Royal Gold, Inc. (NASDAQ: RGLD) (together with its
subsidiaries, “Royal Gold” or the “Company,” “we” or “our”) reports
that its wholly-owned subsidiary RGLD Gold AG (“RG AG”) has entered
into a life of mine purchase and sale agreement for silver produced
from the Khoemacau Copper Project (“Khoemacau,” or the “Project”)
in Botswana with Khoemacau Copper Mining (Pty.) Limited (“KCM”), a
wholly-owned subsidiary of Cupric Canyon Capital LP (together with
all its subsidiaries including KCM, “Cupric”), a private company
owned by management and funds advised by Global Natural Resource
Investments (“GNRI”).
Royal Gold will make an advance payment of US$ 212 million for
80% of the silver produced from Khoemacau until certain delivery
thresholds are met (the “Silver Stream”), and at Cupric’s option,
up to an additional US$ 53 million for up to the remaining 20% of
the silver produced (the “Option Stream”). Royal Gold will pay 20%
of the spot price of silver for each ounce delivered. Royal Gold
will also make available up to US$ 25 million of subordinated debt
towards the end of Project development to fund potential cost
overruns, subject to various conditions (the “Overrun
Facility”).
“We are pleased to announce the acquisition of this high quality
and long-lived silver stream on the Khoemacau Copper Project in
Botswana, which has an expected initial mine life of 21 years and
excellent exploration potential,” remarked Tony Jensen, President
and CEO. “The Khoemacau stream will fit nicely into our production
profile and will add another component of growth. Coupling our
stream with the Red Kite Mine Finance (‘Red Kite’) debt facility
also announced today, Khoemacau is now fully funded and development
activities can accelerate, with initial production and stream
deliveries expected in the first half of 2021. We have been working
closely with the Cupric team and GNRI on this opportunity for
almost a year and are delighted to be developing those
relationships into long-term partnerships.”
Acquisition Highlights
- Meaningful contribution: Royal Gold
expects average annual silver deliveries of 1.5 million ounces at a
stream rate of 80%, or 1.9 million ounces based on a stream rate of
100%, with initial deliveries expected to start in the first half
of 2021.
- Accretive on per share metrics: Royal
Gold will largely fund this acquisition out of cash flow and access
the currently undrawn US$ 1 billion revolving credit facility as
needed.
- Attractive exploration and expansion
potential: Royal Gold’s area of interest includes attractive
exploration targets on the down plunge extension of the existing
resource, as well as on strike of the existing resource. Cupric is
already considering the possibility of expanding processing
capacity.
- Long-life and cost-competitive asset:
Khoemacau is expected to be a long-life copper producer positioned
approximately at the 50th percentile on the global cost curve, with
meaningful annual copper production of approximately 62,000
tonnes.
- De-risked project execution strategy:
Cupric has assembled an experienced board, executive team and
project team to develop Khoemacau, and will use existing
infrastructure.
- Fully-funded with cost overrun
protection: Cupric has arranged net new funding commitments of up
to US$ 540 million, in excess of the approximately US$ 455 million
that Cupric estimates is required to complete project
development.
- Mining-friendly jurisdiction: Botswana
has a long history of mining and is the world’s leading diamond
producer by value. It is a multi-party democracy, and according to
the Fraser Institute mining survey it is the highest-ranked African
country on policy factors and ranks third among African countries
on the investment attractiveness index. Botswana is rated A2 by
Moody’s.
Transaction Overview
Silver Stream and Option Stream
First draw under the Silver Stream is expected to occur in or
about October 2019, after US$ 100 million of net new debt and
equity funding has been spent on the Project. The details of the
Silver Stream and Option Stream are as follows:
- Royal Gold will make US$ 212 million in
advance payments to Cupric for the Silver Stream in exchange for
deliveries equal to 80% of the silver production from Khoemacau.
The advance payment will be made in quarterly instalments as
project development advances according to the following approximate
schedule: US$ 60 million in the third and fourth calendar quarters
of 2019, US$ 125 million in 2020, and the balance in 2021.
- At Cupric’s option and subject to
various conditions, Royal Gold will make up to an additional US$ 53
million advance payment for the Option Stream towards the end of
the development of the Project for up to an additional 20% of the
silver production from Khoemacau.
- The stream rate will drop by 50% upon
the delivery to Royal Gold of 32 million ounces for the Silver
Stream, and 40 million ounces in the case that the Option Stream is
fully exercised.
