Good day, everyone, welcome to the acquisition of silver stream on Khoemacau Copper Project conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad, to withdraw your question, please press star then two. Please note that today's event is being recorded. I would now like to turn the conference over to Alistair Baker. Please go ahead.
Thank you, operator. Good morning, welcome to our discussion of Royal Gold's acquisition of a silver stream on the Khoemacau project. This event is being webcast live, you will be able to access a replay of this call on our website. Participating on the call today are Tony Jensen, President and CEO, Mark Isto, Vice President of Operations, and Bruce Kirchhoff, Vice President, General Counsel, and Secretary. This discussion falls under the safe harbor provision of the Private Securities Litigation Reform Act. A discussion of the company's current risks and uncertainties is included in the safe harbor and cautionary statement in today's press release and slide presentation, is presented in greater detail in our filings with the SEC.
Tony will explain the key terms of the transaction, Mark will provide an overview of the Khoemacau project, Tony will close out with some commentary on our partner in this transaction, as well as Botswana as a new country for Royal Gold and the impact of this transaction to Royal Gold. We'll open the lines for a Q&A session. I will turn the call over to Tony.
Thanks, Alistair. Good morning, everyone, thank you for joining the call. I'll begin on slide three. We are pleased to announce today that we have reached an agreement with Cupric Canyon Capital to provide stream financing and a cost overrun facility for the development of the Khoemacau project in Botswana. This is a high-grade and long-lived copper development project with significant silver credits, the silver stream will fit nicely into our production profile. With the financings announced today, the project is now fully funded and development activity can accelerate, with first production expected in the first half of calendar 2021. We have been working on this transaction for about a year with Cupric, a private company principally owned by funds managed by Global Natural Resource Investments, or GNRI, we are very pleased to discuss this transaction with you today.
Because Cupric is a private company, the details of the Khoemacau project are not widely known. During this call, we'll give you an overview of the transaction, the Khoemacau project, and our partner, and explain why we think this transaction is a great addition to the Royal Gold portfolio. Turning to slide four, I'll explain the key commercial terms. The transaction consists of three components, including a stream, an option stream, and an overrun facility in the form of subordinated debt. In total, our investment could range from $212 million - $265 million for the stream, an additional $25 million for the overrun facility. Cupric has been very thoughtful about financing the project and has arranged funding from various sources in excess of the project's initial capital budget. I'll go into this other sources of capital a bit more later in the presentation.
With respect to our stream investment, we will make an advance payment of $212 million for the stream for 80% of the project's silver production, and we'll pay a cash price of 20% of the spot silver price for every ounce delivered. Our stream will drop to 40% after 32 million ounces have been delivered. At Cupric's option, we would increase the advance payment by up to additional $53 million for up to an additional 20% of the project's silver production. If we complete the full amount of the additional investment, our 100% silver stream would decrease to 50% after the delivery of 40 million ounces of silver. Our stream will be secured by liens against the assets of the Khoemacau project, and we have subsidiary guarantees up the ownership structure. Our stream will be subordinated only to the $275 million project financing debt.
With respect to the overrun facility, at Cupric's option, we will make an additional $25 million investment in the form of subordinated debt. This debt facility would have a seven-year term and pay interest at LIBOR + 11%. The graphic at the bottom of this slide shows the expected timing of the funds of these various components. We will fund on a quarterly basis as the project spending progresses and subject to an agreed formula for contributions from the other sources of capital. We expect that our first contribution will be around $60 million in the second half of calendar 2019, with approximately $125 million required during the course of 2020 and the remaining $27 million-$105 million paid in calendar 2021. Our expectation is to fund our contributions through cash on hand and our $1 billion revolving credit facility, which is currently undrawn.
We do not anticipate issuing any shares to fund this transaction, we'll be immediately accretive on a per-share metric. This transaction does not change our strategy with respect to the redemption of our currently outstanding convertible notes in June of this year. With our undrawn revolver, strong cash flow, and the attractive funding schedule for this acquisition, liquidity will not be an issue. Turning to slide five, I'd like to provide an overview of the Khoemacau project. Khoemacau is located in northwest Botswana on the Kalahari copper belt, about 90 km from the town of Maun, which is the fifth-largest town in Botswana. It is a semi-arid, flat-lying area with small trees and scrubby vegetation in a sparsely populated area.
