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

–The Fed is trying to soften the blow of falling asset prices by making it possible for homeowners to refinance into longer-term loans at lower rates, and then ride out the bear market in housing and credit. In other words, the Fed has kicked the dollar to the curb. It’s on its own now.

–That doesn’t mean the dollar won’t really from time to time. As a proxy for economic growth, there will be times in the coming years, let’s call them false dawns, where the U.S. economy appears to be emerging from the slump, or is at least growing faster than Europe’s sluggish economy. But the long-term trend for the dollar index is lower highs and lower lows. For gold and oil, it’s just the opposite, higher highs and higher lows.

–Speaking of highs and lows, our friend Dr. Joanne Nova at GoldNerds.com read our note yesterday about the challenges of deep-water drilling. But drilling deep is a challenge anywhere, even on land.

–”Here’s another perspective on the difficulty of drilling Brazil’s new oil field a full 10km below the surface,” Joanne writes. “Did you know the deepest hole ever dug reached down to 12km, but it took 19 years to get there? The Soviets started planning the Kola Superdeep Borehole in 1962 and began drilling in 1970 reaching the record depth in 1989.

–”They initially aimed to reach 15km, but were forced to give up a few years after they set the record. Things were too hot, too strange, and too expensive. And this was not a hole designed to produce anything except interesting scientific papers. Twelve kilometers down, the rocks were under so much heat and pressure they behaved more like plastic than rock. The hole apparently kept flowing closed whenever they had to replace a drill bit. Makes production hard if the hole keeps disappearing.”

–Yes it does.

–Incidentally, Australia’s deepest on-shore drilling effort doesn’t have anything to do with oil, gas, or mining. It is energy related though. Geothermal hopeful Geodynamics (ASX:GDY) finished drilling its Habanero 3 well in early February to a depth of 4,221 metres.

–Even if you don’t get all the way through the Earth’s crust at that depth, it’s still pretty hot down there, which is the whole point. Geodynamics hopes to be operating Australia’s first commercial geothermal electric generating plant by the end of this year, with a capacity of 50 megawatts per year.

–We know a bit about the project and the share because we tipped it in the Australian Small Cap Investigator. The credit crunch has not been kind to small-cap stocks in general or alternative energy stocks in particular. But if you look at these stocks in terms of their ability to generate future earnings, there is a lot to like. The assets should produce growing cash flows, and who doesn’t like that?

–We showed a chart a few weeks ago demonstrating that GDP growth and electricity are pretty well correlated. A growing economy needs its energy doesn’t it? Australia’s economy is growing and so are its energy needs.

–Perhaps that’s why Citigroup reckons Origin Energy (ASX:ORG) will grow its earnings by 16% a year for the next five years, according to Rebecca Keenan at Bloomberg. And perhaps that’s why Britain’s BG Group Plc. offered to buy Origin for $12.9 billion. That represented a 40% premium on yesterday’s closing share price of $10.47. Proving that markets can sometimes be pretty darn efficient, Origin is up 37% in early trading.

–As a trade, we might even consider shorting or buying puts. After all, Origin hasn’t accepted the bid yet. But our interest isn’t in trading these events, it’s in anticipating them. BG’s bid is based on asset quality and earnings growth. It’s a stock picking story, not a China narrative, although the two are related. Take iron ore.

–”Right now, I think this is the best stock picker’s market in resources that we’ve seen for quite some time,” says fund manager James Bruce in today’s Financial Review. He could not be more right.

–He was referring to today’s breaking news that China’s first-ever hostile takeover of an Australian company-Sinosteel’s $1.37 billion bid for Midwest (ASX:MIS)-looks like it will go through. Midwest is in a trading halt this morning, suggesting an announcement could be forthcoming.

–Sinosteel raised its bid for Midwest from $5.60 a share to $6.38 a share. This seemed to please the board of Midwest, which had been holding out for $7 a share. It probably doesn’t hurt that, as Michael Vaughan reports in today’s Financial Review, Sinosteel agreed to support the issue of 15 million options to two Midwest directors.

–The exercise price on the options is $1.46. With the bid at $6.38, that means those 15 million options are worth about $73.8 million. That’s a nice pay day, if you can get it. We’ve always said that owning your own business is the only real way to get wealthy.

–”China was busy last night,” writes Diggers and Drillers editor Al Robinson. “It closed the net around one little iron miner, and took stakes in a couple of others. It looks like Chinese steel mills are focusing on the leaders in the second tier of iron companies. By that, we mean the companies outside of BHP, Rio Tinto and Fortescue who have the best-developed assets.

–The “other” company which Sinosteel appears to have set its sights on is Murchison Metals (ASX:MMX). Al has more details over at Money Morning. The entire mid West region of Western Australia is ripe for this sort of Sino-Japanese financing and takeover. The ore in the region is a little lower quality than the famous hematite of the Pilbara. The infrastructure doesn’t exist yet, either, to move that ore from mine to port and on to points North.

–On that score, keep your eyes on May 9th . That’s the deadline for proposals to be submitted to the WA government for building out the iron ore infrastructure in the mid West. There are two major proposals, one backed by China and one essentially backed by Japan.

–In the meantime, if you want to catch up on who the junior producers are in the mid West, you may want to introduce yourself to the Geraldton Iron Ore Alliance. Don’t be shy. She’s friendly.

–There are seven firms in the alliance. Mount Gibson (ASX:MGX), MidWest (ASX:MIS), Gindalbie (ASX:GBG), Murchison (ASX:MMX), GoldenWest Resources (ASX:GWR), Royal Resources (ASX:ROY), Asia Iron Holdings (not listed), and Atlas Iron Limited (ASX:AGO).

–Who will win? This is where we reach the limits of the free security analysis we provide in the DR. The heavy lifting and deeper digging goes on at Diggers and Drillers. We will tell you that valuing the companies comes down to looking at the quality of their assets and their ability to finance projects without a lot of debt.

–Better hurry, though. “The Chinese invasion of corporate Australia is continuing apace with Chinese Iron and Steel Group announcing plans to lift its stake in outback prospector Apollo Minerals to 19.9pc, just short of the 20pc level that would require it to mount a full takeover under Australian law,” according to David Litterick in Britain’s Telegraph.