Non-controlling Interests
These sections were issued in January 2009 and are harmonized with
International Financial Reporting Standards. Section 1582 specifies a number of changes,
including: an expanded definition of a business combination, a requirement to measure all
business acquisitions at fair
value, a requirement to measure non-controlling interests at fair value, and a requirement to
recognize acquisition-related costs as expenses. Section 1601 establishes the standards for
preparing consolidated financial statements. Section 1602 specifies that non-controlling
interests be treated as a separate component of equity, not as a liability or other item
outside of equity. These new standards are effective for 2011. Early adoption is permitted.
|
84
International Royalty Corporation
Notes to Interim Consolidated Financial Statements (unaudited)
September 30, 2009
|
|
Variable interest entities
|
|
|
|
The Company accounts for variable interest entities (VIE) in accordance with CICA Accounting
Guide 15, Consolidation of Variable Interest Entities (AcG 15). AcG 15 prescribes the
application of consolidation principles for entities that meet the definition of a VIE. An
enterprise holding other than a voting interest in a VIE, could, subject to certain conditions,
be required to consolidate the VIE, if it is considered its primary beneficiary whereby it
would absorb the majority of the VIEs expected losses, receive the majority of its expected
residual returns, or both.
|
|
|
|
Reclassifications
|
|
|
|
Certain prior period amounts have been reclassified to conform with the current year financial
statement presentation.
|
85
International Royalty Corporation
Notes to Interim Consolidated Financial Statements (unaudited)
September 30, 2009
3
|
|
Royalty interests in mineral properties (net)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
Acquisitions
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
December 31,
|
|
(Refund of
|
|
|
|
|
|
|
|
|
|
September 30,
|
(in thousands of US$)
|
|
2008
|
|
Stamp Duty)
|
|
Impairments
|
|
Amortization
|
|
2009
|
|
|
|
Production stage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voiseys Bay
|
|
$
|
196,964
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(9,179
|
)
|
|
$
|
187,785
|
|
Las Cruces
|
|
|
42,203
|
|
|
|
|
|
|
|
|
|
|
|
(58
|
)
|
|
|
42,145
|
|
Avebury/Melba Flats
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,000
|
|
Johnson Camp
|
|
|
|
|
|
|
5,022
|
|
|
|
|
|
|
|
(63
|
)
|
|
|
4,959
|
|
Gwalia
|
|
|
3,510
|
|
|
|
(143
|
)
|
|
|
|
|
|
|
(143
|
)
|
|
|
3,224
|
|
Skyline
|
|
|
2,038
|
|
|
|
|
|
|
|
|
|
|
|
(455
|
)
|
|
|
1,583
|
|
Southern Cross
|
|
|
1,077
|
|
|
|
(103
|
)
|
|
|
|
|
|
|
(142
|
)
|
|
|
832
|
|
Williams Mine
|
|
|
810
|
|
|
|
|
|
|
|
|
|
|
|
(136
|
)
|
|
|
674
|
|
Meekatharra
|
|
|
526
|
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
469
|
|
Other
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
253,186
|
|
|
|
4,719
|
|
|
|
|
|
|
|
(10,186
|
)
|
|
|
247,719
|
|
|
|
|
Development stage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pascua
|
|
|
56,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,513
|
|
Wolverine
|
|
|
19,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,819
|
|
South Laverton
|
|
|
912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
912
|
|
Belahouro (Inata)
|
|
|
817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
817
|
|
Belcourt
|
|
|
527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
527
|
|
Tambor
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,618
|
|
|
|
|
Exploration / Feasibility
stage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pinson
|
|
|
6,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,977
|
|
Bell Creek
|
|
|
4,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,029
|
|
Aviat One
|
|
|
2,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,211
|
|
High Lake
|
|
|
2,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,007
|
|
Horizon
|
|
|
1,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,530
|
|
Tarmoola
|
|
|
1,486
|
|
|
|
(60
|
)
|
|
|
|
|
|
|
|
|
|
|
1,426
|
|
Gold Hill
|
|
|
670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
670
|
|
Merlin Orbit
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
504
|
|
Other
|
|
|
3,875
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
3,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,289
|
|
|
|
(110
|
)
|
|
|
|
|
|
|
|
|
|
|
23,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
355,093
|
|
|
$
|
4,609
|
|
|
$
|
|
|
|
$
|
(10,186
|
)
|
|
$
|
349,516
|
|
|
|
|
86
International Royalty Corporation
Notes to Interim Consolidated Financial Statements (unaudited)
September 30, 2009
|
|
2009
Royalty Acquisitions
|
|
|
|
Johnson Camp Royalty Interests
|
|
|
|
On March 31, 2009, the Company acquired from Nord Resources Corporation a royalty on the
producing Johnson Camp copper mine located in Cochise County, Arizona for cash consideration of
$4.95 million, plus acquisition costs of $72,000. The Johnson Camp royalty is a 2.50% NSR on
the project. Beginning after January 1, 2010, the royalty rate for any given year can be
adjusted slightly upward if certain annual production targets are not met, and downward if
excess production allows previous short-falls to be recovered. However, the cumulative rate on
copper production can never fall below the original 2.50% NSR on the project. The royalty rate
on any metals other than copper can be reduced to 1.25%, if cumulative copper production from
the mine exceeds 250 million pounds within twelve years.
|
|
|
|
Refund of Stamp Duty
|
|
|
|
During 2006, the Company paid stamp duty to the government of Western Australia as part of the
acquisition of its Western Australia royalty interests. The original cost of the stamp duty
was capitalized as part of the costs of the royalties. The Company appealed the costs and in
January 2009, received a refund of $413,000. The refund was recorded as a reduction of the
original cost and was allocated among the royalty interests acquired.
|
|
|
|
Pending royalty acquisitions
|
|
|
|
Fawcett
|
|
|
|
On December 7, 2004, the Company signed a letter agreement with David Fawcett (superseded by a
royalty purchase agreement dated February 22, 2005) to acquire 20.3% of a 1.0% royalty interest
on four coal licenses in British Columbia for total consideration of CA$312,500 in cash and
CA$937,500 in Common Shares valued at the offering price of the IPO of CA$4.30. Pursuant to an
agreement dated February 22, 2005, the cash and 218,023 Common Shares were placed in escrow
pending receipt of executed royalty assignment agreements from the property owner, Western
Canadian Coal Corp. (Western). The value of the Common Shares has been included in other
long-term assets as of September 30, 2009 and December 31, 2008 and will be transferred to
royalty interests in mineral properties upon closing of the transaction. Should the
transaction not close, the cash will revert back to the Company and the shares will be
cancelled.
|
|
|
|
On March 21, 2005, Western filed a petition with the Supreme Court of British Columbia to have
the underlying royalty sharing agreement set aside. On February 24, 2006, the Supreme Court of
British Columbia upheld the underlying royalty sharing agreement between David Fawcett and
Western. On March 24, 2006, Western filed a notice to appeal the decision. On October 23,
2006, Western announced that it was unilaterally discontinuing the appeal but would be taking
the position that based on the circumstances in which the 1.0% royalty was entered into, that
any payment on the 1.0% royalty over the sum of $500,000 would constitute the payment of
interest in excess of 60% and would be illegal under
Section 347 of the Criminal Code of Canada. Accordingly, Western indicated that it would make
no payments on the 1.0% royalty over and above $500,000. If correct, this would restrict the
payments on that portion of the royalty to be assigned by Fawcett to the Company to $101,500.