The project consists of over 4,000 sq km of concessions, with several high-grade copper discoveries identified on the concessions, with the most advanced of these being the Zone 5 deposit. Zone 5 was identified in 2012 by Hana Mining, the previous owner, but it was not a focus of activity until Cupric acquired Hana in 2013. After Cupric took over the project, they completed extensive drilling and feasibility study on Zone 5 and applied for and received a 20-year mining license in 2015. In the same year, Cupric acquired Discovery Metals out of receivership, which included an additional mining license, infrastructure, and the Boseto Mill, which had been built in 2012 to process ore from the low-grade open-pit Boseto Mine. The Boseto operations ran from 2012 to 2015 and have since been shut down, but the infrastructure remains in place.
With the addition of the Boseto Mill, which is about 35 km away from Zone 5, Cupric then revised the development plan and feasibility study to incorporate Boseto Mill. The Zone 5 project today has a total resource of approximately 92 million tons and an average copper grade of 2.1% and a silver grade of 21.9 grams per ton. I'll turn the call over to Mark, who will give you an overview of the Khoemacau project and development plan.
Yeah. Thanks, Tony. I'll start on slide six with an overview and give a bit more detail on the main aspects of the project in the following slides. As Tony has already described, the Zone 5 mine will be an underground operation with ore trucked approximately 35 km to the existing Boseto Mill, which will be upgraded as part of the project scope. Power is close by, and a grid connection is being constructed to the Botswana Power Corporation's line approximately 22 km from the Boseto plant. The main source of BPC Power is a 600-MW coal plant, so grid power is reliable, relatively cheap, and generated in-country. It is also worth mentioning that the previous operation was run using diesel power generation, and the generation system will remain in place, providing a backup power source and construction power.
Water is also nearby, and the plan is to draw from the existing Boseto wellfield, the Haka wellfield under development, which will supply Zone 5, and mine dewatering production, with the fully permitted Khoemacau wellfield as a backup water supply. Concentrate will be bagged and trucked to Durban, South Africa for delivery to international smelters. Although there are other potential ports and off-takers for the concentrate, the Port of Durban makes the most economic sense as the base case because of the potential to backhaul consumables. The project schedule consists of 27 months of construction starting from January 2019, with first concentrate expected to ship in the second quarter of 2021. Moving to slide seven, I'll give a high-level description of the deposit.
The Zone 5 deposit is a sediment-hosted, structurally controlled, stratiform copper-silver deposit on the Kalahari Copper Belt with very consistent mineralization over a strike length of about 4 km. As shown in the cross-section on the slide, the high-grade mineralization dips about 60 degrees and has a fairly consistent thickness of about 9 meters. The Zone 5 deposit is not typical of lower-grade copper deposits elsewhere in the Kalahari belt. Cupric has completed about 225,000 meters of drilling on the Zone 5 deposit, and the resource dimensions cover approximately 4,200 meters of strike length to a depth of about 1,200 meters from the surface. As you can see in the long section on the slide, the resource is open on strike and at depth.
The area of interest for Royal Gold Silver Stream is approximately 8 km by 22 km, allowing for the potential resource additions along strike and down depth of the known mineralization. Mineral resources and reserves included in the Zone 5 mine plan, 74 million tons of 1.98% copper and 21.9 grams per ton silver, consists of 30 million tons of 2P reserves, plus approximately 44 million tons of measured, indicated, and inferred resources. Currently, 90% of the first five years of production is classified as measured and indicated, and 76% of the first 10 years is classified as measured and indicated resources. Infill drilling by Cupric has typically converted high percentages of the inferred resources to indicated, with flat to slightly increasing grade.
Turning to slide eight, you can see the production profile and the high-level Zone 5 project parameters. The mine is expected to feed the mill at a rate of 10,000 tons per day. The project will produce an average of 62,000 tons of copper and 1.9 million ounces of silver per year over the currently defined 21-year mine life. Recovery expectations are high at 89% for copper and 86% for silver. The average C1 plus sustaining cost, including byproduct credits but before the stream, is expected to be about $1.71 a pound using current spot silver price, which places Khoemacau at about the 50th percentile on the copper cost curve for primary copper producers. The production profile over the mine life is fairly consistent for both copper and silver, mainly due to good continuity of mineralization along strike and at depth.
