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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)
         
Delaware   001-13357   84-0835164
(State or other Jurisdiction
of Incorporation)
  (Commission File Number)   (I.R.S. Employer
Identification No.)
         
1660 Wynkoop Street, Suite 1000, Denver, CO   80202-1132
(Address of Principal Executive Offices)   (Zip Code)
Registrant’s 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:
o     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 

 


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Item 1.01. Entry into a Material Definitive Agreement.
Item 2.01. Completion of Acquisition or Disposition of Assets.
Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
Item 3.02. Unregistered Sales of Equity Securities.
Item 5.03. Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.
Item 8.01. Other Events.
Item 9.01. Financial Statements and Exhibits.
SIGNATURE
EXHIBIT INDEX
EX-4.1
EX-10.1
EX-10.2
EX-23.1
EX-99.1


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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

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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 Gold’s affiliates will effectively have the ability to cast votes at all Royal Gold stockholder meetings, or in connection with any written consents of Royal Gold’s 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 IRC’s 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 Gold’s 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, IRC’s 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. IRC’s obligations under the IRC Debentures are collateralized by a general security agreement over all of the assets of IRC relating to the Voisey’s 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.
Audited Consolidated Financial Statements of IRC and its Subsidiaries
    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.
 
    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.
Unaudited Consolidated Financial Statements of IRC and its Subsidiaries
    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.
(b) Pro Forma Financial Information.
Unaudited Pro Forma, Combined, Condensed Financial Information of Royal Gold
(c) Shell Company Transactions.
None.
(d) Exhibits.
     
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 Gold’s 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

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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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MANAGEMENT’S 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 Company’s consolidated financial statements.
(signed) Douglas B. Silver
Chairman and Chief Executive Officer
(signed) Ray Jenner
Chief Financial Officer and Secretary
February 25, 2009

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MANAGEMENT’S 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 Company’s principal executive and principal financial officers and effected by the Company’s 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 Company’s 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 Company’s internal control over financial reporting as of December 31, 2008. In making this assessment, the Company’s 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 Company’s internal control over financial reporting was effective as of December 31, 2008.
The effectiveness of the Company’s 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

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(PRICEWATERHOUSECOOPERS LOGO)
Independent Auditors’ Report
To the Shareholders of International Royalty Corporation
We have completed integrated audits of International Royalty Corporation’s 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, shareholder’s 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 Company’s 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 Company’s 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 Corporation’s 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 Company’s 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 Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s 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 company’s 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 company’s 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 company’s 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

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International Royalty Corporation
Consolidated Balance Sheets
As at December 31, 2008 and 2007
 
(expressed in thousands of U.S. dollars)
                 
    2008     2007  
    $     $  
     
Assets
               
Current assets
               
Cash and cash equivalents
    3,444       12,742  
Restricted cash (note 3)
    371       969  
Royalties receivable, net of allowance of $45 (2008)
    7,476       10,309  
Prepaid expenses and other current assets
    195       173  
     
 
    11,486       24,193  
Royalty interests in mineral properties, net (note 3)
    355,093       333,739  
Investments (note 4)
    6,207       7,244  
Furniture and equipment, net
    145       119  
Other long-term assets (notes 5 and 10)
    3,639       19,187  
     
 
    376,570       384,482  
     
Liabilities
               
Current liabilities
               
Accounts payable and accrued liabilities
    1,693       1,852  
Income taxes
    7,753       9,854  
Future income taxes
    4,226       4,850  
     
 
    13,672       16,556  
Revolving credit facility (note 6)
    3,000        
Senior secured debentures (note 7)
    21,662       26,595  
Foreign currency contract (note 7)
    493        
Future income taxes (note 8)
    40,463       45,652  
     
 
    79,290       88,803  
     
Shareholders’ Equity (note 9)
               
Common shares
               
Authorized — unlimited common shares without par value
               
Issued - 78,480,356 (2007 - 78,476,856) common shares
    275,464       275,450  
Contributed Surplus
    9,896       8,525  
Retained earnings
    11,920       11,531  
Accumulated other comprehensive income
          173  
     
 
    297,280       295,679  
     
 
    376,570       384,482  
     
Nature of operations (note 1)
               
Commitments and contingencies (note 3)
               
Approved by the Board of Directors
         
(signed) Douglas B. Silver
Director (signed) Christopher Daly Director
 
       
See accompanying notes to the consolidated financial statements.

