ROYAL NICKEL is led by executives from Inco and Falconbridge, whose C$19bn mega-merger was thwarted in 2006 by a furious bidding battle involving Xstrata, Teck Cominco, Vale and Phelps Dodge. Inco chairman Scott Hand (left) chairs Royal Nickel.

ROYAL NICKEL is led by executives from Inco and Falconbridge, whose C$19bn mega-merger was thwarted in 2006 by a furious bidding battle involving Xstrata, Teck Cominco, Vale and Phelps Dodge. Inco chairman Scott Hand (left) chairs Royal Nickel.

Royal Nickel Closes $15m Red Kite Deal

Issue 43, May 2013

Royal Nickel Corp has sold a 1 per cent royalty for $15m over its Dumont project, Quebec, to metals trading group Red Kite Capital Management. “I think royalties have a role in pretty much any market,” Royal Nickel chief executive Tyler Mitchelson says, “but in this market, to raise $15m in equity in Toronto is almost impossible, so this was a great alternate form of financing. If you look at the financing deals Red Kite has done previously, we see it as a significant endorsement.”

The agreement is the latest in a flurry of deals struck by Red Kite’s mine finance division. In March, it closed a royalty and equity package with Australia-listed Dart Mining and a $200m off-take and loan with Nevada Copper Corp. In April, it also consolidated an equity holding in Shanta Gold.

The deals put Red Kite on the path of Swiss giant Glencore, which initially moved into mining to feed physical collateral into its trading business. Glencore’s appetite for mining assets pushed the group into a public listing in 2011, as it became unable to both buy out departing partners and add to its fixed asset base. Launched in 2008, assets in Red Kite’s mine finance division have grown to $1.7bn.

For Royal Nickel, the $15m injection funds the company into 2015, with a feasibility study due for release this summer and permitting expected next year. “We essentially have no infrastructure to build,” Mitchelson says. “We have a highway, rail, power and water. Everything we need is right at the site.”

Dumont contains a 9.6bn lb nickel resource and is expected to produce up to 108m nickel lbs per annum over the first 19 years of a 30-year mine life. Upfront capital costs are estimated at $1.1bn, versus Royal Nickel’s market cap of C$38m ($37m). Mitchelson sees the feasibility study as a platform for final funding. “It may be a combination of debt, off-takes, basic equity. There could be a combination of structures that we pull together.”

Besides Red Kite, Royal Nickel has had discussions with Japanese trading houses and Asian nickel end-users. The project is also backed by state-owned mining fund Quebec Ressources, which paid C$12m in August last year for a 2 per cent stake in Dumont and a 0.8 per cent royalty. “They will be a significant player in whatever financing we do going forward,” Mitchelson says.

“There could be a combination of structures that we pull together.”
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