Thompson Creek raises $270M with gold stream sale

Thompson Creek Metals (TCM-T, TC-N) has pre-sold another chunk of future gold production from its Mt. Milligan copper-gold project in B.C. to Royal Gold (RGL-T, RGLD-Q) in the face of a softened molybdenum market and two mines under construction.

Royal Gold has agreed to pay $270 million for the right to buy 15% of gold production from the future mine at US$435 per oz., or the market price, if it somehow dips lower than that. Royal Gold is to pay $112 million of the price to Thompson three days after the deal goes through and the rest in quarterly installments during construction, scheduled to finish in late 2013.

The deal is part of an amendment to a late 2010 agreement that gave Royal the right to buy 25% of gold production in exchange for $311.5 million. The update also adjusts the payment prices, with the original deal set at US$400 per oz. for the first 550,000 oz. and US$450 per oz. after that, while the new deal simply has Royal buying 40% of total gold production for the set US$435 per oz. price.

Thompson Creek is not exactly desperate for cash – at the end of September it had access to $878 million in funding. The company’s diversified credit sources include $365.4 million in cash, $295.4 million left from a revolving credit facility, $132 million from equipment financing and $85 million left from the original gold stream proceeds.

But at the end of September the company also faced $961.1 million in remaining capital costs from its Endako expansion and Mt. Milligan construction, with $882 million in capital costs to cover at Mt. Milligan and $79 million for its 75% share of Endako. 

Meanwhile, molybdenum oxide prices have dropped from around US$17 per lb. in the first half of the year to below US$14 per lb. in recent months, which will cut into revenue from its producing Thompson Creek and Endako mines.

Raising money through equity would also be challenging. The company’s share price has dropped from a 52-week high of $15.43 in January to a 52-week low of $5.79 in October, and has since struggled to break $7.50. The low share price also meant that 24.5 million $9 warrants expired unexercised in October. On news of the gold stream deal the company’s share price climbed 8¢ to $6.79.

Mt. Milligan sits 145 km northwest of Prince George in B.C. and hosts proven and probable reserves of 531.8 million tonnes grading 0.2% copper and 0.38 gram gold per tonne, for 2.1 billion lbs. copper and 6 million oz. gold. Average annual production over its 22-year mine life is expected to be 81 million lbs. copper and 194,000 oz. gold, including higher production in the first six years with 89 million lbs. copper and 262,000 oz. gold.


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