Deterra Royalties (ASX:DRR) has acquired a 1.75% net smelter return royalty over Ivanhoe Electric’s (NYSE:IE) Santa Cruz Copper Project in Arizona, US, for US$74.15 million ($105.7 million).
The acquisition will be funded through existing debt facilities and does not affect the company’s dividend policy of targeting a 75% payout ratio.
Under agreements with Ivanhoe Electric, the royalty rate has been modified to 1.68% until the sixth anniversary following commercial production, reducing to 1.57% thereafter.
Ivanhoe Electric has also been granted an option to repurchase 25% of the royalty for approximately US$20 million, calculated to deliver a 10% fixed return on Deterra’s original purchase price.
The Santa Cruz Project has a 24-year mine life with average production of approximately 75,000 tonnes of copper cathode per annum over the first 15 years.
The royalty covers approximately 84% of the recently announced reserves, with Deterra expecting average annual royalty revenue of approximately US$10.7 million over the first 15 years, representing a 14.4% annual yield on investment.
Initial development work has commenced, with Ivanhoe Electric targeting first copper cathode production in 2029, subject to completion of project financing and permitting.
The project is expected to operate at an average C1 cash cost of approximately US$1.47 per pound of copper, placing it within the first quartile of the cost curve for projects in the Americas.
Santa Cruz has demonstrated US Government support, including a US Export-Import Bank preliminary project letter for US$1.1 billion in potential debt financing.
Interim CEO Jason Neal says the acquisition provides exposure to a ‘large-scale, long-life’ asset in a ‘premier’ mining jurisdiction.
“Deterra established a competitive advantage in acquiring the royalty through our agreement with Ivanhoe Electric. This is a coveted copper royalty and we were the only interested company not bidding blind,” Neal says.
“We expect this acquisition to be accretive to earnings and cash flow once Santa Cruz has ramped up.”
The Santa Cruz Royalty becomes Deterra’s third core asset alongside the Mining Area C iron ore royalty and the Thacker Pass lithium royalty. The company has also been granted a right of first offer to purchase the residual 0.25% of the existing royalty not included in the transaction.
Deterra Royalties is a diversified resource royalty company, owning royalties across seven countries and five commodities.
Write to Paula Fabe at Mining.com.au
Main image: Ivanhoe Electric
