Royal Gold, through its wholly-owned subsidiary RGLD Gold AG, owns the right to purchase 35% of the payable gold and 18.75% of the payable copper produced from Mount Milligan (the “Existing Stream Agreement”). Payable gold is calculated as 97% of contained gold in concentrate. Payable copper is calculated as the greater of 95% or the actual percentage paid to Centerra. The cash purchase price for gold is equal to the lesser of $435 per ounce, with no inflation adjustment, or the prevailing market price when purchased. The cash purchase price for copper is 15% of the spot price.
In February 2024, Royal Gold announced an additional agreement with Centerra to provide cost support to allow an extension of the Mount Milligan mine life to 2035 and offer the potential for a future mine life increase (the “Cost Support Agreement”). This agreement provides for additional cash purchase prices for gold and copper deliveries in three periods, which are defined by gold and copper deliveries.
After including the effect of the Cost Support Agreement, the combined effect of the cash payments for gold and copper deliveries is as follows:
Metal deliveries to Royal Gold typically occur up to 5 months after production at Mount Milligan due to the time required to ship concentrate from the mine site to the smelter and the payment provisions of the offtake contract.
Royal Gold also holds a life of mine free cash flow interest (“FCF Interest”), payable annually, of 5% of the cumulative free cash flow generated from Mount Milligan after the earlier of (i) the first fiscal year following delivery of both 375,000 ounces of gold and 30,000 tonnes of copper from January 1, 2024, and (ii) January 1, 2036. The FCF Interest will increase to 10% after the earlier of (i) the first fiscal year following the delivery of both 665,000 ounces of gold and 60,000 tonnes of copper from January 1, 2024, and (ii) January 1, 2036.
Free cash flow is defined as gross revenue less total costs including treatment and refining costs, operating costs, exploration costs, capital costs and the net stream costs. FCF Interest payments will not be payable if the free cash flow is negative in a given calendar year, and Centerra is entitled to recover any negative free cash flow before FCF Interest payments resume.