Franco-Nevada Corp. (TSE:FNV) (NYSE:FNV) Monday announced that it has partnered with Inmet Mining Corp. (TSE:IMN) in a $1 billion precious metals stream financing deal for the Cobre Panama copper project in Panama.
With Franco-Nevada’s commitment of $1 billion toward development costs, Inmet said it now has funding in place for $4.2 billion of its $4.8 billion required capital, with the balance expected either from other sources of debt or from future operating cash flow.
"Inmet is an experienced and proven mine operator and developer," said Franco-Nevada president and CEO David Harquail.
“We expect the Cobre Panama precious metals stream will be a long-term cornerstone asset for Franco-Nevada that fits well within our overall portfolio.”
Harquail added that Franco-Nevada's funding commitment to the Cobre Panama project can largely be financed from its ongoing free cash flow.
“Franco-Nevada has the capacity to do approximately another $1 billion of new investments to further grow its portfolio in this opportunity rich environment.”
The precious metals stream is linked to copper production over the expected initial 31 year mine life of Cobre - one of the world's largest copper-gold-silver-molybdenum porphyry deposits currently being constructed. Beyond the currently contemplated mine life, Franco-Nevada said the precious metals deliverable under the stream will be based on a fixed percentage of the precious metals in concentrate.
The companies said the deal will go through their subsidiaries.
Inmet owns 80 per cent of Minera Panama, S.A. (MPSA), owner and developer of the Cobre Panama project, while Korea Panama Mining Corp. (KPMC) owns the remaining 20 per cent.
Franco-Nevada Barbados Corp., a wholly-owned subsidiary of Franco-Nevada, will provide a $1 billion deposit, secured by a pledge of Inmet's interests in MPSA, which will be used to fund a portion of the Cobre Panama project capital costs.
The deposit is expected to become available in the third quarter.
Franco-Nevada Barbados will pay to MPSA an amount for each ounce of precious metals delivered equal to $400 per ounce for gold and $6 per ounce for silver for the first 1.341 million ounces of gold and 21.51 million ounces of silver, and thereafter the greater of $400 per ounce for gold and $6 per ounce for silver or one half of the then prevailing market price.
The company noted that in all cases, the amount paid is not to exceed the prevailing market price per ounce of gold and silver.
In the event of a precious metals production shortfall, MPSA will have the option to reduce the stream by repaying up to 10 per cent of the $1 billion deposit.
The current mine plan for Cobre envisions an initial 160,000 tonnes per day operation with expansion to 240,000 tonnes per day by the tenth year of operation.
The plan incorporates 2.3 billion tonnes of reserves and there is additional potential from up to 1.8 billion of measured and indicated resources not included in reserves as well as an additional 3.7 billion tonnes of inferred resources.
Exploration at Cobre Panama is ongoing.
Inmet’s president and CEO Jochen Tilk said: “This $1 billion precious metals stream transaction provides Inmet with competitive funding for the development of Cobre Panama with more flexibility and less associated cost than with a traditional project financing.
“Securing this financing early reduces the financing risk to our shareholders, without sacrificing our copper production growth profile.”
Cobre Panama has mineral reserves estimated by Inmet to be in excess of 2.3 billion tonnes of ore. The deposits are estimated to contain over 32 billion pounds of copper, almost nine million ounces of gold and 168 million ounces of silver in the measured and indicated resource category and an additional 19 billion pounds of copper, 4.8 million ounces of gold and 121 million ounces of silver in the inferred resource category.
The project will have an owner-operated power plant and is expected to have cash costs of 94 cents per pound of copper over the life of the mine.
The mine received approval of its environmental and social impact assessment by the Government of Panama in December 2011, while construction began in May, with first production expected in the fourth quarter of 2015.
Shares of Franco-Nevada were up 0.33 per cent in pre-market trading, at $49.08 in New York.