Franco-Nevada Takes On Gold Quarry Royalty

Franco-Nevada (FNV-T, FNNVF-O) has more than US$500 million in cash and other facilities to pay for new investments and the company’s management says it is putting some of it to good use by acquiring an effective 7.29% net smelter return (NSR) royalty on the Gold Quarry property for US$103.5 million in cash.

The Gold Quarry royalty property is part of Newmont’s Carlin Trend complex, 40 miles west of Elko, a mining services town in north-central Nevada. The property is a 522-acre stretch of land that covers a portion of the current Gold Quarry open-pit mining operation of Newmont USA, a subsidiary of Newmont Mining (NMC-T, NEM-N).

Newmont reports reserves and production numbers by area and does not publicly quote separate Gold Quarry numbers. But it does say that the Carlin open-pit portion of its Nevada reserve base, which includes Gold Quarry, was 9.5 million oz. gold at the end of 2007.

Production from the property so far is estimated at more than 8 million oz. gold and the royalty interests that Franco-Nevada is buying are believed to have generated about US$250 million in payments.

Franco-Nevada’s share of the Gold Quarry royalty is paid on the greater of a 7.29% NSR based on production, or a minimum annual royalty payment tied to reserves and stockpiles.

Based on past records, the Toronto-based company expects to receive on average more than 11,200 gold-royalty oz. per year. The production- based royalty can be taken in cash or in kind.

Franco-Nevada shares climbed 41¢ apiece on the news, or 2.09%, to close at $20.06 per share on the Toronto Stock Exchange. The company has been trading in a 52-week range of $11.62-24.96 and has about 100.3 million shares outstanding.

So far, Franco-Nevada has amassed over 285 royalty interests. In the quarter that ended on Sept. 30, Franco-Nevada generated about $40 million in royalty revenues. Of this, gold made up about $20 million.

In addition to gold, Franco- Nevada has a portfolio of platinum group metals, oil and gas royalties and other interests. The lion’s share of its revenue comes from royalty properties in the U. S., Canada and Australia.