Franco-Nevada to buy stake in U.S. gold field for $103M US

Franco-Nevada Corp. will pay $103.5 million US for a small piece of a prominent Nevada gold field, the Canadian miner said Tuesday.

Franco-Nevada has entered into a cash agreement with private individuals to buy a 7.29 per cent interest in the Gold Quarry Royalty property. The 209-hectare property, in the north-central part of Nevada, represents a portion of the lucrative Gold Quarry field.

The Gold Quarry open-pit mine is operated by Newmont Mining Corp., which calls the field "the most prolific gold field in the Western Hemisphere".

Newmont operates the Carlin Trend site, which includes Gold Quarry, and said the Carlin mine had 9.5 million ounces of gold reserves at the end of 2007.

Franco-Nevada said this deal should help the company's financials in the long run and still leave the miner with more than $500 million in cash to fund more takeovers.

"The Gold Quarry Royalty is expected to complement Franc-Nevada's other gold royalties in Nevada and become a core addition to Franco-Nevada's portfolio of over 285 royalty properties," the company said in a release.

Facing lower prices

Franco-Nevada, which was spun off from Newmont in an initial public stock offering in 2007, earned $9.9 million, or 10 cents a share, for the third quarter of 2008. The company said it was facing lower gold prices in the final three months of the year, compared with the third quarter.

Purchasing the new royalty interest gives the company an opportunity to boost its cash flow in the face of lower bullion prices.

Three month stock chart for Franco-Nevada Corp.

Franco-Nevada expects to receive royalties on more than 11,200 ounces of gold each year from the royalty property, the company said. At a mid-December gold price in the range of $840 US an ounce, that level of production translates into almost $10 million of bullion production a year.

Global prices have fallen from a peak of $1,032 an ounce in March 2008, partly because of fears of deflation, especially in the United States.

In recent months, however, gold buyers have assumed their traditional stance of holding bullion as a defence against inflation, Scotiabank says.

According to this line of thinking, recent huge injections of financial resources by the U.S. Federal Reserve and other central banks will eventually lead to higher prices in many countries.

The deal is set to close on Dec. 31, subject to certain conditions, Franco-Nevada said.