As announced yesterday, royalty company Royal Gold (WKN 885652) will acquire Canadian competitor Sandstorm Gold (WKN A1JX9B) for approximately $3.5 billion. Amidst a gold price still trading above $3,300 per ounce, the U.S. company aims to strengthen its market position in North America.
Royalty companies generate revenue by receiving a portion of the metal production from, for example, gold mines, in exchange for upfront payments or investments, which are often made before the mine in question becomes operational.
With the Sandstorm deal, Royal Gold will now receive revenue from 40 additional mining operations, which are expected to produce 65,000 to 80,000 gold equivalent ounces this year. At the same time, the gold price remains near its record high of approximately $3,500 per ounce, and many experts expect further increases due to simmering trade disputes and geopolitical tensions.
The Sandstorm Acquisition in Detail
The Sandstorm transaction will be an all-stock deal, it was also announced yesterday. Royal Gold will issue 0.625 of its own shares for each Sandstorm share. This represents a premium of almost 17% compared to Sandstorm’s closing price last Friday on the NYSE.
Upon completion of the deal, Royal Gold shareholders will hold nearly 77% and Sandstorm shareholders approximately 23% of the new company’s shares. Even after the acquisition, the company will generate 75% of its total revenue from gold deals. According to Royal Gold, 41% of gold production will come from mines in Canada and the U.S., with the remainder from other mining-friendly regions.
Royal Gold also announced that it will acquire Horizon Copper for $196 million in cash. This transaction is expected to close in the fourth quarter of this year.
