Royal Gold, Inc. (NASDAQ: RGLD) (together with its
subsidiaries, “Royal Gold” or the “Company,” “we” or “our”)
announced today that its wholly owned subsidiary, RGLD Gold AG, has
executed an additional agreement with Centerra Gold Inc. and its
wholly-owned subsidiary, Thompson Creek Metals Company Inc.
(together “Centerra”), with respect to the Mount Milligan Mine that
provides near-term cash and gold consideration to Royal Gold in
return for long-term cost support (“Cost Support Agreement”) that
will allow an extension of the mine life of Mount Milligan to 2035
and the potential for a future increase in mine life beyond 2035.
Royal Gold holds a stream interest (“Existing Stream Agreement”) at
the Mount Milligan Mine comprising a gold stream that provides for
delivery of 35% of the payable gold in return for a cash payment of
$435 per ounce, and a copper stream that provides for delivery of
18.75% of the payable copper in return for a cash payment of 15% of
the spot copper price. The Existing Stream Agreement remains in
place and is unaffected by these additional agreements.
“This announcement demonstrates our willingness to work with our
operating counterparties and be flexible and creative in order to
find mutually beneficial opportunities to maximize value,”
commented Bill Heissenbuttel, President and CEO of Royal Gold.
“Mount Milligan is a large and potentially long-life operation, and
our support is designed to allow Centerra to extend the mine life
and add long-term value for each company’s stakeholders.”
The features of the agreement include:
- Significant consideration payable to Royal Gold including
cash and gold in the near term, and a free cash flow interest in
the long term. Royal Gold will receive approximately $125
million in near-term consideration, comprised of $24.5 million of
cash and 50,000 ounces of gold1, and a long-term free cash flow
interest on the Mount Milligan Mine.
- Long-term cost support to the Mount Milligan Mine to allow
for an extended mine life. Royal Gold will provide cost support
payments for metal deliveries starting in approximately 2030 that
provide a basis for an immediate reserve increase and extension of
the Mount Milligan mine life to 2035. Longer-term, the cost support
payments are intended to incentivize Centerra to continue to invest
and maximize the value of the large mineral endowment at the Mount
Milligan Mine. According to Centerra, this investment would include
continued exploration drilling and studies to review capital
projects that could lead to the conversion of existing resources to
reserves, as well as drilled inventory that is not included in
existing resources. Centerra expects to complete a Preliminary
Economic Assessment in the first half of 2025 to evaluate a mine
life extension beyond 2035.
1 Value of $100M at current spot gold price of approximately
$2,000 per ounce.
Cost Support Agreement Overview
The Cost Support Agreement is independent from the Existing
Stream Agreement and uses the Existing Stream Agreement to provide
a reference for metal deliveries. Metal deliveries referenced by
the Cost Support Agreement are those with a bill of lading date on
or after January 1, 2024 (the “Reference Date”).
The key features of the Cost Support Agreement are discussed
below.
Cash and Gold Consideration
Royal Gold is entitled to the following cash payment and future
gold deliveries:
- A $24.5 million cash payment (“Cash Consideration”) upon the
execution of the agreement.
- Gold deliveries totaling 50,000 ounces (the “Deferred Gold
Consideration”) to be delivered in equal installments of 2,500
ounces for a period of 20 quarters commencing on the earlier of the
delivery of 375,000 ounces of gold or 30,000 tonnes of copper from
the Reference Date, or June 30, 2030. As part of the Deferred Gold
Consideration, Royal Gold is entitled to receive three tranches of
11,111 ounces each (the “Greenstone Deliveries”), with the last
delivery expected before year end 2027. Each of the Greenstone
Deliveries received shall reduce the number of ounces in any
remaining Deferred Gold Consideration delivery on a pro-rata basis.
The Deferred Gold Consideration deliveries will require no cash
payment from Royal Gold, and will be made irrespective of the
operating status of the Mount Milligan Mine. The Greenstone
Deliveries relate to the obligation by Orion Mine Finance Group to
deliver gold to Centerra within 30 days following the dates upon
which cumulative amounts of 250,000 ounces, 500,000 ounces and
700,000 ounces of refined gold have been produced from the
Greenstone Gold Project being developed by Equinox Gold Corp. Each
of the Greenstone Deliveries will be delivered to Royal Gold within
30 days of such delivery to Centerra.
