Why This Mine Is Critical to Franco-Nevada's Future

The mining industry presents substantial risks to the companies that operate in it. Though some mines have much greater payoffs in production than expected, other sites that look extremely promising can turn out to be relative duds. Companies like Franco-Nevada (NYSE: FNV) however, avoid many of the risks of precious metals mining because they're in the business of  streaming -- making deals that provide up-front financing to mining companies. Such arrangements provide them fairly secure payouts, while leaving the actual miners on the hook with regards to project operations. Nevertheless, there are risks on both sides of streaming agreements, and Franco-Nevada's recent commitment to add further exposure to the Cobre Panama open-pit project on the Caribbean coast west of Panama City shows just how important the massive mine could be to the streaming specialist's future success.

Cobre Panama is one of the world's largest porphyry deposit extraction projects under construction, with exposure to copper, gold, and silver. Franco-Nevada has been involved with Canadian mining company First Quantum Minerals on the project since late 2015. Under the terms of the streaming deal they signed then, Franco-Nevada committed to provide up to $1 billion in capital, maintaining a 1-to-3 ratio in relation to First Quantum's share of the capital costs of developing the project. As of the end of 2016, Franco-Nevada had already contributed $462 million, and expected to lay out between $200 million and $220 million in 2017.

Cobre Panama project. Image source: Franco-Nevada.

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Source: Fool.com