Leading precious metals streaming company Royal Gold (NASDAQ: RGLD) has signed a definitive agreement to acquire all of the issued and outstanding shares of Great Bear Royalties (TSXV: GBRR) for a cash consideration of $6.65 per share. The acquisition price represents a 43% premium to GBR's 20-day volume weighted average trading price on the TSX Venture Exchange up to and including July 8, valuing the company at approximately $199.5 million on a fully diluted basis.
Great Bear Royalties' main asset is a 2% net smelter return royalty that covers the entirety of the Great Bear project in the Red Lake district of Ontario indirectly owned and operated by Kinross Gold (TSX: K; NYSE: KGC). As part of the due diligence process, Royal Gold entered into a co-operation agreement with Kinross that provided it access to Kinross personnel and certain non-public information pertaining to the Great Bear project.
In exchange, Royal Gold will amend certain terms of the royalty agreement upon closing of the acquisition, including providing an option to Kinross to purchase a 25% interest in the royalty for an amount equal to 25% of the purchase price of GBR, adjusted for inflation, at any time from the transaction closing date until the earlier of: a construction decision on the project, or 10 years after the transaction closing date.
"The royalty represents one of the few royalty interests that meets all the characteristics we seek in our investments, namely the high quality of management, project and jurisdiction. Our unique approach to the transaction allowed us to work closely with Kinross to understand the technical aspects of the Great Bear project and their vision for the development of what I believe will be a top-tier asset in terms of production and mine life," Bill Heissenbuttel, president and CEO of Royal Gold, commented.
Acquired by Kinross earlier this year, the Great Bear project is dubbed as one of the most important gold discoveries in Canada in recent years.
The property is located 25 km southeast of the town of Red Lake, Ont., and comprises 9,140 hectares of contiguous claims. The project has significant exploration upside, given that about 80% of the property remains unexplored to this day.
Kinross is undertaking a comprehensive exploration and development program at the Great Bear project to support its vision of a large, long-life mining complex, which includes an initial high-grade open-pit mine and potentially a longer-term, sizeable underground mine. An initial mineral resource is expected by the end of 2022, followed by a pre-feasibility study.
Prior to its acquisition, the Great Bear project has seen more than 340,000 metres of drilling in 794 drill holes, leading to five high-grade gold discoveries. The most significant discovery is the large-scale LP fault zone, which measures 10.8 km in strike length and displays similar geological features to Barrick Gold's (TSX: ABX; NYSE: GOLD) Hemlo deposit. About 200,000 metres of drilling are planned at the LP fault zone this year.
Commenting on the deal in a research note to clients, Raymond James mining analyst Brian MacArthur noted that the transaction "provides RGLD with longer term growth from a project with a strong operator in a low-risk jurisdiction."
Jackie Przybylowski, an analyst at BMO Capital Markets, described the deal as positive for Royal Gold, noting that "the Great Bear project is still in its early stages, and we expect it will continue to grow in value as exploration continues and as de-risking activities move toward production."