Franco-Nevada to provide $1 billion towards Inmet’s cost of Cobre Panama mine

TORONTO – Franco-Nevada Corp. (TSX:FNV) has agreed to commit $1 billion toward the cost of a major copper mining project in Panama being led by Inmet Mining Corp.

“Inmet is an experienced and proven mine operator and developer. Franco-Nevada is proud to partner with Inmet to provide the financing needed to develop one of the world’s largest mining projects,” David Harquail, Franco-Nevada’s president and CEO, said in a joint announcement Monday by the companies.

Toronto-based Inmet (TSX:IMN) owns 80 per cent of the Cobre Panama project through Minera Panama SA and the remainder is owned by Korea Panama Mining Corp.

Franco-Nevada’s $1-billion advance payment for future purchases of gold and silver produced by the mine as secondary metals will go towards Inmet’s share of building the primarily copper project.

The total cost of Cobre Panama is estimated at $6.2 billion, including $1.4 billion to be funded by Korea Panama Mining and $4.8 billion through Inmet.

Franco-Nevada specializes in financing for mining projects in return for production “streams” once they begin commercial operations. The company’s aim is to sell the production at a higher future price than it pays for the production streams.

“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 said.

“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.”

Inmet president and chief executive Jochen Tilk said the financing provided by selling the future production stream has advantages over other forms of funding.

“Securing this financing early reduces the financing risk to our shareholders, without sacrificing our copper production growth profile. We look forward to having Franco-Nevada as a partner in Cobre Panama,” Tilk said.

Under the agreement, a Franco-Nevada subsidiary US$400 per ounce of gold for the first 1.341 million ounces and $6 per ounce of silver for the first 21.51 million ounces, subject to annual adjustments for inflation over an estimated 20 years.

After that the prices will be adjusted in accordance with prevailing market prices.

In the event of a precious metals production shortfall, Minera Panama, S.A. (MPSA) — the producing joint venture — will have the option to reduce the stream by repaying up to 10 per cent of the $1 billion deposit, net of the value associated with any prior deliveries made to Franco-Nevada (Barbados).

MPSA will have this option only once at either the third or fifth anniversary of the start of production.