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Franco-Nevada to Buy Precious Metals Stream from Glencore

Franco-Nevada Corporation' s FNV fully-owned subsidiary, Franco-Nevada (Barbados) Corporation ("FNB") has agreed to buy a precious metals stream ("Glencore Stream"), with reference to production from the Antapaccay mine, for $500 million. Antapaccay, based in Southern Peru, is fully owned and operated by Glencore plc and its subsidiaries.

With this acquisition, Franco-Nevada aims to strengthen and diversify its portfolio with some of the best mining projects in the world. The renowned Antapaccay open pit mine has been expanding throughput rates and production since late 2012. Glencore has invested more than $1.5 billion to develop Antapaccay as a low-cost operation with production that ranks among the top 20 copper mines in the world. It is located on the same property as the Tintaya mine that has operated for almost three decades.

Franco-Nevada expects 60,000 to 70,000 gold equivalent ounces (GEOs) applicable to deliveries from the stream in 2016. The company expects 11 months of deliveries to contribute to revenues in 2016.

Total throughput from the Antapaccay plant and Tintaya plant is expected to rise to 105,000 tons per day by mid-2016. Full year contributions to Franco-Nevada from the Glencore Stream has been forecast to average 70,000 to 80,000 GEOs annually over the next 5 years. Glencore's current mine plan projects production till 2030.

Per the deal, FNB will receive 300 ounces of gold and 4,700 ounces of silver for each 1,000 tons of copper in concentrate shipped, until the delivery of 630,000 ounces of gold and 10 million ounces of silver. After that, FNB will get 30% of the gold and silver shipped.

Initially, FNB will pay an on-going price of 20% of the spot price of gold and silver until the delivery of 750,000 ounces of refined gold and 12.8 million ounces of refined silver. The on-going price will then increase to 30% of the spot price of gold and silver.

FNB expects to receive deliveries of gold and silver under the Glencore Stream relating to January and February in first-quarter 2016. It will make a one-time advance payment of $500 million upon closing of the transaction which is expected in Feb 2016. Franco-Nevada plans to use part of the net proceeds of an $800 million equity offering to fund the acquisition of the precious metals stream.

Narila Investments Ltd, a Bermudan incorporated wholly-owned subsidiary of Glencore plc, will make the gold and silver deliveries.

Franco-Nevada's shares rose 6.5% to close at $53.64 on Feb 11.

Franco-Nevada currently carries a Zacks Rank #3 (Hold).

Better-ranked mining companies include AngloGold Ashanti Ltd. AU , Golden Star Resources, Ltd. GSS and Harmony Gold Mining Company Limited HMY . All the three stocks carry a Zacks Rank #2 (Buy).

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ANGLOGOLD LTD (AU): Free Stock Analysis Report

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FRANCO NV CP (FNV): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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