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Franco-Nevada

Candelaria (Au & Ag)

Candelaria

Location: Chile, Latin America
Operator: Lundin Mining Corporation
Stream: Gold and Silver Stream

In November 2014, a subsidiary of Franco-Nevada acquired a gold and silver stream on production from the Candelaria operation in Chile. Lundin Mining Corporation (“Lundin”) is the operator of the project and owns 80% of the asset with the balance owned by Sumitomo Corporation and its affiliates. Franco-Nevada provided an up-front deposit of $655 million to acquire the gold and silver stream from what is primarily a copper mine. The funds were used to finance a portion of the cost paid by Lundin to acquire the asset from Freeport-McMoRan Inc. Candelaria is an established mining operation and the transaction was the first material instance of a royalty/streaming company partnering with an operating company to purchase a producing asset.

The stream covers the current property position of approximately 150 km2. An additional defined area of interest effectively doubles the property position. Should Lundin acquire properties located within the area of interest, Franco-Nevada has the option to purchase a gold and silver stream which will apply to the additional ore from such properties.

The stream covers 68% of the payable gold and silver from 100% of the mine which reduces to 40% after 720,000 ounces of gold and 12 million ounces of silver have been delivered to Franco-Nevada. Cumulatively, 321,880 ounces of gold and 5.3 million ounces of silver have been delivered since acquisition. Franco-Nevada pays an ongoing price equal to the lesser of $400 per ounce of gold and $4.00 per ounce of silver or the then prevailing spot price for gold and silver for each ounce delivered under the stream. This price escalates by 1% per annum following the third anniversary of the closing, with the current ongoing price equal to $412.12 per ounce of gold and $4.12 per ounce of silver as of October 2019.

The Candelaria mine was discovered in 1987 and the open-pit has been in operation since 1993. The operation also includes the Candelaria North and South, Santos and Alcaparrosa underground mines. Candelaria is one of Franco-Nevada’s largest revenue generators and has outperformed original expectations. Lundin has made a significant investment in exploration at Candelaria. With the exploration success, Lundin has extended the go forward mine life from 2028, when it acquired Candelaria, to 2040 based on the latest technical report. Lundin has successfully added to the Mineral Reserves and Mineral Resources at the four underground mines and has discovered the La Española open-pit deposit which is targeted for production in 2024.

Franco-Nevada sold 73,638 GEOs from the mine in 2019, compared with 55,671 GEOs in 2018, and in 2020 expects sales from its Candelaria stream to be between 70,000-80,000 GEOs.

ASSET HIGHLIGHTS:

  • Updated plan extends life of mine to 20 years
  • La Española open-pit orebody delineated; demonstrating continued strong exploration potential
  • Gold and silver Mineral Reserves increased by approximately 5% in June 2019 versus previous June 2018 Reserve estimate

2019 2018 2017
Revenue to Franco-Nevada ($ million) $ 103.1 $ 70.5 $ 105.2

Candida-Hayden