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International Royalty Corporation
Consolidated Statements of Operations and Comprehensive Income
 
(expressed in thousands of U.S. dollars)
                         
    Year ended December 31,  
    2008     2007     2006  
    $     $     $  
     
Revenues
                       
Royalty revenues
    41,719       49,857       20,346  
Other (note 4)
          849        
     
 
    41,719       50,706       20,346  
     
Expenses
                       
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.

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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.

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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)
                       

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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 Company’s revenues were generated from the Voisey’s Bay Royalty (note 3). The Company is economically dependent upon the operator of the Voisey’s 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 Company’s 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.
 
    Management’s 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.

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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.

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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 Company’s 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 Company’s 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).

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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 Company’s 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
 
    Voisey’s 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.

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Table of Contents

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 Company’s net assets that results from transactions, events and circumstances from sources other than the Company’s 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 Company’s objectives, policies and processes for managing capital. The adoption of these new standards has been incorporated into the Company’s financial presentation.

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Table of Contents

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 management’s assessment of the Company’s 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.

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Table of Contents

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
                               
Voisey’s 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  
     

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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
                               
Voisey’s 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.

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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)
    Royalty Acquisitions
    Pinson Royalty Interests
    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

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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  
 
                               

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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)
    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% 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 Gold’s Tambor gold property in Guatemala.
    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-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. IRC’s 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
    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 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

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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 management’s 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 operator’s decision to suspend operations and put the mine on care and maintenance due to declining nickel prices and certain other financial indicators regarding the operator’s 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 management’s 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.

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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 Voisey’s Bay mine, the Company’s largest royalty interest, had decreased significantly from 2007. This decrease in realized nickel and copper prices prompted the Company to evaluate its investment in Voisey’s 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 Company’s cash flow analysis considered public information on proven and probable reserves as well as resources relating to the Voisey’s Bay property. In all scenarios, the net present value of the future cash flows was greater than the net book value of the Company’s investment in Voisey’s 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.
4   Investments
    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:

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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 Company’s 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 Company’s 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 Company’s 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,

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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 Company’s investment in NHU will be recorded as other comprehensive income, net of taxes, unless the decline is determined to be other than temporary.
5   Other long-term assets
    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.

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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 Voisey’s 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 Voisey’s 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 Company’s 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.

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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.
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 Company’s 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.

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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 (Voisey’s 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 Company’s tax net operating losses, and certain expenses of the IPO and the Unit Offering. Future tax (assets) liabilities include the following components:

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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  
     

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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 Company’s 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 agent’s commissions and estimated expenses of the offering were CA$61,664,000, or $66,017,000.

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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 Director’s 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 Company’s 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.

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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 Company’s 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 Company’s stock options.

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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.

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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’s 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 Company’s 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 Company’s consolidated financial statements is quantified below and described in the accompanying notes.

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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 Company’s 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.

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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 Company’s 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 Entity’s 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 instrument’s 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 SEC’s 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 entity’s financial position, financial performance and cash flows. SFAS 161 also requires disclosure about an entity’s 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

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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 parent’s 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.

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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 Company’s objectives when managing capital are to safeguard the Company’s 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.

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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 Company’s 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 Voisey’s 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 Voisey’s 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.

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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 Company’s 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 Company’s 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 Company’s cash and cash equivalents are held through large financial institutions with no known liquidity problems.
The Company’s 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

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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 Company’s Senior Secured Debentures are due in one lump sum payment on February 22, 2011.
The Company’s 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 Company’s 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.