The ore body offers the potential for expansion by adding new declines along strike or increasing the mining rate from the planned declines. A pre-feasibility study for the expansion has been completed. The main focus of the Cupric team today is to get the Zone 5 project up and running at 10,000 tons per day. Turning to slide nine, I'll give a bit more detail on the mining plan at Zone 5. As you can see at the bottom of the slide, the Zone 5 complex actually consists of three independent but interconnected mines along 3,000 meters of the ore body strike. The South, Central, and North mines, each of which will operate along approximately 1,000 meters of the strike length.
Each mine will have its own box cut and ramp access, each is designed to mine at a rate up to 2 million tons per year, which will keep the mill full at 10,000 tons per day. Twin declines will maximize the efficiency over the long strike length of the deposit, and the mining method is conventional sub-level open stoping. As Tony mentioned, the deposit is very consistent and homogeneous, and the design with three separate mines allows a lot of operational flexibility. Open stoping with pillar support will be used in the upper portion of the mines. Below about 450 meters, paste backfill will be introduced for support. Mined ore will be trucked in tractor-trailer units with payloads of 100 to 150 tons over the 35-km haul road to the Boseto Mill, which I'll discuss in the next slide.
On slide 10, you can see the photo of the existing Boseto plant, as well as the upgraded flow sheet. The mill was designed and built by Sedgman and commissioned in 2012 to process 1% copper sulfide ore, the plant operated at spec from feed produced from the original Boseto Mine. The mill will require some upgrading for the higher throughput and higher grade Zone 5 ore. The feasibility study for the upgrade was completed in 2015 by Sedgman and Cupric, which Fluor Daniel confirmed and optimized in 2017 and 2018. The copper and concentrate grade is expected to be high at about 40%, which is driven by the attractive mineralogy of the deposit, having high percentages of bornite and chalcocite copper mineralization. There are some minor penalty elements, but high-grade concentrate should make it attractive to smelters as a good concentrate for blending.
Thickened tailings will be pumped to the existing tailings storage facility, which is visible in the top right of the photo on the slide. Once backfill is required at Zone 5, filtered tailings will be used for a portion of the paste backfill aggregate and back hauled in the empty ore transport trucks. On slide 11, I'll discuss the current state of the project readiness and then hand over to Tony to talk about the sources and uses of capital for the project. I just got back from Botswana over the weekend after spending the last week with the project team completing a readiness review with Johan Ferreira, the CEO of Cupric. I can report that the project development is underway. All the required permits to start construction are in hand, there are no critical permits or land access approvals outstanding.
Detailed engineering is more than 60% complete, early works at the site have started, including clearing at the Zone 5 box cuts and laydown area, clearing of the Boseto to Zone 5 haul road, and upgrades to the Boseto Camp facilities. An MoU with the Botswana Power Corporation for the new power line and substation for connection to the grid has been signed, a long-term power supply agreement is being negotiated. Both the owner's team and the EPCM team are largely in place with fieldwork initiated. Fluor Daniel of Johannesburg was engaged in 2017 as the EPCM contractor for the surface facilities and process plant upgrades and has worked alongside Cupric management throughout the front-end engineering design or FEED process.
The FEED phase two was delivered in Q1 2018, and the phase two was completed in Q3 2018, which included detailed project execution plans. Cupric is currently in the tendering process for the mine development contract. The Cupric team will manage the mining, but a decision was made to bring in a contractor to complete all underground development and early operations and transition to owner mining as skills are transferred over to the Cupric workforce. Training is a key component of the underground contractor's scope. I will also mention that Cupric has developed good relationships with the local people in the project area. When Discovery Metals shut down operations, all employees were terminated, and there were many local residents who are supportive of the economic activity that Cupric will bring to the area.
In all, I'm very impressed with the project team Cupric has put in place, the project execution planning since my last visit mid last year, and the initial field activities. I'll now turn the call back over to Tony to discuss the funding for the project.
Thanks, Mark. I'll close off the comments on the project execution by reviewing the capital available. Cupric has done an excellent job of pulling together capital from different sources to address funding risk during construction. In addition to the contribution from Royal Gold, Red Kite Mine Finance will be providing a $275 million project finance facility, and Cupric has agreed to provide $75 million of additional equity as a condition to our funding, which could be provided from GNRI funds or another investor. The project capital requirements are $480 million, including project financing, and $100 million for the repayment of the existing debt facility from Red Kite, which will be repaid from the new project finance facility. As shown on the graphic, the equity contribution, the project finance, and Royal Gold stream at 100% will be more than sufficient to fund the project and refinance the existing debt.
