Skip to main content

Getty Images

Junior mining companies aren't having much fun – or luck – raising money for exploration and development. Commodity prices are down, banks and investors are wary and the appetite for political risk is about zero. Plus the stock markets are, suddenly, terribly volatile.

The Toronto Venture exchange's little Euromax Resources just bucked the dismal trend by raising $175-million (U.S.). That's about eight times its market value of $25-million (Canadian). Investors liked the deal and drove up the shares by a nickel – about 17 per cent – at the start of trading Tuesday morning.

Euromax is developing an open-pit gold project in Macedonia, one that chief executive Steve Sharpe called "a cash cow once producing, but with a hefty price tag up front." The capital costs alone would be $500-million (U.S.).

With traditional funding routes all but blocked, Euromax turned to Royal Gold, a $5-billion (Canadian) royalty company that is listed on the Toronto market. Under a "streaming" agreement, Royal in effect is purchasing 525,000 ounces of Euromax gold today, more than three years before the mine goes into production. On top of that, Royal will pay Euromax 25 per cent of the spot price once the actual gold is delivered.

The $175-million (U.S.) allows the project to get rolling, providing more than 30 per cent of the construction costs. At some point, project debt financing will take up the slack. The bank debt will probably be guaranteed by the German state; Germany is involved because the mine concentrate is going to a German-owned smelter in Bulgaria.

Once the mine is going, the low-grade gold mine, known as Ilovit, will product about 95,000 ounces a year of gold and 16,000 tonnes of copper. Based on a gold price of $1,250 an ounce, and copper at $3 a pound, the mine would carry a $675-million pretax net present value. A rise in the gold price to $1,400 and copper to $3.50 would boost the NPV to $1-billion.

Mr. Sharpe said that the idea is to run the mine effectively as an income trust, with half the free cash flow to be paid out to shareholders in the form of dividends. This is not an investment based on the promise of growth and takeovers. Euromax's goal is simply to employ an unusual financing strategy to deliver predictable results.

Report an error

Editorial code of conduct

Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 08/01/24 11:59pm EST.

SymbolName% changeLast
EOX-T
Euromax Resources Ltd
-20%0.02
RGLD-Q
Royal Gold Inc
-1.21%110.19

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe