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“The purchase of these gold prepay and stream facilities and the offtake agreement increases our direct exposure to the cash flow generated by the Tier 1 Fruta del Norte mine, in-line with our stated growth strategy. The acquisition is expected to be earnings accretive with the gold prepay and stream facilities expected to provide Newcrest with economic exposure to approximately 400,000 ounces of gold from the mine between 2020 and 2026. With gold prices at the levels we see today, Newcrest expects to receive significant cash flows which will rank ahead of Lundin Gold’s equity holders.”
Sandeep Biswas
Managing Director and Chief Executive Officer
Newcrest Mining Limited.
Lundin Gold Inc. announced yesterday that Newcrest Mining Limited has acquired the project financing package provided to Lundin Gold’s Fruta del Norte mine in Ecuador by Orion Mine Finance Group and funds managed by Blackstone Tactical Opportunities.
The Orion and Blackstone project financing package, which was put in place in 2017, is comprised of a gold prepay credit facility for $150 million, a stream loan credit facility of $150 million and an offtake agreement for 50% of gold production from Fruta del Norte, up to a maximum of 2.5 million ounces. The gold prepay and stream facilities were fully drawn by Lundin Gold by early 2018 to fund the development of Fruta del Norte.
“We are grateful to the commitment that Orion and Blackstone made to the development of Fruta del Norte at a critical time to us. Their investment in Lundin Gold was a turning point in the success of the Project,” said Ron Hochstein, Lundin Gold President and CEO. “Newcrest’s continued support for and investment in Fruta del Norte speaks to the tremendous potential of this unique deposit.”
Orion and Newcrest are both significant shareholders of Lundin Gold, holding 10.79% and 31.85% of the Company’s outstanding shares respectively. The acquisition of the Orion and Blackstone project financing package does not entail a change in either shareholder’s position in Lundin Gold.
Key deal terms
- $460 million cash consideration for the shares of the companies that hold the Facilities
- The book value of the Facilities as at 31 December 2019 in the financial statements of Lundin Gold Inc was approximately $552 million, which implies a book value ratio of ~0.83x
- Applying analyst consensus long term gold price of approximately $1,400/oz to the projected life of mine
production, the estimated yield on the gold prepay and stream facilities is approximately 6%2 - Applying a spot gold price of approximately $1,700/oz the estimated yield is approximately 11%
- Newcrest, as a lender under the Facilities, will receive cash flows from the Fruta del Norte mine, with approximately 34% of free cash flows from the mine estimated to be directed to service the Facilities over the next 5 years, ahead of Lundin Gold equity holders, assuming a gold price of $1,400/oz
- Newcrest acquires a customary lender security covenant package, which includes a requirement for Lundin Gold to seek approvals from the senior lenders and Newcrest as subordinated lender under the Facilities for any material amendments to the mine plan, financial model and operating budget
The terms of the gold prepay and stream credit facilities and the offtake agreement have not changed as a result of this transaction.
Newcrest Managing Director and Chief Executive Officer, Sandeep Biswas, said “The purchase of these gold
prepay and stream facilities and the offtake agreement increases our direct exposure to the cash flow generated
by the Tier 1 Fruta del Norte mine, in-line with our stated growth strategy. The acquisition is expected to be
earnings accretive with the gold prepay and stream facilities expected to provide Newcrest with economic
exposure to approximately 400,000 ounces of gold from the mine between 2020 and 20263. With gold prices
at the levels we see today, Newcrest expects to receive significant cash flows which will rank ahead of Lundin
Gold’s equity holders.”