Minera Kennecott S.A. De C.V. has agreed to sell its 2% net smelter return royalty on the Penasquito project in Zacatecas, Mexico to Royal Gold (RGL-T, RGLD-Q) for US$100 million.
The transaction, expected to close in early 2007, consists of US$80 million in cash and 677,434 shares of Royal Gold common stock.
The Penasquito project is operated by Vancouver-based Goldcorp (G-T, GG-N), which acquired the property when it merged with Glamis Gold for US$8.6 billion in November.
Glamis Gold acquired Penasquito for US$1 billion when it merged with Western Silver last May, which bought the property from Kennecott (a division of Rio Tinto (RTP-N)) in 1998.
There are two main deposits under development Penasco and Chile Colorado both large, low-grade, bulk tonnage polymetallic projects that include gold, silver, zinc and lead.
“We are very pleased to obtain this substantial royalty on a world class, long-life project,” said Royal Gold president and CEO Tony Jensen in a statement.
The Penasquito project has proven and probable reserves of 10 million oz. gold, 575 million oz. silver, 8 billion lbs. zinc and 3.7 billion lbs. lead, according to a feasibility filed July 31.
As of June 21, 2006, there were proven and probable reserves of 564 million tonnes averaging 0.28 gram gold per tonne and 23.8 grams silver per tonne (oxide ore grade), 0.6 grams gold per tonne, 33.2 grams silver per tonne, 0.35% lead and 0.76% zinc (sulphide ore grade).
The mine-life is estimated at 17 years with annual metal production from the open pit mine at 388,000 oz. gold, 23 million oz. silver, 303 million lbs. zinc and 156 million lbs. lead.
The feasibility study estimates mine start-up in late 2008, but full production won’t begin until 2012.
With the deal, Royal Gold will also have the right to acquire additional NSR royalties ranging from 1% to 2% on a number of properties in the region until May1, 2007.
Royal Gold was recently listed on the new S&P/TSX Global Gold Index — a list of key gold mining companies worldwide.
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