Royal Gold Announces Acquisition of High-Quality Silver Stream on Khoemacau Copper Project

DENVER–(BUSINESS WIRE)–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.

Contacts

For further information, please contact:
Alistair Baker
Director,
Business Development
(720) 554-6995

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