Royal buys in on Taparko (October 18, 2005)

Denver-based mining house Royal Gold (RGL-T; RGLD-Q) will provide a US$35-million project-finance advance to High River Gold (HRG-T) to develop the Taparko and Bouroum gold deposits in eastern Burkina Faso, in exchange for a series of royalties on production from the project.

The advance is drawn down during the development of the project, and will allow High River to complete the US$47-million open pit mines and processing plant at Taparko. The company expects to be in production some time in the third quarter of 2006.

The deal gives Royal Gold an early temporary royalty on the Taparko and Bouroum projects, followed by a smaller continuing royalty. The initial royalty is 15% of production, priced at the quarterly average of the London gold fix, up to a maximum of US$35 million. That royalty, if it does not reach a total of US$35 million, ceases once the project has produced 804,420 oz. gold.

An additional payment on that production depends on price: the quarterly average of the London gold fix for the quarter, divided by 100, gives the percentage of the royalty for that quarter, with the royalty amount again calculated by pricing it at the quarterly average London fix. (In a quarter where the average price was US$500, for example, Royal would be entitled to a 5% royalty in addition to its 15% basic royalty.)

The additional royalty is extinguished at the same time as the basic 15% royalty. After that, Royal holds a royalty of 2% of total revenues from Bouroum and from a 34.7-sq-km parcel on the Taparko property, plus a 0.75% royalty on revenues from gold produced at the Taparko mill but mined elsewhere. The 0.75% royalty is limited to 1 million tonnes of ore annually.

The arrangement with Royal Gold scotches earlier arrangements with South African bank Absa for a project loan for Taparko. High River said that fees and hedging and cash-reserve requirements would have proved more expensive than the royalty.