TORONTO - Franco-Nevada Corporation (TSX: FNV) (NYSE: FNV) has partnered with Osisko Gold Royalties Ltd (NYSE: NYSE:OR) to acquire a gold stream from the Cascabel project in Ecuador, operated by SolGold plc. The deal, structured by Franco-Nevada's subsidiary, Franco-Nevada (Barbados) Corporation, and Osisko's subsidiary, Osisko Bermuda Limited, amounts to a combined $750 million investment.
The financing package is split on a 70%/30% basis between Franco-Nevada and Osisko, with the former committing $525 million and the latter $225 million. This investment includes $100 million in pre-construction funding and $650 million for construction, contingent on certain conditions being met, such as the receipt of all necessary permits and a board-approved construction decision.
Franco-Nevada's President & CEO, Paul Brink, expressed enthusiasm for the partnership with SolGold, citing the Cascabel project's potential to significantly contribute to Franco-Nevada's growth pipeline. The Cascabel project, which includes the Alpala deposit, is anticipated to yield an average of 50,000 gold equivalent ounces (GEOs) per year for the first 10 years of production, accounting for approximately 9% of Franco-Nevada's annual GEOs based on their 5-year outlook.
The terms of the gold stream agreement stipulate that Franco-Nevada will receive 14.0% of gold produced until 525,000 ounces have been delivered, after which the percentage drops to 8.4% for the life of the mine. Additionally, SolGold will receive 20% of the spot gold price for each ounce of gold delivered.
The transaction also includes a right of first refusal for FNB and Osisko on any future royalties or streams over the Cascabel concession. Furthermore, the agreement encompasses adjustment mechanisms to maintain economic viability in the event of development scale or timeline changes.
The Ecuadorian Government has shown support for the project, approving the Cascabel Exploitation Contract on June 5, 2024, which establishes the fiscal and legal frameworks for development.
Franco-Nevada plans to finance the transactions from its available capital, which includes $1.3 billion in cash and cash equivalents and $2.3 billion in available capital as of March 31, 2024.
This news is based on a press release statement.
In other recent news, Franco-Nevada Corporation has been the subject of various financial analyses.
Jefferies maintained a Hold rating on the company's stock, raising the price target to $133.00 from the previous $129.00. The firm anticipates an increase in quarter-over-quarter earnings and cash flow for the company, attributing this expected growth to a stronger gold price environment observed during Q2. Franco-Nevada's Gold Equivalent Ounces (GEOs) from mining activities are expected to dip but will be balanced by a rise in GEOs from the company's royalties on energy assets.
Additionally, the company reported a strong Q1 2024 performance, meeting production expectations and benefiting from high gold prices. The company's adjusted EBITDA margin reached 84.2%, and its adjusted net income margin was 56.9%.
Franco-Nevada's diversified portfolio saw Antapaccay GEO sales exceed expectations, while Candelaria GEO sales were slightly below.
These are recent developments and reflect the various financial and operational aspects of Franco-Nevada.
InvestingPro Insights
As Franco-Nevada Corporation (NYSE: FNV) embarks on its partnership with Osisko Gold Royalties Ltd to invest in the Cascabel project, the company's financial strength and investment potential come into focus. Franco-Nevada's strategic approach to investment is evident in its robust balance sheet, which holds more cash than debt, providing a solid foundation for such significant transactions. This prudent financial management is reflected in the company's ability to raise its dividend for an impressive 16 consecutive years, indicating a consistent return to shareholders.
InvestingPro data highlights the company's market capitalization at $24.84 billion USD, with a notable gross profit margin of 85.59% over the last twelve months as of Q1 2024. Despite a slight revenue decline of -4.31% during the same period, the substantial gross profit underscores Franco-Nevada's efficiency in generating earnings before interest, taxes, depreciation, and amortization (EBITDA), which stands at $1001.4 million USD.
Investors looking for stable investment opportunities may find Franco-Nevada's low price volatility an attractive feature, as indicated in the InvestingPro Tips. Additionally, the company's commitment to shareholder value is further demonstrated by its track record of maintaining dividend payments for 17 consecutive years. For those interested in deeper analysis and more exclusive insights, InvestingPro offers additional tips on Franco-Nevada. Readers can utilize the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, with 11 more tips available to help guide investment decisions.
As Franco-Nevada continues to invest in growth opportunities like the Cascabel project, the company's financial health and positive outlook, as suggested by analysts' upward revisions of earnings for the upcoming period, provide a reassuring backdrop for investors considering participation in Franco-Nevada's growth journey.
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