Maverix Metals Inc (TSX:MMX) told investors it is paying US$23.5 million from existing cash to increase its royalty interest in the producing Omolon operation in Russia to 2.5% gross, which will lift the attributable gold equivalent ounces Maverix receives from the project to 5,000 ounces, from 2,000 previously.
The firm has struck a deal with Omolon Gold Mining, a subsidiary of Polymetal International PLC (LSE:POLY), to lift the royalty interest on the project, which sits in the Magadan Region and has produced over 4 million ounces of gold and 21 million ounces of silver since 1996. Maverix's royalty will now cover all 13 licenses (from two previously) that currently comprise the Omolon hub and potentially an additional three that are in the application phase.
"Maverix acquired its original 2% partial royalty interest in Omolon through the acquisition of a royalty portfolio from Kinross in 2019 and we are pleased to increase this to 2.5% and expand the coverage across all Omolon hub licenses, which cover over 60,000 hectares," said Dan O'Flaherty, CEO of Maverix, in a statement.
READ: Maverix Metals acquires new gold stream of 5,000 ounces per year from longstanding partner Auramet Capital Partners
"Omolon has a long and continuous history of gold and silver production and we look forward to our strengthened relationship with Polymetal as they continue to operate and extend the mine life at Omolon.
"This transaction is expected to increase Omolon's annual contribution to Maverix's attributable gold equivalent ounces from approximately 2,000 ounces to approximately 5,000 ounces. Additionally, the expanded area of royalty coverage provides Maverix with exposure to several new promising projects and exceptional exploration potential at Omolon."
When sales of one million gold equivalent ounces at Omolon has been reached, post completion of this transaction, the effective interest will decrease from 2.5% to 2%, and upon sales of 1.2 million gold equivalent ounces, Maverix will make an additional US$1.5 million cash payment, it noted.
The Omolon hub operation includes the 850,000 tonne-per-annum Kubaka processing plant, a mix of open pit and underground mines as well as several near-mine development projects with high-grade open-pittable reserves and resources and significant longer-term exploration potential.
In 2020, Omolon produced 210,000 gold equivalent ounces at an all-in sustaining cost of US$773 per gold equivalent ounce.
As of January 1, this year, Omolon had proven and probable reserves of 4.2 million tonnes at 4.3 grams per tonne (g/t) gold and 13 g/t silver containing around 0.6 million ounces of gold and 1.8 million ounces of silver.
Maverix is a gold-focused royalty and streaming company with a globally diversified portfolio of over 100 assets.
Stifel GMP noted that on the assumption that Omolon's production extended to 1.2 million ounces (Moz) of gold-equivalent, the broker estimates an after-tax internal rate of eturn (IRR) of 5% at US$1,750 per ounce gold (NAV neutral).
"At first glance, the IRR on this deal looks light, in our view, but the opportunity comes from the optionality on additional reserve ounces and the extended coverage of the royalty over 11 more licenses than the original royalty," said analysts.
They also highlighted that following this deal and the recently announced strategic partnership with Auramet Capital Partners, they estimate that Maverix still has around $160 million in available liquidity.
"We note that these last two deals have brought in increasing cash flow (combined adding approx. 8k GEOs/yr in incremental revenue), a partnership (with Auramet) that broadens MMX's network to source new accretive deals, and increasing optionality from the expanded coverage of the Omolon royalty," said the analysts.
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