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Franco-Nevada

Hemlo (Au)

Hemlo

LOCATION: Ontario, Canada
OPERATOR: Barrick Gold Corporation
ROYALTY: NSR: 3% / NPI: 50%

The Hemlo gold mine has been producing gold for over 30 years and is located just off the Trans-Canada highway near Marathon, Ontario. Barrick is the operator and manages both the open-pit and underground operations. Franco-Nevada has both a 3% NSR royalty and a 50% NPI royalty on a portion of the western down-dip underground extension of the Hemlo ore-body as shown in the longitudinal schematic.

Initial mining on the royalty property began in late 2008, but revenues were limited to the 3% NSR royalty. The 50% NPI portion of the royalty began paying in the third quarter of 2012 after the upfront capital costs had been recovered by Barrick.

In 2019, Hemlo produced 213,000 ounces of gold compared with 171,000 ounces in 2018. All-in sustaining costs, which is important to take into consideration with respect to the NPI royalty, decreased to $1,140 per ounce in 2019 versus $1,318 per ounce in 2018. Barrick is forecasting 2020 estimated production of 200,000-220,000 ounces at an all-in sustaining cost of between $1,200-1,250 per ounce.

Royalties from Hemlo more than doubled year-over-year, as the operation was modernized and refocused in 2019, with Barrick potentially upgrading the mine to a Tier Two Gold Asset in its portfolio (stated life in excess of 10 years, annual production of at least 250,000 ounces of gold, and cash costs per ounce in the lower half of the industry curve). Compared to 2018, grade improved by 32%, production increased by 25% and the total cash costs and all-in sustaining costs decreased by 14%, all benefiting Franco-Nevada’s royalties. Barrick has also stated that Hemlo has moved to contractor mining underground and that open-pit mining on the property will cease in the second half of 2020.

Barrick plans to continue drill testing the down plunge extension of the C Zone in 2020. Exploration success and further Mineral Resource and Reserve evaluation of the C Zone and other areas to the west of Hemlo remain a priority. Barrick has reported that these initiatives are critical in facilitating an upgrade to its Tier Two Gold Asset status.

ASSET HIGHLIGHTS

  • Established mine operation in Ontario - Barrick’s only Canadian operation
  • Modernized and refocused operational efficiencies have improved annual production
  • Continued exploration of C Zone considered critical for LOM improvements
  • Profit royalties provide more leverage to gold prices

2019 2018 2017
Revenue to Franco-Nevada ($ million) $ 18.2 $ 7.1 $ 4.4
helmo map