Franco-Nevada values long-term gain over fat returns in streaming deals

MELBOURNE, Feb 25 (Reuters) - Canada's Franco-Nevada Corp
FNV.TO chief said on Thursday the company does not see the
high rate of return it is set to reap from a recent $500 million
gold and silver "streaming" deal with Glencore Plc GLEN.L as a
benchmark for future deals.
Franco-Nevada pays cash up front for future supplies of
precious metals or for production royalties, which miners are
increasingly relying on to help them fund exploration and new
mines and, more recently, to raise cash to pay down debt.
This month it agreed to pay Glencore $500 million for a
stream of gold and silver from the Antapaccay mine in Peru, in a
deal estimated to give it an internal rate of return (IRR) of
nearly 10 percent, or about double the average return that
streaming companies have been getting.
"The market is so focused on IRR and I think it's a
mistake," Franco-Nevada CEO David Harquail told reporters after
speaking at the Melbourne Mining Club.
The high rate of return was not the best measure of value,
he said, because supply under the deal drops to a third of
previous levels after a specifiied amount of gold and silver has
been delivered, giving less potential gain to the company if
precious metals prices rise.
The Antapaccay deal was agreed on those terms because
Franco-Nevada did not want to pay up front for supplies from the
Coroccohuayco section of the mine that Glencore has yet to
commited to building.
Harquail said the company's $610 million deal last year to
acquire a stream of silver from Teck Corp TCKb.TO over the
life of the Antamina mine in Peru was a better deal long-term
for Franco-Nevada.
"I actually like Antamina better because we keep a higher
stream over that whole license forever, so I think I've got a
lot more optionality," Harquail said.
Franco-Nevada is looking for more royalty or streaming deals
in Australia but Harquail said that was a long-term option.
The company is also looking for more opportunities to help
fund mine acquisitions and consolidation in the industry, just
as it did with Lundin Mining's $1.8 billion acquisition of the
Candelaria mine in 2014.
"There should be more buying of assets, put them in better
hands, and we can be an instrument to do that," Harquail said.