Metals Acquisition Corp. (NYSE:MTAL) announced that it has made a series of amendments to its combination the Glencore’s (LON:GLEN) CSA Copper Mine, shifting some portions of the compensation to contingencies based on commodity prices.
The mine is now to be acquired with at least $775 million in cash, which may be expanded to $875 million depending on demand for the $125 million PIPE Metals is now attempting to raise at $10 per share.
A further $150 million is now expected to come via two $75 million payments: the first if copper commodity prices rest above $4.25 per pound for any rolling 18-month period, and the second if this price exceeds $4.50 for 24 months.
Another $75 million is set to come as a deferred cash payment bearing interest under the same terms as Metals’ existing term loan and is payable should the combined company list on the Australian Stock Exchange or make an alternative capital raise.
The deal was originally slated to be funded by about $418 million from Metals’ trust, with the SPAC pledging to backfill redemptions. A further $375 million was set to come from a senior debt facility, $175 million from mezzanine debt and $41.75 million in equity investments from strategic investors and individuals.
Osisko Gold Royalties also agreed to a $90 million silver streaming agreement in conjunction with the transaction, and the press release does not make clear if this arrangement is still on. Setting it aside, the old terms saw $1.01 billion in consideration coming to Glencore, assuming Metals’ trust could be successfully backfilled for redemptions.
Assuming the copper price and other milestones are all met, the new price tag would fall between $1 billion and $1.1 billion. If these are missed, and the PIPE is not fully subscribed, the proceeds will effectively be -23.3% lower than originally negotiated.
But, Glencore is also set to retain twice as much equity in the combined company with $100 million-worth of equity rather than $50 million and it is to receive a 1.5% royalty on net smelter returns from the mine on a quarterly basis. It will also be allowed to appoint one director to the company’s Board for every 10% interest that it holds.
Overall, Metals’ deal is the sort that the present market conditions is more disposed to favor with a profitable target sitting on hard assets. But certain macro factors have nonetheless been put under more stress since the transaction was first announced this spring.
Back then, copper commodity prices were coming off a recent five-year high and it was priced at $4.70/lb on the deal’s March 17 announcement date. It has since traded down to about $3.61/lb today. The other major constituent parts of Metals’ debt and trust-based financing have also become less certain with both interest rates and redemption levels rising in the intervening months.
This re-strike appears to be a win-win for both sides, however. Glencore will hold onto a larger piece its mine for longer, which it can of course still divest once its lock-up has run out and it will receive a passive take on the mine’s production moving forward.
Should copper prices recover, it will receive as much or more than what it was promised from the beginning. Meanwhile, Metals can use the concessions as a starting point in its pitch to new PIPE investors as it works to mitigate redemption risks.