Franco-Nevada invests US$352M in Tocantinzinho gold project in Brazil

Gold streaming company Franco-Nevada (TSX: FNV; NYSE: FNV) has committed US$352.5 million to a finance package totalling US$481 million for the Tocantinzinho project located in Pará state, Brazil, currently held by G Mining Ventures (TSXV: GMIN). The project is construction-ready, and first production is expected in the second half of 2024.

Located 200 km southwest of the city of Itaituba, Tocantinzinho is expected to be a low-cost, conventional open pit mining and milling operation. The project’s positive economics were confirmed in a recent feasibility study that forecast total gold production of 1.8 million oz. over a mine life of 10.5 years, resulting in an average annual gold production of 174,700 oz. with an all-in-sustaining cost of US$681 per oz. and initial capital cost of US$458 million.

The study pegged Tocantinzinho’s after-tax net present value (at a 5% discount rate) at US$622 million, and its internal rate of return at 24% using a gold price of US$1,600 per ounce. The project mine plan is based on proven and probable mineral reserves of 48.7 million tonnes at an average gold grade of 1.31 grams gold per tonne for 2 million contained ounces of gold.

To support the project’s construction, Franco-Nevada has agreed to spend US$250 million to acquire a gold stream on the Tocantinzinho project, based on following schedule: 12.5% of gold produced until 300,000 oz. of gold have been delivered, and 7.5% of gold produced for the remaining life of mine. G Mining will receive 20% of the spot gold price for each ounce of gold delivered. Franco-Nevada will also have the option to purchase gold stream on additional properties with mining production processed through the Tocantinzinho facilities.

In addition to the gold stream, Franco-Nevada has agreed to provide a US$75-million, six-year term loan to G Mining and subscribe for US$27.5 million worth of G Mining’s shares. Proceeds from the share purchase would fall under G Mining’s previously announced US$116.4 million equity financing. At closing, Franco-Nevada would own 9.9% of G Mining’s outstanding shares.

The entire funding package to G Mining (US$352.5 million) will be drawn from Franco-Nevada’s cash on hand. As of Mar. 31, the company had approximately US$723 million in cash and cash equivalents and US$1.7 billion in available capital.

“Tocantinzinho is an attractive project in a prolific district and located in a good jurisdiction. The G Mining Ventures team has a track-record as one of the most capable mine building teams in the industry. As a stream financing partner we seek, through our financing and our involvement in projects, to help mine developers raise their full financial package on attractive terms,” Paul Brink, president and CEO of Franco-Nevada, commented.

As for the rest of Franco-Nevada’s financing commitment to the project, the company has arranged equity private placements to two strategic investors — US$68.8 million to La Mancha Investments and US$20 million to Eldorado Gold (TSX: ELD: NYSE: EGO), and up to US$40 million in equipment financing with Caterpillar Financial Services.

Eldorado Gold is the previous owner of the Tocantinzinho project; G Mining acquired the property in October 2021 for US$115 million.