Dividends take 50% of Franco’s cash

Franco’s jewel is a 4% net smelter royalty and a 5% net profits royalty in the huge Goldstrike gold deposit in Nevada owned by American Barrick Resources. Over the next 18 years, Goldstrike is expected to generate royalty income of more than $600 million for Franco- Nevada. Gold production from the large open pit will exceed one million oz per year. In some years output could exceed 1.4 million oz after the rich Deep Post deposit is placed in production. Deep Post reserves total eight million tons grading 0.5 oz gold per ton.

With respect to the remaining 50% of cash flow which will not be paid out, Schulich says the money will be used to do what Franco does best — acquire and create royalties. The company plans to increase its 30% interest in Redstone Resources (TSE) to 50%. Redstone, acquired earlier this year, will seek non-gold royalties. Redstone also owns the Coates copper deposit in the Yukon. Partners are being sought to explore and develop this large copper resource.

The company also plans to make further investments in sister company Euro-Nevada Mining Corp. (TSE). Euro, which was spun off by Franco in 1987, has raised more than $23 million and acquired a gold royalty portfolio on six properties. The company also controls a 500,000-oz gold deposit in Nevada which requires a gold price of $475 (US) per oz to become economic.

Both Schulich and company President Pierre Lassonde commented on Franco and Euro’s excellent financial health. “Total available liquidity by the end of next year will approximate $31 million,” Schulich noted. This consists of $15 million in cash, another $7 million from after tax 1989 cash flow and a gold loan credit line of 25,000 oz which will likely be increased to 43,000 oz.

The combination of large cash flow and the capability to buy gold royalties will enable Franco to achieve its “major corporate objective of becoming the premier income equity investment for North American gold investors,” Sc hulich told the meeting.

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