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Franco-Nevada to acquire Antamina Ag stream from Teck

2015-10-07 06:55 ET - News Release

See News Release (C-FNV) Franco-Nevada Corp

Mr. David Harquail of Franco-Nevada reports

FRANCO-NEVADA TO ACQUIRE A SILVER STREAM ON THE ANTAMINA MINE FROM TECK FOR US$610 MILLION

Franco-Nevada Corp. has agreed to acquire a silver stream on production from the Antamina mine in Peru from Teck Resources Ltd. Teck owns a 22.50% interest in Compania Minera 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."

Transaction Highlights

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 [1]) 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 [1]), 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 [2]. Within the resource envelope, total reserves are 647 million tonnes of ore [2], 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 single-purpose, 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

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.[2]

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 of 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.

Cobre Panama Commitment and Available Capital

Franco-Nevada has finalized the terms of a replacement precious metals stream agreement for First Quantum's Cobre Panama project. Under the terms of the revised agreement, Franco-Nevada's subsidiary, Franco-Nevada (Barbados) Corporation will provide a US$1 billion deposit against future deliveries of the gold and silver from Cobre Panama. This deposit will be funded on a pro-rata basis of 1:3 with First Quantum's 80% share of the capital costs in excess of US$1 billion. Execution of the revised documentation is expected shortly and initial funding is expected to be completed during October. Based on this timing, initial funding by Franco-Nevada (Barbados) is expected to be US$330 million to US$340 million. The changes from the original agreement have largely addressed standardizing reporting arrangements and providing a mechanism for First Quantum to utilize Cobre Panama as collateral while still maintaining the Franco-Nevada (Barbados) security.

As of June 30, 2015, Franco-Nevada held over US$760 million of working capital and marketable securities including over US$610 million in cash and short-term investments and US$80 million of available-for-sale investments. Franco-Nevada plans to fund the transactions using a combination of cash on hand and partially drawing upon its US$750 million credit facility. Franco-Nevada does intend to exercise the US$250 million accordion available with its credit facility increasing it to US$1 billion. Following the funding of the Antamina transaction and the initial funding of the revised Cobre Panama transaction, Franco-Nevada will have liquidity of approximately US$800 million between remaining cash on hand and its expanded credit facility.

Conference Call Information

Management will host a conference call this morning, October 7, 2015 at 8:00 a.m. Eastern Time to discuss the transaction.

Interested investors are invited to participate as follows:Via Conference Call: Toll-Free: (888) 231-8191(888) 231-8191 FREE; International: (647) 427-7450(647) 427-7450

Conference Call Replay: A recording will be available until October 14, 2015 at the following numbers: Toll-Free (855) 859-2056(855) 859-2056 FREE; International (416) 849-0833(416) 849-0833; Pass code 54886947.

Webcast: A live audio webcast will be accessible at www.franco-nevada.com.

Phil Wilson, CEng, Vice President, Technical of Franco-Nevada and a qualified person under National Instrument NI 43-101 has approved the written disclosure in this press release on behalf of Franco-Nevada.

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