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Breakwater Enters Into Royalty Agreements

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  Published in Business and Finance on Wednesday, December 30th 2009 at 15:40 GMT by Market Wire
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TORONTO, ONTARIO--(Marketwire - Dec. 30, 2009) - Breakwater Resources Ltd. (TSX:BWR)(TSX:BWR.WT.A) has entered into royalty agreements with Red Mile Resources No. 15 Limited Partnership ("Red Mile") and Ronpam Resources Limited Partnership ("Ronpam") whereby Breakwater sold basic royalties on a portion of the payable zinc production, over the life of the Myra Falls mine. Breakwater received cash of $69.4 million, which included royalty income of $62.6 million and fees and interest of $6.8 million.

Under the terms of the royalty agreements, the Company is required to make basic royalty payments at fixed amounts per pound of payable zinc produced, which escalates from $0.022 per pound to $0.193 per pound for the Red Mile royalty and from $0.015 per pound to $0.043 per pound for the Ronpam royalty over the first eleven years of the respective royalty agreements. In addition, in years 2015 through 2019 if the price of zinc in a given calendar year averages above US$4,250, US$4,500 or US$4,750 per tonne, the Company granted Red Mile a net profit interest of 4.50%, 4.70% or 4.90% respectively and granted Ronpam a net profit interest of 0.75%, 1.00% or 1.25% respectively. Of the cash received, $62.6 million was placed with a financial institution, for which the Company took back promissory notes. Interest earned from the promissory notes will be used to fund the expected basic royalty payments during the initial years of the royalty agreements. Over the remaining years of the royalty agreements, interest and principal from the promissory notes will be used to fund the basic royalty payments.

The balance of the funds received of $6.8 million will be used for general corporate purposes.

Under certain circumstances the Company has the right, by way of a call option, to acquire the partnership units of Red Mile and Ronpam for the lower of market value or for the outstanding amount of the promissory note.

Breakwater is a mining, exploration and development company which produces and sells zinc, copper, lead and gold concentrates to customers around the world. The Company's concentrate production is derived from three mines in Chile, Honduras and Canada. Breakwater's Langlois mine in Quebec, Canada is currently on temporary care and maintenance.