Franco-Nevada buys Yanacocha gold mine royalty for US$210M

Royalty and streaming company Franco-Nevada (TSX: FNV; NYSE: FNV) has agreed to pay Buenaventura up to US$235 million in cash and shares for a 1.8% net smelter return royalty (NSR) on Newmont‘s (TSX: NGT; NYSE: NEM; ASX: NEM) Yanacocha gold mine and adjacent properties.

The transaction covers all minerals and includes a US$210-million cash payment at closing. The Peruvian company will also receive US$15 million in Franco-Nevada shares, contingent on future development and commercial production of the Conga copper-gold deposit next to Yanacocha.

As part of the deal, the Toronto-based Franco-Nevada also secured a right of first refusal on any future sales of Buenaventura’s royalty interests.

“Yanacocha has been one of the largest gold mines globally and the district covered by the royalty remains highly prospective with over 47 million ounces of gold equivalent in total reserves and resources,” Franco Nevada chief executive, Paul Brink, said in a statement.

The Yanacocha mine, currently operating open-pit oxide production, will immediately contribute gold-equivalent ounces to Franco-Nevada’s portfolio,  the company said.

Newmont, the owner and operator of Yanacocha, expects the mine — South America’s largest gold operations — to produce 290,000 oz. of gold this year.

The royalty acquired by Franco-Nevada also covers the Yanacocha copper-gold sulphides project, which boasts total reserves and resources of 1.2 million copper tonnes and 7.2 million gold ounces. 

A US$2 billion decision

Earlier this year, Newmont deferred to next year a decision on developing the US$2-billion Yanacocha sulphides project, which would extend the mine life beyond 2040.

As the oxide resources of the open pit Yanacocha mine are close to being depleted, the project is designed to continue mining sulphide material underground.

The large copper-gold sulphides project hosts 1.2 million tonnes of copper reserves and resources and 7.2 million ounces of gold reserves and resources within the footprint of the current oxide operations. 

It is expected to produce more than 500,000 oz. of gold equivalent per year during its first five years.

The first phase focuses on developing the Yanacocha Verde and Chaquicocha deposits to extend operations beyond 2040. The second and third phases, Palmer said, have the potential to extend the mine life for “multiple decades.”

Yanacocha is situated between 3,500 and 4,100 metres above sea level in the Peruvian province and department of Cajamarca.