TORONTO (miningweekly.com) – TSX-listed Franco-Nevada Corporation now expects a royalty on Newmont Mining's Gold Quarry mine, in Nevada, to yield about 14 400 gold royalty ounces this year, compared with a December 2008 estimate of 11 200 oz, US operations chief Steve Aaker said on Wednesday.

Franco-Nevada announced late last year that it had agreed to pay private individuals $103,5-million in cash for the royalty, which is calculated as the greater of a 7,29% net smelter royalty based on production, or a minimum annual royalty payment tied to unpaid Gold Quarry royalty property reserves and stockpiles.

The production-based royalty can be taken in cash or in kind, and, if it had been owned by Franco-Nevada in 2008, it would have generated revenue of some $9,8-million, or 11 250 gold ounces, Aaker said in a presentation to analysts in Toronto.

The company is also optimistic that Newmont's Gold Quarry west wall lay-back project, which is aimed at increasing reserves and could potentially extend the life-of-mine by around six years through future cutbacks, will have positive implications for revenue generated by the royalty.

The exact portion of the deposit subject to royalty is unclear, Aaker said.

“But it's pretty exciting, and it should produce a much longer life and a nice royalty going forward.”

Franco-Nevada owns a diverse portfolio of resource royalties and other interests, including in oil, gas, base-metals and precious metals, but the firm's focus is becoming increasingly fixed on gold, CEO David Harquail commented.

Just weeks after completing the Gold Quarry transaction late last year, the company announced in January that it had agreed to buy 50% of the life-of-mine gold produced at Coeur d'Alene Mines' new Palmarejo silver and gold mine, in Mexico.

The mine poured its first metal on March 30, and will have the capacity to produce an average of nine-million silver ounces and 120 000 gold ounces a year.

Altogether, Franco-Nevada expects more than 75% of its revenue this year to come from gold, and that figure increases to more than 80% when other precious metals, mainly palladium and platinum,  are included.

n 2008, precious metals brought in 56% of group revenue, with gold making up 47% of the total and platinum-group metals just 9%.

The increased leverage of gold this year will be driven by revenue from the Gold Quarry and Palamrejo royalties, as well as higher expected bullion prices.

The firm is also “well positioned” to add further assets, with more than $150-million cash on hand, an available $150-million credit facility and some $50-million in marketable securities.

Further, although Franco-Nevada remains focused on increasing the gold component of its portfolio, the fact that it also has copper and energy assets provides “huge optionality” if bullion prices decline, Harquail said.

“Gold is not going to be going to the sky forever, and having the diversification of being in oil and other commodities is going to be very important in building a long-term business that can deliver for shareholders.”

The company will continue to generate positive cash flow “in almost any scenario we can see going forward”, he said.

Shares in Franco-Nevada, which went public in December 2007, slid 0,87% on Wednesday, to C$25,03 apiece by 16:10 in Toronto.

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