TORONTO, October 7, 2015 – Franco-Nevada Corporation (TSX: FNV; NYSE: FNV) has agreed to acquire a silver stream on production from the Antamina mine (“Antamina”) in Peru from Teck Resources Limited (“Teck”). Teck owns a 22.50% interest in Compania Miñera Antamina S.A. (“CMA”), the Antamina joint venture company, along with partners BHP Billiton Plc (33.75%), Glencore Plc (33.75%) and Mitsubishi Corporation (10.00%).
“Franco-Nevada is pleased to partner with Teck on the Antamina mine to create our first pure silver stream,” said David Harquail, President and CEO of Franco-Nevada. “This further strengthens and diversifies our portfolio with a proven, long-life, high-margin asset that will be immediately accretive. This investment provides our shareholders with metal price optionality over multiple cycles and potential further exploration and expansion upside.”
A cornerstone investment : Antamina is an established mine that commenced operations in 2001. The mine is owned and operated by some of the largest and best regarded mining companies in the industry.The partners at Antamina have invested over US$6.5 billion to date in constructing and expanding the mine and its infrastructure.
A low-cost operation : Antamina is the 8th largest copper mine in the world and is one of the lowest cost copper operations globally. The low-costs are facilitated by the high grade reserves and resources as well as the wholly owned mining infrastructure including a concentrate pipeline and port facilities.
First silver delivery expected in fourth quarter : The effective date for the transaction is July 1, 2015 and Franco-Nevada is expected to receive 900,000 – 1,100,000 ounces of silver (12,300 – 15,000 GEOs ) in the fourth quarter 2015. Annual silver stream contributions are expected to average 2.8 – 3.2 million ounces going forward (38,200 – 43,600 GEOs ), with 2016 and 2017 silver deliveries expected to be above average. Based on current expectations, and assuming spot commodity prices, Antamina would increase Franco-Nevada’s GEOs and operating cash flow by approximately 13% and 18% respectively.
Antamina mine plan : The mine contains total Measured and Indicated resources (“M&I resources”) of 1.1 billion tonnes of ore and Inferred resources of 1.3 billion tonnes of ore . Within the resource envelope, total reserves are 647 million tonnes of ore , which are currently constrained by tailings disposal capacity.
CMA is currently considering options for storing additional tailings and alternative mine plans that could result in significant mine life extensions. Current M&I resources are sufficient to support over 20 years of open pit mining. Historically, a high level of Inferred resources have converted to M&I resources and ultimately to reserves. With continued conversion and upgrading of resources, the project could support mining for 30 – 40 years.
Exploration and expansion potential : Beyond the alternative mine plans currently being studied, there is resource expansion potential at depth which may be amenable to bulk underground mining. Additionally, Franco-Nevada remains exposed to any future throughput expansions as well as regional exploration potential (on existing CMA concessions) without further capital or funding commitments.
Deal structured in Canada : All the parties to the agreement will be residents of Canada.
Terms of the Agreement
Franco-Nevada will make a one-time US$610 million advance payment to Teck upon closing of the transaction. Funding is expected to occur in early-October with first silver delivery to Franco-Nevada in fourth quarter 2015.
The stream will be based on all recovered silver from Teck’s attributable 22.50% interest in the Antamina mine, subject to a fixed silver payability of 90%.
Silver deliveries are scheduled for the 45th day after each calendar quarter end based on the previous quarter’s concentrate shipments.
Franco-Nevada will pay 5% of the spot silver price for each ounce of silver delivered under the stream.
The stream will reduce by one-third after 86 million ounces have been delivered under the stream agreement, estimated at current throughput to be approximately 30 years.
The stream will be funded by a wholly-owned, Canadian subsidiary of Franco-Nevada.
The obligation to deliver silver will be a joint and several obligation between Teck as well as a singlepurpose, debt-free entity holding Teck’s direct interest in CMA.
Silver deliveries under the stream will be an absolute obligation of the joint sellers and are not contingent on the availability of cash flow from the project.
Antamina is a well-established producing copper mine that has been in production since 2001 and is one of the lowest cost copper mines in the world. The deposit is a polymetallic skarn with associated regional porphyry mineralization. The mine has reserves of 647 million tonnes grading 0.94% copper, 0.98% zinc and 10.7 g/t silver and M&I resources (inclusive of reserves) of 1,136 million tonnes grading 0.89% copper, 0.82% zinc and 10.6 g/t silver. Inferred resources at the project are 1,280 million tonnes grading 0.84% copper, 0.66% zinc and 11.4 g/t silver.
Beyond the known reserves and resources, Antamina hosts additional potential open-pit and bulk/selective underground targets. There is also regional exploration potential over a large, prospective land package greater than 700km2.
The mine is an open pit operation processing approximately 150,000 tonnes per day using conventional flotation, located in the Peruvian Andes 270 km north-east of Lima, at an elevation of approximately 4,000 meters. It employs over 3,000 people and is owned and operated by CMA. In 2014, Antamina produced approximately 345,000 tonnes of copper, 211,000 tonnes of zinc, 3.1 million pounds of molybdenum and 12.0 million ounces of silver (with associated bismuth and lead).
Concentrates are pumped via a 302 km pipeline to the Huarmey Port on the Pacific Coastline (300 km north of Lima) for shipping through port facilities which are wholly owned and operated by CMA.
Antamina produces separate copper, zinc, molybdenum and lead/bismuth concentrates, with silver predominantly contained within the copper concentrates, with additional silver contained with the lead-bismuth concentrate.
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