New York – Thompson Creek Metals Co has amended its gold stream agreement with Royal Gold, so that the royalty company will now purchase an additional 12.25 percent of the refined gold production from the Mt. Milligan copper-gold mine for $200 million, plus $435 per ounce.
Thompson Creek has been weighed down this year by significantly lower molybdenum production, higher unit costs and lower average realized prices. This has created a financing squeeze that jeopardizes the development of the its Mt. Milligan copper-gold mine in British Columbia.
In fact, New York-based investment bank Dahlman Rose & Co said just yesterday that Thompson Creek could run out of money in the first half of 2013 if it didn’t develop a plan to sell a portion of the Mt. Milligan output or issue additional equity.
Upon the closing of this newest transaction, Thompson Creek will have agreed to sell to Royal Gold a total of 52.25 percent of the refined gold production from the Mt. Milligan project and Royal Gold’s aggregate investment in the project will have increased to $781.5 million.
Thompson Creek believes that this commitment from Royal Gold should persuade its lenders to open the lines of credit needed to complete the build-out at Mt. Milligan.
“When we completed our financing transactions in May 2012, our funding plan for the completion of Mt. Milligan assumed that we would be able to access our existing financing sources,” Kevin Loughrey, Thompson Creek chairman and CEO, said.
“Given the prolonged worldwide economic volatility, the continued decline in molybdenum prices, and short-term operational issues that we experienced in the second quarter of this year, we had negative operating cash flow of $20.4 million in the second quarter which caused us to re-evaluate our current operating plan at the Endako (molybdenum) mine and secure additional financing for the construction of Mt. Milligan,” he added.
The consummation of this transaction is subject to the condition that Thompson Creek receives final approval for an amendment to its senior secured revolving credit agreement satisfactory to Royal Gold and approval of the Royal Gold transaction by the lenders within 30 days.
“We believe that the terms of this transaction and its timing make it the best alternative available to ensure that construction continues to proceed in accordance with our development plan,” Loughrey said.
Mt. Milligan remains on schedule, with commissioning and start-up expected to commence in the third quarter of 2013 and commercial production of copper and gold expected in the fourth quarter of 2013, Thompson Creek said.
Mt. Milligan is expected to produce 90 million pounds of copper and 200,000 ounces of gold in its first full year of production.
Thompson Creek estimates an aggregate of approximately $1.4-$1.5 billion to construct and develop the Mt. Milligan copper-gold mine, of which approximately $635-$765 million of cash expenditures remain to be spent as of June 30, 2012.