Fawcett has commenced proceedings challenging this position and is seeking a declaration that
the 1.0% royalty is not subject to Section 347 of the Criminal Code.
|
87
International Royalty Corporation
Notes to Interim Consolidated Financial Statements (unaudited)
September 30, 2009
|
|
On April 1, 2009, the Supreme Court of British Columbia announced its judgment in favour of
David Fawcett, declaring that the 1.0% royalty is not subject to Section 347 of the Criminal
Code. On April 30, 2009, Western filed a Notice of Appeal with the British Columbia Court of
Appeals regarding the Supreme Courts decision. On July 31, 2009, Western submitted its formal
factum and David Fawcett submitted his factum in reply in September 2009. The Court of Appeals
has scheduled the appeal hearing for December 16, 2009.
|
|
|
|
Impairments
|
|
|
|
During the three and nine months ended September 30, 2009, as a result of managements
assessment, the Company determined that there were no impairments of royalty interests in
mineral properties. During the three months ended September 30, 2008, it was determined that
the Companys royalty interests on five diamond properties in Canada were impaired due to the
expiration of exploration permits at the end of statutory time limits. During the three and
nine months ended September 30, 2008, the Company recorded $813,000 of impairments of royalty
interests in mineral properties.
|
4
|
|
Investments
|
|
|
|
Investments consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
(in thousands of US$)
|
|
2009
|
|
|
2008
|
|
|
|
|
Preferred Rocks of Genoa Holding Company, LLC
|
|
$
|
6,053
|
|
|
$
|
6,053
|
|
Investment in New Horizon Uranium Corporation (NHU)
|
|
|
36
|
|
|
|
15
|
|
Other
|
|
|
145
|
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,234
|
|
|
$
|
6,207
|
|
|
|
|
|
|
Preferred Rocks of Genoa Holding Company, LLC (Genoa)
|
|
|
|
The Companys investment in Genoa has been classified as available-for-sale, and accordingly
was initially recorded at its fair market value, which approximated cost. There is no quoted
market price in an active market for the investment in Genoa, and accordingly, this investment
is measured at cost.
|
|
|
|
New Horizon Uranium Corporation
|
|
|
|
The investment in NHU has been classified as available-for-sale and accordingly was initially
recorded at fair market value. The Company recorded an unrealized gain on the investment of
$17,000 (net of a future tax expense of $3,000) to comprehensive income during the nine months
ended September 30, 2009. Future changes to the fair market value of the Companys investment
in NHU will be recorded as
other comprehensive income, net of taxes, until the Company disposes of any of its investment,
unless a decline is determined to be other than temporary.
|
88
International Royalty Corporation
Notes to Interim Consolidated Financial Statements (unaudited)
September 30, 2009
5
|
|
Other long-term assets
|
|
|
|
Other assets consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
(in thousands of US$)
|
|
2009
|
|
|
2008
|
|
|
|
|
Advances to CFT Capital Limited
|
|
$
|
1,098
|
|
|
$
|
1,944
|
|
Deferred amounts directly related to the acquisition of McWatters
Mining, Inc.
|
|
|
|
|
|
|
832
|
|
Deferred amounts relating to pending royalty acquisitions (note 3)
|
|
|
918
|
|
|
|
854
|
|
Other
|
|
|
262
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,278
|
|
|
$
|
3,639
|
|
|
|
|
|
|
Advances to CFT Capital Limited (CFT) represent gross amounts of $2.0 million loaned to CFT,
an unrelated third party, for the acquisition of McWatters Mining, Inc. (McWatters) (Note
10). As of April 9, 2009 (date of closing), these advances are repayable over five years with
interest at 1.0%. During the three months ended September 30, 2009, the Company received
$456,000 in repayments of the advances from CFT. The Company has established the fair value of
the remaining outstanding advances to be $1.1 million using the present value of the expected
future cash flows with a discount rate of 12%.
|
|
|
|
The Company determined that deferred costs relating the McWatters transaction (Note 10) were
direct and incremental in nature. These costs were capitalized as part of the acquisition and
written off as part of the purchase price allocation. These costs are included as costs related
to the acquisition of McWatters (note 10).
|
6
|
|
Revolving Credit Facility
|
|
|
|
The Company entered into a credit agreement with The Bank of Nova Scotia establishing a
revolving credit facility (the Revolving Facility) in favour of the Company in the amount of
up to $40 million. The Revolving Facility is used to provide funds for general corporate
purposes, including acquisitions of royalties on mining properties. The Revolving Facility
matures January 8, 2010.
|
|
|
|
The Revolving Facility is a two-year revolving loan which is available in multiple currencies
through prime rate, base rate and LIBOR advances and through bankers acceptances, priced at
the applicable rate plus an applicable margin that ranges from 1% to 2%. The Company pays a
standby fee of 1% per annum on the undrawn amount of the Revolving Facility.
|
|
|
|
The Revolving Facility is subject to customary terms and conditions for borrowers of this
nature, including limits on incurring additional indebtedness, granting liens or selling assets
without the consent of the lenders. The Company is also required to maintain certain financial
ratios as well as a minimum tangible net worth. Pursuant to the Revolving Facility, the Company
granted a second charge over substantially all of its current and future assets. Archean and
IRC Nevada Inc. guaranteed the indebtedness of the Company under the Revolving Facility. IRC
Nevada Inc. provided a first charge over all of its assets pursuant to a general security
agreement and Archean provided a second charge over all of
|
89
International Royalty Corporation
Notes to Interim Consolidated Financial Statements (unaudited)
September 30, 2009
|
|
its assets (except for its equity interest in Voiseys Bay Holding Corporation which was not
pledged) pursuant to a general security agreement.
|
7
|
|
Senior secured debentures
|
|
|
|
On February 22, 2005, the Company completed a Unit Offering for gross proceeds of CA$30
million. The Unit Offering consisted of CA$30 million of 5.5% Senior Secured Debentures (the
Debentures) due February 22, 2011 and 1,395,360 Common Shares. The obligations of the Company
under the Debentures are collateralized by a general security agreement over all of the assets
of the Company relating to the Voiseys Bay Royalty.
|
|
|
|
Interest on the Debentures is payable semi-annually, on February 28 and August 31, with the
principal of CA$30 million due at maturity in 2011. Interest on the Debentures paid by the
Company during the nine months ended September 30, 2009 and 2008 was $1.4 million and $1.7
million, respectively.
|
|
|
|
The proceeds received from the Debentures were reduced by the fair value of the Common Shares
issued of $4.9 million. Details of the balance are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|
(in thousands of US$)
|
|
CA
|
|
|
US
|
|
|
CA
|
|
|
US
|
|
|
|
|
Senior Secured Debentures payable
|
|
$
|
30,000
|
|
|
$
|
27,633
|
|
|
$
|
30,000
|
|
|
$
|
24,549
|
|
Unaccreted discount
|
|
|
(1,809
|
)
|
|
|
(1,470
|
)
|
|
|
(2,655
|
)
|
|
|
(2,157
|
)
|
Unaccreted financing charges
|
|
|
(612
|
)
|
|
|
(497
|
)
|
|
|
(898
|
)
|
|
|
(730
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
27,579
|
|
|
$
|
25,666
|
|
|
$
|
26,447
|
|
|
$
|
21,662
|
|
|
|
|
|
|
The Companys contractual obligation for future principal payments is one lump sum payment of
CA$30,000,000 to be made on February 22, 2011. The obligation is denominated in CA$. The
Debentures as of September 30, 2009 were converted to US$ equivalents using an exchange rate of
CA$1.00 to US$0.9211, the exchange rate as of September 30, 2009. The Debentures as of
December 31, 2008 were converted to US$ equivalents using an exchange rate of CA$1.00 to
US$0.8183, the exchange rate as of December 31, 2008.
