Franco-Nevada Corporation (TSE: FNV) (NYSE: FNV) is picking up a royalty package on the Côté Gold Mine in Ontario from a private third party for approximately $1 billion.
Announced on Tuesday, the royalty package has a 7.5 per cent gross margin royalty on the mine. It applies to mineral production from the Chester 1, 2 and 3 claims, which cover all of the mineral reserves and over 99.9 per cent of present mineral resources at the mine.
Royalty deductions include only cash operating costs. They exclude capital, exploration, depreciation, and other non-cash costs. IAMGOLD Corporation (TSE: IMG) (NYSE: IAG) operates the Côté Gold Mine through an unincorporated joint venture. IAMGOLD owns 70 per cent of the mine, while Sumitomo Metal Mining Co. Ltd. holds the remaining 30 per cent.
The Côté Gold Mine ranks among Canada’s newest, largest, and most modern gold mines. It already hosts an extensive gold Mineral Resource base. Measured and Indicated Mineral Resources exceed 16 million ounces. Inferred Mineral Resources add another 4 million ounces.
As a result, the mine stands out as a major asset in Canada’s gold sector.
Franco-Nevada partnered with IAMGOLD and Sumitomo to acquire the royalty, gaining exclusive access to conduct detailed due diligence. As part of this arrangement, Franco-Nevada will replace the existing royalty agreement at the close of the Transaction, expected by the end of Q2 2025.
The new royalty agreement with IAMGOLD and Sumitomo will be registered on title. It will also clarify audit and information rights, among other terms.
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Royalty will generate gold revenues from major new Ontario mine
The replacement royalty uses the same economic payment calculation as the original royalty. As part of the partnership with IAMGOLD and Sumitomo, they will receive an option to buy back up to 50 per cent of the royalty. They may exercise this option at their discretion in two equal tranches of 25 per cent.
“The value upside of the Côté Gold Mine is further supported by the rapidly growing Gosselin zone which we intend to incorporate into an updated mine plan next year that will bring the Côté and Gosselin zones together to outline a Côté Gold Mine of increased scale and scope for generations to come,” said Renaud Adams, president and CEO of IAMGOLD.
The repurchase terms are as follows. First, the initial 25 per cent buydown option is priced at an internal rate of return (IRR) equal to SOFR plus 1.10 per cent—Franco-Nevada’s cost of borrowing—and is exercisable within two years of closing. Second, the additional 25 per cent option follows the exercise of the first and carries an IRR of 10 per cent, exercisable within three years of closing.
Both IRR calculations account for royalty payments received by Franco-Nevada up to the repurchase date.
The royalty will generate immediate gold revenues from a major new mine in Ontario.
The Côté Gold Mine began commercial production in August 2024 and is still ramping up. IAMGOLD has issued 2025 guidance for the mine (on a 100 per cent basis) of 360,000 to 400,000 ounces of gold at cash costs ranging from $950 to $1,100 per ounce, including royalty costs.
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Côté Gold Mine hosts rapidly growing mineral resource base
Assuming a gold price of $3,200 per ounce, the costs attributable to the royalty range from $770 to $930 per ounce. Based on IAMGOLD’s midpoint production estimate and the same gold price, the royalty is expected to generate $67 million in annual revenue. For the second half of 2025—assuming an effective date of July 1—that translates to $33.5 million.
The Côté Gold Mine hosts a large and rapidly growing Mineral Resource base across the Côté and Gosselin deposits. It contains 16.23 million ounces of gold in Measured and Indicated Mineral Resources (599.8 million tonnes at 0.84 grams per tonne) and 4.2 million ounces in Inferred Mineral Resources (184 million tonnes at 0.70 grams per tonne).
Since the addition of the Gosselin deposit in 2021, the Mineral Resources have doubled. Côté presently ranks among the largest gold Mineral Resources in Canada. It offers strong potential to convert more Mineral Resources into Mineral Reserves and expand its overall inventory.
The royalty covers more than 99.9 per cent of the current Mineral Resource and includes the nearby Clam Lake and Jack Rabbit targets.
The Côté Gold Mine is a new, modern operation that features a fully autonomous haul truck fleet, autonomous drilling, and energy-efficient HPGR milling technology. It is expected to operate in the lower half of the industry cost curve and benefits from low-cost, clean hydroelectric power.
In Q1 2025, cash costs reached $1,260 per ounce, including the royalty. These higher costs reflected increased maintenance and repairs during the ongoing ramp-up phase. However, costs are expected to decline throughout the year as production volumes rise and operations become more efficient.
Roughly $130 per ounce of the Q1 2025 cash costs were attributable to the royalty.
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Franco-Nevada owns multiple royalties in high level districts
Franco-Nevada holds net smelter return (NSR) royalties on several significant gold projects around the world. One key asset is the Valentine Gold Project in central Newfoundland. Calibre Mining Corp (TSE: CXB) (OTCMKTS: CXBMF) (FRA: WCLA) now owns this project after acquiring Marathon Gold in January 2024. Franco-Nevada holds a 3 per cent NSR royalty on Valentine. Construction is nearly complete, and Calibre expects first gold production in Q3 2025.
In Côte d’Ivoire, Franco-Nevada owns a 1.2 per cent NSR royalty on the Séguéla Gold Project. Roxgold Inc. sold this royalty in 2021 for AUD 20 million. Notably, the agreement allows Roxgold to buy back up to 50 per cent of the royalty within three years.
Franco-Nevada also owns a 0.62 per cent NSR royalty on the Island Gold Mine in Ontario. It acquired this royalty in March 2020 from Alamos Gold (TSE: AGI) (NYSE: AGI) for $13.4 million. This project provides long-term exposure to Canadian gold production with ongoing expansion potential.
These royalties diversify Franco-Nevada’s portfolio while supporting its cash-generating model across various jurisdictions.
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