South32 cashes in with royalties deal

Mining major South32 has found another $US55m to help itf through tough times for its base metals operations.

South32 CEO Graham Kerr said the gold royalties were not part of the company’s core businesses.

Mining major South32 has found another $US55m ($74.7m) to help it through tough times for its base metals operations, selling a group of legacy royalty agreements to Canadian-listed junior Elemental Royalties in a cash-and-scrip deal.

South32 inherited more than 40 agreements from its 2015 demerger from BHP, covering tenements across Western Australia and the globe once owned and sold on by the mining giant — some dating back decades to ground held by WMC and its predecessors.

The company put the package on the market in August, after revenue from its base metals and alumina operations was crunched by the global downturn caused by the coronavirus crisis, and South32 went out looking for more savings on its underlying operating costs.

After interest from specialist royalty companies in North America, South32 said on Tuesday it had agreed to the sale of a package of four royalty agreements to Canadian-listed Ele­mental Royalties for $US40m in cash and shares worth another $US15m. The royalties include a 2 per cent net smelter royalty from Capricorn Metals’ under-construction Karlawinda gold mine, where production worth about 125,000 ounces of gold a year is expected to begin in mid-2021. The tenements underlying Karlawinda were originally drilled by WMC.

South32 also sold royalties covering gold deposits near Laverton owned by China-backed Focus Minerals, which expects to deliver a pre-feasibility study on returning its mothballed Laverton operations back to production by the end of the year, and a package covering tenements hosting Rumble Resources’ Western Queen gold project.

South32 will emerge with a 19.7 per cent stake in Elemental when the transaction closes early next year, and has agreed to maintain its holding in the royalty play for at least nine months.

South32 CEO Graham Kerr said the gold royalties were not part of the company’s core businesses, with the royalty packages it has retained weighted towards base metals.

“The sale of these royalties is another step forward in unlocking value in our portfolio, at a time when there is strong appetite for exposure to stand-alone royalty investments,” he said.

The translation requires the approval of the Foreign Investment Review Board and is expected to close in February.

South32 shares closed on Tuesday up 7c at $2.43.