NEAVADA — Ken Snyder deposit expected to boost revenue for royalty sisters — Franco-Nevada, Euro-Nevada to spend US$28.5m on development

In an effort to sustain record profits, royalty sisters Franco-Nevada Mining (FN-T) and Euro-Nevada Mining (EN-T) have departed from their traditional “silent partner” role of acquiring and benefiting from royalties on mineral properties and, instead, are venturing into the realm of active development.

Until now, Franco-Nevada has been best known for the 4% net smelter return royalty and 5% net profits interest it owns on Barrick Gold’s (ABX-T) huge Goldstrike mine in northwestern Nevada. It also holds various royalty interests in other properties, chiefly in Nevada and Ontario.

Euro-Nevada, which was spun-off from parent Franco in 1987, also collects gold property royalties.

Earlier this year, however, management decided to deviate from the royalty path and develop the Ken Snyder gold-silver deposit, which lies within the companies’ equally owned Midas property, in Nevada’s Carlin trend.

“It was crossing the Rubicon for us, because we still regard ourselves as gold royalty companies,” says David Harquail, vice-president of Franco- and Euro-Nevada. “We initially went into the Midas project with the specific objective of turning it over to a major and keeping a royalty on it. However, we soon realized that the Ken Snyder deposit was exceptional, given its high grade and the fact that it has few technical problems and exists on private land.”

Proven and probable reserves are estimated at 1.1 million tonnes grading 45.4 grams gold and 512.6 grams silver per tonne, or 1.74 million oz.

gold-equivalent, at a cutoff grade of 3.43 grams gold. In addition, it hosts indicated and inferred resources of 1.7 million tonnes grading 47 grams gold and 596.6 grams silver.

The total capital cost for project development is estimated at US$84 million, of which about US$15 million is allocated for further drilling. The operating cost is pegged at US$78 per oz., which will be paid for by silver credits alone.

These and other attributes lead Harquail to regard the mine as virtually equivalent to a 100% gold-property royalty. “This project will give a major boost to cash flow and earnings for both Franco and Euro,” he predicts. “For Franco alone, Midas will generate as much cash flow as our royalties on the Goldstrike mine. Growth in earnings are going to be tremendous.” Development at Ken Snyder is proceding apace, with contractors already working on the portal and engaged in driving the main decline. Stopes are expected to be accessible in mid-1998, with full production to follow a year later. Because commercial production is still two years away, bids for operator management have yet to made. However, Kilborn SNC Lavalin was awarded the contract to engineer the mill.

.SNew equipment fleet

This year alone, Franco and Euro plan to spend US$28.5 million on development, about $3 million of which will be used to buy a fleet of 30-Ton haulage trucks, single- and double-boom development jumbos, and load-haul-dump machines. Mining will be carried out by both longhole and shrinkage stoping, followed by rockfilling.

Plans call for a 500-Ton-per-day plant based on a flowsheet that includes crushing, grinding, gravity concentration, staged leaching and thickening circuits, zinc precipitation and smelting. The design also allows for a doubling in capacity at an incremental cost of US$10 million.

Recovery rates for gold and silver are forecast at 97% and 95%, respectively, which translate into an annual production rate of 232,558 oz. gold and 2.9 million oz. silver, or roughly 250,000 oz. gold-equivalent.

In conjunction with development work, the sister companies are proceeding with exploration and infill drilling. Efforts will focus on bumping up resources to the reserve category, and on exploring for additional resources to the north and south, where mineralization remains open.

Exploration funds are also targeted for the Acme zone, 3.2 km to the south, which hosts an estimated 22.7 million tonnes grading 1.37 grams gold per tonne.

For the fiscal year ended March 31, Franco-Nevada earned $61 million (or $1.70 per share) on revenue of $99.5 million, compared with $52.8 million ($1.58 per share) on $80.9 million for fiscal 1996. In percentage terms, 1997 earnings were up 16%, while revenue climbed by 23%.

The increase primarily stems from Franco-Nevada’s royalty interests in the Goldstrike property, which produced 1.9 million oz. gold in 1996.

For fiscal 1997, Franco’s net profits interest in the property generated $31 million in revenue, compared with $15.1 million in fiscal 1996. The company’s oil and gas division is credited with having fueled the growth.

For Euro-Nevada, earnings rose to $17.6 million (or 40 cents per share) on $34.3 million in revenue from $14.3 million (35 cents per share) on $27.3 million.

The rising profits are attributed to the opening of three gold mines: the Meikle, about 3 km north of Goldstrike; the Henty, in Australia; and the Briggs, in California. A contributing factor was a full year’s production at the Mt. Muro gold mine in Indonesia. Euro-Nevada holds a 3% to 7% net smelter return royalty in Mt. Muro, which is operated by Australian-listed Aurora Gold.