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 adjacent to 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, principally the Lower C Zone, 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 2020, Hemlo produced 223,000 ounces of gold compared with 213,000 ounces in 2019. All-in sustaining costs, which is important to take into consideration with respect to the NPI royalty, increased to $1,423 per ounce in 2020 versus $1,140 per ounce in 2019. Barrick is forecasting 2021 estimated production of 200,000 to 220,000 ounces at an all-in sustaining cost of between $1,280 to 1,330 per ounce.

Revenue from Hemlo in 2020 increased significantly relative to 2019 as the 50% NPI on Interlake benefited from higher gold prices, access and stope development that had been undertaken in prior years, and increased production from royalty ground. In 2021, Franco-Nevada expects royalties from the Hemlo NPI to range from 20,000 to 30,000 GEOs, down from a record 40,155 GEOs in 2020. Based on current reserves and development, production on royalty ground is expected to gradually reduce through 2028. Further production increases will depend on resource conversion and exploration success. Please see page 18 for our methodology on calculating Royalty Ounces for an NPI.

As the operation has been modernized and refocused, Barrick has been working towards upgrading the mine to a Tier Two Gold Asset in its portfolio (defined as Mineral Reserve potential to deliver a minimum 10-year life, annual production of at least 250,000 ounces of gold, and total cash costs per ounce over the mine life in the lower half of the industry curve). Portal development is ongoing to access the Upper C Zone which is not on royalty ground. This will provide a third mining front for the operation and increased flexibility, allowing the mine to ramp-up ore tonnes from approximately 1.1 Mtpa in 2020, to 1.6 Mtpa in 2021, increasing to a steady state of 1.9 Mtpa from 2022 onwards. In addition, open-pit stockpiles will supplement underground production during H1 2021.

ASSET HIGHLIGHTS

  • Established mine operation in Ontario - Barrick’s only Canadian operation
  • Operational efficiencies have improved annual production
  • Profit royalties provide more leverage to gold prices

2020 2019 2018
Revenue to Franco-Nevada ($ million) $ 69.9 $ 18.2 $ 7.1
helmo map