Versamet Royalties (VMET.TO, VMET) has entered into a definitive agreement to close a large transaction, forking over US$360M ($340M in cash and $20M in Versamet stock) to acquire a 3.52% gold stream on the Eskay Creek gold mine, which is currently under construction with production expected in 2027.
The mine is expected to produce in excess of 300,000 ounces of gold in the first five years of the mine life, which means the total amount of ounces subject to the gold stream will come in slightly over 10,000 ounces per year. Versamet is required to make ongoing payments of 10% of the spot gold price when ounces are delivered, so even at $4500 gold, the margin will exceed US$4,000/oz for a net margin of $40M per year. Versamet is also entitled to a make-whole payment in case the mine has not produced 2.61 million ounces of gold by April 1 2040. Applying a gold price of $4500/oz and assuming 2.61 million ounces will be produced by 2040, Versamet will receive approximately $372M from this gold stream. Which means that, with a purchase price of $360M, Versamet is banking on a higher gold price between now and 2040 to generate a meaningful return on this investment, or to see the Eskay Creek mine life being extended from the current 12 years (with the latter being quite likely with in excess of a million ounces of gold in the Eskay Creek resources that are not part of the mine plan at this moment).
At an average gold price of $5500/oz, for instance, Versamet will receive $455M in proceeds based on the initial 2.61 million ounces of gold in the mine plan. Orion Resource Partners acquired this stream in 2024 for US$67, when gold prices are much lower. Including the impact from the previously repurchased portion of the stream, Orion will walk away with $544M in total proceeds on a $200M investment less than two years ago.
Disclosure: The author has no position in Versamet Royalties or Skeena Resources. This post is for educational purposes only; be mindful investing in junior mining stocks is risky and you may lose your entire investment if things go wrong. Please read the disclaimer.
