Franco-Nevada to take 7.29% royalty on Gold Quarry

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 returns 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 wholly-owned 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 the Nevada reserve base, which includes Gold Quarry, was 9.5 million oz. gold at the end of 2007.

More than eight million oz. gold are estimated to have been produced from the property so far 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, Franco-Nevada expects to receive on average greater than 11,200 gold royalty ounces per annum. 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 C$20.06 per share. The company has been trading in a 52-week range of C$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 & gas royalties and other interests. The lion’s share of its revenue comes from royalty properties in the U.S., Canada and Australia.