We are pleased to provide a commitment for an overrun facility. If the project stays on budget and schedule, the entire stream option and overrun facility may not be required. Nonetheless, we felt it prudent to address other potential cost scenarios at this early financing stage, rather than cobble together remedies later when options and timing will be more limited. On slide 12, I'll give some background to our partners in this transaction, Cupric Capital and GNRI. Cupric Canyon Capital is a group of individuals who have a wealth of experience in the copper mining business, mostly from careers with Freeport-McMoRan and its predecessor company, Phelps Dodge. You can see from the experience listed on this slide that most of the Cupric founders came from the highest levels of the Phelps Dodge organization in various complementary roles.
They have increased the depth of their team by adding some very accomplished individuals who have experience in the African operating environment. Specifically, Johan Ferreira, the CEO, previously ran Newmont's operations in Ghana, and prior to that, had 26 years with AngloGold Ashanti in various operational roles. Johan's operating experience is complemented by strong commercial experience of John Munro, who was previously the CEO of Rand Uranium, and prior to that, on the executive committee for Gold Fields Limited for a number of years. Johan and John are complemented by BK Paya. BK was formerly the permanent secretary of the Botswana Ministry of Minerals, Energy, and Water Resources. He brings a lot of local experience to the project. At the board level, there is representation from Global Natural Resource Investments, the London-based private equity firm that manages funds and owns the majority of Cupric.
GNRI was formed in 2015 through the management buyout of Barclays' private equity business and is focused on investing in the energy and mining businesses. Their model is to back projects identified by technically experienced management teams and have committed more than $3 billion since 2006. Over the last year, we have strengthened our relationship with GNRI and Cupric to the point where we have developed the partnership we are announcing today. We look forward to further developing this partnership over the coming years. On slide 13, I will make some comments on Botswana. When we started our initial due diligence on this project, one of the major focus areas was the country as an investable destination. Although Botswana is known as one of the top diamond mining countries in the world, we did not have direct experience with the country.
We have been pleased with what we have seen and learned since, which is that Botswana is a peaceful and stable country with well-established rule of law. Botswana is the oldest democracy on the continent. It has a relatively small population of 2 million people, with an economy that is very dependent on the diamond mining business. However, the current government is pushing to diversify the economy. Encouraging new projects like Khoemacau is a priority, and as an example of the type of support they are willing to provide, the government has streamlined the process to bring in foreign expertise to develop the project and help transfer skills to the people of Botswana. The country ranks very well on foreign investment surveys, such as the Fraser Institute Annual Survey and the Mining Journal World Risk Report, both of which are benchmarks for the mining industry.
In 2017, the last year of the survey available, Botswana ranked as the highest of all African countries in policy factors, and third in terms of investment attractiveness behind Ghana and Mali, according to Fraser. The World Risk Report ranks Botswana best in Africa in three of five measures, namely governance, social, and fiscal. Botswana is also a member of various organizations, including the World Bank, the United Nations, the World Trade Organization, and the International Monetary Fund, to name a few. The country is ranked A2 stable by Moody's, and I was most impressed with their literacy rate, which was in the 80% range, high 80% range, in fact, depending on the various sources that we read.
During our due diligence, we engaged with the U.S. Embassy, as well as the previous senior management of the Debswana Diamond Company, a joint venture between the government and De Beers, and other business experience in the country. It was very helpful to have Chris Thompson on our board, who is quite familiar with Africa. We've also spent time in the country with the Cupric team at the project, and our experience confirmed everything we learned about Botswana being an attractive investment destination. On slide 14, I'll make some comments on what this transaction does for Royal Gold. Depending on the ultimate size of the silver stream, we expect that this transaction will add between 1.5 and 1.9 million ounces of silver per year to our account.
