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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 is 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. 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.

In 2018, Franco-Nevada received 46,778 ounces of gold and 715,987 ounces of silver with 258,821 ounces of gold and 4.4 million ounces of silver received and sold since acquisition. Based on the updated technical report, Franco-Nevada expects to receive approximately 70,000 gold equivalent ounces in 2019 and approximately 80,000 gold equivalent ounces per year over 2019-2023.

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 having drilled over 420,000 meters and spent ~$100 million through the second quarter of 2018. With the exploration success, Lundin has extended the go forward mine life from 14 years to over 20 years based on the latest technical report. Lundin has successfully added to Mineral Resource and Mineral Reserve estimates at four underground mines (Candelaria North & South, Alcaparrosa and Santos) and has discovered the La Espanola Open Pit deposit.

ASSET HIGHLIGHTS:

  • Updated LOM plan extends beyond 20 years
  • La Espanola - new open pit orebody delineated; continued strong exploration potential
  • Gold and silver Mineral Reserves increased by ~20% in November 2018 technical report versus previous report

2018 2017 2016
Revenue to Franco-Nevada ($ million) $ 70.5 $ 105.2 $ 88.5

Candida-Hayden