Versamet Royalties (TSXV: VMET) has agreed to purchase a primary gold stream at the Eskay Creek Project (TSX: SKE; NYSE: SKE) in British Columbia in a $360 million deal that represents the royalties company’s largest transaction to date.
The stream gives Versamet access to 3.5% of gold production payable over the life of the mine, without any caps, rebates or buyback provisions, according to a statement on Monday. The acquisition is expected to close in the first half of this month, subject to customary approvals and the closure of the planned Skeena project. A financing package worth $750 million.
“With this acquisition, Versamet adds high-quality assets to its portfolio, with positive near-term cash flow on the horizon that will further amplify its free cash flow yield (at 9.7%), which is already the highest among its equity and flow peers,” National Bank Financial mining analyst Alex Terentiew said Monday in a note to clients.
Versamet shares rose 7.9% to C$14.95 Monday afternoon in Toronto, boosting the company’s market value to about C$1.6 billion ($1.2 billion). Skeena shares fell 0.7% to C$42.75 for a market value of about C$5.2 billion ($3.7 billion).
Redevelopment
The agreement calls for Versamet to pay $340 million in cash and $20 million in stock to funds managed by Orion Resource Partners and affiliates of Blackstone. For an ounce of gold delivered to the gold stream, Versamet will make ongoing cash payments equal to 10% of the spot gold price at the time of delivery.
Located in British Columbia’s prolific Golden Triangle, Eskay Creek is a formerly producing gold and silver mine that Skeena is developing as an open-pit redevelopment project. Construction is 49% complete as of late February, with first production targeted for the second quarter of 2027.
Eskay Creek operated from 1994 to 2008, producing approximately 3.3 million ounces. Of gold and 160 million ounces. Of exceptionally high grade silver. Until its closure, the underground mine was among the highest-grossing precious metals operations in the world.
The 2023 feasibility study identified measured and indicated resources of 50.1 million tonnes grading 2.6 grams gold and 63 grams silver per tonne for minerals containing 4.1 million ounces. Gold and 101.4 million ounces. silver.
The study predicted an average annual production of about 455,000 ounces of gold equivalent. In the first five years and 370,000 oz. During the first decade. Mine lifetime production has been pegged at 2.8 million ounces. Gold and more than 81 million ounces. silver.
Canadian exposure
The stream is expected to contribute more than 10,000 ounces. of gold annually in the first five years of operation. This will bring Versamet’s portfolio exposure to Canada to approximately 50% by 2028.
Because the flow is unlimited, and has no divestment or buyout provisions, the acquisition gives Versamet exposure to mine life extensions, Terentiew said. Although the 2023 feasibility study has set the life of the mine at 12 years, resource growth should extend beyond that timeline, he added.
Versamet will finance the $340 million cash portion of the acquisition through an amended and restated credit facility. Its current revolving facilities will increase from $200 million to $250 million, maturing in March 2029, while new facilities worth $150 million will be established, maturing in March 2028.
