Franco-Nevada buys Yanacocha gold mine royalty for $210 million

Royalty and streaming company Franco-Nevada (TSX, NYSE: FNV) said post-market Tuesday it had agreed to buy from Peru’s Buenaventura its existing 1.8% net smelter return royalty (NSR) on all minerals covering Newmont's (ASX, NYSE: NEM) (TSX: NGT) Yanacocha gold mine and adjacent mineral properties.

The transaction includes a cash consideration of $210 million at closing and a contingent payment of $15 million in Franco-Nevada shares, based on the fulfilment of specific conditions.

As part of the deal, the Toronto-based Franco-Nevada also secured a right of first refusal on any future sales of Buenaventura’s royalty interests.

“Yanacocha has been one of the largest gold mines globally and the district covered by the royalty remains highly prospective with over 47Moz of gold equivalent in total reserves and resources,” Franco Nevada chief executive, Paul Brink, said in the statement.

The Yanacocha mine, currently operating open-pit oxide production, will immediately contribute gold equivalent ounces to Franco-Nevada’s portfolio,  the company said.

Newmont, the owner and operator of Yanacocha, expects the mine— South America's largest gold operations—to produce 290,000 ounces of gold this year.

The royalty acquired by Franco-Nevada also covers the Yanacocha copper-gold sulfides project, which boasts total reserves and resources of 1.2 million copper tonnes and 7.2 million gold ounces. 

A $2 billion decision

Earlier this year, Newmont deferred to next year a decision on developing the $2 billion “Yanacocha sulfides” project, which would extend the mine life beyond 2040.

As the oxide resources of the open pit Yanacocha mine are close to being depleted, the project is designed to continue mining sulfide material underground.

The large copper-gold sulfides project hosts 1.2 million tonnes of copper reserves and resources and 7.2 million ounces of gold reserves and resources within the footprint of the current oxide operations. 

It is expected to produce more than 500,000 ounces per annum of gold equivalent during its first five years.

The first phase focuses on developing the Yanacocha Verde and Chaquicocha deposits to extend operations beyond 2040. The second and third phases, Palmer said, have the potential to extend the mine life for “multiple decades.”

Yanacocha is situated between 3,500 and 4,100 meters above sea level in the Peruvian province and department of Cajamarca.