Return of the Cheque Cashers

The decision by Newmont Mining (NMC-T, NEM-N) to spin out its royalty portfolio as a public company will effectively bring back its onetime takeover target, Franco-Nevada Mining.

The preliminary prospectus for the spinout identifies the company as Franco-Nevada Corp., with most of the same royalty holdings that the old Franco brought into Newmont at the time of their merger in 2002.

The preliminary prospectus was accepted for filing in all provinces and territories on Nov. 21. It details an offering that creates a standalone company holding the assets of Newmont’s Merchant Banking Segment, and staffed by most of the same people. David Harquail will be the new Franco’s chief executive, and former Franco officers Sharon Dowdall, Geoff Waterman, and Steven Aaker will have executive posts. Pierre Lassonde, Franco’s former chief executive and Newmont’s former chairman, will head the board of directors.

The new company would combine US$194 million worth of mineral royalties with US$64 million worth of oil and gas royalties, the latter held mainly in Western Canada. Among the mining royalties are a 5% net smelter return on the Stillwater palladium-platinum operation of Stillwater Mining (SWC-N); sliding-scale royalties on two large Barrick Gold (ABX-T, ABX-N) gold operations, Goldstrike and Bald Mountain; 5% and 1.75% net smelter returns on two parts of the Marigold gold project in Nevada, held by Barrick and Goldcorp (G-T, GG-N); a 5% net profit interest on the Pandora platinum group element project in South Africa, currently being developed by Lonmin (LNMIF-O, LMI-L) and Anglo Platinum (AGPPF-O, ANP-L); and sliding-scale royalties on two development projects in the western United States, the Western Goldfields (WGI-T, WGW-X) Mesquite project in California and the Great Basin Gold (GBG-T, GBN-X) Hollister property in Nevada.

Royalties on Newmont properties, held by the old Franco-Nevada, were extinguished at the time of the merger.

The company would be structured to hold Australian and United States royalties in locally domiciled subsidiaries, while a Canadian subsidiary would hold Canadian and overseas interests, including a dividend entitlement from Xstrata (XSRAF-O, XTA-L) on the Falcondo nickel operation in the Dominican Republic.

Newmont may still hold equity in the company, but only if the offering does not sell 75 million shares. Management and directors are already subscribed for 7.7% of the new company, including a 3.8% interest held by Lassonde, for which he is trading a block of Newmont shares. The offering would be for 78 million shares, including 6 million held by management.

The royalty assets turned US$88.6 million in revenues in 2006, and US$48.6 million in the first half of 2007. Net income out of the 2006 revenue stream was US$61.2 million and out of the first-half revenues, US$29.3 million. The assets are valued at US$280 million.