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Royal Gold Inks Deal With Cupric to Acquire Silver Stream

Zacks Equity Research

Royal Gold, Inc. RGLD and its wholly-owned subsidiary RGLD Gold AG has entered into a silver mine life purchase agreement with Khoemacau Copper Mining Limited (“KCM’’), subsidiary of Cupric Canyon Capital LP. The agreement highlights the purchase and sale of silver, produced from the Khoemacau Copper Project in Botswana.

Khoemacau is copper producer with annual copper production of approximately 62,000 tonnes. The Khoemacau Copper Project has an expected initial mine life of 21 years.
 
Per the agreement, Royal Gold will make an advance payment of $212 million to Cupric for the silver stream in exchange of 80% of the silver production from the Khoemacau project. The payment will be made in quarterly instalments, scheduled as, $60 million in third and fourth quarters of 2019, $125 million in 2020 and the balance in 2021.

Moreover, at Cupric’s option, Royal Gold will pay an advance of an additional $53 million for the option stream toward the end of the project development for another 20% of the silver produced from Khoemacau. Royal Gold will pay spot price of 20% for each ounce of silver delivered.

Cupric estimates development costs of $480 million after closing of the transaction, which includes capitalized interest of $25 million, with an additional $100 million to refinance the existing debt held by Red Kite Mine. Royal Gold will contribute up to $25 million for the overrun facility, while Red Kite will provide a project debt facility of $275 million. Royal Gold will avail funding of $75 million for project development from Cupric.
 
Royal Gold expects silver deliveries of 1.5 million ounces per annum at 80% stream rate, with initial deliveries probably starting in the first half of 2021. The transaction will be funded in cash and $1 billion available under a revolving credit facility.
 
In the fiscal second quarter, Royal Gold recorded adjusted earnings per share of 36 cents against a loss of 23 cents in the prior-year quarter. However, revenues declined due to lower average gold, silver and copper prices as well as a drop in overall sales and production.

For fiscal 2019, Royal Gold expects improved results backed by several positive catalysts, including the beginning of production at Cortez Crossroads, early deployment of the Peñasquito Pyrite Leach Project and higher production at Rainy River. It will also be aided by preliminary economic assessment at the Peak Gold joint venture.

Royal Gold, Inc. Price and Consensus

Royal Gold, Inc. Price and Consensus | Royal Gold, Inc. Quote

Zacks Rank & Stocks to Consider

Royal Gold currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the basic materials space include Rio Tinto plc RIO, Franco-Nevada Corporation FNV and Israel Chemicals Ltd ICL. While Rio Tinto currently sports a Zacks Rank #1 (Strong Buy), Franco-Nevada and Israel Chemicals carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Rio Tinto has an expected earnings growth rate of 5.1% for 2019.
 
Franco-Nevada has an expected earnings growth rate of 11.2% for 2019.
 
Israel Chemicals has an expected earnings growth rate of 11.1% for 2019.

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