Royal buys in on Taparko (November 14, 2005)

Denver-based mining house Royal Gold (RGL-T, RGLD-Q) will provide a US$35-million financing 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$57-million open-pit mines and processing plant at Taparko. The company, which had spent about US$17 million on Taparko by mid-2005, expects to have the project 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: if the gold price remains in the range US$385 to US$430 per oz., Royal receives a 4.3% royalty on gross revenue. Above US$430, the quarterly average of the London gold fix for the quarter, divided by 100, gives the percentage of the royalty for that quarter; that figure is capped at 10%.

Below a price of US$385, Royal is entitled to a percentage of gross revenue equal to the gold price divided by 90. (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; if the average price was US$360, Royal would have a 4% additional royalty.)

The additional royalty is extinguished at the same time as the basic 15% royalty. After that, Royal holds a royalty of 2% of gross smelter return from Bouroum and from a 34.7-sq.-km parcel containing the known resources on the Taparko property, plus a 0.75% milling 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.

Taparko and Bouroum — the latter acquired from Axmin (AXM-V) for US$3.3 million earlier in the year — are slated to produce 100,000 oz. gold in their first year, rising to 140,000 oz. by the third year of production. The project’s total cash cost is now estimated at US$245 per oz. Taparko’s reserves stand at 7.8 million tonnes grading 2.9 grams gold per tonne, in three pits, all with cutoff grades near 1 gram per tonne. Bouroum’s three pits have combined reserves of 800,000 tonnes grading 4.2 grams gold per tonne.

High River owns 90% of the operating company, Somita, with the rest held by the Burkinab government.