Another day, another deal from Trident Royalties PLC (LON:TRR). The recent newcomer to Aim promised its cornerstone investors a swathe of deals once it got listed, and now, with its £16mln raise in the bank, it’s beginning to deliver.
Following on from the cashflow generating iron ore and a copper deals already announced, the latest is the acquisition of a royalty on the Spring Hill gold project in Northern Territory, Australia, from Thor Mining PLC (LON:THR)(ASX:THR).
Industry veterans will recall that Thor once owned and operated Spring Hill itself, but recently sold the project on to a private concern, PC Gold, retaining a royalty as part of a hedge against any uplift in the gold price.
That uplift has now happened, and Thor is cashing in, but on terms more than advantageous to Trident too since most of the payment will be delivered further down the line.
Trident will pay A$400,000 up front for the royalty, which is itself pegged to the gold price, and will run at A$5.70 per ounce of gold produced if the gold price goes below A$1,500 per ounce, and will run at the much higher A$13.30 if gold is higher. The current Australian gold price is upwards of A$2,560, so if and when Spring Hill gets back into production, Trident can be confident of significant cash flow.
The existing resource amounts 350,000 ounces, but there’s certainly potential for more.
Trident’s Tyron Rees describes the project as only ever having been “lightly drilled” and says that although only operating on estimates the company’s competent person reckons there could be as much as a million ounces overall at Spring Hill.
That, in the end, was never enough for Thor to make a go of it as a standalone project, since the cost of constructing plant in that location would have been prohibitive, and it looks as though the new owners, PC Gold, are of the same mind.
But that’s all to the good as far as Trident is concerned. Rumours have long been swirling that Kirkland Lake Gold (TSE:KL) might be interested in developing Spring Hill as a satellite deposit to its own Union Reef plant, which lies around thirty kilometres away. Now, Kirkland Lake itself might be upping sticks out of the area, given that it’s become fully occupied in digesting its acquisition of Detour Gold, back on its Canadian home turf.
But either way, the Trident bet is that Kirkland, or whoever comes in afterwards to Union Reefs, will look south and want to get Spring Hill into production as a satellite in double quick time. After all, the moment couldn’t be more propitious, with the Australian gold price having punched through several new all-time highs already this year.
Trident has hedged its risk though, and in so doing has laid out a template for the cautious way it plans to set about doing business as it builds its royalty portfolio. After that initial A$400,000 Thor, won’t see any more money till Spring Hill gets into production. At that point staged payments kick in, and Trident can elect to settle those either in cash or shares.
So, it’s conceivable that Trident won’t end up paying any more than A$400,000 in cash for what could end up being a A$5mln royalty. That’s a nice way of doing business if you can pull it off and, although the return may be a couple of years away, remember that Trident will already have cash coming in from existing and already producing royalties.
Deals like this, though relatively small, are all about securing the future.