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Altius has a 10% interest in the Labrador Nickel Royalty Limited Partnership. The Limited Partnership holds a 3% net smelter return royalty over the Voisey's Bay nickel-copper-cobalt project in Labrador that is owned and operated by Vale INCO NL.
Altius' royalty entitles it to a share of revenues less certain costs incurred after concentrates leave the mine site for final processing. The costs of mining or onsite processing are not deducted from our share of revenues.
This royalty asset generated approximately C$5.2 million in earnings for Altius in fiscal 2007. This is significant especially when compared to the purchase price of approximately C$13 million in 2003. The purchase price was predicated on a conservative long term nickel price assumption of US$3.25 per pound. While nickel prices have dramatically receded from the record highs of May, 2007 the current average nickel price (~$4-$5) will still deliver Altius more than adequate cash flow to fund its mineral exploration business in the year head.
The Voisey's Bay Royalty is a strategic asset for Altius that ensures reliable and sustainable cash flow over the estimated minimum 25 year mine life. Altius views the royalty income as a financing source that is more than sufficient to support its mineral exploration business model over the long term thereby eliminating equity dilution to shareholders to finance exploration.
Altius believes the exploration potential of the area captured by the royalty to be exceptional. This exploration upside is especially significant to Altius because not only does the royalty apply to the known mines and ore reserves at Voisey's Bay it applies to the entire Voisey's Bay district! Further, the exploration potential comes at zero effective risk to Altius shareholders, as exploration expenditures are not deductible against royalty payments.
The Voisey's Bay project is at a very early stage of its exploration and development history compared to other world-renowned nickel districts like Sudbury and Noril'sk which dramatically grew in scale over the initial decades following discovery.