Free Cash Flow Interest
Royal Gold will be entitled to a life of mine free cash flow
interest (“FCF Interest”), payable annually, of 5% of the
cumulative free cash flow generated from the Mount Milligan Mine
after the earlier of (i) the first fiscal year following delivery
of both 375,000 ounces of gold and 30,000 tonnes of copper from the
Reference Date, and (ii) January 1, 2036. The FCF Interest will
increase to 10% after the earlier of (i) the first fiscal year
following the delivery of both 665,000 ounces of gold and 60,000
tonnes of copper from the Reference Date, and (ii) January 1,
2036.
Free cash flow is defined as gross revenue less total costs
including treatment and refining costs, operating costs,
exploration costs, capital costs and the net stream costs.
FCF Interest payments will not be payable if the free cash flow
is negative in a given calendar year, and Centerra is entitled to
recover any negative free cash flow before FCF Interest payments
resume.
Cost Support
Delivery thresholds used to define the periods of cost support
are the earlier deliveries of:
- 375,000 ounces of gold or 30,000 tonnes of copper from the
Reference Date (the “First Threshold”).
- 665,000 ounces of gold or 60,000 tonnes of copper from the
Reference Date (the “Second Threshold”).
Near-Term Cost Support Through Approximately 2029
At Centerra’s request, in the event that both the gold price is
at or below $1,600 per ounce and the copper price is at or below
$3.50 per pound, for each delivery under the Existing Stream
Agreement, Royal Gold will pay the lower of either $415 per ounce
of gold, or 66% of the spot gold price less $435 per ounce, and 35%
of the spot copper price for each pound of copper delivered (the
“Pre-Threshold Support”). This near-term cost support will be made
available from the Reference Date through to the First Threshold,
which is expected to be through approximately 2029.
Any Pre-Threshold Support provided by Royal Gold will be
recoverable from any cost support received after the First
Threshold at metal prices above $1,600 per ounce of gold and $3.50
per pound of copper, as follows:
- For gold, any cost support payment will be reduced by the
difference between the gold price and $1,600 per ounce. For
example, if the gold price is $1,700 per ounce, the long-term cost
support payment required by Royal Gold for any delivery will
decrease by $100 per ounce.
- For copper, any cost support payment will be reduced by the
difference between the copper price and $3.50 per pound. For
example, if the copper price is $4.00 per pound, the long-term cost
support payment required by Royal Gold for any delivery will
decrease by $0.50 per pound.
For reference, current spot prices for gold and copper are
approximately $2,000 per ounce and $3.75 per pound, respectively.
Consensus annual price forecasts2 for the period during which this
support is expected to be available range from $1,998 per ounce in
2024 declining to $1,754 per ounce after 2027 for gold, and $3.95
per pound in 2024 declining to $3.91 per pound after 2027 for
copper.
2 As published by CIBC Capital Markets Inc., February 1,
2024.
Cost Support from Approximately 2030 Through Approximately
2035
Royal Gold will provide Centerra cost support payments from the
First Threshold until the Second Threshold as follows:
- With respect to gold, the lower of either $415 per ounce, or
50% of the spot gold price less $435 per ounce, for each ounce of
gold delivered under the Existing Stream Agreement.
- With respect to copper, 35% of the spot copper price for each
pound of copper delivered under the Existing Stream Agreement.
Cost Support After Approximately 2036
Royal Gold will provide Centerra cost support payments after the
Second Threshold as follows:
- With respect to gold, the lower of either $615 per ounce, or
66% of the spot gold price less $435 per ounce, for each ounce of
gold delivered under the Existing Stream Agreement.
- With respect to copper, 51% of the spot copper price, for each
pound of copper delivered.
Suspension of Cost Support
The obligation for Royal Gold to make long-term cost support
payments will be suspended if (and for so long as) Centerra
discloses reserve tonnage which, when combined with mining
depletion from the Reference Date to the announcement date, is less
than the current reserves expected to be processed through to 2035.
Suspension of cost support payments will not impact the Deferred
Gold Consideration and FCF Interest, and the Cash Consideration is
not refundable.
