Franco-Nevada positioned for growth

Money Digest, June, 1997

Highlights

We are introducing coverage of Franco-Nevada Mining Corp. Ltd. with a buy rating for the following reasons:

* Franco-Nevada finances the development of choice gold properties in exchange for substantial royalty interests in the properties.

* The royalty company has no debt, $388 million in cash and liquid assets and a profit margin before tax of 91%.

* Franco-Nevada and sister company Euro-Nevada have recently announced that they will jointly develop the Ken Snyder gold mine with estimated cash costs of a mere US$78 per ounce.

The Company

Franco-Nevada (or Franco) holds royalty and net profit interests in gold, oil and gas, base metal, and platinum properties. Franco is based out of Toronto, and, after a stock split in July, 1996, has approximately 37 million shares outstanding.

The company's main revenue-generating property is Barrick's Gold-strike mine, in the Carlin Trend of northern Nevada. This is the largest gold mine outside of South Africa, and has one of the lowest cash operating costs in the world, at US$162 per ounce. Franco holds a 4% net smelter return royalty and a 5% net profit interest on this mine.

Midas project

In January 1997, Franco-Nevada and Euro-Nevada approved an $83 million development of the Ken Snyder gold and silver mine in the northern Carlin Trend of Nevada (formerly called the Rex-Grande deposit). The Ken Snyder mine has reserves of three million ounces of gold equivalent; 1.83 million tonnes of ore grading 1.37 ounces of gold per tonne and 17.4 ounces of silver per tonne.

Diversification

In fiscal 1996, gold revenues accounted for 85% of revenues, with 10% from oil and gas, and the remaining 5% from base metals.

Oil and gas division revenue is derived from a number of royalty interests in western Canada, as well as a 3.2% interest in the San Juan Basin Royalty Trust, whose major royalty interests are in the San Juan Basin of New Mexico.

Financials

For the nine months ended December 31, 1996, Franco-Nevada realized revenues of $78.0 million, up 29% from the same period in 1995. Earnings before tax were $72.0 million, showing a gross profit margin of 91.3% for the first three quarters.

After tax earnings for the first three quarters of fiscal 1996 were $48.9 million, an improvement of 18% over the $41.4 million earned in the first three quarters of fiscal 1995.

As a royalty company, Franco enjoys pre-tax margins of about 90%, and cash expenses (excluding taxes) of only 3% of revenue. After tax net profit margins have consistently been above 60%.

                               Franco-Nevada

                             Mining Corp. Ltd.

Recommendation:           Buy


TSE symbol:                FN

Recent price:          $65.00

Safety:          Conservative

Objective:             Growth

Target price:          $78.00

Concluding remarks

The Goldstrike mine still provides the majority of Franco-Nevada's revenue, and this stream of royalties is expected to be fairly stable over the next dozen years. The company is adding to its royalty portfolio to reduce reliance on Goldstrike's cash flow.

Franco is a buy for gold exposure, with a 12-to-18 month target of $78.00. Per share earnings for 1997 are expected to be $1.70, rising to $1.95.

From a recent research report by Marcel Brichon of Global Securities Corporation (604) 689-5400 (April 29, 1997).