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Low overhead and an
experienced management team has International Royalty Corporation positioned to add to
their current portfolio of over 60 royalties around the world
Resources
Royalty Portfolio
(IRC-TSX)
International Royalty Corporation
Suite 104, 10 Inverness Drive East
Denver, CO USA 80112
Phone: 303-799-9020
Douglas B. Silver
Director, Chairman and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
February 9, 2005
BIO:
Douglas B. Silver
Director, Chairman and CEO
Mr. Silver has a Bachelor of Arts from the University of Vermont and a Masters of Science
in Economic Geology from the University of Arizona and is a certified general appraiser.
Mr. Silver has 25 years of experience as an active professional in the minerals
industries, having served in a variety of capacities, including exploration geologist,
business development specialist, mineral economist, corporate advisor and director of
investor relations. Mr. Silver has acknowledged expertise in international mineral
appraisals, management consulting and strategic planning research and has served as a
strategic advisor to small and large mining companies. Prior to and during the past 15
years Mr. Silver has provided management and mineral economic consulting services through
his company Balfour Holdings Inc.
Company Profile:
International Royalty Corporation (IRC) is dedicated to building a high margin,
diversified royalty portfolio. IRC completed a senior listing on the Toronto Stock
Exchange on February 22nd, 2005 raising gross proceeds of C$192.5 million through an IPO
(share price of C$4.30), and a unit offering consisting of 1,395,360 common shares of IRC
and C$30 million in senior secured debentures. The jewel of our portfolio of over 60
royalties is a 2.7% NSR on the Voisey's Bay nickel mine in Labrador, Canada. Voisey's Bay
is expected to begin production in early 2006, providing an estimated C$16 to $20 million*
in annual revenue for IRC over an expected 30+ year mine life. With general and
administrative expenses expected to remain at approximately US$2 million per year, the
Voisey's Bay royalty will provide a tremendous opportunity for executing our business plan
of building a large portfolio of royalties diversified by mineral commodity, geographic
region and stage of development. This will allow us to present an attractive alternative
to investing directly in mine operators, still providing the potential upside while
decreasing risk.
* Based on IRC's Qualifying Report: 0.7500 CAD$:US$ Exchange rate:
US$5.00 / lb Ni in 2006-2007, 2008 forward: $4.00 / lb Ni
"The information contained in this interview has
been reviewed by Mr. William Crowl, of Gustavson Associates, the author of IRC's
Qualifying Report, has confirmed that it fairly and accurately represents the information
in the technical report that supports the disclosure. Mr. Crowl is independent of IRC. A
copy of IRC's Qualifying Report may be obtained at www.sedar.com."
CEOCFO: Mr. Silver, what
is International Royalty Corporation?
Mr. Silver: “International Royalty Corporation listed on
the Toronto Stock Exchange in late February 2005. Our objective is to go around the world
and either buy or create royalties on mineral properties.”
CEOCFO: Why?
Mr. Silver: “That is quite simple; if you wanted to
invest in gold, you could either go buy gold, in which case the only upside potential is
the metal price, or you can buy shares in a metal company. The problem with metal mining
companies is that they have operating and capital costs and unfortunately, many times they
exceed what their projections are, so these companies are continually fighting to make a
profit. With a royalty, we effectively get a piece of these mines at the very highest
level, just a little off the revenues, so we are not subjected to the huge cost burdens
that afflict most mining companies. It is a good way to get metal price exposure,
discovery exposure, expansion possibilities exposure and all of the benefits of a mining
company without the cost problems.”
CEOCFO: So you
essentially own a little piece of variety of mines, is that correct?
Mr. Silver: “Yes, currently we have over 60 royalties on
producing mines and on exploration or development phase properties around the world.”
CEOCFO: Will you tell us
what it is in your background that has enabled you to be successful in picking and
choosing?
Mr. Silver: “I have a masters degree in economic
geology. I have spent many years working for the large mining companies doing exploration
and acquisitions. About fifteen or twenty years ago, I set up my own private company that
specialized in appraisals and mineral valuations. We have data bases that have been
developed in the course of that work and basically have data on most of the known deposits
in the world and we are experts on valuations because that is what I did as a consultant.
About two or three years ago, I saw that the equity markets were starting to change, and
thought that it was a wonderful opportunity to create a royalty company, which is
basically valuation and acquisition focused. I got together a team of people that I have
worked with over the years that I have a lot of respect for, and we launched International
Royalty Corporation.”
CEOCFO: What kind of mix
is there in the geography of the different minerals?
Mr. Silver: “Right now, because the company is in its
infancy, a tremendous amount of our portfolio is tied to the giant nickel, copper, and
cobalt mine in Labrador. Inco, which is one of the largest nickel producers in the world,
just commissioned the mine last November and it is our largest royalty. We expected we
were going to get somewhere between $C16 and $20 million a year in revenues from this
mine, which is very important because we only have nine people in our company, so our
general and administrative costs are maybe 20% of that; they are very low. We also have
royalties in gold, coal, copper, uranium, and a variety of metals because we believe in
the super-cycle. We expect that commodity prices may be high for a long time, so we want
to give our shareholders exposure to as many different upsides as we can. Therefore, we
actively go out and try to get royalties on a variety of commodities.”
