Snyder sale lifts Franco

The sale of its Ken Snyder mine in Nevada helped Franco Nevada Mining (FN-T) turn a $46.9-million profit in the three months ended June 30, 2001.

The quarterly earnings, which translate into 30 per share, compare with net earnings of $29.4 million (or 19 per share) in the corresponding quarter in 2000. Revenue for the period was $40.2 million, up from $38 million a year earlier.

The gain on the sale of the Snyder mine to Normandy Mining (NDY-T) clocked in at $38.6 million; after provision for income taxes, $21.9 million of that gain went directly to earnings. The deal saw Franco exchange Snyder, plus its Australian assets and a cheque for US$48 million, for a 20% shareholding in Normandy.

During the quarter, Normandy produced 634,843 oz. gold, a record quarter for the company. The equity earnings from the Normandy shareholding made up $4.8 million of Franco’s revenue. Mining royalties contributed $18.8 million, and there was $7.5 million from oil and gas royalties and $9.1 million from other investments.

During the quarter, continuing operations provided net earnings of $25 million, up from $21.9 million in the corresponding quarter last year. Part of the gain was in the $2.2-million year-over-year increase in revenue and part came from lower depreciation charges, the result of a writedown of carrying values on some of Franco’s marginal properties in the past year.

Royalties from the Stillwater platinum-palladium mine in Montana, owned by Stillwater Mining (swc-n), increased 19% as a steep rise in platinum and palladium prices piggybacked on an increase in production. Stillwater, which produced 93,000 oz. palladium and 30,000 oz. platinum in the quarter, pays a 5% net smelter return to Franco.

Higher production volumes from the company’s oil and gas properties contributed to the increase in revenue. Royalty revenue from that business segment rose 16% from the $6.5 million it contributed in the corresponding quarter of 2000.

Franco finished the quarter with $848 million in cash and total current assets of $899 million. Its only long-term liability is $84 million in future income taxes.

The company is changing its corporate year to correspond with the calendar year.

Franco-Nevada realized an average US$275 per oz. on gold sales during the quarter, compared with an average spot price of US$267 during the same period. The company does not keep a hedge book.

Normandy’s hedge book has also been pared down since the merger. Its commitments have been reduced and what remains is hedged over a shorter average term. Normandy estimates that 65% of its reserves exposed to increases in the gold price, while its downside is still protected.