Franco-Nevada values long-term gain over fat returns in streaming deals (Reuters U.S. – February 25, 2016)

MELBOURNE – Feb 25 Canada’s Franco-Nevada Corp chief said on Thursday the company does not see the high rate of return it is set to reap from a recent $500 million gold and silver “streaming” deal with Glencore Plc as a benchmark for future deals.

Franco-Nevada pays cash up front for future supplies of precious metals or for production royalties, which miners are increasingly relying on to help them fund exploration and new mines and, more recently, to raise cash to pay down debt.

This month it agreed to pay Glencore $500 million for a stream of gold and silver from the Antapaccay mine in Peru, in a deal estimated to give it an internal rate of return (IRR) of nearly 10 percent, or about double the average return that streaming companies have been getting.

“The market is so focused on IRR and I think it’s a mistake,” Franco-Nevada CEO David Harquail told reporters after speaking at the Melbourne Mining Club.

The high rate of return was not the best measure of value, he said, because supply under the deal drops to a third of previous levels after a specifiied amount of gold and silver has been delivered, giving less potential gain to the company if precious metals prices rise.

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