Geologist collecting stream and sediment samples at Euromax's project (Image: Euromax Resources)

Geologist collecting stream and sediment samples at Euromax's project (Image: Euromax Resources)

A relatively unknown European-focused gold developer called Euromax Resources (EOX:TSXV) has a market cap of just $26 million, but yesterday it secured a $175 million streaming deal with the world's largest gold streamer, Royal Gold.

That's nearly 8x its current market cap.

Euromax's management is made up of most of the former European Goldfields executives who sold that company to Eldorado Gold for $2.5 billion in 2012.

They successfully delineated a 7.7 million ounce gold reserve at two projects in Greece; Skouries and Olympias.  Today, the combined projects are expected to produce in excess of 175,000 ounces of gold annually over +25 year mine lives, according to Eldorado's website.

After they packaged and sold European Goldfields, the team looked around to see if there was an opportunity to repeat that success.  Soon after, they identified Euromax and the Ilovitza project.  The executives, made up of engineers, geologists and accountants, along with some friends and family, invested $6.3 million in Euromax and took control in May 2012.

They believe the project is a twin deposit to Skouries; a large gold-copper porphyry.  It's just 100km north across the Greek border in the Republic of Macedonia.

Greece has proved very troublesome for Eldorado, but Euromax believes Macedonia will not go the same way.  The government has already approved Euromax's EIS and the company doesn't foresee any significant permitting or social problems.

In June 2014, the company released a preliminary feasibility study (based on $3.00/lb copper and $1,250/oz gold) which showed an open-pit, bulk mining operation producing 95,000 ounces of gold and 16,000 tonnes of copper annually over a 23 year mine-life.

To achieve this the company would have to invest $501 million, but it would generate an after-tax NPV(5%) of $558 million and IRR of 16.5%.

Source: Euromax Resources

Source: Euromax Resources

Steve Sharpe (President and CEO) helped raise over $750 million for European Goldfields from the Qataris, so obtaining the remaining $340 million needed to build the mine shouldn't be a problem.

Royal Gold allows for up to $215 million in debt to come before them in the securitization food chain.  Given that the project will produce meaningful amounts of copper, offtake financing could be an option.  The ultimate equity component of the capex requirement could be very small.

The project has some of the highest operating margins in the sector as its polymetallic nature provides the company with operating cost offsets from copper by-products.

Cash operating costs are estimated at $216 per ounce with all-in sustaining costs expected to be $334 per ounce.  This makes for a very resilient gold project and one that can handle a stream like this.

“The Ilovitza gold stream represents a well-structured, low-cost option on a long-life asset,” commented Tony Jensen, Royal Gold President and CEO. “Similar to many of Royal Gold’s principal properties, Ilovitza is a polymetallic deposit with attractive economics, a proven management team and strong local support.”

Under the terms of the agreement, Royal Gold will provide a total of $175 million in capital in exchange for:

  • 25% of the payable gold production until 525,000 ounces of gold is delivered
  • 12.5% of the payable gold production thereafter for life-of-mine

For its part Royal Gold has agreed to pay:

  • an initial $7.5 million within 90 days of signing
  • another $7.5 million 12 months later
  • a final $160 million when construction begins

Royal Gold will also pay Euromax 25% of whatever the prevailing spot price for gold in London is for these ounces.

In order to get the initial $7.5 million, the company has to raise more than $5 million in equity which it says is already well underway.

This is an impressive transaction given the current market cap of Euromax.  It also bodes well for the project given that Royal Gold is known for having a best-in-class due diligence team.

This is a company to watch as it ticks all of the boxes of companies that can succeed in this market; high-margin project, credible management that has a comparable track record, project is de-risked from a technical and political standpoint and the company is capable of raising capital.

Shares rose $0.105 per share or 35% to close at $0.405 on 36,500 shares yesterday.

Read: Euromax Announces Ilovitza Pre-Feasibility Study Results & Maiden Reserve

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