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On 15 January 2020, Resolute Mining Limited (ASX:RSG) announced to the exchange that its Ravenswood gold mining operation was sold to- EMR Gear consortium comprising of Specialist resources private equity manager, EMR Capital (“EMR”), and Golden Energy and Resources Limited (“GEAR”) for a deal value of up to $300 Million. The tentative date of completion of the transaction is 31 March 2020.
Transaction Payment Details
The transaction comprises a total cash consideration of up to $300 Million. The details of the payment plan are as follows-
- Total initial payment of $100 million value
- Cash payment of $50 Million
- Promissory note of $50 Million at 6% interest rate
- Payment of $50 Million contingent on the gold prices over four year
- Payment of $150 Million contingent on the investment outcomes of Ravenswood
The Contingency instruments safeguard the interest of both the parties. The $50 million would help the acquirer firms (EMR GEAR consortium) to pay less amount if in case the gold prices fall. The current high gold prices will also maximise the revenues from the Ravenswood Gold operations if the prices fall down.
Learn more about the story prior to the acquisition announcement: Everything about Ravenswood
The $150 Million contingency on the investment outcomes of Ravenswood might help Resolute Mining to draw more and more money in case of any Liquidity Event including disposal or a qualifying IPO.
Resolute Mining has invested a significant capital into Ravenswood and Expansion project (Stage 1 commenced operations in December 2019), which expanded the run of mine capacity to 5 Mtpa. The contingency favours Resolute if the operations in case of a liquidity event in future, without actually affecting the gross margin on the company's financials.
The Ravenswood operations produced 54,486oz of gold in 2019 at an All-in Sustaining Cost of A$1,949/oz, leaving minimal chances of profitability even at high gold prices (Average gold price received by Resolute in 2019 was A$1,933 an ounce). As per the Resolute's 2020 guidance, the Ravenswood operations would produce of 80koz at US$1,200/oz.
As per the contingency, Resolute will receive an Upside Sharing Payment, on the value by which the gross money multiple exceeds a minimum threshold up to a cap of $150 million, from the buyer as follows:
- $7.5 million for each 0.1 that the gross money multiple is above 2.5 up to 4.0
- $5 million for each 0.1 that the gross money multiple is above 4.0.
Holding Company
Mining Gold Group Pty Ltd (“Topco”), a joint venture company between Singapore based Golden Energy and Resources Limited (through 100% owned subsidiary Golden Investments (Australia) II Pte. Ltd.) and Melbourne based EMR Capital ( through Raven Gold Nominee Pty Ltd), both parties holding 50%, will acquire Ravenswood gold mine from Carpentaria Gold Pty Ltd (“Carpentaria Gold”) and its parent company, Resolute Mining Limited (the “Ravenswood Acquisition”).
Resolute announced 2019 Production: Must Read
What’s in it for Resolute?
The acquisition will help Resolute Mining to position itself as large-scale low-cost gold miner without having to worry about funding huge capital expenditures at the Ravenswood facility. The transaction transfers the future funding of the mining operations and development operations to the new buyer, therefore reducing the load on the company.
RSG conducted a strategic study on the Ravenswood Expansion project (REP) in 2019 to study the future outcomes on the REP. The capital from the sale would be used to reduce the debts on the company’s balance sheet.
Acquirers
EMR Capital
EMR Capital, the private equity firm owns and operates 8 mining properties with an enterprise value in excess of US $5 Billion and revenues in excess of US $1.5 Billion. The company holds extensive experience of operating in multiple commodities involving different mining methods which would be a big factor in the current Ravenswood operations and its expansions.
EMR owns Capricorn copper mine, Kestrel coking coal mine in Queensland. The familiarity with the region would help Ravenswood on the way of profitability. EMR views Ravenswood as the high potential gold mine with strong production and high reserves exploration potential.
Golden Energy and Resources (GEAR)
Golden Energy and Resources is a Singapore based energy and resources company with investments in thermal coal in Indonesia, Metallurgical coal, minority stake in Westgold (~9%) and renewable energy projects in Asia.
GEAR is excited to diversify its revenue streams further and looks forward to working alongside EMR to develop a strong partnership with the local government and the community. Ravenswood is GEAR's second investment in gold after Westgold. The objective to own an established gold producing asset like Ravenswood at times when gold prices are soaring, is to scale the current operations and explore to increase the reserves and the life of the mine further.
The sale helps Resolute to trim down on its portfolio, cut down its debts, and maximise its profit while the extensive experience of EMR and GEAR would help them make maximum out of the gold price rally and further establish Ravenswood as a long-life low-cost gold mine.
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