- Royal Gold will make ongoing cash
payments per ounce of silver delivered equal to 20% of the spot
silver price at the time of delivery. Depending on the achievement
by Cupric of mill expansion throughput levels above 13,000 tonnes
per day (30% above current mill design capacity), Royal Gold will
pay higher ongoing cash payments for ounces delivered in excess of
specific annual thresholds.
Overrun Facility
Subject to various conditions, Royal Gold will make available up
to US$ 25 million to Cupric toward the end of the development of
Khoemacau in the form of a subordinated debt facility. Any amounts
drawn under the facility would carry interest at LIBOR + 11% with a
term of seven years. Royal Gold will have the right to force
repayment of the facility upon certain events, including change of
control and IPO transactions completed by Cupric.
Security
The interests of Royal Gold under the Silver Stream and Option
Stream will be secured by a lien on all assets of the Project, as
well as certain parent and subsidiary guarantees, subordinated only
to the US$ 275 million senior project debt facility described below
and other customary permitted liens.
Source of Acquisition Funding
RG AG will fund the transaction through cash on hand and/or cash
advances from its parent company, Royal Gold, Inc. Royal Gold, Inc.
will fund its obligations to RG AG largely out of cash flow from
operations and its currently undrawn US$ 1 billion revolving credit
facility, as required.
Background on the Khoemacau Copper Project
Project History and Overview
Khoemacau is a copper-silver project located in a sparsely
populated region of northwestern Botswana in the Kalahari Desert.
It is located in the Kalahari copper belt, although the main
mineralized zone demonstrates a high-grade copper tenor that is
atypical of what has been discovered in the belt thus far.
Khoemacau is made up of over 4,040 square kilometers of mineral
concessions from the acquisition of Hana Mining Ltd. (“Hana”) in
2013 as well as additional mineral concessions and a plant and
associated infrastructure (the “Boseto Mill”) acquired by Cupric
out of the receivership of Discovery Metals Inc. (“Discovery”) in
2015. Cupric consolidated the land position and infrastructure and
has focused on exploration and development of the Zone 5 orebody.
While Zone 5 was discovered by Hana in 2012, it was not thoroughly
explored and evaluated until acquisition of the concessions by
Cupric in 2013. Cupric reports that the mineralization has proven
to be very consistent over the known linear strike of nearly four
kilometers and 60 degree dip, and averages 9 to 10 meters in
width.
Zone 5 currently contains a proven and probable reserve,
prepared under JORC1 standards, of 30.4 million tonnes at 2.0%
copper and 19.5 g/t silver. The total resource1 at Zone 5 is 91.7
million tonnes at 2.1% copper and 21.9 g/t silver. Cupric is
currently completing a drilling program with the goal of converting
90% of the first ten years of planned production into measured and
indicated resources1 and expects to calculate an updated reserve
and resource thereafter.
Cupric plans to develop the orebody at Zone 5 as three separate
underground mines each planned to produce 1.2 million tonnes per
year over the first five years. Each of the mines is expected to
have its own independent ramp access and operate over a strike
length of ~1,000 meters, extracting ore using conventional
sub-level open stoping.
Cupric’s plan provides for the ore to be trucked approximately
35 kilometers to the Boseto Mill, which is to be refurbished and
enhanced to process approximately 10,000 tonnes per day. Processing
will be conventional sulfide flotation via three stage crushing,
ball milling and flotation, which will produce a high-quality
copper concentrate grading approximately 40% for shipment to
African and international smelters.
Power is to be sourced from an expansion to the existing power
grid currently under construction by Botswana Power Corporation.
Existing diesel generation capacity remaining from the previous
Discovery operations will be used as backup power. Water will be
supplied from three borefields along with mine dewatering.
Production Profile
Cupric’s current mine plan envisions mining and processing of
74.4 million tonnes grading 2.0% copper and 21.4 g/t silver over
the 21 year mine life, averaging payable production of
approximately 62,000 tonnes of copper and 1.9 million ounces of
silver per year. Before accounting for the Silver Stream and Option
Stream, Cupric forecasts life of mine by-product C1 plus sustaining
capital costs of approximately US$ 1.71 per pound of copper on a
by-product basis at a silver price of US$ 16.00 per ounce, placing
the operation at approximately the 50th percentile on the global
copper cost curve. Silver represents approximately 7% of the mine’s
revenues at current metal prices.
Project Execution Status
Cupric has obtained all permits and approvals required for
construction to proceed and early works in the field at Zone 5 have
commenced. At the end of January 2019, 60% of detailed engineering
had been completed.
