December 13, 2010 / 3:46 PM / in 8 years

UPDATE 3-Franco-Nevada bids C$830 million for Gold Wheaton

* Cash and share deal values Gold Wheaton at C$5.20/share

* Quadra to sell Gold Wheaton shares for C$262.6 mln

* Franco-Nevada shares fall 3.08 pct to C$32.38

* Gold Wheaton shares up 14.61 pct to C$5.02 (Adds deal details, conference call quotes)

By Julie Gordon

TORONTO, Dec 13 (Reuters) - Franco-Nevada (FNV.TO), a Canadian gold royalty company, said on Monday it will buy competitor Gold Wheaton GLW.TO in a cash and share deal worth C$830 million ($826 million).

Franco-Nevada said the takeover is a key component of its midterm growth plan as it looks to diversify its portfolio of precious metal royalties.

“We believe we’re going from just north of $100 million of precious metals revenue as of the end of last year to over $350 million of precious metals revenue in 2015, of which Gold Wheaton is a significant component,” Franco-Nevada Chief Executive David Harquail told a conference call.

Franco Nevada, which provides mining companies upfront cash in exchange for future royalties, added that the deal will give it the cash flow needed to execute further deals going forward.

The Toronto-based company will pay C$5.20 for each Gold Wheaton share, a 19 percent premium over the smaller gold royalty company’s closing price on Friday on the Toronto Stock Exchange.

The payment will be 40 percent in cash, or C$2.08 per share, and 60 percent in shares, or 0.0934 of a Franco-Nevada share.

Franco-Nevada shares dropped 3.08 percent to C$32.38 on Monday on the Toronto Stock Exchange, while shares of Vancouver-based Gold Wheaton rose 14.61 percent to C$5.02.

Gold Wheaton was the most heavily traded stock on the market.

Separately, miner Quadra FNX QUX.TO said that it would sell its 56.5 million Gold Wheaton shares to Franco-Nevada for C$262.6 million, or C$4.65 a share.

Quadra said it will get a top-up if the deal between Gold Wheaton and Franco-Nevada goes through within 12 months, which should value its Gold Wheaton shares at C$293 million.

PLATINUM GROUP

The deal with Gold Wheaton will see Franco-Nevada nearly double its exposure to the platinum group metals (PGM). Spot platinum has risen almost 20 percent in the past 12 months, while spot palladium is up more than 100 percent in the same period.

Through Gold Wheaton’s 50 percent royalty stream from Quadra’s Sudbury, Ontario, footwall deposit, Franco-Nevada will increase its exposure to PGM metals to almost 20 percent of revenues from 10 percent.

“Its a very significant growth of what we believe is a very highly valued stream,” Harquail said. “We think it’s a very unique portfolio in the world.”

Franco-Nevada will also acquire a 25 percent gold royalty stream from First Uranium’s FIU.TO Mine Waste Solutions tailings project and a 7 percent gold stream from its Ezulwini mine.

Overall, the company said its portfolio after the deal goes through will be made up of 86 percent precious metals.

Franco-Nevada added that it will “maintain at least a 70 percent precious metals component”, but that the company now has the flexibility to expand through non-precious metal deals, with oil and gas seen as a future growth area.

Franco-Nevada is being advised on its bid by BMO Capital Markets, while Gold Wheaton’s advisor is Paradigm Capital Markets.

The deal has been approved by the boards of both companies and is subject to the usual regulatory approvals. It is expected to close in March 2011.

$1=$1.00 Canadian Editing by Janet Guttsman and Peter Galloway

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