New Gold Inc. announced yesterday that it has entered into a $175-million streaming agreement with RGLD Gold AG, a wholly-owned subsidiary of Royal Gold Inc.
Under terms of the agreement, Royal Gold will provide New Gold with a deposit of $175 million, to be used for the ongoing development of the company’s Rainy River project, in exchange for a percentage of the future annual gold and silver production from it.
“This transaction provides our company with an attractive cost of capital,” said New Gold executive chairman Randall Oliphant.
“It further strengthens our financial position as construction at Rainy River continues,” he noted.
“By partnering with Royal Gold, we have been able to secure over 20 percent of the remaining development capital for less than six percent of the estimated future revenues,” noted Oliphant.
“It increases Rainy River’s rate of return to our equity holders by approximately three percent.
“In addition, we have structured the stream in a manner that maximizes our exposure to both the continued exploration potential of the Rainy River District and long-term gold and silver prices,” he added.
“We are delighted that Royal Gold’s enthusiasm for the project is entirely consistent with ours and we look forward to completing the development of Rainy River for the benefit of all stakeholders.”
“The Rainy River project fits well into our high-quality
portfolio and met all our criteria for new investments with nearly four million ounces of gold reserves, continued exploration upside, and projected cash costs below $600 per ounce,” said Tony Jensen, president and CEO of Royal Gold.
“We are particularly pleased to add another piece of business in Canada and partner with New Gold—a company that is well-known for its development track record and operational expertise,” he noted.
Under the terms of the agreement, Royal Gold will provide New Gold with a deposit of $175 million in exchange for the delivery by New Gold of a percentage of the future gold and silver production from the Rainy River project.
Royal Gold has paid $100 million of the deposit concurrent with entering into the transaction.
The remaining $75 million will be paid when 60 percent of the estimated project development capital has been spent and other customary conditions precedent are met.
Based on the currently planned timing of development capital expenditures, it is estimated that 60 percent of the project development costs will have been spent by mid-2016.
Upon the start of production at Rainy River, New Gold will deliver 6.50 percent of the project’s monthly gold production, and 60 percent of the monthly silver production, to Royal Gold until a total of 230,000 ounces of gold and 3.1 million ounces of silver have been delivered.
Once each of the ounce thresholds has been satisfied, the stream percentage for that metal will decrease by 50 percent, such that New Gold will be required to deliver 3.25 percent of the project’s gold production and 30 percent of the silver production.
In addition to the $175-million deposit, Royal Gold will be required to pay New Gold in cash 25 percent of the average spot gold price and silver price at the time the stream ounces are delivered.
The gold and silver stream will cover future production from New Gold’s current Rainy River land package, plus an additional two-km area of interest.
But it excludes any potential future mineralization discovered on New Gold’s Off Lake exploration claims located several kilometres to the northeast of the Rainy River deposit.