Using the metal prices observed over the past quarter, this represents a contribution of between 18,000 and 22,000 GEOs, or 5.5%-6.5% contribution compared to our annual actual results reported for our most recent quarter ended December 31. Again, comparing this to the December 2018 quarter, we expect silver will increase from about 10%-15% of total revenue, and our revenue from precious metals will increase slightly to just over 85%. While we're not in the business to speculate on metal prices, we do think this is a good time to add silver to our portfolio, as the current silver price relative to gold is lower than we've seen it over most of the past 20 years. I'll conclude on slide 15 with some wrap-up comments.
We always talk about new investment opportunities in terms of people, place, and project, and the Khoemacau project meets all of those criteria very well. We are impressed with the management and project team that Cupric has put in place and the way that they have approached the development. We're very comfortable with what we saw and learned about our visits to Botswana and believe this is a good jurisdiction for investment. Finally, we think the Khoemacau project is an excellent high-quality and lower-risk development project and adds another long-life asset to our portfolio.
In addition, the structure and terms of the Khoemacau stream are consistent with our objectives for acquisitions, which are to maintain our precious metal focus, to provide accretive growth to our shareholders by using cash flow to the greatest extent possible, and to take a disciplined approach to investments that depends on solid due diligence, that allocates capital to what we believe are quality opportunities that can provide metal price optionality and resource to reserve upside, and that are secured in a way that to provide us the greatest amount of protection possible to minimize risk. Operator, that concludes our prepared remarks, and we'll open the line for questions.
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first questioner today will be Cosmos Chiu with CIBC. Please go ahead.
Hi. Thanks, Tony and team, for a very detailed presentation, which is great because, to be honest with you, I don't really know much about this asset here. Maybe on that, my first question is, I think Mark sort of mentioned that he spent some good time in Botswana, can you just walk through the process with me in terms of the due diligence that you performed on this asset to get you comfortable to this point where you've made a pretty substantial investment?
Absolutely.
Yeah.
I'm going to turn it to Mark and have him address it.
Thank you.
Yeah. Thanks, Tony. We did our initial due diligence or detailed due diligence back early in the summer in 2018, where we took a team of about a half a dozen people, subject matter experts, and really looked at all of the important areas. We dissected the resource model and confirmed that it was a very solid model. We had mining folks and geological folks and mineral processing people all contribute independently to the due diligence. Although, as we usually do, we always have some opinion that may differ from the owner. We see a very solid project. We recently just followed up with this readiness review, which we just wanted to confirm that the team was in place to execute the project.
What we found was they've got an excellent team and a relationship with Fluor Daniel out of Johannesburg, and they've effectively filled all of the important team positions to execute the project. They've got four construction folks in country. Their owner's team is full. They've got their project controls in place. They've done excellent work on project planning and execution planning. This is one of the, I would have to say, one of the better projects that we've looked at with respect to how these guys have pulled their information and their plans together.
I'm sure, Mark, during your due diligence, you identify certain risk. What's some of the key risk here that you've identified? Be it, is it underground mining? Is it the mill? Where could it be?
Well, I'll tell you, one of the important things that we went in, it's a very arid area. Water supply was a significant concern to us originally, and we've subsequently, through additional work completed by Cupric, have become very comfortable with the water supply. Obviously, underground mining, geotechnical risk is a concern.
They aren't underground at this point, until they start developing underground, there's going to be some inherent underground risk that can't really be reduced until that development starts. They've done a lot of geotechnical drilling and analysis and a lot of mine planning and optimization. We're pretty comfortable with that.
I'd say we're very comfortable with that. Other things like dilution, is always an area to everyone has an opinion on it.
We think they've done a reasonable job on dilution planning. In our analysis, we always are a little bit more conservative. They looked at having a half a meter on hanging wall and footwall for dilution. We considered that it could be an additional half a meter.
We always take a little bit more conservative view in many cases than the owner, but those were some of the areas that come to mind for me right now.
Cosmos, I would just add to that.
Yes.
One of the things we really liked about the project was the fact that it is brownfields in a number of facets with the Boseto Mill already in place. You see a picture of that in the presentation that we put together, and that had operated quite successfully in the past. There's upgrading that, yes, there's some issues associated with that, but they look very manageable.
On the mining side, I guess that's the most new development that'll be done on this project. Mark's accurately identified that as the area that we're going to be watching closely. From Khoemacau's perspective, the redundancy that they've designed into that mill or into that mine is pretty impressive, with essentially five different ramps going into three different mines. It is just a lot of flexibility once they get into operations to operate that mine.
