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August 21, 2018
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Volume
August 21, 2018
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Candelaria

Location: Chile
Operator: Lundin Mining Corporation
Stream: Gold and Silver Stream

In November 2014, 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. 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 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. As of December 31, 2017, Franco-Nevada has received and sold 212,043 ounces of gold and 3.68 million ounces of silver.

Candelaria is one of Franco-Nevada’s largest revenue generators and has outperformed original expectations. In the fall of 2017, a pit slide resulted in lower projected 2018 copper production. Lundin has committed to $952.4 million of new capital at Candelaria including a new mining fleet. Lundin’s November 2017 technical report more than replaced Mineral Reserves (net of depletion) as well as increasing the life of mine gold production starting in 2018 by over 260,000 ounces and silver by 3.8 million ounces. Based on the updated technical report, Franco-Nevada expects to receive over 73,000 gold equivalent ounces in 2018 and approximately 80,000 gold equivalent ounces per year over 2018-2022.

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 Candelaria mine was discovered in 1987 and the open-pit has been in operation since 1993. The operation also includes the Candelaria Norte, Santos and Alcaparrosa underground mines.

ASSET HIGHLIGHTS:

  • LOM gold production increased by over 20% in November 2017 technical report versus previous report
  • Near term precious metal production, with the exception of 2018, increased versus previous estimates
  • Large land package with an additional area of interest in historic mining camp

2017 2016 2015
Revenue to Franco-Nevada ($ million) $ 105.2 $ 88.5 $ 101.6

Candida-Hayden