Well, here we go...
Royal Gold Increases Gold Stream Interest in the Mt. Milligan Project to 52.25%
DENVER--(BUSINESS WIRE)-- Royal Gold, Inc. (NASDAQ:RGLD) (TSX:RGL) today announced it has agreed to acquire, through its wholly-owned subsidiary RGLD Gold AG, an additional 12.25% of the payable gold produced from the Mt. Milligan copper-gold project, located in British Columbia, from a subsidiary of Thompson Creek Metals Company, Inc. ("Thompson Creek") (NYSE:TC; TSX:TCM). Consideration for the new transaction is $200 million and cash payments equal to the lesser of $435 or the prevailing market price for each payable ounce of gold delivered to Royal Gold (the "Delivery Payments"). The structure of the Delivery Payments is unchanged from the Mt. Milligan transaction announced in December 2011. The new transaction is subject to the satisfaction of various conditions, including, among other things, Thompson Creek receiving final approval for an amendment to its senior secured revolving credit agreement satisfactory to Royal Gold and approval of the new transaction by the lenders thereunder within 30 days. Thompson Creek is currently in negotiations with its lenders to obtain these approvals.
Combined with the prior transactions completed in July 2010 and December 2011, Royal Gold will be entitled to 52.25% of the payable gold produced from Mt. Milligan for total consideration of $781.5 million and the Delivery Payments. To date, Royal Gold has paid approximately $454.6 million to Thompson Creek and will pay $75.0 million following closing of the new transaction and the remaining $251.9 million in five scheduled quarterly payments commencing on September 1, 2012 and ending on September 1, 2013.
Tony Jensen, President and Chief Executive Officer, commented, "We welcome the opportunity to further support Thompson Creek in the development of Mt. Milligan. Our view of the project has not changed and we continue to believe Mt. Milligan is an attractive investment for Royal Gold, with over two decades of mine life, located in the excellent host country of Canada."
The Mt. Milligan project is in an advanced stage of construction, and Thompson Creek estimates that commercial production will commence in late calendar 2013. Thompson Creek also reported that as of June 30, 2012, EPCM progress is 99% complete for project engineering, 94% complete for procurement, 51% complete for construction, and overall progress is at 69%. Thompson Creek, per a National Instrument 43-101 technical report regarding the Mt. Milligan project filed on SEDAR on October 13, 2011, has reported that proven and probable reserves total 482 million tonnes (0.20% copper; 0.39 g/t gold), containing 2.1 billion pounds of copper and 6.0 million ounces of gold. In addition to copper production, the technical report estimates gold production to be approximately 262,000 ounces annually during the first six years of operation and 194,000 ounces annually over the life of the mine.
Understand what you are saying. But Tony Jensen's comments (Royal Gold's CEO) seem very positive, and I believe he would have tempered his comments more had there been some foreseeable issues. Even withstranding the fat that their liability is basically secured debt.
Royal is foaming at the mouth. Of course they want to give tc the money. Who wouldn't they want gold at under $450.00 per ounce. Knowing tc it probably will cost them more than that to get it out of the ground. As I said in past post tc will need more money. Tc will bleed you down a $1.00 a share. That puts tc at $1.50. Kevin can state all he wants that they have enough money like he has 2 times before. But for all the good news as you say why is tc under $3.00 like I said and soon to be under $2.00. Soon means 12 months. Even worst for you is when the mine is finished based on loans dilution etc. tc stock will still be trading under $3.00. They just have to much debt. You have to be in this stock for 5 to 10 years before it gets going at this point. I can assure you that their are many better chances with other stocks. SO my advice to all holders of tc is that you now must buy royal gold. With the purchase of tc and royal at the same time you are buying insurance for tc. For my followers that don't own tc I recommend to wait. So here is a saving grace aspect for tc holders if tc should have a merger or go down on its side since it already sunk in my ocean at least you get salvage rights.
I can assure you that no one is crossing their fingers. The creditors will be more than happy to allow this to happen. Hmmm, someone wants to pump $200m into the company they loaned debt to. Let's see... should we, shouldn't we? Who wins BIG with this is the 12.5% loans. They are now guaranteed to be paid out. The reason those loans were made so high was because of the risk of TC. Even though it was small, there was some risk of default. Now it's gone. You are fear mongering for no reason at all. If this is honestly the "last hurdle" to overcome as you say, then we are sitting pretty.
