Resolute Mining Limited (ASX:RSG) (LON:RSG) has agreed to terms with Taurus Funds Management for the acquisition of the 1.1% royalty held by entities associated with Taurus over gold production from the Mako Gold Mine in Senegal.
The termination value of the royalty has been agreed at US$12 million with consideration to be paid in cash or in shares at the election of the royalty holders.
Value accretive deal
Resolute managing director and CEO John Welborn said: “Acquisition of the Toro Gold Royalty will boost the future cash flows received by Resolute from Mako and further enhances our exposure to higher gold prices and future exploration success.
“We are working to simplify the company’s capital and debt structure and the termination of this external royalty on sound financial terms is value accretive for Resolute.”
The royalty was established in 2017 as part of the project funding arrangements put in place by Toro Gold for the construction of Mako.
Under the terms of the royalty Resolute is required to pay to the royalty holders an amount of 1.1% of the gold revenues associated with the first 1.4 million ounces of gold mined from Mako.
The royalty contained a change of control provision which provided the royalty holders with the ability to demand a termination sum upon a change of control in Toro Gold.
The termination sum was to be calculated by multiplying future gold production with the spot price and the applicable royalty rate.
Resolute’s acquisition of Toro Gold during 2019 constituted a change of control event resulting in an ability for the royalty holders to demand the Toro gold royalty termination sum.
As part of establishing the US$130 million Toro Gold acquisition bridge facility, Resolute deferred the termination of the Toro Gold Royalty until such time the company had repaid the acquisition bridge facility and the existing Mako project loan.
Resolute has now negotiated the opportunity to acquire the Toro Gold Royalty for the termination sum of US$12 million.
Taurus finance facilities to be repaid this quarter
The termination sum will be paid in cash or in Resolute shares at the election of the royalty holders within five business days of the repayment of all amounts outstanding under the finance facilities provided by Taurus.
If the royalty holders elect to receive Resolute shares as consideration, these shares will be priced at $1.10, the same price as Resolute’s recent equity raising.
Repayment of the finance facilities provided by Taurus is expected to occur during the March 2020 quarter.
Refinancing in progress
The US$130 million Toro Gold acquisition bridge facility will be repaid by the end of January 2020 with proceeds from Resolute’s recent equity raising.
The original Toro Gold project loan has a current outstanding balance of about US$63 million and will be repaid from cash reserves within Toro Gold and the expansion of Resolute’s syndicated loan facility.
Resolute is currently on track to complete the refinancing of the company’s existing syndicated loan facility by the end of February 2020.The agreed terms for the acquisition and removal of the Toro Gold Royalty will greatly simplify the refinancing process.