PERTH: Deterra Royalties Limited announced Tuesday it has acquired an existing 1.75% net smelter return royalty covering a substantial portion of Ivanhoe Electric Inc.’s Santa Cruz copper project in Arizona for US$74.15 million.

The royalty will apply at a rate of 1.68% until the sixth anniversary following commercial production, then reduce to 1.57% thereafter, under agreements with Ivanhoe Electric to modernize the royalty deed. Ivanhoe Electric also received an option to repurchase 25% of the royalty for approximately US$20 million.

Santa Cruz is an underground copper project with an initial 24-year mine life and average annual production of about 75,000 tonnes of copper cathode over the first 15 years. Ivanhoe Electric projects first copper cathode production in 2029, subject to project financing and permitting.

Deterra expects average annual royalty revenue of approximately US$10.7 million over the first 15 years, representing a 14.4% annual yield on investment, assuming a long-term consensus copper price of US$5.00 per pound. The project is expected to operate at an average C1 cash cost of about US$1.47 per pound, placing it in the first quartile of the cost curve for projects in the Americas.

“This acquisition represents a high-quality addition to Deterra’s portfolio, providing exposure to a large-scale, long-life asset in a premier mining jurisdiction,” said Jason Neal, Deterra’s interim managing director and chief executive officer.

Deterra funded the acquisition through existing debt facilities. The company said the transaction does not affect its dividend policy of targeting a 75% payout ratio.

The sellers were four private individuals, one corporation and two family trusts based in the United States. Deterra also received a right of first offer to purchase the residual 0.25% of the existing royalty.

Ivanhoe Electric provided Deterra access to confidential project information during the competitive sales process, giving Deterra what it called a “distinct and critical competitive advantage.” In exchange, Deterra agreed to reduce the royalty rate if successful in the sale process.

The Santa Cruz royalty becomes Deterra’s third core asset, alongside its Mining Area C iron ore royalty in Western Australia and the Thacker Pass lithium royalty in Nevada.