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speedybure (< 20)

Battle of Gold Royalty Co's: Franco-Nevada vs. Royal Gold

Recs

11

November 09, 2012 – Comments (6) | RELATED TICKERS: RGLD , FNV

Following the crisis of 2008, both Royal Gold and Franco-Nevada underwent significant transformations. It is my contention that Franco-Nevada has, as least for the time being positioned itself as the top gold royalty company.

Royal Gold ~ Its first streaming acquisition and potentilly most lucractive deal made to date, on a Internat Rate of Return basis was Andacollo. This assets, which Royal has a 75% streaming interest at no on-going per ounce cost, recently announced it will undergo a expansion, increasing gold production 40-60%. Current deisng capacity indicates it will contribute an annual production rate of 40,000 - 42,000 oz.;s, which will increase to approximately 60,000 oz. per annum sometime in 2014/2015.

Royal soon followed this up by outbidding Franco-Nevada for smaller royalty co. IRC (International Royalty company), which provided a host of royalties on world class assets, most notably Voisey;s Bay and Pascua-Lama. The latter was a 3.15% NSRm augmenting the 1.05% NSR it already held. Following this deal, Royal added an additional 1% NSR to its Pascua-Lama stream, bringing the total to 5.23%. When in production, Pascua-Lama will produce approx 800-850k per annum or 40-45k attributable production.

Finally, finishing off the transformation was the acquisition of its largest stream and royalty asset, which was acquired in 3 tranches. 1) A 25% Streaming interest 2) An additional 15%, bringing the total to 40% and 3) and additional 12.25%, bringing the total to 52.25% or avg attributable of 130k oz.'s for the first several years, dropping off to approx. 100,000 oz.

Royal has acquired several more assets than those listen above, but those are the ones increasing production materially.

Cornerstone Assets:

Voisey;s Bay ~ 2.7% NSR (Copper, Nickel, Colbolt)

Penasquito ~ 2% NSR All Metals

Pascua-Lama ~ 5.23% Gold

Andacollo ~ 75% stream Gold

Mt. Milligan ~ 52.25% stream gold

Franco-Nevada, while not acting as quickly as Royal Gold, definitely acted as or more efficiently.

Like Royal, Franco immediately took advantage of the financial position many mining companies were following the financial crisis. It;s first deal was acquiring a 50% stream on Coeur d"Alene's Palmarejo asset. It paid just 80m for the LOM stream on all the gold produced, which initially started from the main mine, which produces approx 110-120k Au per annum or 55-60k attributable but will bring the Guadalupe deposit on in 2013, increasing total production to approx 180k by 2014/2015 or 90k attributable. Furthermore several other promising deposits have been identified, making it only a matter of time before those are brought on, further augmenting attributable production.

Prosperity ` Franco has the right to purchase a 22% stream in this Canadian mine awaiting permitting. In exchange for 350m upfront payment and an on-going per ounce purchase price of $400/oz, it will increase att production to franco by 66k once at design capacity.

Gold Wheaton ~ After not wanting to engage in a bidding war with RGLD for IRC, Franco set its sights on acquiring Gold Wheaton for 1.1B. This acquisition greatly enhance its production growth profile by giving Franco 5 new streams (3 in Canada - the sudbury mines, 2 in South Africa - MWS and Elzuwini). The operator of the South African streams was a primary uranium producer, which was forced to sell MWS to Anglo-Gold Ashanti which amended the agreement with Franco, providing significant att production for the first 5 years then ending altoghether. This is both good and bad.

Cobre-Panama ~ The biggest royalty deal made to date ever in this niche within the mining industry. Franco will pay Inmet 1b upfront in staged payments. They will be paid on a pro-rata basis, leaving ample capital for Franco to pursue additional opportunities. In exchange for the 1b payment, Franco will have the right to purchase approx 85,000 oz.s Au & Ag for $400/oz. The kicker is the life of this asset, which solely based on 2P reserves is 31 years, however, Pierre Lassonde is on record saying he wouldn;t be surprised if this turned out to be a 50 or 60 year mine.

Weyburn ~ Franco recentl acquired another oil interest, this time rather significant. In exchange for $400m upfront, Franco received an 11.7 NRI (net royalty interest in the Weyburn Oil Unit). This should initially amount to approximately 22,000 gold equivalent ounces, however, an expansion will be underway via EOR yielding additional oil to the tune of 27-30,000 geo attributable to Franco. Furthermore the mine life is > 30 years.

Cornerstone Assets:

Gold Strike

Gold Quarry

Tasiast

Detour Lake

Cobre-Panama

Prosperity

Elzuwini

Sudbury mines

Palmarejo

Weyburn Oil Unit

Both companies have ample cash reserves and or available capital to deploy funding additional growth. To me, the clear winner at this juncture is FNV

6 Comments – Post Your Own

#1) On November 11, 2012 at 12:17 PM, skypilot2005 (< 20) wrote:


"Cobre-Panama ~ The biggest royalty deal made to date ever in this niche within the mining industry. Franco will pay Inmet 1b upfront in staged payments."

 

 Inmet withdrew thier bid for Petaquilla.   

 

Do you think that was just a negotiation "move" / strategy to aquire land for thier tailings facility? 

 

Do you still like Petaquilla? 

 

Sky - Long PTQ (TSX) 

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#2) On November 11, 2012 at 2:51 PM, speedybure (< 20) wrote:

Yes, I think it was strategic. I sold off PTQ when rumors of a bid cameout and the stock popped.

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#3) On November 12, 2012 at 5:06 AM, skypilot2005 (< 20) wrote:

Speedy,

My  Petaquilla avg. cost is relatively low @ .3725 thanks entirely to you.  You identified this company early. It is my 3rd largest holding out of the 63 positions I currently have.

They are going to be spinning out P. D. I.,  earnings are up, costs down to $524 oz, Inmet still needs land for a tailings facility, last time I checked -  Inmet had $1 billion cash on their balance sheet,  PTQs’ development projects in Spain.  But, I am not too impressed with PTQ’s managements' past deals  negotiating skills.

I wasn’t too impressed by Inmet either, after I completed some cursory D. D. on them.

In that context, I let it ride.

That being said, you were probably right to sell @ the higher price.

Ha. 

I am going to have a “hair trigger” on this one.

Thanks, for responding to my question.  I appreciate the work you do.  You’ve made me a lot of money on several positions.

I read everything you write.

Sky

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#4) On December 03, 2012 at 10:45 PM, skypilot2005 (< 20) wrote:

What goes around comes around……

http://finance.yahoo.com/news/inmet-rejects-4-9-billion-211554365.html

Inmet rejects $4.9 billion from First Quantum

Inmet Mining rejects $4.9B takeover offer by First Quantum, says not good for shareholders

 

Sky

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#5) On December 14, 2012 at 11:31 AM, charliedawgg (< 20) wrote:

Hi Speedy,

Any thoughts on Australian miner Mutiny Gold Ltd? I noticed that Sandstorm just penned an agreement with them, then their share price dropped. Thanxx.

Charlie

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#6) On January 17, 2013 at 10:24 AM, speedybure (< 20) wrote:

Mutiny has already laid out plans (though preliminary) for Deflector, which would increase production to 75k+ p.a. and I imagine drive costs down which is becoming increasingly important for Aussie miners.

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