Nova Royalty Corp. (TSX-V:NOVR) has said it is set to buy an existing 0.135% net smelter return (NSR) royalty on Hudbay Minerals' Copper World and Rosemont copper projects in Arizona, USA, in a deal worth around US$5.5 million.
The company has struck a royalty purchase agreement with arm's length sellers over the transaction, which covers the Copper World asset, only discovered in 2020, and which already boasts an initial resource of 400 million tonnes.
The deal also includes a right of first refusal (ROFR) on a further 0.540% NSR also owned by the vendors covering the same royalty area.
"This acquisition further demonstrates Nova's consistent success in executing on our strategy of locking in royalties on the next generation of the world's most strategic copper projects," said Alex Tsukernik, Nova's CEO in a statement.
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"Owning royalties on generational assets such as Copper World and Rosemont have the potential to provide our investors with decades-long cash flow streams, while also minimizing their exposure to cost inflation and operational risk."
At Copper World, Hudbay has defined seven deposits hosting both oxide and sulphide mineralization over a seven-kilometre (km) strike, potentially amenable to heap leach and floatation processing.
Drilling also identified "significant high-grade, near surface mineralization" with potential to form part of a low-cost copper operation located primarily on public land, noted Nova.
Notably, considerable synergies exist between the Copper World and Rosemont projects, it added, and a preliminary economic assessment (PEA) will assess developing the two in combination.
Hudbay is also planning to advance a pre-feasibility study following completion of the PEA, which is expected in the first half of 2022, added Nova.
Rosemont has the potential to be the third-largest copper mine in the USA and a feasibility study in 2017 contemplated an initial 19-year mine life with average annual copper production of 127,000 tonnes at a cash cost of US$1.14 per pound of copper for the first ten years.
But in July, 2019, the US District Court for Arizona issued an unprecedented ruling that resulted in the suspension of construction activities at Rosemont.
"Hudbay and the US Government have appealed the ruling to the US 9th Circuit Court of Appeals while Hudbay evaluates the next steps for Rosemont," Nova told investors in the statement.
The total cost of US$5.5 million for the acquisition is broken down into US$1 million in cash, payable upon closing, and 0.5 million Nova shares, also payable on closing.
Nova must also pay US$1 million in cash, payable at the earlier of either 12 months after closing, or Nova completing a single equity financing resulting in aggregate net proceeds to Nova of at least US$10 million.
The company must also pay US$3 million in cash, payable at the later of either 12 months following the announcement of the commencement of production from the royalty area, or the receipt by Nova of the first three payments under the royalty.
Nova said it will draw down a further C$1.5 million under its existing amended and restated convertible loan facility with Beedie Capital.
Thus, it is fully funded to make the US$1 million cash payment upon closing.
This drawdown will increase the total amount drawn under the Beedie facility to C$6.5 million, with an additional C$18.5 million remaining available.
Nova, based in Vancouver, British Columbia, is a royalty company focused on providing investors with exposure to the key building blocks of clean energy - copper and nickel.
Contact the author at giles@proactiveinvestors.com