The Khoemacau project team has been assembled with all senior
roles filled. Fluor was engaged in 2017 to work with Cupric on the
front end engineering design (“FEED”) and has subsequently been
appointed as the engineering, procurement, construction and
management (“EPCM”) contractor for the development and construction
of surface infrastructure, mine boxcuts and associated surface
infrastructure to support mine development, and the upgrade of the
existing concentrator. Fluor has mining project EPCM experience in
Botswana. Cupric intends to engage an internationally recognized
contract miner to develop the underground mines and provide
training for the local workforce.
All planning has included active engagement by Cupric with the
Government of Botswana to ensure alignment with the Government’s
objective of encouraging modern economic development.
Capital Cost and Project Funding
Cupric estimates development costs after closing of this
transaction of approximately US$ 480 million including US$ 25
million of capitalized interest, with an additional approximate US$
100 million required to refinance existing debt held by Red Kite.
Royal Gold will contribute up to US$ 265 million in stream
financing and US$ 25 million for the Overrun Facility, while Red
Kite will provide a US$ 275 million project debt facility
(approximately US$ 100 million will be used to repay the existing
debt). In addition, pursuant to the agreed terms of the
transaction, Cupric is required to provide an equity contribution
of US$ 75 million for Project development as a condition to Royal
Gold’s funding.
Total funds available for the Project, including the equity
investment, are expected to be US$ 640 million, or net US$ 540
million after the existing Red Kite facility is repaid, which
implies surplus funds available for the Project of approximately
US$ 60 million.
Conference Call Information
Management will hold a conference call to discuss this
transaction on Monday, February 25, 2019, at 8:00 a.m. Eastern Time
(6:00 a.m. Mountain Time). The call will be webcast and archived on
the Company’s website for a limited time.
Khoemacau Silver Stream Acquisition Call Information:
Dial-In Numbers:
855-209-8260 (U.S.); toll
free 855-669-9657 (Canada); toll free 412-542-4106 (International)
Conference Title: Royal Gold Webcast URL:
www.royalgold.com under Investors, Events
& Presentations
CORPORATE PROFILE
Royal Gold is a precious metals stream and royalty company
engaged in the acquisition and management of precious metal
streams, royalties and similar production-based interests. As of
January 31, 2019, the Company owns interests on 191 properties on
five continents, including interests on 41 producing mines and 17
development stage projects. Royal Gold is publicly traded on the
Nasdaq Global Select Market under the symbol “RGLD.” The Company’s
website is located at www.royalgold.com.
Cautionary “Safe Harbor” Statement Under the Private
Securities Litigation Reform Act of 1995: With the exception of
historical matters, the matters discussed in this press release are
forward-looking statements that involve risks and uncertainties
that could cause actual results to differ materially from
projections or estimates contained herein. Such forward-looking
statements include but are not limited to statements with regard
to: high quality and long-lived silver stream on the Khoemacau
Copper Project in Botswana having expected initial mine life of 21
years and excellent exploration potential; Khoemacau stream fitting
into our production profile and adding another component of growth;
Khoemacau fully funded; acceleration of development activities with
initial production and stream deliveries expected in the first half
of 2021; expectations of average annual silver deliveries with
initial deliveries expected to start in the first half of 2021;
expectations of funding this acquisition out of cash flow and draws
on revolving credit facility as needed; attractive exploration
targets within Royal Gold’s area of interest; Cupric’s
consideration of expanding processing capacity via ongoing
pre-feasibility study; long-life copper producer positioned
approximately at 50th percentile on global cost curve with
meaningful annual copper production; de-risked project execution
strategy; estimated capital required to complete project
development; approximate funding schedule for advance payments to
Cupric; achievement of mill expansion throughput levels and
resulting higher ongoing cash payments for deliveries exceeding
specific annual thresholds; high grade copper tenor atypical of
other discoveries in the Kalahari copper belt; consistent
mineralization over known linear strike and dip, and average width
of mineralization; estimates of Zone 5 reserves and mineralized
material for the Khoemacau Project derived from a March 2018
independent resource estimate prepared on behalf of Cupric;
drilling program to convert first ten years of planned production
into measured and indicated resources and expectations to complete
an updated reserve and resource thereafter; plan to develop three
mines at Zone 5 each with independent access, operation over strike
length and conventional mining method; plans to truck ore to Boseto
mill and plans to enhance mill throughput to target rate; crushing,
milling and flotation processes to produce high-quality copper
concentrate for shipment to African and international smelters;
power sources and water supplies; estimates and forecasts of
mining, processing and average annual copper and silver production;
pre-stream average C1 plus sustaining costs placing the operation
at approximately 50th percentile on global copper cost curve;
