Royalty-based companies with a penchant for gold- and-silver-stream incomes are looking at Rio Tinto PLC's (RTP) predicament with a keen sense of anticipation.

Franco-Nevada Corp. (FNV.T), Royal Gold Inc. (RGLD), International Royalty Corp. (IRC.T) and Silver Wheaton Corp. (SLW) see a distressed Australian senior miner trying to figure out the best way to mend its balance sheet and pay down big chunks of $38.8 billion in gross debt, including some $18.9 billion due in 2009/10.

The four royalty companies are intensely aware that Rio Tinto is sitting on gold and silver assets - cash streams that aren't being fully valued while sitting under the umbrella of what's seen as a base-metals company.

Rio Tinto could raise about $5 billion by selling the gold streams in its Kennecott, Escondida, Grasberg and Northparkes mines, according to BMO Capital Markets.

And the amount of funding that royalty companies are able to put on the table in exchange for income streams is climbing. Case in point: Teck Resources Ltd. (TCK) recently sold a gold-income stream from its Andacollo mine in Chile to Royal Gold for $270 million.

"The Andacollo deal was a nice piece of business - something we'd like to replicate elsewhere," Royal Gold President and Chief Executive Tony Jensen told Dow Jones Newswires. "This kind of deal is a great way for a base-metals company to get additional value (from its gold or silver assets)."

Royal Gold now has 26 royalty streams, with the Andacollo deal the largest to date. The royalty company is ready to do similar deals, even one up into the $600 million range, Jensen said.

Franco-Nevada could finance a larger deal while all four royalty companies could structure deals where the financing is done over a number of years instead of one upfront payment, analysts said.

Rio Tinto's Chinalco Deal Looking Uncertain

Selling off precious-metal income streams is a fallback position for Rio Tinto. It's in the middle of a campaign to convince shareholders that a proposed $19.5 billion alliance with state-owned Aluminum Corp. of China Ltd. (ACH), or Chinalco, is the best way forward.

The cash-and-convertible-bond deal - signed in February when markets and commodity prices looked bleak - is necessary if global economies stay in recession mode for a long time, Rio Tinto argues.

However, an increasing number of shareholders are no longer buying the argument. They say markets and commodity prices have rebounded, giving companies more attractive financing alternatives.

They contend that the massive deal gives too much power and influence to a Chinese company that could end up being Rio Tinto's largest shareholder, with an 18% stake.

There are increasing calls for the deal to be overhauled or scuppered. Shareholding and asset-pricing criticisms aside, investors and regulators across five countries may not vote for a deal with such political, economic and market-altering ramifications. Voting - and debt-payment - deadlines are fast approaching.

And that's why royalty companies are standing over in the corner, fingers crossed, hoping the deal falls apart.

Why? Rio Tinto will still have to find a way to pay off its debt. Asset sales - including those royalty-income streams - will almost certainly be part-and-parcel of any alternate solution.

Web Sites: http://www.riotinto.com

              http://www.royalgold.com 
              http://www.internationalroyalty.com 
              http://www.franco-nevada.com

-Brian Truscott, Dow Jones Newswires; 604-669-1595; brian.truscott@dowjones.com

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