Newcrest Mining slams SolGold financing deal
A fractious relationship with SolGold is simmering after Newcrest hit out a royalty funding deal struck by the junior explorer, where it owns a 13.5 per cent stake
Mining giant Newcrest has criticised a royalty funding deal brokered by junior explorer SolGold, raising concern it represented expensive financing and was negative for the company’s long-term shareholders.
Newcrest — which suffered a first strike on pay at its annual general meeting on Wednesday — owns a 13.5 per cent stake in SolGold.
But along with BHP, which owns the same stake, the mining behemoths have a fractious relationship with SolGold after the would-be copper producer was forced to withdraw plans to raise cash in July.
SolGold on Tuesday struck a $US50m ($77m) royalty financing deal with Osisko Gold for its Cascabel project in Ecuador which hands it financing in exchange for a 0.6 per cent net smelter return royalty.
Newcrest chairman Peter Tomsett said he was disappointed at the move.
“All I can say is that we’re not very happy this time. That sort of expensive financing really is negative to the long-term shareholders of the company,” Mr Tomsett said.
“All this is sacrificing shareholders in the long term. I don’t understand it. And as you know, there’s been a number of governance issues with that company over time, and our position remains the same. We don’t believe those sorts of deals are in the best interest of shareholders.”
On the face of it, SolGold’s royalty deal is similar to a 2020 deal with streaming major Franco Nevada that provoked a rebellion from Newcrest and BHP.
In May 2020 former chief executive Nick Mather signed SolGold up for a $US15m, eight-month loan with interest rates of 12 per cent, and flagged the prospect of a $US100m funding deal in which Franco Nevada would take a 1 per cent royalty on revenue generated by SolGold from its flagship Cascabel project.
That deal was also described as “expensive” by Newcrest boss Sandeep Biswas, and the pushback from BHP and Newcrest eventually led to the departure of Mr Mather as SolGold’s chief executive.
While Mr Biswas again criticised the funding model on Tuesday, UK analysts said this week the deal with Osisko seemed “fair”.
Hannam & Partners analyst Roger Bell told clients the $US50m royalty deal would help alleviate SolGold’s immediate cash needs, with the four-year buyback option over a third of the royalty interest mitigating concerns that SolGold was encumbering its flagship asset at an early stage of development.
“The terms appear fair, in our view, with an implied internal rate of return of about 9 per cent to Osisko based on the pre feasibility mine plan, released in April 2022, and current spot copper and gold prices,” Mr Bell said.
While BHP and Newcrest are again unhappy with SolGold’s funding model, neither has gone public with an alternative funding proposal for the company.
Earlier on Wednesday Newcrest suffered a first strike on pay after proxy advisers recommended a vote against its remuneration report, with the gold producer vowing to hold talks with investors over their concerns.
The company was slugged with 36.5 per cent of shareholders voting against its remuneration report, which Mr Tomsett described as disappointing given it had made changes to bonus incentives for the 2023 financial year.
“While the majority of proxy votes received are in favour of the remuneration report, more than 25 per cent of investors have voted against. This is a very disappointing result as the board works hard to ensure a remuneration framework appropriately attracts, retains and motivates our executives,” Mr Tomsett said.
“We’ve clearly heard investor messages that the balance needs to be reviewed. That’s why in late 2021 the remuneration committee and the board commenced a review of both short term and long term incentive programs to take effect from the 2023 financial year.”
A first strike occurs when 25 per cent or more of shareholders vote against a company‘s remuneration report.
But Newcrest shares rose 6.9 per cent or $1.25 to $19.41.