|
|
|
|
Foreign Currency Contract
|
|
|
|
On November 25, 2008, the Company entered into an agreement with a bank to fix the exchange
rate to repay the principal balance of the Senior Secured Debentures at CA$1.00 to US$0.834725,
based on the settlement date of February 22, 2011. The fair value of the liability (asset) as
of September 30, 2009 and December 31, 2008 was $(2,948,000) and $493,000, respectively.
|
|
|
|
The foreign currency contract liability is a derivative and thus, has been classified as
held-for-trading and was recorded at fair value on the date of acquisition and then
marked-to-market at the balance sheet date. The change in fair value of the foreign currency
contract liability has been recognized as an unrealized gain on fair market value of foreign
currency contract on the consolidated statements of operations.
|
90
International Royalty Corporation
Notes to Interim Consolidated Financial Statements (unaudited)
September 30, 2009
8
|
|
Income taxes
|
|
|
|
Income tax expense varied from the amount that would be computed by applying the combined
federal and provincial income tax rate of 29.00% (29.5% in 2008) to earnings before income
taxes as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
(in thousands of US$)
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes
|
|
$
|
(575
|
)
|
|
$
|
1,344
|
|
|
$
|
(8,454
|
)
|
|
$
|
6,057
|
|
|
|
|
Expected income tax expense
(benefit)
|
|
$
|
(167
|
)
|
|
$
|
397
|
|
|
$
|
(2,452
|
)
|
|
$
|
1,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
52
|
|
|
|
112
|
|
|
|
164
|
|
|
|
324
|
|
Expiration of unexercised warrants
|
|
|
(189
|
)
|
|
|
189
|
|
|
|
(189
|
)
|
|
|
189
|
|
Impairment of long-term assets
|
|
|
|
|
|
|
124
|
|
|
|
|
|
|
|
124
|
|
Non-deductible royalty taxes
|
|
|
|
|
|
|
(101
|
)
|
|
|
|
|
|
|
(101
|
)
|
Canadian functional currency
election
|
|
|
|
|
|
|
|
|
|
|
(2,024
|
)
|
|
|
|
|
Non-deductible McWatters
transaction costs
|
|
|
16
|
|
|
|
|
|
|
|
1,415
|
|
|
|
|
|
Foreign currency
|
|
|
398
|
|
|
|
267
|
|
|
|
263
|
|
|
|
(17
|
)
|
Other
|
|
|
89
|
|
|
|
(104
|
)
|
|
|
(254
|
)
|
|
|
(47
|
)
|
|
|
|
Actual income tax expense (benefit)
|
|
$
|
199
|
|
|
$
|
884
|
|
|
$
|
(3,077
|
)
|
|
$
|
2,259
|
|
|
|
|
|
|
Functional Currency Election
|
|
|
|
In March 2009, the Canadian government enacted new legislation which will allow qualifying
taxpayers the ability to file their 2008 and subsequent Canadian tax returns using a functional
currency which is other than the Canadian dollar. As a result of the legislation becoming
substantively enacted for financial reporting purposes in the nine months ended September 30,
2009, foreign currency losses of approximately $1.8 million previously recognized in 2008 were
reversed in March 2009 and have been recorded as a foreign currency gain on the consolidated
statement of operations for the nine months ended September 30, 2009.
|
|
|
|
Also, as a result of this new legislation, the Company translated its non-monetary assets to a
U.S. value using the foreign currency exchange rate of CA$1.00 to US$1.012, the rate provided
for by the new legislation. The use of this rate to lock in the U.S. dollar value of the assets
created a permanent benefit in the tax basis of certain of the companys assets. This change
in tax basis created a future tax benefit of $2.0 million, which has been reflected in the
consolidated statement of operations for the nine months ended September 30, 2009.
|
|
|
|
McWatters Acquisition of Tax Attributes
|
|
|
|
On April 9, 2009, the Company completed its acquisition of McWatters Mining, Inc. (McWatters)
(Note 10). McWatters has estimated accumulated non-capital losses carried forward for federal
purposes totalling CA$92.9 million which are available to reduce future taxable income.
|
91
International Royalty Corporation
Notes to Interim Consolidated Financial Statements (unaudited)
September 30, 2009
|
|
The non-capital losses expire as follows:
|
|
|
|
|
|
|
|
CA$
|
|
|
2009
|
|
$
|
10,956,887
|
|
2010
|
|
|
14,464,307
|
|
2014
|
|
|
9,827,056
|
|
2015
|
|
|
54,758,112
|
|
2026
|
|
|
1,307,707
|
|
2027
|
|
|
1,118,019
|
|
2028
|
|
|
432,255
|
|
|
|
|
|
Balance at September 30, 2009
|
|
$
|
92,864,343
|
|
|
|
|
|
|
|
McWatters has accumulated research and development expenses of CA$1.3 million and research and
development federal tax credits to be carried forward of CA$490,000. These tax credits will
expire between 2019 and 2022.
|
|
|
|
McWatters has also accumulated capital losses of CA$455,000, Canadian exploration expenses of
CA$5.0 million, Canadian development expenses of CA$18.0 million and limited partnership losses
from its subsidiary of CA$24.5 million. The limited partnership losses are available to reduce
future taxable income within the parameters of the Federal and Quebec tax legislation, without
limit of time. In order to use the limited partnership losses, the partnership will have to
generate taxable income.
|
|
|
|
Due to the complexity inherent in the interpretation of the Income Tax Act (Canada), it is
possible that some or all of the McWatters non-capital losses may not be deductible for tax
purposes and accordingly, the potential tax benefits of these elements have not been recognized
in these consolidated financial statements.
|
9
|
|
Shareholders equity
|
|
|
|
Bought Deal Financing
|
|
|
|
On July 15, 2009, the Company completed an offering of 14,100,000 common shares at a price of
CA$3.55 per common share for total gross proceeds of $44,728,000 (CA$50,055,000). The Company
also granted to the underwriters an over-allotment option of up to 2,115,000 common shares
which were fully subscribed on July 24, 2009 at a price of CA$3.55 per share for gross proceeds
of $6,926,000 (CA$7,508,000). Closing of the over-allotment option brought total gross
proceeds from the offering to $51,654,000 (CA$57,563,000), and net proceeds to approximately
$49,461,000 (CA$55,118,000). IRC paid share issuance costs of $2,193,000 (CA$2,445,000)
related to the offering. The total number of common shares outstanding after the offering was
94,695,356 shares.
