Canadian gold and energy royalty company offering aiming to raise more than $1-billion
October 24th, 2007 | File Under : Company - Exploration - Gold Mine - Mine Trade & Market - Mining Investment - Mining Top News
Franco-Nevada, the Canadian gold and energy royalty company sold to Newmont Mining Corp. in 2002, is set to rise again with an initial public offering aiming to raise more than $1-billion – by far the largest debut on the Toronto Stock Exchange this year.
Hoping to attract the millions of mining investment dollars that have come available with the recent loss of major industry names including Alcan Inc., LionOre Mining International Ltd. and Meridian Gold, the new company will hold royalty interests in approximately 190 precious and base metals properties, providing it with a steady stream of revenue from various projects.
The IPO will mark the return to the Canadian capital markets of a resource portfolio created by industry legends Pierre Lassonde and Seymour Schulich. Franco-Nevada Mining Corp. was sold to the U.S. gold giant as part of a $4.2-billion (U.S.) blockbuster three-way merger in 2002. Newmont announced plans to sell the assets in July as part of major restructuring under new management.
The new company will be called Franco-Nevada Corp. and its assets will include royalties in Barrick Gold Corp.’s massive 1.9-million-ounce-a-year Goldstrike mine in Nevada, the Stillwater platinum and palladium complex in Montana and Xstrata PLC’s Falcondo nickel mine in the Dominican Republic.
The company will also own approximately 100 oil and gas royalties, according to a prospectus filed with securities regulators.
Mr. Lassonde will be the chairman of the new Franco-Nevada while David Harquail, who was also with the original company before becoming Newmont’s head of exploration and business development, will be chief executive officer, the documents said.
The IPO, led by investment dealers BMO Nesbitt Burns Inc. and UBS Securities Canada Inc., comes at an auspicious time for the resource sector.
The price of gold is trading near 27-year highs and rocketing toward $800 an ounce and oil is fetching more than $80 a barrel.
As well, base metal prices are in the midst of an unprecedented bull run that began in 2002 and has seen prices for nickel, copper and zinc more than triple.
Based on annual cash flow of approximately $90-million generated by the business and the trading multiples indicated by research analysts for royalty businesses, the company could command a valuation in excess of $1-billion. In the prospectus, Newmont indicates an intent to divest its entire interest, suggesting the TSX IPO could raise well over $1-billion and provide investors with a large and liquid vehicle to play the resource sector.
“It’s basically the old Franco-Nevada,” said an industry source, who added “this company should definitely have the wind at its back.”
Royalty interests are considered particularly lucrative in the current commodities cycle because as a straight percentage of revenue, they are often insulated from soaring production and construction costs that have recently plagued mining companies and squeezed profits for the past few years.
Franco holds royalty interests in 21 operating mine projects, 15 development projects and 154 exploration properties. Of those, 82 per cent of the gold and base metal royalties are what are called “net smelter return royalties” or NSRs. An NSR provides the owner with a straight percentage of revenue from the gold or metal sold from a mine. For example, Franco owns a 5-per-cent NSR on the Stillwater mine.
At Goldstrike, Franco owns both NSRs and “net profit interests,” or NPIs, giving it a percentage of profit generated by various parts of the mine.
Franco-Nevada was the brainchild of Mr. Lassonde and his long-time business partner Mr. Schulich. Avoiding the inherent risks involved in actual mining but providing much needed capital to projects, the duo parlayed a slew of investments and royalty interests into a Toronto company with a market value of $2.5-billion by the time Franco was sold.
Mr. Lassonde became Newmont’s president before stepping aside last year. He is still the vice-chairman of the world’s second-largest gold producer.
Mr. Schulich was appointed the chairman of Newmont Capital, the company’s merchant banking arm once the merger closed in 2002. He stepped down from his Newmont duties last year and does not appear to have a role with the new company.
If successful, a $1-billion Franco-Nevada IPO, would easily eclipse the almost $400-million raised by yoga-wear retailer Lululemon Athletica Inc.’s TSX debut in July.
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