Royal Gold seems to believe this amendment will be approved already next week.
They said yesterday that they expect to pay the first payment of their new deal to TC next week upon completion of the amendment.
"Or else what?"
One more significant hurdle to overcome.
They will be in default of one (or more) covenants on their credit agreement, for the quarter ending 9/30.
They need either an amendment, modification, or forebearance from their bank syndicate on their senior credit facility covenants, specifically the consolidated total secured debt to consolidated EBITDA ratio.
They will be in default for the quarter ending 9/30.
Most credit agreements require ten day notification from the period end date (in this case, 9/30), if debtor has reason to believe they will be in default on any material covenants. So they have to officially tell the bank by 10/10.
Without modification before then, they will be in default of their credit agreements as of 10/10. The new Royal Gold gold stream sale is subject to modification of such, to RGLD satisfaction, of such.
Tipping the credit agreement into default triggers cross-default provisions of their Cat Equipment Financing Facility, as well as existing gold stream arrangements with RGLD.
Everything will be callable, at the demand of the creditors at that point. Lights out for equity holders...
Their talking to their bankers now. By 9/30 we should know something via an 8K disclosure. Certainly no later than 10/10.
This is the last major hurdle for a while, but one that must be cleared, or its curtains for us.
Doubtful their banking syndicate will choke them (deny amendment/modification), since doing so means they'll be choosing to seek recovery of unpaid, outstanding borrowings under their senior revolving facility debt via a 363 auction of assets.
Bankers don't like to wear that distinction (forcing their debtors into bankruptcy court) if their debtors have the wherewithal to pay.
Which TC will have in coming quarters.
But rest assured, these next 45 days are critical, since TC is categorically stating they WILL be in default of this covenant for the quarter ending 9/30.
Cross your fingers and good luck.
Not sure how you read that as assured future dilution, isn't that just boilerplate legalese describing why they're selling the final 12.25% gold stream to RGLD and what it will take to get it approved, with contingency financing plans if it is not?
Well - better than bankruptcy.
What makes me uneasy is the low price Royal Gold is paying per ounce... - 435 + (780/3) = 695 - do we really believe TC can deliver an ounce of gold for 695$ for 20 years to come? (- and ifyou thinkTC will recover 8 million ounces instead of 6 it will look like 435+ (780/4) = 630$ per ounce...
e.g. if the price of gold stayed at 1630$ and real cost was 1000$ per ounce, TC would earn 630 on the around 50% of production which they get to keep for themselves: to equal out the 300 to 400$ / ounce "loss" on the Royal Gold deliveries they get to keep only around 200-300$ per ounce. 3-4 million times 200-300 = the money earned from their "own" gold would be worth 600-1200 million: not even enough to pay the construction cost of Mt. Milligan (- not to speak of the cost for servicing the debt...). What it all means is, that the future copper production / copper earnings can't be thought of as "for free", but have to earn their part of the construction cost... - if there's 2 billion pounds of copper to be produced and you need (worst case) subtract 1 billion$ for the construction of the mine (the rest being payed by the gold revenue), it already eats away 0.50$ revenue per pound copper produced... - with copper prices / revenue around 3.50$ per pound that's already a considerable part.
But what do I know - I have no clue about mining, copper or gold, I'm just a silly nurse who entered TC at 12.20$ and held it all the way down... just praying for a rising price of gold... (- could well double or triple if you asked me...).
To look on my calculation example from the other way: Royal Gold could be earning 900-1000$ per ounce - that could be 3-4 billion over the life of the mine.
Compare that to maybe 1.5 to 2 billion TC might be making (remember the 2 billion pounds of copper), you can say Royal Gold get's 2/3 of the pie while only being on the hook for maybe 50% of mine cost. (Royal Gold pays 780 million, mine cost would be 1560 million in that calculation).
(Well I have to admit I don't know if earning 0.75-1$ per pound of copper is realistic - after subtraction of 0.50 as I said in my last post for the construction cost of Mt. Milligan.)
stadpark, you're forgetting the interest on the $750m. Factor that in at 12.5% (which is the price TC paid for its other loan) and it adds up. If TC could actually get a loan for $750m at 12.5% (not possible really), it would take them a while to pay it off. Interest on $750m at 12.5% is $94m a year, or an extra $31 per ounce of gold. The actual cost to Royal Gold will be much more than $695 an ounce due to this.