|
92
International Royalty Corporation
Notes to Interim Consolidated Financial Statements (unaudited)
September 30, 2009
|
|
Common Shares issued and outstanding were as follows:
|
|
|
|
|
|
|
|
|
|
(in thousands of US$)
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
78,480,356
|
|
|
$
|
275,464
|
|
Shares issued for bought deal financing, net
of offering costs of $1,847 (net of taxes of
$799)
|
|
|
14,100,000
|
|
|
|
42,881
|
|
Shares issued upon exercise of overallotment
option, net of offering costs of $346
|
|
|
2,115,000
|
|
|
|
6,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2009
|
|
|
94,695,356
|
|
|
$
|
324,925
|
|
|
|
|
|
|
Activity in contributed surplus was as follows:
|
|
|
|
|
|
(in thousands of US$)
|
|
Amount
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
9,896
|
|
Stock-based compensation expense
|
|
|
568
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2009
|
|
$
|
10,464
|
|
|
|
|
|
|
|
Activity in accumulated other comprehensive income was as follows:
|
|
|
|
|
|
(in thousands of US$)
|
|
Amount
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
|
|
Other comprehensive income, net of tax
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2009
|
|
$
|
17
|
|
|
|
|
|
|
|
A summary of accumulated other comprehensive income and retained earnings was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
(in thousands of US$)
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
|
|
|
$
|
173
|
|
Unrealized gains (losses) on available-for-sale investments
|
|
|
20
|
|
|
|
(203
|
)
|
Future tax effect of unrealized gains (losses)
|
|
|
(3
|
)
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income
|
|
|
17
|
|
|
|
|
|
Retained earnings
|
|
|
3,079
|
|
|
|
11,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
3,096
|
|
|
$
|
11,920
|
|
|
|
|
93
International Royalty Corporation
Notes to Interim Consolidated Financial Statements (unaudited)
September 30, 2009
|
|
Stock options and warrants
|
|
|
|
There were no stock options granted during the nine months ended September 30, 2009. During
the nine months ended September 30, 2008, the Company granted 125,000 stock options valued at
approximately $250,000. The Company uses the fair value based method of accounting for all
stock-based compensation awards using the Black-Scholes Option Pricing Model.
|
|
|
|
The Company recognized stock-based compensation expense of approximately $568,000 and
$1,098,000 for the nine months ended September 30, 2009 and 2008, respectively, which is
recorded in general and administrative expenses.
|
|
|
|
During the nine months ended September 30, 2008, the Company received proceeds from the
exercise of 3,500 stock options totalling $13,000.
|
10
|
|
Acquisition of McWatters Mining, Inc.
|
|
|
|
On April 9, 2009, the Company acquired all of the outstanding common shares of McWatters
Mining, Inc. (McWatters) representing a 45% voting interest. A class of voting preferred
shares created under a Plan of Arrangement and issued to all former common shareholders of
McWatters is entitled to 55% of the votes and an amount not exceeding CA$1.0 million of
cumulative dividends and redemption amounts. All income in excess of CA$1.0 million will
accrue to the common shares, all of which are owned by IRC. The value of the future cash
payments of $753,000 has been recorded in other liabilities in the consolidated balance sheet
using a discount rate of 12%. The Company has accounted for this transaction as a purchase of
assets.
|
|
|
|
McWatters was reorganized effective on June 2, 2008, and pursuant to a proposal with its
creditors, substantially all of its unsecured creditor claims were acquired by CFT Capital,
Inc. (CFT), and the balance of such claims have been settled. At the date of acquisition,
McWatters had remaining liabilities of CA$7.3 million which will be payable out of 6.0% of
available taxable income of McWatters. During the three months ended September 30, 2009,
McWatters made a payment of $331,000 to CFT. The Company has estimated the fair value of the
remaining future cash payments to be $3.1 million using a discount of 12% and has been recorded
in other liabilities in the consolidated balance sheet
|
|
|
|
The following is a summary of the other liabilities recorded in connection with the McWatters
transaction:
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
April 9, 2009
|
(in thousands of US$)
|
|
2009
|
|
(date of closing)
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to Class A Preferred
Shareholders current portion
|
|
$
|
149
|
|
|
$
|
142
|
|
Due to Class A Preferred Shareholders
|
|
|
604
|
|
|
|
547
|
|
Due to CFT
|
|
|
3,121
|
|
|
|
3,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
3,874
|
|
|
$
|
3,946
|
|
|
|
|
|
|
McWatters has approximately CA$140.0 million of available resource deductions and net operating
loss carryforwards (Note 8).
|
94
International Royalty Corporation
Notes to Interim Consolidated Financial Statements (unaudited)
September 30, 2009
|
|
The following is a summary of the McWatters transaction costs recorded as other expense as of
September 30, 2009:
|
|
|
|
|
|
|
|
September 30,
|
|
(in thousands of US$)
|
|
2009
|
|
|
|
|
|
Deferred acquisition costs
|
|
$
|
2,268
|
|
Net retained deficit acquired
|
|
|
548
|
|
Net present value of amounts due to Class A Preferred Shareholders
|
|
|
690
|
|
Net present value of amounts due to CFT
|
|
|
3,257
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
6,763
|
|
|
|
|
|
|
|
For financial statements purposes, IRC has consolidated the balance sheet and results of
operations of McWatters from the date of acquisition in its consolidated financial statements.
|
11
|
|
Financial Instruments
|
|
|
|
Interest expense
|
|
|
|
Details of interest expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
September 30,
|
|
September 30,
|
(in thousands of US$)
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of debenture
discount and financing
charges
|
|
$
|
313
|
|
|
$
|
266
|
|
|
$
|
1,119
|
|
|
$
|
804
|
|
Cash interest expense
|
|
|
375
|
|
|
|
226
|
|
|
|
920
|
|
|
|
1,047
|
|
Commitment and standby fees
|
|
|
102
|
|
|
|
303
|
|
|
|
297
|
|
|
|
508
|
|
Accretion of other liabilities
|
|
|
152
|
|
|
|
|
|
|
|
258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
942
|
|
|
$
|
795
|
|
|
$
|
2,594
|
|
|
$
|
2,359
|
|
|
|
|
12
|
|
United States Generally Accepted Accounting Principals Reconciliation
|
|
|
|
The Company has no material reconciling differences between United States Generally Accepted
Accounting Principals and Canadian GAAP as of and for the three and nine month periods ended
September 30, 2009 and 2008.
|
95
UNAUDITED PRO FORMA, COMBINED, CONDENSED
FINANCIAL INFORMATION OF ROYAL GOLD
The following unaudited pro forma combined condensed financial information as of December 31, 2009,
for the six-month period then ended and for the fiscal year ended June 30, 2009 is presented to
show the results of operations and financial position of Royal Gold as if the Arrangement with IRC
had occurred as of July 1, 2008, and with respect to the balance sheet as if the Arrangement had
occurred as of December 31, 2009. The unaudited pro forma condensed financial information includes
results of operations and financial position of IRC for the six-month period ended September 30,
2009.
This unaudited pro forma combined condensed financial information should be read in conjunction
with the selected historical financial information included in this Circular and the financial
statements and accompanying notes of Royal Gold that are incorporated by reference into this
Circular. You should not rely on the unaudited pro forma combined condensed financial information
as an indication of the results of operations or financial position that would have been achieved
if the Arrangement with IRC had taken place on the dates indicated or an indication of the results
of operations in the future.
The following Unaudited Pro Forma Combined Condensed Financial Data of Royal Gold consists of an
Unaudited Pro Forma Condensed Balance Sheet as of December 31, 2009 for Royal Gold and as of
September 30, 2009 for IRC and Unaudited Pro Forma Condensed Statements of Operations and
Comprehensive Income for the six-months then ended, respectively, and for the year ended June 30,
2009 (collectively, the Pro Forma Statements). IRCs historical financial statements were
prepared on a calendar year basis and in accordance with Canadian GAAP, which differs in certain
respects from U.S. GAAP. IRCs historical results of operations used in the Pro Forma Statements
have been prepared on a June 30 year end basis to conform to Royal Golds year end and are adjusted
to and presented in accordance with U.S. GAAP. The change to U.S. GAAP resulted in a de minimus
increase in IRCs reported net income during the fiscal year ended June 30, 2009 (there were no
differences for the six month period ended September 30, 2009). Royal Golds historical financial
statements are prepared in accordance with U.S. GAAP. Effective July 1, 2009, Royal Gold changed
its presentation of non-controlling interest amounts in accordance with the FASB ASC 810. Except
for presentation changes, the adoption of the new accounting standard had no impact on Royal Golds
consolidated financial position, results of operations or cash flows. The adoption of the new
accounting standard has been reflected in all periods in the accompanying Pro Forma Statements.