Very pleased with the methodical approach they've come up with there.
Yep. Maybe switching gears a little bit here. You talk about the cost of the asset here being sort of the 50th percentile in terms of copper cost, which is good, but I'm just wondering if you would have preferred to invest into something that could potentially be lower cost on the cost curve. The second part of my question is, how does silver sort of factor into the revenue mix at the asset? Now you're taking 80% of the silver, how could that potentially impact the cash cost?
Let me start with the latter first, Cosmos, and just say that silver is about 7% of the overall revenue, so it's not a huge component of the project.
When we look at the cash cost of the project, that's a very important piece for us. We often look at our investments very critically from the operator's point of view, because we don't want to be pushing our investment into the new project and causing the project to move up into a fourth quartile type position. Here we're very pleased to see that, number one, the silver isn't that large of a component, but it also is on the base of a mid unit cost producer. Plenty of room here, I think, on the margin side. That's one of the primary reasons we were attracted to the business opportunity.
Just going in a more global sense, we've said repetitively into the marketplace for years now that we are not interested in investing in any asset that pushes the operation up into the fourth quartile of the worldwide production curve. We very much would rather have projects that we're not invested in suffer in the first instance if metal price drops. If we come down through 25% of the world's copper production, I'm sure there'll be a price response.
Yeah.
We think we're in pretty good shape here. Finally, to address the rest of your question, obviously, we always want to invest in the highest quality assets we can. Today, the opportunity to get into first-tier copper projects is somewhat limited, and we think this is a good margin project for us in this environment.
Of course. Maybe, again, switching gears a little bit here. Cupric Canyon Capital, to be honest with you, up until today, I really haven't heard of that outfit. You gave us a good slide in terms of pointing out the pedigree behind the people at Cupric. I'm just wondering, how much confidence do you have in terms of the Cupric outfit building a mine, and from that perspective, have they built any mines in the past as a team?
Well, the Cupric folks as a team have not done that. This is a team that's been pulled together. Although I would emphasize that Johan Ferreira has just a tremendous pedigree of operations. He's a very systematic individual. He's got his team well in place, thinking along those lines. That very question that you answer there is the reason we wanted Mark to go over and take yet another look on the readiness for the project and make sure that everything was in the right direction. Now, I will say that with regard to building projects, the Fluor team has built projects together. I think Mark, if I'm correct, they built two projects in Botswana here in the last few years. Three. I guess it's been three projects in Botswana over the last several years.
Whilst the team hasn't been together and done it before, collectively, they've done it individually. Again, I think the project risk here is a little bit lower with the Boseto Mill already largely in place.
Yeah. One last question, if I may. I'm just wondering about the structure of the stream here. Are you protected against any kind of delay in terms of delivery, in terms of production? The second part is, where is your security on the stream?
Yeah. With regard to protection, one of the things that we really like about this investment is our money is really back-end loaded. There's a lot of other money that goes in in front of ours, Cosmos, and in all of our stream financings, we put money in on a pro rata basis. Once we do start tributing, it's going to be on a pro rata basis, so we get to continually look at the project. In every investment that is asked of us, we have an independent engineer that is going to be looking at the project, and Cupric will have to certify that the advance of the project is at such a level that they have sufficient funds to complete it. I think we're very systematic in how we approach those investments, and it's proven to been very successful in the past.
With regard to security, we have second security behind the $275 million Red Kite facility on all of the Khoemacau project assets. Khoemacau is now owned by a few different companies as it goes all the way up to Cupric, and we go up to the entity just below Cupric, it's called Cuprous, as far as our what we call a ring fence. We have guarantees up and down the ownership structure on Cupric Canyon. Very good position, I think, from what we've done in the past as far as security on our project assets.
Great. Thanks, Tony. That's all I have. Thank you.
Thanks, Cosmos. Good questions.
As a reminder, it is star then one if you would like to ask a question today. Our next questioner will be Dan Rollins with RBC Capital Markets. Please go ahead.
Thanks very much, Tony. Just filling in for Steven, who got pulled off onto some large M&A transaction that's been announced today. Just some quick questions. Just on the structure, going back to how you did the deal, was this a process run for the asset, or was this sort of more of a one-on-one negotiation you've had with the vendors through the last couple of years?
