RE: Tabakorole22 Feb 2021 16:48
I received this very full, timely and impressive response from Steve Poulton, CEO.
Thank you for your email which is very welcome.
In respect of the Tabakorole project, Marvel are required to invest US$3M in direct exploration of the project to increase their holding from 51% to 70%.
In order to increase their shareholding from 70% to 80%, Marvel are required to then undertake and finance a definitive feasibility study. The level of investment required to take the project through to a DFS is not specified, however it would likely be significant.
Altus can then elect to finance the project pro rata (at 20%) into production, or elect to dilute and receive US$1M in cash. As you indicate Altus will also receive milestone stage payments (of $150k and $100k for each of the above).
While the stage payments provide welcome cashflow, the value of the deal is in the investments made by Marvel into the project (that Altus shareholders do not have to finance). While the stage payments are received once, there are in effect two Joint Ventures, one for Tabakorole and one for Lakanfla.
Altus retains a 2.5% NSR on each of these projects. Marvel can elect to repurchase up to 1.5% (in three 0.5% segments) of the NSR on each project, leaving Altus with 1.0% on that project.
The repurchases will require Marvel to pay Altus US$3.33M per 0.5% on that project, equating to approximately US$10M to repurchase the full 1.5%. If the project on which the royalty is being repurchased has a resource greater than two million ounces, the cost to repurchase increases to US$5M per 0.5%, equating to approximately US$15M to repurchase the full 1.5%.
On the basis that the repurchase is on commercial grounds (i.e. the project is or will go in to production), the implied value of the 1.0% NSR retained by Altus would likely be significantly more than US$6.66M. By way of illustration if the mine produced 1Moz of gold in its life, 1% would equate to the proceeds of 10,000 ounces of gold being paid to Altus. At current gold prices the 1% / 10,000oz would be equivalent to approximately US$17M in gross cashflow (undiscounted to take account of the time value of money).
On the conservative assumption of a <2Moz resource and on a hypothetical speculation of 1Moz life of mine production, then if a mine is successfully built, shareholders of Altus could benefit as follows:
Up to 20% ownership and economic benefit from a producing gold mine (and any new discoveries)
Up to US$10M in cash from the 1.5% royalty repurchase
A remaining 1.0% NSR with gross cashflows of US$17M (undiscounted and at current prices)
US$0.5M in cash milestone payments
The same again on the Lakanfla gold project / also under JV with Marvel
Market circumstances (including the price of gold) can change. The above is purely for illustrative purposes and does not constitute any form of advice or recommendation.
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