The Pro Forma Statements reflect the Arrangement described herein under which shareholders of IRC
will receive, at their election, C$7.45 in cash or 0.1385 shares of Royal Gold common stock or a
combination thereof, subject to a maximum of $350 million in cash and a maximum of 7.75 million
shares of Royal Gold common stock. The Pro Forma Statements have been prepared under the following
purchase consideration scenario: cash consideration up to the maximum aggregate of $350 million
which is equal to approximately 0.0700 shares of Royal Gold common stock plus $3.48 in cash for
each fully diluted share of IRC, assuming 100,565,856 fully diluted shares of IRC common stock
outstanding at the time of the closing. The actual purchase price may differ based on fluctuations
in the price of Royal Gold common stock. See Note (1) in the unaudited pro forma financial
statements for sensitivity analysis on the impact of fluctuations in the price of Royal Gold common
stock and the purchase price.
Royal Golds management believes that, on the basis set forth herein, the Pro Forma Statements
reflect a reasonable estimate of the IRC Arrangement based on currently available information.
Royal Gold expects the Arrangement to qualify as a business combination which requires the
allocation of the purchase price to be based upon the estimated fair value of assets acquired and
liabilities assumed. Certain of the purchase price allocations reflected in the Pro Forma
Statements are preliminary and may be different from the final allocation of the purchase price and
such differences may be material.
The Pro Forma Statements also reflect a definitive agreement that Royal Gold entered into with a
Chilean subsidiary of Teck Resources Limited, Compañía Minera Teck Carmen de Andacollo (CDA), to
acquire an interest in the gold produced from the sulfide portion of the Andacollo project in Chile
(the Andacollo Royalty). We refer to this transaction as the Teck Transaction. The
purchase price for the Andacollo Royalty consisted of $217.9 million in cash and 1,204,136 of Royal
Golds common shares. The Teck Transaction was completed on January 25, 2010 and has been
included in the Pro Forma Statements due to its significance and impact to Royal Gold. There is no
impact to the Pro Forma Statement of Operations and Comprehensive Income as
96
the transaction is an
asset purchase, the underlying assets are not yet producing and all related transaction costs have
been capitalized.
97
Unaudited Pro Forma Combined Condensed Balance Sheet
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royal Gold
|
|
|
International Royalty
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
Note
|
|
|
Pro Forma
|
|
|
Andacollo
|
|
|
Note
|
|
|
Pro Forma
|
|
|
|
December 31, 2009
|
|
|
September 30, 2009
|
|
|
Adjustments
|
|
|
Reference
|
|
|
Subtotal
|
|
|
Adjustments
|
|
|
Reference
|
|
|
Combined Total
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
316,837
|
|
|
$
|
51,344
|
|
|
$
|
(350,000
|
)
|
|
|
(1)
|
|
|
$
|
266,877
|
|
|
$
|
(217,943
|
)
|
|
|
(8)
|
|
|
$
|
48,935
|
|
|
|
|
|
|
|
|
|
|
|
|
23,696
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,000
|
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
|
|
|
|
418
|
|
|
|
|
|
|
|
|
|
|
|
418
|
|
|
|
|
|
|
|
|
|
|
|
418
|
|
Royalty receivables
|
|
|
32,440
|
|
|
|
5,630
|
|
|
|
|
|
|
|
|
|
|
|
38,070
|
|
|
|
|
|
|
|
|
|
|
|
38,070
|
|
Income tax receivable
|
|
|
4,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,279
|
|
|
|
|
|
|
|
|
|
|
|
4,279
|
|
Deferred tax assets
|
|
|
158
|
|
|
|
|
|
|
|
(158
|
)
|
|
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and
other
|
|
|
720
|
|
|
|
265
|
|
|
|
|
|
|
|
|
|
|
|
985
|
|
|
|
|
|
|
|
|
|
|
|
985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
354,434
|
|
|
|
57,657
|
|
|
|
(101,462
|
)
|
|
|
|
|
|
|
310,629
|
|
|
|
(217,943
|
)
|
|
|
|
|
|
|
92,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty interests in
mineral properties, net
|
|
|
435,311
|
|
|
|
349,516
|
|
|
|
528,901
|
|
|
|
(1)
|
|
|
|
1,313,728
|
|
|
|
271,371
|
|
|
|
(8)
|
|
|
|
1,585,099
|
|
Investments
|
|
|
|
|
|
|
6,234
|
|
|
|
|
|
|
|
|
|
|
|
6,234
|
|
|
|
|
|
|
|
|
|
|
|
6,234
|
|
Furniture and equipment,
net
|
|
|
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
111
|
|
Inventory restricted
|
|
|
9,943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,943
|
|
|
|
|
|
|
|
|
|
|
|
9,943
|
|
Foreign currency contract
|
|
|
|
|
|
|
2,948
|
|
|
|
|
|
|
|
|
|
|
|
2,948
|
|
|
|
|
|
|
|
|
|
|
|
2,948
|
|
Other assets
|
|
|
4,665
|
|
|
|
2,278
|
|
|
|
|
|
|
|
|
|
|
|
6,943
|
|
|
|
|
|
|
|
|
|
|
|
6,943
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
4,708
|
|
|
|
(1)
|
|
|
|
4,708
|
|
|
|
|
|
|
|
|
|
|
|
4,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
804,353
|
|
|
$
|
418,744
|
|
|
$
|
432,147
|
|
|
|
|
|
|
$
|
1,655,244
|
|
|
$
|
53,428
|
|
|
|
|
|
|
$
|
1,708,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,575
|
|
|
$
|
1,328
|
|
|
$
|
|
|
|
|
|
|
|
$
|
4,903
|
|
|
$
|
|
|
|
|
|
|
|
$
|
4,903
|
|
Accrued compensation
and expense
|
|
|
|
|
|
|
|
|
|
|
12,000
|
|
|
|
(4)
|
|
|
|
12,000
|
|
|
|
|
|
|
|
|
|
|
|
12,000
|
|
Accrued purchase
transaction costs
|
|
|
|
|
|
|
|
|
|
|
11,300
|
|
|
|
(6)
|
|
|
|
11,300
|
|
|
|
|
|
|
|
|
|
|
|
11,300
|
|
Income tax payable
|
|
|
|
|
|
|
2,075
|
|
|
|
|
|
|
|
|
|
|
|
2,075
|
|
|
|
|
|
|
|
|
|
|
|
2,075
|
|
Net deferred tax
liabilities, current
|
|
|
|
|
|
|
508
|
|
|
|
(158
|
)
|
|
|
(10)
|
|
|
|
350
|
|
|
|
|
|
|
|
|
|
|
|
350
|
|
Dividends payable
|
|
|
3,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,684
|
|
|
|
|
|
|
|
|
|
|
|
3,684
|
|
Revolving credit
facility, current
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
|
|
(3)
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
40,000
|
|
Other
|
|
|
545
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
694
|
|
|
|
|
|
|
|
|
|
|
|
694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
7,804
|
|
|
|
4,060
|
|
|
|
63,142
|
|
|
|
|
|
|
|
75,006
|
|
|
|
|
|
|
|
|
|
|
|
75,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax
liabilities, long-term
|
|
|
21,224
|
|
|
|
46,808
|
|
|
|
216,372
|
|
|
|
(1)
|
|
|
|
284,404
|
|
|
|
|
|
|
|
|
|
|
|
284,404
|
|
Revolving credit facility
|
|
|
|
|
|
|
|
|
|
|
185,000
|
|
|
|
(3)
|
|
|
|
185,000
|
|
|
|
|
|
|
|
|
|
|
|
185,000
|
|
Senior secured debentures
|
|
|
|
|
|
|
25,666
|
|
|
|
|
|
|
|
|
|
|
|
25,666
|
|
|
|
|
|
|
|
|
|
|
|
25,666
|
|
Other long-term liabilities
|
|
|
831
|
|
|
|
3,725
|
|
|
|
|
|
|
|
|
|
|
|
4,556
|
|
|
|
|
|
|
|
|
|
|
|
4,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
29,859
|
|
|
|
80,259
|
|
|
|
464,514
|
|
|
|
|
|
|
|
574,632
|
|
|
|
|
|
|
|
|
|
|
|
574,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
407
|
|
|
|
324,925
|
|
|
|
