Royal Gold, Inc.’s RGLD fully-owned subsidiary RGLD Gold AG has entered into a $175 million purchase and sale agreement with New Gold, Inc. for a percentage of the gold and silver produced from the Rainy River Project in Ontario, Canada.

Per the agreement, Royal Gold will make two advance payments of $100 million, at closing, and $75 million, once capital spending on the project is 60% complete, to New Gold. Also, New Gold will deliver gold and silver to Royal Gold on a monthly basis. Royal Gold intends to sell the gold within a few weeks of receiving each delivery, and will recognize revenue from the sale of the delivered gold after the sale.

New Gold will provide 6.5% of the gold produced at Rainy River to Royal Gold until 230,000 ounces have been delivered, and 3.25% thereafter. New Gold will also provide 60% of the silver produced at Rainy River till 3.1 million ounces have been delivered, and 30% after that. Royal Gold will pay 25% of the spot price per ounce of gold or silver to New Gold.

Annual gross gold deliveries are estimated to be of 20,000 ounces during the first 10 full years of production, and about 17,000 gross ounces during the life of mine. Silver deliveries are expected to be 250,000 ounces annually during the first ten full years of production, and roughly 230,000 gross ounces during the life of mine. The life of the mine is expected to be fourteen years based on current reserves and is expected to start up by mid-2017.

Proven and probable gold reserves at the mine are 3.1 million contained ounces at 1 gram per ton (g/t) in the open pit, and 668,000 contained ounces grading 5 g/t in the underground deposit. Proven and probable silver reserves at the mine are 8 million contained ounces grading 2.5 g/t in the open pit, and 1.39 million contained ounces grading 10.3 g/t in the underground deposit.

The Rainy River Project fits well with Royal Gold’s high quality portfolio and meets its criteria for new investments with roughly 4 million ounces of gold reserves, continued exploration upside and projected cash costs below $600 per ounce. The project is expected to produce an average of 325,000 ounces of gold annually.

Royal Gold’s shares tumbled roughly 10% to close at $51.22 on Monday, hit by a slump in gold prices which plummeted to its lowest level in more than five years that day.

Royal Gold currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the gold mining space include Vista Gold Corp. VGZ, Primero Mining Corp. PPP and Asanko Gold Inc. AKG. All of these stocks carry a Zacks Rank #2 (Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>