Royal Gold’s subsidiary, RGLD Gold, has entered a stream agreement to secure gold deliveries tied to copper production from the Kansanshi mine in Zambia.
The Kansanshi mine, operated by Kansanshi Mining, is 80% owned by First Quantum and 20% by ZCCM Investments Holdings, which is majority-owned by the Zambian Government.
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The deal involves an advance payment of $1bn (K23.13trn) for a gold stream, with varying delivery rates based on the amount of recovered copper.
The agreement outlines that Royal Gold will receive 75oz of gold per million pounds of recovered copper until 425,000oz are delivered. This rate changes to 55oz and then 45oz as subsequent thresholds are met.
The recovered copper is in concentrate and cathode form, and the stream’s economics are independent of smelter recoveries or gold production at the site.
First Quantum has been granted two options to accelerate stream deliveries and lower the outstanding advance.
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By GlobalDataThe first option is contingent on either First Quantum securing a minimum ‘BB’ or equivalent rating for its senior unsecured debt from a credit rating agency, or achieving a net debt/TTM EBITDA [earnings before interest, taxes, depreciation and amortisation] ratio of no more than 2.25 times for three successive quarters, commencing from 31 March 2026.
The company will be granted a one-year window to activate the option, upon which First Quantum will be obliged to supply gold valued at a maximum of $200m (C$275.49m) over a period of 14 months. This will enable the company to reduce the streaming rates and delivery minimums by as much as 20%.
The second option may be exercised if First Quantum secures at least a ‘BBB-‘ or equivalent rating for its senior unsecured debt from a credit rating agency or demonstrate a net debt/TTM EBITDA ratio not exceeding 1.25 times across four successive quarters.
Additionally, the company will be required to meet specific operational criteria upon which it will be granted a one-year window.
Upon exercising this option, the company must supply gold valued at up to $100m within a span of seven months from the date the option is exercised.
This will enable the company to decrease the streaming rates and delivery minimums by a further maximum of 10%.
Royal Gold will initially pay 20% of the spot gold price per ounce delivered, which may increase to 35% if First Quantum meets specific conditions.
Royal Gold president and CEO Bill Heissenbuttel said: “This large and long-life stream will add another significant gold interest to the enlarged portfolio we are creating with the recently announced transactions for Sandstorm Gold and Horizon Copper, and enhance our position as a premier growth company in the streaming and royalty sector.
“The immediate cash flow from this acquisition paired with the cash flow of the combined Royal Gold, Sandstorm and Horizon portfolios will allow us to rapidly pay down the debt incurred to complete this acquisition.”
To fund the deal, Royal Gold is utilising cash on hand and drawing $825m from its $1bn revolving credit facility.
Additionally, the company has exercised a $400m accordion feature, expanding the facility’s capacity to $1.4bn.
Royal Gold’s available cash, the undrawn capacity of the revolving credit facility and anticipated cash flow are projected to cover all financial commitments.
These include the repayment of outstanding debt from the acquisition of Sandstorm Gold and the cash purchase of Horizon Copper, both due to close in the fourth quarter.
