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Expect gold majors to start divesting this year, says Franco-Nevada President

The surging price of gold, which breached US$1,500 per ounce in recent trading, will help spur asset sales by majors this year, Franco-Nevada Corp. President and COO Paul Brink said on an Aug. 8 earnings call as he signaled that the company's coming deals will likely be in the precious metals space.

"I expect that the run-up in gold prices here will be a very good thing for those divestments," Brink said. "For the seniors looking to monetize some of those assets, they need a stronger environment where the buyers of those assets can access more capital."

The gold sector has gone through a flurry of deal-making in the past year that saw major and intermediate gold miners merge and in doing so outline plans to divest lower-priority assets. Newmont Goldcorp Corp., the combination of Newmont Mining Corp. and Goldcorp Inc. earlier this year, has said it would divest about US$1 billion to US$1.5 billion in assets, while Barrick Gold Corp., after a merger with Randgold, said it would divest about US$1.5 billion in assets.

Brink, speaking generally, said he expected divestments to start flowing by the end of the year.

While not pointing to specifics, Brink also said Franco-Nevada, which has an energy asset portfolio, is focused on the precious metals sector.

"In terms of active deals, I think it's most likely that the next transactions would be precious metal related," Brink said.

Franco-Nevada CEO David Harquail told S&P Global Market Intelligence in June that the company would help gold midtier companies fund acquisitions stemming from divestments by majors. Harquail also highlighted potential in precious metal streams and royalties on base metal projects.

"What I think is more exciting is that the supermajors, the diversified companies, are all looking at streaming or royalty financing and saying, 'How can we finance our next generation of base metal mines by getting a better [internal rate of return] in selling the precious metal streams on them?'" Harquail said at the time.

Commenting more recently on the increase in the gold price, Harquail told S&P Global Market Intelligence that while Franco-Nevada cannot predict the rise and fall of gold prices, it is ready for them when they come.

"This will always be a cyclical business with both ups and downs," Harquail said. "Our motto is to manage the downside and the upside will take care of itself."