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Lake Shore investor Franco-Nevada to buy 2.25% NSR

Lake Shore Gold Corp (C:LSG)
Shares Issued 400,169,669
Last Close 2/7/2012 $1.41
Wednesday February 08 2012 - News Release

Also Franco-Nevada Corp (C:FNV) News Release

Mr. Tony Makuch of Lake Shore reports

LAKE SHORE GOLD AND FRANCO-NEVADA ENTER AGREEMENT FOR $50 MILLION ROYALTY AND EQUITY INVESTMENT

Lake Shore Gold Corp. has entered into an agreement with Franco-Nevada Corp. through which Franco-Nevada will pay to the company $35-million (U.S.) for a 2.25-per-cent net smelter return royalty on the sale of minerals from the company's Timmins West complex. In addition, Franco-Nevada will pay C$15 million to acquire 10,050,591 common shares of the Company on a private placement basis, with the purchase price per share of C$1.49 representing a 5% premium to the 10-day volume weighted average price.

Tony Makuch, President and CEO of Lake Shore Gold, commented: "We are happy that, following an assessment of our Timmins West Complex, Franco-Nevada has decided to join us as a new shareholder and to invest in the future of this Complex. Timmins West continues to demonstrate considerable potential for both near-term profitable production and longer term exploration success. The $50 million we will receive provides valuable capital to support the ongoing development of our mines and projects as we progress towards rapid production growth later this year, including the completion of our mill expansion to 3,000 tonnes per day. We have been diligent in pursuing capital alternatives that do not significantly dilute existing shareholders, and believe our arrangement with Franco-Nevada accomplishes that objective."

David Harquail, President and CEO of Franco-Nevada, commented: "We are very pleased to acquire an interest in the currently operating Timmins West Complex, which has a significant production expansion underway and has excellent resource growth potential in the prolific Timmins Gold camp."

Royalty Arrangement

Under terms of the royalty agreement, the Company will receive US$35 million for a 2.25% NSR royalty on production from the Company's Timmins West Complex. The Timmins West Complex includes the Company's Timmins and Thunder Creek deposits (collectively the Timmins West Mine), the 144 property, the Thorne property (Gold River Trend) as well as a number of wholly owned and joint venture claims on the west side of Timmins, Ontario.

Equity Investment

Lake Shore Gold will issue and sell to Franco-Nevada 10,050,591 common shares of the Company for C$15 million on a private placement basis. The price of C$1.49 per share represents a 5% premium to the volume weighted average trading price for Lake Shore Gold's common shares on the Toronto Stock Exchange for the 10 trading days immediately preceding the announcement of the Agreement.

The Agreement is subject to standard conditions, including the approval of the Toronto Stock Exchange for the share issuance, with closing anticipated prior to the end of February, 2012.

BMO Capital Markets has acted as financial advisor to Lake Shore Gold in connection with the Agreement with Franco-Nevada.

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