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Franco-Nevada to Add Precious Metals Stream to Cobre Panama


Franco-Nevada Corporation FNV recently announced that its fully-owned subsidiary, Franco-Nevada (Barbados) Corporation ("FNB"), has inked an agreement with First Quantum Minerals Ltd. for additional precious metals stream from the Cobre Panama project for $178 million.

FNB has the option to syndicate one third of the transaction to a third party, subject to final documentation. First Quantum plans to the use proceeds from the transaction to partly fund the acquisition of additional 10% interest in Cobre Panama from one of its joint venture partners, LS Nikko Copper Inc.

According to Franco-Nevada, First Quantum has made great progress in advancing and de-risking the Cobre Panama project.

Transaction Details

Per the agreement, FNB will initially pay 20% of the spot price of silver and gold as an on-going price until 4.8 million ounces of refined silver and 302,000 ounces of refined gold have been delivered. The margins of this additional stream will be higher than the existing stream for the current mine plan and the on-going price will be increased to 50% of the prevailing spot silver and gold prices.

On the closure of the transaction, the purchase price of $178 million will be paid as an advance one-time payment and no additional pro-rata funding will be applicable to the additional stream. Other than the ongoing price, the terms of additional stream will be similar to FNB’s existing stream on Cobre Panama, which includes the initial linking of precious metals deliveries to copper for roughly the first 25 years of production.

About Cobre Panama

Cobre Panama is one of the largest gold-silver-copper-molybdenum porphyry projects in the world. First Quantumplans to build a processing plant at Cobre Panama with an initial capacity of 74 metric ton (mt) per annum and then expand to 90 mt. The company has previously declared that this project is fully permitted and more than 60% construction is completed and is scheduled to ramp up production in late 2018.

As on Jun 30, Franco-Nevadahas funded an aggregate amount of $564.8 million of its $1 billion commitment for this project. Also, the company has contributed $52.4 million in second-quarter 2017 and a cumulative amount of $102.6 million in first-half 2017.

Price Performance

Shares of Franco-Nevada have moved up 16.5% in the last three months, outperforming the industry’s 10.3% growth.

Q2 Performance & Outlook

Franco-Nevada reported net income of $45.6 million or 25 cents per share compared with $42.3 million or 24 cents in second-quarter 2017. Barring one-time items, adjusted net income was $46.1 million or 25 cents per share, compared with adjusted net income of $40 million or 22 cents reported a year ago. Revenues increased 8.4% year-over-year to $163.6 million.

Franco-Nevada, in second-quarter earnings call, noted that it expects to meet the top end of its earlier announced production guidance range of470,000-500,000 gold equivalent ounces(or GEOs) for 2017. The company expects its various stream agreements to contribute 335,000-345,000 GEOs in 2017, out of the total. Revenues from oil & gas assets are expected in the band of $35-$45 million.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the basic materials space are The Chemours Company CC, Kronos Worldwide Inc. KRO and Smurfit Kappa Group plc SMFKY. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Chemourshas an expected long-term earnings growth rate of 15.5%.

Kronos Worldwide has an expected long-term earnings growth rate of 5%.

Smurfit Kappahas an expected long-term earnings growth rate of 4%.

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