The proposed merger of
By September of this year, the companies expect to have completed a merger at a share-exchange ratio of 1-to-1 in the case of Franco-Nevada, and 0.77-to-1 in the case of Euro-Nevada. The merged entity, to be known as Franco-Nevada, would then continue to focus on the precious metals sector in politically stable areas of the world.
“We’ve spent $300 million in the last fiscal year, more than was spent in the five previous years,” said Seymour Schulich, co-founder and chairman of both companies. “When bargains are available, we will take the rubber band off the wallet and spend money.”
Shareholders were told that this spending reflects a strategy to gain exposure to “world-class” deposits in established mining camps. In the past fiscal year, the companies spent US$84 million to develop the Ken Snyder gold mine in Nevada’s Midas district, purchased a 5% net smelter return royalty covering the bulk of the Stillwater platinum-palladium mine complex in Montana, and invested a total of $120 million in the Voisey’s Bay nickel project in Labrador and the Diavik diamond project in Canada’s Northwest Territories.
The companies hold more than 60 royalties spanning six countries with direct or royalty land interests exceeding 5 million acres. A royalty on the Goldstrike property operated by Barrick Gold in Nevada remains the cornerstone and the single largest profit engine.
Schulich told shareholders that the merged company would have more than $1 billion in cash and investments with which to make further acquisitions, particularly in the depressed gold mining sector. A major consolidation of the industry is already under way, he warned.
“Many companies are living off their treasuries, hedge books and the high-grading of their orebodies. Their shares are trading at a fraction of their former value, and most are reporting operating losses.”
In contrast, the merged Franco-Nevada is expecting increased earnings over the next three years, in part due to expanded production from the Goldstrike property. The company also expects to boost exploration spending, particularly at its holdings in the Midas camp, where it recently cut the ribbon on the Ken Snyder mine.
President Pierre Lassonde told shareholders that Ken Synder is operating ahead of schedule and encountering some pleasant surprises, including the discovery of a pod of between 500 and 1,000 tons grading 6 oz. gold and 254 oz. silver per ton. “Analysts who worried about us not meeting our [first-quarter] targets can rest easy,” he added. “We’ll meet it in spades.”
The Midas property now hosts total reserves and resources of 8 million oz. gold, with exploration only beginning in several prospective areas. Lassonde said permits are now in hand to explore the West Limb target, and initial results include 4.5 ft. of 6 oz. gold. The companies also are drilling a new set of veins, with the first hole returning 10 ft. of 0.25 oz. gold near surface.
On the production front, the companies intend to hold the line at the current rate of 500 tons per day, even though the mill has capacity to process more tonnage. Cash costs are US$80 per oz., with total costs ringing in at US$120 per oz.
“Most gold companies produce more gold when prices are low,” Lassonde said. “We want to do the opposite — stay level when prices are low. Should gold prices go to US$350 or higher, we would double mill throughput to 1,000 tons per day.”
Lassonde also sees potential for a third mine to be developed at the Stillwater mine complex in Montana (in addition to the producing Stillwater mine and East Boulder mine still under development). “We see tremendous market growth in platinum group metals, especially palladium. Purchasing the Stillwater royalty is the best deal after Goldstrike we’ve ever done.”
Lassonde told shareholders that merger plans had been discussed and reviewed several times before but that, because precious metals funds preferred the existing structure, they were never pursued.
“These funds are no longer the force they used to be, particularly in Europe. Some have been totally decimated, losing 80% to 90% of their value.”
In contrast, he added, mutual fund managers and institutional shareholders believe the companies will do better combined than as separate entities.
The merger proposal still requires shareholder and regulatory approvals, as well as the approval of committees made up of independent board members. Lassonde also noted that the merger will result in administrative and tax efficiencies.
Be the first to comment on "Royalty sisters to merge — Open wallet for bargain-hunting spree"