Baker Steel Resources Trust LTD (LON:BSRT) has acquired a 0.75% gross revenue royalty on future coal production from the Wilton and Fairhill projects in Queensland, Australia.
The consideration is A$6mln. For an additional A$2mln, Baker Steel can also acquire an additional 0.25% once production reaches 2mln tonnes.
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The properties subject to the royalties contain 2.6bn tonnes of coal, of which 738mln tonnes are less than 100 metres below the surface. Production from Wilton is expected to commence mid-2019, with first royalty payments to be made on a quarterly basis thereafter, by the owner Futura Resources.
Baker Steel invested A$10mln in Futura via a convertible loan note back in December 2017 and has kept a close eye on developments ever since. Discussions are now well advanced with lenders to provide finance to bring the properties into production.
Production from Fairhill is scheduled to commence in 2020. Aggregate coal production will then ramp-up to 2.5mln tonnes of coal per annum by 2021 or 2022 and run at that rate for at least 25 years.
Assuming the option is exercised and using consensus forecasts, the royalties are anticipated to generate around A$3.5mln per year before tax.
The coal royalty is the second significant royalty asset to be acquired by Baker Steel after the net smelter royalty on the Prognoz silver asset held through Polar Acquisition Limited.
Pro-forma 31 December 2018, the initial Futura Royalty holding would represent 4.9% of Baker Steel’s net asset value.