estimated percentage of revenue from silver at current metal
prices; schedule for completion of remaining detailed engineering;
engagement of Fluor for engineering design and appointment as EPCM
contractor; Fluor experience in Botswana; engagement of
internationally recognized contract underground miner and workforce
trainer; Cupric estimated project development costs including
capitalized interest; repayment of existing debt to Red Kite;
Cupric’s obligation to supply US$ 75 million equity
contribution; and total funds available for the Project, which
implies surplus funds available. Factors that could cause actual
results to differ materially from these forward-looking statements
include, among others: risks associated with developing and
operating a mine and conducting business in Africa, including
application of foreign laws to contract and other disputes,
environmental laws, enforcement and uncertain political and
economic environments; inability of operators to bring projects
into production as expected, especially development stage mining
properties, mine and mill expansion projects and other development
and construction projects; revisions or inaccuracies in technical
reports, reserves, resources, costs, mine life and mine life
parameters and economic and production estimates; changes in
project parameters as plans of the operators are refined; the
results of current or planned exploration activities; the risks
inherent in the construction and operation of mining properties; a
decreased price environment for gold, silver, copper and other
metals on which our stream and royalty interests are determined;
performance of and production at properties, and variation of
actual production from the production estimates and forecasts made
by the operators of those stream and royalty properties; decisions
and activities of the Company’s management affecting margins, use
of capital and changes in strategy; unexpected operating costs,
decisions and activities of the operators of the Company’s stream
and royalty properties; changes in operators’ mining and processing
techniques or stream or royalty calculation methodologies;
resolution of regulatory and legal proceedings; unanticipated
grade, geological, metallurgical, environmental, processing or
other problems at the properties; operators’ inability to access
sufficient raw materials, water or power; errors or disputes in
calculating stream deliveries and royalty payments, or deliveries
or payments under stream or royalty agreements; the liquidity and
future financial needs of Cupric or the Company; economic and
market conditions; the impact of future acquisitions and stream and
royalty financing transactions; and the impact of issuances of
additional common stock. These risks and other factors are
discussed in more detail in the Company’s public filings with the
Securities and Exchange Commission. Statements made herein are as
of the date hereof or as of the date indicated and should not be
relied upon as of any subsequent date. The Company’s past
performance is not necessarily indicative of its future
performance. The Company disclaims any obligation to update any
forward-looking statements.
Statement Regarding Third-Party Information: Certain
information in this presentation was provided to the Company by
Cupric Canyon Capital L.P., the owner and developer of the
Khoemacau Project. The reserve, resource, process, throughput,
recovery, production, geologic, metallurgical, engineering,
construction and other technical and economic information provided
to the Company and presented here is not publicly available. The
Company has not verified, and is not in a position to verify, and
expressly disclaims any responsibility for the accuracy,
completeness or fairness of this third-party information.
1 Cupric’s independent reserve and resource estimate was
prepared in accordance with the Australasian Code for Reporting of
Exploration Results, Mineral Resources and Ore Reserves (2012
Edition) (“JORC”) at March 2018. The terms “mineral resource”,
“measured mineral resource”, “indicated mineral resource” and
“inferred mineral resource” as used in the resource estimate and
this press release are terms defined by JORC. The U.S. Securities
and Exchange Commission (“SEC”) does not recognize the terms
“resource” or “measured and indicated resources”. “Resources” are
not recognized under the SEC’s Guide 7 regulations, but resources
are categorized under the securities law regulations of various
foreign jurisdictions (and JORC), in order of increasing geological
confidence into “inferred resources”, “indicated resources”, and
“measured resources”. Investors are cautioned that resources cannot
be classified as mineral reserves unless and until further drilling
and metallurgical work is completed, until other economic and
technical feasibility factors based upon such work have been
resolved and it is demonstrated that they may be legally and
economically extracted and produced; and, as a result, investors
should not assume that all or any part of the mineralized material
in any of these categories referred to in the resource estimate and
this press release will ever be converted into mineral reserves.
The SEC normally only permits issuers to report mineralization that
does not constitute mineral reserves as in-place tonnage of
mineralized material and grade without reference to unit amounts of
metal, as presented here.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190225005457/en/
For further information, please contact:Alistair
BakerDirector, Business Development(720) 554-6995
Royal Gold (NASDAQ:RGLD)
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