First Quantum scores $1B Royal Gold streaming deal

Canadian miner First Quantum Minerals (TSX: FM) has secured a $1-billion (C$1.38 billion) gold streaming deal with a subsidiary of Royal Gold (Nasdaq: RGLD), the companies announced Tuesday.

The agreement provides First Quantum with the full sum upfront in exchange for future gold produced as a by-product at its Kansanshi copper mine in Zambia. In a gold streaming arrangement, the buyer pays upfront for the right to purchase a portion of future gold production, usually at a predetermined, discounted rate.

For First Quantum, the deal allows it to increase gold exposure over time and boosts its financial flexibility as it advances the $1.3-billion S3 expansion at Kansanshi. The mine’s combined copper and gold output makes it especially well-suited to streaming deals, enabling the company to monetize gold by-product production without diluting its copper focus.

Shares in First Quantum Minerals gained 4.6% on Monday in Toronto to C$23.21 apiece, valuing the company at $18.8 billion. It has traded in a 52-week range of C$13.81 to C$25.96. Royal Gold rose 1.4% to $158.56 in New York for a market capitalization of $10.5 billion. The stock has varied between $127.31 and $191.78 over the past year. 

Cash flow

Royal Gold expects to receive around 12,500 oz. from the stream in 2025 and projects an average annual delivery of 35,000 to 40,000 oz. over the next decade. The company said the deal offers immediate cash flow from a long-life, large-scale asset.

First Quantum will deliver gold to Royal Gold based on copper output: 75 oz. per million lb. of recovered copper until 425,000 oz. are reached, then 55 oz. per million lb. until a further 225,000 oz., and finally 45 oz. per million lb. thereafter.

In addition to the upfront payment, First Quantum will receive 20% of the spot gold price per oz, delivered, which may increase to 35% if specific credit or leverage targets are met.

The transaction is set to close Wednesday.