CEOCFO: Does it make a
difference where the mines are located?
Mr. Silver: “Yes it does. If you look historically, the
modern royalty is really a Canadian invention. Approximately sixty percent of the world’s
public mineral companies are Canadian. You see many royalty companies in Canada and the U.S.
as a consequence. In addition, the Canadians have been working all over the world, so you
see an increased number in Latin America and Australia and elsewhere. Most of the
royalties that we look at tend to be in first-world countries. We do not care what country
it is in, but it goes to a question of value if I am going to buy a royalty in an
extremely dangerous or politically risky country, I am not going to pay very much for it,
so if somebody wants to sell me something at an extreme discount, I will consider it. In
general, we try to make sure that we protect our royalties by focusing on first-world
countries.”
CEOCFO: What is the
financial condition of your company and how does that equate to how you buy royalties?
Mr. Silver: “When we took the company public we raised
CA$192.5 million, which was the largest mineral IPO of 2005 on the Toronto Stock Exchange.
The IPO had backing of some of the strongest mining investment houses in Canada, and we
have the capability to raise a great deal more money if we want. As of our September 30th
quarterly report, we were sitting on about US$13 million in cash and we try to spend
within our means but we may have occasions where we could go back to the market to finance
the acquisition of additional royalties.”
CEOCFO: Who is looking
at your firm as an investment?
Mr. Silver: “We would like to have a very strong retail base because since we have an
expertise in mining evaluations, we think that the retail investor that wants to buy
mining equities has a good chance with us because we are giving them as many kicks at the
can as we can. Our IPO is principally placed with institutional investors. The management
and insiders control close to 20% of the company, so right now, we have a large
institutional investor base. However, our retail base is growing as the stock trades more
often and more people become aware of us. In general, our mix is anyone who believes in
mining and metal prices, who wants to get an investment in mining companies, and do it in
a way that they buffer their downside risk.”
CEOCFO: What are your
challenges ahead?
Mr. Silver: “I worry everyday that every penny I spend
is maximizing shareholder value. In general, our concerns are the same as most mining
companies. We want to make sure that the technical facts that we are using for doing our
valuations are correct. When we built this company, we tried to build an 800 pound
gorilla. We wanted to immediately build a large royalty company because we thought that
would increase the high-quality deals that would be brought to us and that we could
participate in. What we have found is that we created a thousand pound gorilla; we have
reviewed more than 140 deals since March and we continue to have a huge flood of deals
coming in. One of my challenges is not to spend time with deals that do not add value to
the shares, and what that means is that we tend to focus on the larger deals and the deals
that are in production or are close to production. It is hard because we have a small shop
and tend to keep it that way and if the company is working on five or six deals at a time,
the question is which are the best five or six to work on; that is the biggest challenge.”
CEOCFO: Do mining
companies often achieve their objectives on start-up and commission?
Mr. Silver: “Building a mine is a complicated task,
involving hundreds of permits, thousands of people, parts and products coming from all
over the world, as well as weather and political risk. The way we mitigate that is we try
to make sure that the operator is very well-respected. The large mining companies for
example are very good operators and tend to keep within budget better than the small
companies do. When we go out and look at the mines and look at the data, we make our own
assessments, we study the market and we have statistics like how many operators build the
mines on time and how many do it at cost. We have all that because we are a research shop
and spend everyday studying the market. When we are pricing the transaction, we will
accommodate that and if we think they are being overly aggressive, we will put a delay in
our program and that will go to the price we will pay. We spend a lot of time thinking
about that because it does not do us any good to buy a royalty that does not pay the way
we expect it to.”
CEOCFO: Will you tell us
a bit about the rest of your team?
Mr. Silver: “A good manager always has a team smarter
than him and I have an incredible team. Most of the people I have known for an excess of
ten or twenty years and most of us have advanced degrees including Masters degrees and a
Ph.D. Everybody in the shop who works on the transactions, has worked in mining companies.
For instance, our president, who’s name is Doug Hurst, is a mining analyst and has
spent his career working for investment brokers in Canada. This is a guy who has an
intimate first-hand experience knowing what the market is looking for and what kind of
investors we want. He manages all of that for us. He is also technical, he does
due-diligence, and negotiations. We have one gentleman who’s job is strategic
planning, Dave Hammond; he is the one that tries to figure out whether we believe the
forecast that we read about in the papers or do we have a different outlook. We are not
going to be tied to group thinking, we try to pick our own bets based on our best research
and knowledge.”
CEOCFFO: In closing, why
should potential investors be interested and what do they miss when they look at the
company?
Mr. Silver: “I think what they miss is buying large
royalties or any royalty is a long-term process, you do not turn these things in a week or
two. If you invest in most small mining companies, or even some of the middle-sized ones,
what you will find is that they only have four or five projects, which means that if you
are buying their shares, you are expecting one out of those four or five projects to
perform. In our case, we would like to build a very large royalty portfolio. We currently
have 60, which means you have 60 chances for a positive surprise that will bring great
value. In addition, because we have such a small shop and low overhead compared to our
projective revenues, we have very high EBITDA margins; in other words, most of our
revenues go to the bottom-line. This provides us with working capital for buying more
royalties.”
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