Commodity prices have been among the hardest hit by the wave of market panic. This has dragged down the stock of International Royalty Corp. (AMEX:ROY), which owns a portfolio of royalties from 80 mines around the world. Chris Mayer says this presents a great buying opportunity for investors. The company is not exposed to rising mining costs, yet it receives a slice of every ounce of metal that it pulled out. Chris says it’s “like a big bucket of call options…that don’t expire.”

Many of the mines in ROY’s portfolio are not yet producing. When they do, and commodity prices recover, ROY stands to make serious profits.

This from The Rude Awakening:

When panic guides the financial markets, reason is an orphan. It enjoys no comfort whatsoever. It wanders aimlessly – wondering when it sorrows might end. But the sorrows do end eventually. Reason does ultimately reunite with profitable investment results. Therefore, the successful investor clings to well-reasoned tactics, even when the stock market calls him crazy. At the moment, the stock market is calling a lot of investors crazy. But successful investors use such moments to capitalize upon the stock market’s lunacy. They use these moments to buy good stocks on the cheap.

International Royalty Corp seems like a good stock that has become way too cheap.

International Royalty Corp. (AMEX:ROY) is like a big bucket of call options on more than 80 mining projects. But the great thing about these options is that they don’t expire. Only one of ROY’s projects is really producing big cash flow. A few gold mines come online in 2008. And then you have 78 other properties that could pay off down the road.

ROY is a unique company. It doesn’t operate any mines. It doesn’t own any mines. What it does is acquire royalties. Basically, ROY is like a venture capitalist of mining companies. It provides funding. Early in a mine’s life, before anybody is sure what might come of it, a miner might go to investors and partners and look for ways to spread the risk a bit.

Enter ROY. The management team at ROY takes a look at the property and runs it through their hurdles. If they like it, they come back and say something like, “OK, we’ll give you $10 million. In exchange, you pay us 3% on the gross price, minus shipping and insurance costs, of everything that comes out of this mine for the life of the mine.” Also, ROY points out, it’s up to the miner to run the place. “It’s still your mine, Mr. Miner, and any other money required will have to come out of your pocket.”

The miner says yea or nay. If it agrees, it gets its money and starts work on the mine. It may be years before the mine produces anything. It may never produce much of anything at all. Or it could turn into a huge mine… in which case, ROY’s little initial investment pays off big.

This is what happened with Voisey’s Bay, which turned into a huge nickel mine. The miner in this case is a giant – Companhia Vale do Rio Doce (CVRD). No one knows just how much nickel CVRD will get out of Voisey’s Bay. But right now, Voisey’s Bay is one of CVRD’s core assets. CVRD has sunk nearly a billion dollars into it. The mine should produce for 20-25 years yet.

Voisey’s Bay beckons comparisons with Goldstrike, a fabulous gold mine owned by Newmont (NYSE:NEM). A little royalty company called Franco Nevada had the royalty on that mine. It went up 50-fold over a decade. Shareholders who sunk some money in Franco Nevada and just sat on it got rich.

Some call Voisey’s Bay the Goldstrike of nickel…

And ROY has a piece of it. Every ounce of nickel that CVRD pulls out, ROY gets a cut. Doesn’t matter if CVRD makes money or not. Doesn’t matter what happens to mining costs. When CVRD pulls nickel out of Voisey’s Bay, a piece of the proceeds goes right in ROY’s pockets.

This makes ROY a straight-up play on metals. Higher nickel prices mean more money for ROY. More volume through the mine means more money for ROY. It’s price and volume, and that’s it.

Well, that’s not all…

Because ROY owns a portfolio of royalties, not just Voisey’s Bay. Most of them don’t produce anything right now. But they may. And most certainly, some will. Recently, ROY picked up another 16 royalties from mining giant Rio Tinto (NYSE:RTP) for $61 million in cash. It was a big acquisition for ROY, boosting its total portfolio by 20%. Now ROY owns a portfolio of over 80 royalty properties.

And so what?

Now that commodity prices are tanking, ROY’s share price is also tanking. This looks like a buying opportunity to me. Commodity prices will recover eventually. And when they do, ROY’s stock should provide ample rewards.

Source: A Good, Cheap Stock