Thanks for the question, Dan. Let me just make sure I understand the question, though. You're saying, is a new style of investment for us or?
No, I'm just wondering if there was a formal process run to.
Oh.
Sell the stream, or were you sort of in one-on-one negotiations from day one?
No. Sorry, I misunderstood your question. I believe there were certainly some other competitors in here. I don't know exactly what flavor or what type or how many other streamers, if any, were here. I guess that would be a question you probably would want to direct to Cupric Capital people. Certainly we're competing against other sources of capital in this whole overall capital funding project.
Okay. Then just some quick, sort of housekeeping. The payable level on the silver, is it fixed, or does it float with the payable levels in the con?
No. I want to understand your question there, too. We have a fixed rate of 90% of the metal that's in the con that we get paid on. We're not going to be floating with whatever the percentage is at the smelter.
Okay. Perfect. Okay, so you're basically fixed 90% payable and recovery on the grade going to the mill.
Now, recovery, we're not fixed on. We float with recovery.
Okay.
The ore goes into the mill, and the recovery is what the recovery is.
You get 90% payable of that.
You've got it. Once that goes into the con, we get 90% of that so that we're not at the negotiating table with the smelter.
Okay, perfect. Just to also confirm, you are not responsible for any of the refining charges on the silver?
No, we're not. No, that's all part of the 90% payable.
Timing lag between production and sales, typical about three months to assume for the modeling purposes?
I think it's probably a three-month type for modeling purposes to start with. I can tell you that we do have a clause in the agreement, like we do in other contracts, where if we don't receive payment by the 150th day, there's a deemed delivery requirement. That continues to put pressure to settle those things out. Here, we get paid on the provisional as well, we'll get some provisional. Usually, that's about 90% of the metal in cons right when it ships out of the gate. To the extent that Cupric gets a provisional payment, we'll get paid on that provisional and trued up after the 150th day.
Just on the stage payments, when you mean pro rata basis, you're referring to capital going into the project based on the current CapEx assumption?
Right. You'll see the spread of capital requirements that we generally forecast today. Now, those are going to move around a bit. There's going to be $200 million that are invested ahead of us. Then there's a certain draw that is required on the Red Kite facility, then we'll supplement that for a period of time. Then we'll go pro rata. With the Red Kite facility, that will go pro rata. Generally, a bit more back-weighted on this investment, which we like, than what many of our other investments have been.
Okay. Just when you're doing the negotiations here with a private company, given the amount of debt that's going to be put on this to fund it with Red Kite and the need to repay that, was any of the built into the implied cost that you wanted to pay? Does that take into account the fact that there may be limited exploration over the first few years of this asset, given when it's also a 21-year mine life? One of the benefits of the royalty streams is to have this ongoing, basically free call on reserve replenishment. Do you see that as a risk over the first few years, or do you expect this company to put money back into the ground through exploration?
Well, look, let me be clear. What I really want the company to do is to focus and build this project first and get this project up and running so that we get a steady stream of revenue associated with it. It's fine for me if they start turning their attention to exploration once the cash flow starts coming. In this case, Cupric has got some very interesting ideas where they are already studying, I think we had it in our prepared remarks, already studying the possibility of expanding throughput. They have plans to do exploration outside and inside our area of interest. I think they've got great targets in the area. This is going to be, I think, a very prolific exploration area for quite some period of time.
We saw those very elements that we like in a transaction, I mentioned in my prepared remarks, a long enough mine life to give you metal price optionality also a very prolific exploration potential along strike and down dip. They're still open, certainly down dip, we're excited for them to continue to explore along strike. You can see that we've been cognizant of that in that green area of interest that we put around Zone 5. You'll see it down dip, there's plenty of room to expand that direction in that green rectangle. Then along strike, I think we have 22 km along strike, if memory serves, and 8 km down dip. That's a very good exploration footprint for us to take part in the future.
Great. Thank you very much. Appreciate the color.
Thanks, Dan.
This will conclude our question and answer session. I would now like to turn the conference back over to Tony Jensen for any closing remarks.
Thanks very much for joining us today. We're very excited about this opportunity and putting another long-lived, what we think is a high-quality asset into the portfolio. We'll continue to look forward to updating you how the development goes as project construction starts to pick up with vigor. Thank you for joining us today.
The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect your lines.