(348,621
|
)
|
|
|
(5)
|
|
|
|
477
|
|
|
|
12
|
|
|
|
(8)
|
|
|
|
489
|
|
|
|
|
|
|
|
|
|
|
|
|
23,696
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
710,478
|
|
|
|
10,464
|
|
|
|
(10,464
|
)
|
|
|
(5)
|
|
|
|
1,022,826
|
|
|
|
53,416
|
|
|
|
(8)
|
|
|
|
1,076,242
|
|
|
|
|
|
|
|
|
|
|
|
|
312,348
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other
comprehensive (loss)
income
|
|
|
68
|
|
|
|
17
|
|
|
|
(17
|
)
|
|
|
(5)
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
68
|
|
Accumulated earnings
|
|
|
56,503
|
|
|
|
3,079
|
|
|
|
13,921
|
|
|
|
(5)
|
|
|
|
50,203
|
|
|
|
|
|
|
|
|
|
|
|
50,203
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,000
|
)
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,300
|
)
|
|
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock
|
|
|
(3,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,557
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total controlling interest
stockholders equity
|
|
|
763,899
|
|
|
|
338,485
|
|
|
|
(32,367
|
)
|
|
|
|
|
|
|
1,070,017
|
|
|
|
53,428
|
|
|
|
|
|
|
|
1,123,445
|
|
Non-controlling interests
|
|
|
10,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,595
|
|
|
|
|
|
|
|
|
|
|
|
10,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
774,494
|
|
|
|
338,485
|
|
|
|
(32,367
|
)
|
|
|
|
|
|
|
1,080,612
|
|
|
|
53,428
|
|
|
|
|
|
|
|
1,134,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
804,353
|
|
|
$
|
418,744
|
|
|
$
|
432,147
|
|
|
|
|
|
|
$
|
1,655,244
|
|
|
$
|
53,428
|
|
|
|
|
|
|
$
|
1,708,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma combined condensed financial statements.
98
Unaudited Pro Forma Combined Condensed Statement of Operations and Comprehensive Income
For the Year Ended June 30, 2009
(In thousands except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royal Gold
|
|
|
International Royalty
|
|
|
Pro Forma
|
|
|
Note
|
|
|
Pro Forma
|
|
|
Andacollo
|
|
|
Note
|
|
|
Pro Forma
|
|
|
|
Historical
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Reference
|
|
|
Subtotal
|
|
|
Adjustments
|
|
|
Reference
|
|
|
Combined Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty revenues
|
|
$
|
73,771
|
|
|
$
|
36,023
|
|
|
$
|
|
|
|
|
|
|
|
$
|
109,794
|
|
|
$
|
|
|
|
|
|
|
|
$
|
109,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of operations
|
|
|
3,551
|
|
|
|
|
|
|
|
6,289
|
|
|
|
(10)
|
|
|
|
9,840
|
|
|
|
|
|
|
|
|
|
|
|
9,840
|
|
General and administrative
|
|
|
7,352
|
|
|
|
6,009
|
|
|
|
|
|
|
|
|
|
|
|
13,361
|
|
|
|
|
|
|
|
|
|
|
|
13,361
|
|
Asset impairments
|
|
|
|
|
|
|
8,581
|
|
|
|
|
|
|
|
|
|
|
|
8,581
|
|
|
|
|
|
|
|
|
|
|
|
8,581
|
|
Exploration and business
development
|
|
|
2,998
|
|
|
|
1,461
|
|
|
|
|
|
|
|
|
|
|
|
4,459
|
|
|
|
|
|
|
|
|
|
|
|
4,459
|
|
Royalty taxes
|
|
|
|
|
|
|
6,289
|
|
|
|
(6,289
|
)
|
|
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and
amortization
|
|
|
32,578
|
|
|
|
16,265
|
|
|
|
14,063
|
|
|
|
(7)
|
|
|
|
62,906
|
|
|
|
|
|
|
|
|
|
|
|
62,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
46,479
|
|
|
|
38,605
|
|
|
|
14,063
|
|
|
|
|
|
|
|
99,147
|
|
|
|
|
|
|
|
|
|
|
|
99,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
27,292
|
|
|
|
(2,582
|
)
|
|
|
(14,063
|
)
|
|
|
|
|
|
|
10,647
|
|
|
|
|
|
|
|
|
|
|
|
10,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on royalty restructuring
|
|
|
33,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,714
|
|
|
|
|
|
|
|
|
|
|
|
33,714
|
|
Foreign currency gain (loss)
|
|
|
|
|
|
|
3,153
|
|
|
|
|
|
|
|
|
|
|
|
3,153
|
|
|
|
|
|
|
|
|
|
|
|
3,153
|
|
Unrealized gain on fair market
value of foreign currency
contract
|
|
|
|
|
|
|
833
|
|
|
|
|
|
|
|
|
|
|
|
833
|
|
|
|
|
|
|
|
|
|
|
|
833
|
|
Purchase transaction costs
|
|
|
|
|
|
|
(6,708
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,708
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,708
|
)
|
Interest and other income
|
|
|
3,192
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
3,313
|
|
|
|
|
|
|
|
|
|
|
|
3,313
|
|
Interest and other expense
|
|
|
(984
|
)
|
|
|
(3,243
|
)
|
|
|
(6,158
|
)
|
|
|
(3)
|
|
|
|
(10,385
|
)
|
|
|
|
|
|
|
|
|
|
|
(10,385
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
63,214
|
|
|
|
(8,426
|
)
|
|
|
(20,221
|
)
|
|
|
|
|
|
|
34,567
|
|
|
|
|
|
|
|
|
|
|
|
34,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit
|
|
|
(21,857
|
)
|
|
|
3,621
|
|
|
|
7,077
|
|
|
|
(9)
|
|
|
|
(11,159
|
)
|
|
|
|
|
|
|
|
|
|
|
(11,159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
41,357
|
|
|
|
(4,805
|
)
|
|
|
(13,144
|
)
|
|
|
|
|
|
|
23,408
|
|
|
|
|
|
|
|
|
|
|
|
23,408
|
|
Less: Net income attributable to
non-controlling interests
|
|
|
(3,009
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,009
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,009
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable
to controlling interest
|
|
$
|
38,348
|
|
|
$
|
(4,805
|
)
|
|
$
|
(13,144
|
)
|
|
|
|
|
|
$
|
20,399
|
|
|
$
|
|
|
|
|
|
|
|
$
|
20,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
41,357
|
|
|
$
|
(4,805
|
)
|
|
$
|
(13,144
|
)
|
|
|
|
|
|
$
|
23,408
|
|
|
$
|
|
|
|
|
|
|
|
$
|
23,408
|
|
Adjustments to comprehensive
income (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized change in market
value of available for sale
securities
|
|
|
(145
|
)
|
|
|
(173
|
)
|
|
|
|
|
|
|
|
|
|
|
(318
|
)
|
|
|
|
|
|
|
|
|
|
|
(318
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
41,212
|
|
|
$
|
(4,978
|
)
|
|
$
|
(13,144
|
)
|
|
|
|
|
|
$
|
23,090
|
|
|
$
|
|
|
|
|
|
|
|
$
|
23,090
|
|
Comprehensive income
attributable to non-controlling
interest
|
|
|
(3,009
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,009
|
)
|
|
|
|
|
|
|
|
|
|
|
(3,009
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
attributable to controlling
interest
|
|
$
|
38,203
|
|
|
$
|
(4,978
|
)
|
|
$
|
(13,144
|
)
|
|
|
|
|
|
$
|
20,081
|
|
|
$
|
|
|
|
|
|
|
|
$
|
20,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
attributable to controlling
interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
1.09
|
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
$
|
0.48
|
|
|
|
|
|
|
|
|
|
|
$
|
0.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares
outstanding
|
|
|
35,337,133
|
|
|
|
78,480,356
|
|
|
|
7,039,610
|
|
|
|
(1)
|
|
|
|
42,376,743
|
|
|
|
1,204,136
|
|
|
|
(8)
|
|
|
|
43,580,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
1.07
|
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
$
|
0.48
|
|
|
|
|
|
|
|
|
|
|
$
|
0.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares
outstanding
|
|
|
35,789,076
|
|
|
|
78,480,356
|
|
|
|
7,039,610
|
|
|
|
(1)
|
|
|
|
42,828,686
|
|
|
|
1,204,136
|
|
|
|
(8)
|
|
|
|
44,032,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma combined condensed financial statements.
