By Robb M. Stewart

Discovery Silver is positioning itself as a new Canadian gold producer with an up to $425 million deal to buy Newmont's Porcupine mining operations.

The addition of the Porcupine complex in Timmins, Ontario, adds an asset projected to grow output to more than 285,000 troy ounces over the next decade and broadens Discovery's base beyond the Cordero silver development project in Mexico.

Discovery has partnered with Franco-Nevada too help fund the purchase and support development work.

Newmont, which has been shedding unwanted assets following its takeover of Australia's Newcrest, will receive $200 million in cash and $75 million worth of Discovery shares when the transaction closes. It will also get a deferred $150 million that will be paid in four annual installments beginning at the end of 2027.

Discovery said it will raise roughly $555 million in financing to buy the Porcupine operation, including $400 million in royalty and debt agreements with Franco-Nevada and about $155 million via a public equity raising.

The Porcupine complex consists of the Hoyle Pond and Pamour mine properties and the Dome property and milling facility in Timmins, plus the Borden underground mining operation near Chapleau, Ontario. Discovery said the assets are expected to generate significant free cash flow, and have opportunities to expand production further.

The bulk of the financing will come from a royalty offered to Franco-Nevada, which as part of the deal between the companies will end up owning an about 9.9% stake in Discovery.

Franco-Nevada will receive a 4.25% net smelter return royalty on production from Porcupine for $300 million. Franco-Nevada also will offer a $100 million senior secured term loan that can be drawn by Discovery within two years of closing, and it will pay $49 million as a cornerstone investment in Discovery's roughly $155 million equity offering.

For Newmont, the exit from Porcupine will mean it has brought in up to $4.3 billion from the sale of non-core assets and investments. It expects the deal with Discover to close in the first half of this year.

The Porcupine district in and around Timmins has produced more than 68 million ounces of gold since 1910. Newmont said that about 60% of the gold currently comes from the Hoyle Pond underground mine, and the remaining ore comes from the Hollinger open pit mine. The Dome underground mine ceased operations in 2017, and ore is processed at the Dome processing facility. The Pamour open-pit project is forecast to produce an average 150,000 ounces a year over a 21-year mine life.

Write to Robb M. Stewart at robb.stewart@wsj.com

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January 27, 2025 08:13 ET (13:13 GMT)

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