Franco-Nevada sale likely after Carlin gold success

A recent decision by the directors of Toronto-based Franco-Nevada Mining Corp. to transfer all of its non-producing assets to a new sister company, means that Franco-Nevada is up for sale next year.

At the company’s recent annual meeting, Franco-Nevada Chairman Seymour Schulich, said the directors had approved a plan to spin out to its existing shareholders a sister company called Euro-Nevada Mining Corporation.

Mr Schulich said his company has retained Merrill Lynch of Canada to examine a number of possibilities including the sale or merger of Franco-Nevada with a larger precious metal mining company.

When the spin out is complete, Franco-Nevada will retain its royalty and net profits position in the Post, Bazza, and Gold Strike Mines. Located in the Carlin Gold belt area of northern Nevada, they are operated by American Barrick Resources.

“We believe that these claims hold more than 6 million oz of gold, said Mr Schulich whose projections are based on American Barrick’s recent discovery of a 600 ft zone grading 0.3 oz lying under Franco-Nevada’s Bazza claims. He estimates the total capital cost of developing these discoveries at over $200(US) million.

“Next year the potential of Franco-Nevada’s Carlin holdings will be better developed and we might entertain bids from some of the larger gold mining firms who could utilize and provide a tax shelter for the cash flow ($10 to $20 million in the early 1990s) netted from the Carlin royalties,” said Mr Schulich.

“President Pierre Lassonde and I can then peacefully go about running a sma ll gold specialty investment company.” Under the terms of the spin out plan, a dividend of one share of Euro-Nevada will be paid for each 25 shares of Franco-Nevada held to all Franco-Nevada shareholders.

At the time of payment (to be announced soon) of the dividend Euro-Nevada will have no assets. The Euro-Nevada shares will have a nominal value of 1 cents per share.

Immediately after distribution, Franco-Nevada will transfer all of its non-producing assets to Euro-Nevada at market value.

Euro-Nevada will pay for this acquisition and finance its future requirements by offering its shareholders rights to purchase 12 shares for $1.05 each for each Euro-Nevada share received via dividend.

For each share received via dividend, Euro-Nevada shareholders will also receive six one year warrants to buy another share of Euro-Nevada at $2.00 each.

Following the offer, Euro-Nevada will have approximately 6.7 million shares outstanding plus warrants to purchase a further 2.9 million common shares.

While financing the acquisition of the Franco-Nevada properties, the proceeds will be used to drill and develop five Nevada prospects, including three in the Carlin Gold Belt.

The company acquired 3,416 acres of mineral rights in the heart of the Carlin Gold Belt of northern Nevada in early l986. Shortly after the acquisition, operator American Barrick Resources, discovered one high grade hole while drilling the Post/Goldstrike properties. Announcement of the discovery sent American Barrick’s share prices up from $3.13 to $39.25

Since Franco-Nevada retains a 4% net smelter royalty and a 5% net profit interest on the property which has produced at an annual rate of 44,000 oz of gold since l979, the discovery also boosted Frano-Nevada shares.

They jumped from $3.38 to $8.38 within a week. At press time the shares were trading on the Toronto Stock Exchange at $13.75, just below its 52-week high of $15.25 but well above its $1.26 low point.

“It was a case of being in the right place at the right time,” said Mr Lassonde who claims that gold production at Carlin will reach 1 million oz within two years.

“Additional drilling at the Post/Goldstrike claim blocks will result in the two properties hosting one of the largest reserves of gold in North America,” he said.

Since American Barrick is planning to produce 75,000 oz gold this year, Mr Lassonde anticipates Franco-Nevada’s cash flow position to exceed $2 million in 1988. For the year ending March 31, l987, the company reported $3.3 million in working capital and revenues of $500,000.

According to Mr Lassonde, Euro-Nevada intends to look for new royalty interests on producing precious metal mines and prospective producers in Nevada.

Plans for the rest of l987 also include a “second look” at Franco Nevada’s Hasbrouck Mountain property near Tonopah, Nev. The company will attempt to find an economic way to mine gold from this low grade, open pit gold/silver deposit. If Franco-Nevada can recruit an operator for the deposit, production could begin within 12 months.

The spin out arrangement is subject to the approval of regulatory authorities.