99
Unaudited Pro Forma Combined Condensed Statement of Operations and Comprehensive Income
(In thousands except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royal Gold
|
|
|
International Royalty
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
|
Historical
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
Pro Forma
|
|
|
Note
|
|
|
Pro Forma
|
|
|
Andacollo
|
|
|
Note
|
|
|
Pro Forma
|
|
|
|
December 31, 2009
|
|
|
September 30, 2009
|
|
|
Adjustments
|
|
|
Reference
|
|
|
Subtotal
|
|
|
Adjustments
|
|
|
Reference
|
|
|
Combined Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty revenues
|
|
$
|
60,853
|
|
|
$
|
12,691
|
|
|
$
|
|
|
|
|
|
|
|
$
|
73,544
|
|
|
$
|
|
|
|
|
|
|
|
$
|
73,544
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of operations
|
|
|
2,839
|
|
|
|
|
|
|
|
1,000
|
|
|
|
(10)
|
|
|
|
3,839
|
|
|
|
|
|
|
|
|
|
|
|
3,839
|
|
General and administrative
|
|
|
5,167
|
|
|
|
2,710
|
|
|
|
|
|
|
|
|
|
|
|
7,877
|
|
|
|
|
|
|
|
|
|
|
|
7,877
|
|
Exploration and business development
|
|
|
3,713
|
|
|
|
704
|
|
|
|
|
|
|
|
|
|
|
|
4,417
|
|
|
|
|
|
|
|
|
|
|
|
4,417
|
|
Royalty taxes
|
|
|
|
|
|
|
1,942
|
|
|
|
(1,000
|
)
|
|
|
(10)
|
|
|
|
942
|
|
|
|
|
|
|
|
|
|
|
|
942
|
|
Depreciation, depletion and amortization
|
|
|
23,179
|
|
|
|
5,876
|
|
|
|
1,880
|
|
|
|
(7)
|
|
|
|
30,935
|
|
|
|
|
|
|
|
|
|
|
|
30,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
34,898
|
|
|
|
11,232
|
|
|
|
1,880
|
|
|
|
|
|
|
|
48,010
|
|
|
|
|
|
|
|
|
|
|
|
48,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
25,955
|
|
|
|
1,459
|
|
|
|
(1,880
|
)
|
|
|
|
|
|
|
25,534
|
|
|
|
|
|
|
|
|
|
|
|
25,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency gain (loss)
|
|
|
|
|
|
|
(6,270
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,270
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,270
|
)
|
Unrealized gain on fair market value of foreign currency contract
|
|
|
|
|
|
|
3,993
|
|
|
|
|
|
|
|
|
|
|
|
3,993
|
|
|
|
|
|
|
|
|
|
|
|
3,993
|
|
Purchase transaction costs
|
|
|
|
|
|
|
(6,763
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,763
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,763
|
)
|
Interest and other income
|
|
|
1,903
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
1,930
|
|
|
|
|
|
|
|
|
|
|
|
1,930
|
|
Interest and other expense
|
|
|
(521
|
)
|
|
|
(1,819
|
)
|
|
|
(3,079
|
)
|
|
|
(3)
|
|
|
|
(5,419
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,419
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
27,337
|
|
|
|
(9,373
|
)
|
|
|
(4,959
|
)
|
|
|
|
|
|
|
13,005
|
|
|
|
|
|
|
|
|
|
|
|
13,005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit
|
|
|
(7,864
|
)
|
|
|
691
|
|
|
|
1,736
|
|
|
|
(9)
|
|
|
|
(5,437
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,437
|
)
|
Net income (loss)
|
|
|
19,473
|
|
|
|
(8,682
|
)
|
|
|
(3,223
|
)
|
|
|
|
|
|
|
7,568
|
|
|
|
|
|
|
|
|
|
|
|
7,568
|
|
Less: Net income attributable to non-controlling interests
|
|
|
(2,733
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,733
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,733
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to controlling interest
|
|
$
|
16,740
|
|
|
$
|
(8,682
|
)
|
|
$
|
(3,223
|
)
|
|
|
|
|
|
$
|
4,835
|
|
|
$
|
|
|
|
|
|
|
|
$
|
4,835
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
19,473
|
|
|
$
|
(8,682
|
)
|
|
$
|
(3,223
|
)
|
|
|
|
|
|
$
|
7,568
|
|
|
$
|
|
|
|
|
|
|
|
$
|
7,568
|
|
Adjustments to comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized change in market value of available for sale
securities
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
19,620
|
|
|
$
|
(8,682
|
)
|
|
$
|
(3,223
|
)
|
|
|
|
|
|
$
|
7,715
|
|
|
$
|
|
|
|
|
|
|
|
$
|
7,715
|
|
Comprehensive income attributable to non-controlling interest
|
|
|
(2,733
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,733
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,733
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to controlling interest
|
|
$
|
16,887
|
|
|
$
|
(8,682
|
)
|
|
$
|
(3,223
|
)
|
|
|
|
|
|
$
|
4,982
|
|
|
$
|
|
|
|
|
|
|
|
$
|
4,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share attributable to controlling interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
0.41
|
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
40,540,283
|
|
|
|
91,844,704
|
|
|
|
7,039,610
|
|
|
|
(1)
|
|
|
|
47,579,893
|
|
|
|
1,204,136
|
|
|
|
(8)
|
|
|
|
48,784,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
0.41
|
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
40,942,564
|
|
|
|
91,844,704
|
|
|
|
7,039,610
|
|
|
|
(1)
|
|
|
|
47,982,174
|
|
|
|
1,204,136
|
|
|
|
(8)
|
|
|
|
49,186,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma combined condensed financial statements.
