to Acquire 2% NSR Royalty on Elk Gold Mine in BC, Canada All amounts are in U.S. dollars unless otherwise indicated.
SEPTEMBER 28, 2021 - TheNewswire - TORONTO, ON - Star Royalties Ltd. (the “Company” or “Star Royalties”) (TSXV:STRR) (OTC:STRFF) is pleased to announce the execution of a definitive royalty purchase agreement (the “Transaction”) with Almadex Minerals Ltd. (TSXV: DEX) (“Almadex”) to acquire an existing 2% net smelter return royalty (the “Royalty”) on the Elk Gold Mine (“Elk Gold”) located in BC, Canada and owned and operated by Gold Mountain Mining Corp. (TSXV: GMTN, OTCQB: GMTNF, FRA: 5XFA) (“Gold Mountain”) for total consideration of $10,630,000. The Transaction is expected to close on or about September 28, 2021 (the “Closing Date”).
Transaction and Asset Highlights
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- Imminent revenue: Gold Mountain recently commenced operations at Elk Gold and expects first revenue generation in Q4 2021. Royalty revenue is expected to increase and average $2 million per annum post-year 3 based on prevailing gold prices.
- Value accretion and asset diversification: Transaction is accretive on net asset value and per-share metrics before the consideration of Elk Gold’s expansion and exploration upside.
- World-class jurisdiction: Elk Gold is located in mining-friendly south-central British Columbia, Canada.
- Long life and strong margins: Gold Mountain’s updated preliminary economic assessment (“PEA”) from May 2021 highlights an 11-year combined open pit and underground operation with life-of-mine all-in sustaining costs of $554 per ounce.
- Reputable partners: Gold Mountain has secured a fixed-price mining services contract with Nhwelmen-Lake LP (“Nhwelmen-Lake”) and signed an ore purchase agreement with New Gold Inc. (TSX, NYSE American: NGD) (“New Gold”) to sell Elk Gold’s mineralized material to New Gold’s New Afton processing plant.
- Expansion upside: PEA outlines initial open pit production of approximately 19,000 ounces per annum (years 1-3) and then expanded production of 65,000 ounces per annum (years 4-11) with a further expansion target of 100,000 ounces per annum.
- Wealth creation potential: Gold Mountain’s recent Phase 1 drill program increased Elk Gold’s mineral resource estimate by 49% with all 41 drill holes intercepting significant mineralization. Gold Mountain is targeting to expand its high-grade mineral resource to over 1 million ounces from its current mineral resource estimate (see chart below).
- Funding: Cash component of the Royalty acquisition will be funded from Star Royalties’ existing cash balance. The Company had a cash balance of $14.9 million as of June 30, 2021.
Alex Pernin, Chief Executive Officer of Star Royalties, commented: "This transformative investment represents imminent cash flow in a tier-one jurisdiction from a high-margin gold mine operated by a proven and highly capable team at Gold Mountain. We expect to double our revenue while diversifying and de-risking our portfolio with this attractive and accretive acquisition. The Royalty will complement our existing Copperstone gold stream that is under construction, our producing Keysbrook mineral sands royalty and our growing green royalty portfolio. Gold Mountain’s strong relationships with surrounding Indigenous communities, including three signed memoranda of understanding, and partnership with majority Indigenous-owned Nhwelmen-Lake also align with our environmental, social and governance principles when allocating capital. Moreover, given the exploration and production expansion upside, we see excellent wealth creation potential from Elk Gold’s addition to our investment portfolio.”
Transaction Terms
Star Royalties has agreed to acquire the Royalty from Almadex for a total consideration of:
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- $10 million in cash;
- 1,659,304 common shares of the Company at a notional issue price per share equal to the 20-day volume weighted average price of the common shares on the TSX Venture Exchange (the “Consideration Shares”); and
- 829,652 common share purchase warrants (each, a “Warrant”), where each Warrant will be exercisable for one common share of Star Royalties at an exercise price of C$0.70 for a period of 24 months from the Closing Date.
Upon issue, the Consideration Shares and the Warrants will be subject to a customary four month hold period under applicable securities laws.
The Royalty covers all 16,716 hectares of mining leases and mineral claims as outlined in Gold Mountain’s PEA, titled “Updated Preliminary Economic Assessment on the Elk Gold Project”, dated June 21, 2021 and available on SEDAR at www.sedar.com. The Royalty is calculated as 2% of the gross metal revenues realized by Gold Mountain from the New Afton mineralized material sales, less certain allowable deductions.
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