Notes to the Consolidated Financial Statements for the year ended 30 June 2023 8. Investment in joint venture (continued) Facility 2 - Orion Mineral Royalty Fund On 30 September 2022, KMS and TOPL entered into a Production Linked Loan Agreement with OMFR (Th) LLC, a related entity of Orion Mineral Royalty Fund (Orion) for US$110m. The facility comprises of US$110m debt facility and a production linked royalty. Loan – Interest is charged at a margin of 5% plus the higher of a) adjusted term SOFR, and b) 2% per annum. Minimum interest rate is 7%. – Principal repayments are made in line with the repayment schedule commencing 30 June 2025 with the final payment made 31 December 2028. – The facility is secured against TOPL’s assets. Royalty – Quarterly payments commence at the earliest of a) full repayment of the loan or b) 7 years following the date of the loan agreement. – Royalty payment is 1.60% of FOB gross revenue for the period. Revenue is based upon the quantity, type and price of the commodity extracted. The royalty payment is limited to Stage 1 production capacity capped at an annual production rate of 8.2m tonnes of ore. – The repayment term is 25 years and is subject to a buyback provision curtailing the term to 12.5 years. As at 30 June 2023, US$88.3m (A$132.4m) was drawn down from the facility with US$21.7m available under the facility subject to compliance with debt covenants. Total interest paid for the year was US$3.4m (A$4.9m). (c) Production linked royalty The Facility 2 royalty arrangement contains a “make whole” condition. Accordingly, a valuation of the make whole condition is required in conjunction with recognition of a financial liability and a corresponding recognition of a prepaid expense as at the issuance date of the loan. The make whole amount is effectively the present value of the expected royalty payment which will be expensed through the life of the Facility 2 loan. On each financial reporting date, the make whole amount is recalculated with any difference recognised through the statement of profit or loss. The key terms for the make whole amount are as below: – Triggered upon an acceleration (make whole) event occurring, being customary Events of Default for a facility of this type. – The amount due is the greater of: a. an amount, after taking into account all payments (including royalty) made under the agreement which provides the lenders with an agreed & commercially confidential after-tax internal rate of return; or b. an amount equal to the NPV of the lender’s rights to all payments (including the royalty) made under this agreement calculated on the basis of the most recent forecast commodity price for the mineral sands products. For the 2023 financial year, item (b) above applies for the purposes of the calculation. Joint venture (100%) 2023 $’000 (Audited) Joint venture (100%) 2022 $’000 (Audited) Non-current assets Prepayments – prepaid expense on financing costs on royalty obligations 119,597 – Revaluation (2,309) 117,288 – Non-current liabilities Other financial liabilities – royalty make whole 119,597 – Remeasurement (4,592) – Foreign currency revaluation (2,309) – 112,696 – 48 Sheffield Resources Limited Annual Report 2023
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