100
The following adjustments have been reflected in the Pro Forma Statements:
|
(1)
|
|
To record the issuance of 7,039,610 shares of Royal Gold common stock and $350 million
of cash as purchase consideration for the arrangement based on assumed September 30, 2009
closing. The preliminary allocation of the purchase price based on the estimated fair value
of assets acquired and liabilities assumed as follows:
|
Calculation of purchase price ($000s):
|
|
|
|
|
Cash consideration
|
|
$
|
350,000
|
|
Stock consideration (a)
|
|
|
312,418
|
|
|
|
|
|
Total purchase price
|
|
$
|
662,418
|
|
|
|
|
|
|
|
|
(a)
|
|
The value of Royal Gold common stock used ($44.38) is the closing price of Royal
Gold common stock on February 16, 2010. The value of Royal Gold common stock will not be
known until the Effective Date and may differ materially based on changes in share price
through the Effective Date.
|
Preliminary allocation of purchase price ($000s):
|
|
|
|
|
Current assets
|
|
$
|
81,353
|
|
Royalty interests in mineral properties
|
|
|
878,417
|
|
Long-term assets
|
|
|
11,571
|
|
Liabilities assumed (b)
|
|
|
(50,451
|
)
|
Deferred and other tax liabilities
|
|
|
(263,180
|
)
|
Goodwill and other intangible assets (c) & (d)
|
|
|
4,708
|
|
|
|
|
|
Total purchase price
|
|
$
|
662,418
|
|
|
|
|
|
|
|
|
(b)
|
|
Liabilities assumed have been recorded at their carrying values, which approximate
fair value.
|
|
(c)
|
|
Certain intangibles may be acquired in the final Arrangement but they have not
been valued yet for the preliminary allocation of the purchase price. If intangibles are
acquired, they will be valued and identified upon the final allocation of the purchase
price. No amortization of other intangible assets has been recorded in the Pro Forma
Statements.
|
|
(d)
|
|
Goodwill represents the premium paid for the assets acquired and represents the
scarcity value of the royalties acquired and possible optionality related to the royalty
contracts acquired. The allocation of the purchase price is preliminary and subject to
change based upon full valuation of the acquired assets and liabilities.
|
|
(2)
|
|
To record expected proceeds from the exercise of outstanding IRC stock options prior to
closing of the Arrangement as the holders of these instruments are economically compelled
to exercise prior to the closing due to the in-the-money nature of the options. Each
outstanding IRC stock option shall be cancelled and the holder thereof shall have no
further rights or benefits in respect of such option upon closing of the Arrangement. As
this is expected to occur prior to closing, the proceeds from the exercise of $23.7 million
have been included in current assets of $81.4 million in Note (1).
|
|
|
(3)
|
|
To record $125 million of floating-rate borrowings under Royal Golds current credit
facility and $100 million of floating-rate borrowings to be made available under a new term
loan ($40 million in current liabilities) which was entered into with HSBC Bank USA,
National Association (HSBC Bank), on January 21, 2010, including the related interest
expense at LIBOR (0.25% as of February 16, 2010) plus 2.25%. The interest expense includes
the amortization of the estimated related debt issuance costs. If the floating-rates on
this debt changed by 1/8%, the annual effect to interest expense would be approximately
$0.3 million.
|
101
|
(4)
|
|
To record a payable to the existing officers and certain employees of IRC as a result
of the Arrangement under change of control provisions of existing employment contracts.
|
|
|
(5)
|
|
To eliminate IRC historical equity balances, including eliminating the stockholders
equity effects of the Arrangement discussed in Note 2 and one-time transaction costs
discussed in Note 6.
|
|
|
(6)
|
|
The Pro Forma Statement of Operations and Comprehensive Income does not include the
estimated one-time transaction costs totaling $11.3 million. Total transaction costs are
estimated to be $13.5 million, of which $2.2 million has been expensed in the Royal Gold
Statement of Operations for the six months ended December 31, 2009. The remaining $11.3
million is comprised of Royal Gold estimated remaining one-time transaction costs of $6.3
million and IRC estimated one-time transaction costs of $5 million. The transaction costs
will be recorded once the expenses have been incurred.
|
|
|
(7)
|
|
To record additional depreciation, depletion and amortization on acquired royalty
interests, resulting from the step-up of carrying value of the royalty interests to fair
value in purchase accounting times the production during the respective periods. The
additional depreciation, depletion and amortization was calculated by comparing
depreciation, depletion and amortization using rates based on the stepped-up carrying
values under the units-of-production method to actual depreciation, depletion and
amortization for the same periods using historical rates. The impact to depreciation,
depletion and amortization expense for a $10 million change in the carrying values of the
acquired royalty interests would be approximately $0.8 million and $0.2 million for the
year ended June 30, 2009 and the six months ended December 31, 2009, respectively.
|
|
|
(8)
|
|
To give effect to the issuance of 1,204,136 shares of Royal Gold common stock to
acquire the Andacollo Royalty on January 25, 2010, as well $217.9 million in cash. The
value of Royal Gold common stock was $44.37 on January 25, 2010.
|
|
|
(9)
|
|
To record the tax benefits for the increased expenses discussed in Notes 3, 6 and 7
using the statutory tax rate of 35%.
|
|
|
(10)
|
|
To reclassify certain historical amounts to conform to the Royal Gold presentation.
|
The preliminary allocation of the purchase price to the acquired identifiable tangible and
intangible assets and assumed liabilities of IRC was based on the September 30, 2009 IRC balance
sheet and other currently available information. The actual purchase price and the number of Royal
Gold shares to be issued at the closing of the Arrangement may differ based on fluctuations in
Royal Gold common stock price. For purposes of the preliminary purchase price allocation, the
acquired Royalty Interests in Mineral Properties have been recorded at their estimated fair values
based upon Royal Golds estimate of the expected future discounted cash flows associated with those
assets. The final allocation may change upon actual closing and completion of a full valuation.
102
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
|
|
|
|
|
Royal Gold, Inc.
(Registrant)
|
|
Date: February 23, 2010
|
By:
|
/s/ Karen Gross
|
|
|
|
Karen Gross
|
|
|
|
Vice President and Corporate Secretary
|
|
103
EXHIBIT INDEX
|
|
|
Exhibit No.
|
|
Description
|
|
|
|
4.1
|
|
Certificate of Designations, Preferences and Rights of the
Special Voting Preferred Stock of Royal Gold, Inc.
|
|
|
|
4.2
|
|
Appendix I to Schedule B of the Amended and Restated Arrangement Agreement, dated
January 15, 2010 but made effective as of December 17, 2009, among Royal Gold, Inc., RG
Exchangeco Inc. and International Royalty Corporation (filed as Exhibit 2.1 to Royal Golds Form
8-K (Commission File No. 001-13357) dated January 22, 2010, and incorporated herein by
reference)
|
|
|
|
10.1
|
|
Support Agreement, dated as of February 22, 2010, among Royal
Gold, Inc., RG Callco Inc., and RG Exchangeco Inc.
|
|
|
|
10.2
|
|
Voting and Exchange Trust Agreement, dated as of February 22,
2010, among Royal Gold, Inc., RG Exchangeco Inc. and
Computershare Trust Company of Canada
|
|
|
|
23.1
|
|
Consent of PricewaterhouseCoopers LLP
|
|
|
|
99.1
|
|
Press Release dated February 22, 2010
|
104