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International Royalty Corporation
Consolidated Financial Statements
December 31, 2007 and 2006
(expressed in thousands of U.S. dollars)

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MANAGEMENT’S 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 Company’s consolidated financial statements.
(signed) Douglas B. Silver
Chairman and Chief Executive Officer
(signed) Ray Jenner
Chief Financial Officer and Secretary
March 10, 2008

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MANAGEMENT’S 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 Company’s principal executive and principal financial officers and effected by the Company’s 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 Company’s 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 Company’s internal control over financial reporting as of December 31, 2007. In making this assessment, the Company’s 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 Company’s 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

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(PRICEWATERHOUSECOOPERS LOGO)
Independent Auditors’ Report
To the Shareholders of International Royalty Corporation
We have completed an integrated audit of International Royalty Corporation’s 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 Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits of the Company’s 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 Corporation’s 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 Company’s 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 Management’s Responsibility for Financial Reporting report. Our responsibility is to express an opinion on the effectiveness of the Company’s 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

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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 company’s 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 company’s 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 company’s 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 Company’s 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

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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.

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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.

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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.

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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)
                       

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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 Company’s revenues were generated from the Voisey’s Bay Royalty (note 3). The Company is economically dependent upon the operator of the Voisey’s 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 Company’s 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.
 
    Management’s 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.

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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
 
    Voisey’s 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.

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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.

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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 Company’s 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 Company’s net assets that results from transactions, events and circumstances from sources other than the Company’s 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.

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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 Company’s financial statements.
 
    Section 1535 — Capital Disclosures — This Section establishes standards for disclosing information about an entity’s 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 entity’s 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 entity’s 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 management’s 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.

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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)
3   Royalty interests
                         
    December 31, 2007  
            Accumulated        
    Cost     amortization     Net  
    $     $     $  
     
 
                       
Production stage
                       
Voisey’s 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  
     

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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
                       
Voisey’s 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

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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 Gold’s Tambor gold property in Guatemala.

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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. IRC’s 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:

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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 Plc’s (“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.

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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

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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 Company’s 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 Company’s 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 Company’s investment in NHU will be recorded as other comprehensive income, net of taxes.

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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 Voisey’s Bay Holding Corporation which was not pledged) pursuant to a general security agreement.

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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 Voisey’s 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 Company’s 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 Company’s permanent

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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  

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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 (Voisey’s 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 Company’s 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  
     

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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 Company’s 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 agent’s 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 IRC’s 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 Company’s IPO in February 2005 for 308,000 Common Shares. Each Compensation Warrant allows the

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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 Director’s 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 Company’s 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.

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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 Company’s 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 Company’s stock options.

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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 officer’s 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 Company’s 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.

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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 Company’s 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  
     

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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 Company’s share purchase warrants under US GAAP.
 
      Under Canadian GAAP, share purchase warrants are accounted for as equity. Recent examples of the SEC’s interpretation of SFAS 133 requires that when a Company’s share purchase warrants have an exercise price denominated in a currency other than a company’s 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 Company’s 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

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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 Board’s 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 Company’s 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.

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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 Company’s 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.

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International Royalty Corporation
Consolidated Financial Statements
For the nine months ended September 30, 2009 and 2008
(unaudited, expressed in thousands of U.S. dollars)

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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.

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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.

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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.

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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.

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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 Company’s 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 Company’s 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.

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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 VIE’s 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.

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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:
                                       
 
                                       
Voisey’s 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  
     

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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.

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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 Court’s 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 management’s 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 Company’s 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 Company’s 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 Company’s 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.

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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

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International Royalty Corporation
Notes to Interim Consolidated Financial Statements (unaudited)
September 30, 2009
 
    its assets (except for its equity interest in Voisey’s 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 Voisey’s 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 Company’s 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.

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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 company’s 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.

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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.

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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  
     

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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).

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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.

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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”). IRC’s 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. IRC’s historical results of operations used in the Pro Forma Statements have been prepared on a June 30 year end basis to conform to Royal Gold’s 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 IRC’s 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 Gold’s 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 Gold’s 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 Gold’s 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 Gold’s 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

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the transaction is an asset purchase, the underlying assets are not yet producing and all related transaction costs have been capitalized.

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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.

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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.

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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.

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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 ($000’s):
         
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 ($000’s):
         
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 Gold’s 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.

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  (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 Gold’s 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.

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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   

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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 Gold’s 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

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