Franco-Nevada, Sandstorm Gold to Invest $120M in Karma


Franco-Nevada Corporation (FNV) together with Sandstorm Gold Ltd. (SAND) has inked an agreement with True Gold Mining Inc. to finance the construction of the Karma project. Per the deal, the companies will invest $120 million in the project located in Burkina Faso, West Africa. True Gold expects first gold pour at Karma by the end of 2015.

Franco-Nevada’s shares rose as much as 3.9% in the trading session following the announcement.

Franco-Nevada and Sandstorm will offer a start-up funding of $100 million in 75% and 25% sharing, respectively. From Mar 31, 2016, True Gold will deliver 20,000 ounces of gold annually to the Syndicate for the next five years amounting to a total of 100,000 ounces. After five years, True Gold will have to provide the Syndicate refined gold equal to 6.5% of equivalent amount of gold produced from the Karma mine for ongoing payments. The Syndicate, in turn, will pay 20% of the spot price of gold to True Gold for each ounce delivered.

The agreement is inclusive of all concessions applicable within the 856 square kilometers of the Karma project along with a specified area of interest of 5 kilometers surrounding the project. Moreover, True Gold can opt for an additional funding of up to $20 million from the Syndicate during the next 18 months. This additional amount has to be repaid in eight quarterly deliveries of up to 30,000 ounce of gold based on the proportional portion of the amount drawn.

Franco-Nevada (Barbados) Corporation (FNB) – a fully owned subsidiary of Franco-Nevada – will be providing financing to a fully-owned subsidiary of True Gold. The shares and assets of the company operating the Karma project will secure the obligations of the agreement.

According to Mark O'Dea, Executive Chairman of True Gold, the funding assistance by Franco-Sandstorm was the best solution in terms of cost of capital, operational flexibility, business interest and long-term partnership, which can benefit shareholders.

Franco-Nevada operates as a gold-focused royalty and stream company with additional interests in platinum group metals, oil and gas and other resource properties. The company continues to benefit from its expansions and exploration discoveries made by operators or developers.

Franco-Nevada currently holds a Zacks Rank #3 (Hold).

Better-ranked companies in the gold-mining space worth considering include Harmony Gold Mining Company Ltd. (HMY) and NovaGold Resources Inc. (NG) with both holding a Zacks Rank #2 (Buy).

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