True Gold (OTCQX:RVREF) has just announced it has reached an agreement with Franco-Nevada (NYSE:FNV) and Sandstorm Gold (NYSEMKT:SAND), whereby the two gold streamers provide $100M (and up to $120M) in exchange for a gold stream deal. As per the agreement, the two streamers will receive 20,000 ounces of gold per year in the first five years of the agreement and 6.5% of the annual production thereafter at a price of 20% of the spot price.
We all knew that True Gold was finalizing the final piece of the financing puzzle, and at first sight this seems to be a good deal. At the current gold price, the company is giving up just $20M in annual revenue for the first five years, which means the $100M will be paid back after those five years. If the production rate remains stable at 100,000 ounces per year, the 6.5% stream will only include 6,500 ounces of gold. This looks like a pretty good deal to me, whereby Franco-Nevada and Sandstorm Gold seem to be betting on a much longer mine life and higher production rate than anticipated, as it would take the entire current mine life of Karma to get the streamers their initial investment back with an appropriate return on invested capital.
This doesn't change the investment thesis much, but I'm happy the dilution seems to be finally over and True Gold is now in the final straight line towards the finish line. I hope the share price dips once again below C$0.40 ($0.37), so I can buy a final stake in the company. Franco-Nevada and Sandstorm seem to be convinced the mine life at Karma will be much longer than what's currently expected, and that's exactly what my opinion was in my previous article.
Disclosure: The author is long RVREF. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
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