Summary of Future Payments for Mount Milligan Metal
Deliveries
The combined effect of this Cost Support Agreement on the
payments for metal deliveries from Mount Milligan when considered
with the Existing Stream Agreement is summarized in the table
below:
Period:
Jan. 1, 2024 through
~2029
~2030 through ~2035
~2036 and Beyond
Au
Cu
Au
Cu
Au
Cu
Payments for Existing Stream
Agreement:
$435/oz
15% of spot Cu
$435/oz
15% of spot Cu
$435/oz
15% of spot Cu
Additional Agreement:
Delivery Thresholds(1) defining triggers
for cost support payments:
(from Jan. 1, 2024)
Pre-Threshold
(if Au<=$1,600/oz and
Cu<=$3.50/lb)
First Threshold
(after the earlier delivery of
either 375,000oz Au or 30,000t Cu)
Second Threshold
(after the earlier delivery of
either 665,000oz Au or 60,000t Cu)
Cost Support Payments(2)
Lower of $415/oz, or 66% of spot
Au LESS $435/oz
35% of spot Cu
Lower of $415/oz, or 50% of spot
Au LESS $435/oz
35% of spot Cu
Lower of $615/oz, or 66% of spot
Au LESS $435/oz
51% of spot Cu
Combined Effective Payments(3):
If Au<=$1,600/oz and
Cu<= $3.50/lb:
Lower of $850/oz, or 50% of spot
Au(4)
50% of spot Cu
Lower of $1,050/oz, or 66% of
spot Au(4)
66% of spot Cu
Lower of $850/oz, or 66% of spot
Au
50% of spot Cu
All other metal prices:
$435/oz
15% of spot Cu
Notes:
1.
Delivery Thresholds are defined by metal
deliveries under the Existing Stream Agreement, which is
independent from the additional agreements and is used only as a
reference for metal deliveries.
2.
Pre-Threshold Support payments prior to
the First Threshold are at Centerra’s option, and are recoverable
from any cost support provided after the First Threshold is reached
at metal prices above $1,600 per ounce of gold and $3.50 per pound
of copper.
3.
Includes the total amount payable per
ounce of gold or pound of copper when the effect of the Cost
Support Agreement is considered with the Existing Stream
Agreement.
4.
Given the relevant calculations, the Cost
Support payments are only payable above a spot gold price of
$870/oz after the First Threshold, and $660/oz after the Second
Threshold.
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
December 31, 2023, the Company owned interests on 178 properties on
five continents, including interests on 37 producing mines and 22
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.
Forward-Looking Statements: This press release includes
“forward-looking statements” within the meaning of U.S. federal
securities laws. Forward-looking statements are any statements
other than statements of historical fact. Forward-looking
statements are not guarantees of future performance, and actual
results may differ materially from these statements.
Forward-looking statements are often identified by words like
“will,” “may,” “could,” “should,” “would,” “believe,” “estimate,”
“expect,” “anticipate,” “plan,” “forecast,” “potential,” “intend,”
“continue,” “project,” or negatives of these words or similar
expressions. Forward-looking statements include, among others,
statements about the anticipated benefits of the Cost Support
Agreement, including the potential for future extensions of the
mine life at the Mount Milligan Mine; the expected completion of a
Preliminary Economic Assessment by Centerra in the first half of
2025; future deliveries of metals under the Existing Stream
Agreement, including the expected timing of the First Threshold and
Second Threshold; the recovery of any Pre-Threshold Support by
Royal Gold; Orion Mine Finance Group’s anticipated delivery of gold
to Centerra and Centerra’s anticipated delivery of the Greenstone
Deliveries to Royal Gold; the generation of future free cash flow
from the Mount Milligan Mine; and future metal prices.
Factors that could cause actual results to differ materially
from these forward-looking statements include, among others, the
following: a lower-price environment for gold or copper; future
operating activities or financial performance at the Mount Milligan
Mine or Centerra’s other projects; the results of the anticipated
Preliminary Economic Assessment at the Mount Milligan Mine;
permitting and licensing issues; operational disruptions;
contractual issues involving our agreements with Centerra; the
timing of metal deliveries; adverse economic and market conditions,
including as a result of government policies, war, natural
disasters, and public health issues; changes in laws or
regulations; and other factors described in our reports filed with
the Securities and Exchange Commission, including Item 1A. Risk
Factors of our most recent Annual Report on Form 10-K. Most of
these factors are beyond our ability to predict or control. Other
unpredictable or unknown factors not discussed in this release
could also have material adverse effects on forward-looking
statements.
Forward-looking statements speak only as of the date on which
they are made. We disclaim any obligation to update any
forward-looking statements, except as required by law. Readers are
cautioned not to put undue reliance on forward-looking
statements.
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version on businesswire.com: https://www.businesswire.com/news/home/20240213600464/en/
For further information, please contact: Alistair Baker
Vice President Investor Relations and Business Development (720)
554-6995
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