Franco-Nevada Reports 2Q:23 Results

(Franco-Nevada, 8.Aug.2023) — “Our portfolio continues to generate strong cash flows and high margins. The second quarter’s results benefited from our core assets returning to normal production and deliveries caught up from the disruptions in Q1. Revenue from our Diversified assets was impacted by lower oil, gas and iron ore prices compared to the relative highs of the prior year period” stated Paul Brink, CEO. “We expect Total GEOs for the year to be at the low end of our guidance range provided in March this year. We are looking forward to increased contributions from Cobre Panama, where the CP100 Expansion is on-track for year-end, and to contributions from royalties on several new mines. Franco-Nevada is debt-free and is growing its cash balances.”

				Q2 2023					H1 2023
		Q2 results		vs			H1 results		vs
				Q2 2022					H1 2022
Total GEOs1 sold (including Energy)		168,515 GEOs		-12 %			313,846 GEOs		-15 %
Precious Metal GEOs1 sold		132,033 GEOs		+0.3 %			243,271 GEOs		-7 %
Revenue		$329.9 million		-6 %			$606.2 million		-12 %
Net income		$184.5 million ($0.96/share)		-6 %			$341.0 million ($1.78/share)		-10 %
Adjusted Net Income2		$182.9 million ($0.95/share)		-7 %			$335.1 million ($1.75/share)		-10 %
Adjusted EBITDA2		$275.6 million ($1.44/share)		-8 %			$505.0 million ($2.63/share)		-14 %
Adjusted EBITDA Margin2		83.5 %		-2.3 %			83.3 %		-2.1 %

Strong Financial Position

• No debt and $2.3bn in available capital as at 30 June 2023
• Generated $261.9mn in operating cash flow during the quarter
• 16 consecutive annual dividend increases. Quarterly dividend of $0.34/share

Sector-Leading ESG

• Global 50 Top Rated and #1 gold company by Sustainalytics, AA by MSCI and Prime by ISS ESG
• Committed to the World Gold Council’s Responsible Gold Mining Principles
• Partnering with our operators on community and ESG initiatives
• Goal of 40% diverse representation at the Board and top leadership levels as a group by 2025

Diverse, Long-Life Portfolio

• Most diverse royalty and streaming portfolio by asset, operator and country
• Core precious metal streams on world-class copper assets outperforming acquisition expectations
• Long-life reserves and resources

Growth and Optionality

• Mine expansions and new mines driving 5-year growth profile
• Long-term optionality in gold, copper and nickel and exposure to some of the world’s great mineral endowments
• Strong pipeline of precious metal opportunities

Quarterly revenue and GEOs sold by commodity
		Q2 2023		Q2 2022
		GEOs Sold		Revenue		GEOs Sold		Revenue
		#		(in millions)		#		(in millions)
PRECIOUS METALS
Gold		108,817		$	213.9		102,714		$	190.7
Silver		18,139			35.4		19,456			35.8
PGM		5,077			9.9		9,404			17.3
		132,033		$	259.2		131,574		$	243.8
DIVERSIFIED
Iron ore		5,108		$	10.1		7,769		$	14.6
Other mining assets		2,691			5.1		1,322			2.4
Oil		19,751			36.9		25,342			46.2
Gas		6,583			14.2		20,939			37.9
NGL		2,349			4.4		4,106			7.4
		36,482		$	70.7		59,478		$	108.5
		168,515		$	329.9		191,052		$	352.3
H1 revenue and GEOs sold by commodity
		H1 2023		H1 2022
		GEOs Sold		Revenue		GEOs Sold		Revenue
		#		(in millions)		#		(in millions)
PRECIOUS METALS
Gold		199,539		$	386.1		202,545		$	378.2
Silver		32,952			64.0		40,857			76.9
PGM		10,780			21.3		16,799			31.5
		243,271		$	471.4		260,201		$	486.6
DIVERSIFIED
Iron ore		12,182		$	23.2		18,262		$	33.9
Other mining assets		3,758			7.1		1,885			3.5
Oil		33,921			64.0		45,518			85.2
Gas		15,701			31.1		36,081			67.4
NGL		5,013			9.4		7,719			14.5
		70,575		$	134.8		109,465		$	204.5
		313,846		$	606.2		369,666		$	691.1

In Q2 2023, we earned $329.9mn in revenue, down 6.4% from Q2 2022, as the impact of lower commodity prices for our Diversified assets more than offset the increase in revenue from our Precious Metal assets. With Cobre Panama and Antapaccay operating at full production levels following the temporary disruptions in early 2023, both assets generated strong deliveries in Q2 2023. Partly offsetting the impact of lower oil and gas prices, during the quarter, we received catch-up royalty payments of approximately $7mn related to new wells primarily at our Permian interests, which are not expected to reoccur. 

Precious Metal revenue accounted for 78.6% of our revenue (64.8% gold, 10.7% silver, 3.1% PGM). Revenue was sourced 88.9% from the Americas (32.1% South America, 26.2% Central America & Mexico, 17.5% U.S. and 13.1% Canada).

Environmental, Social and Governance (ESG) Updates

During the quarter, we contributed to the Producer Partnership, a Sibanye-Stillwater sponsored initiative which aims to end hunger in Montana, and to the i-80 Fund, which supports small businesses in rural northern Nevada. We also partnered with Perpetua Resources to support social capacity building at the Stibnite Gold Project and made a strategic level partnership commitment to the Canadian Institute of Mining, Metallurgy and Petroleum. We continue to rank highly with leading ESG rating agencies.

Portfolio Additions

• Acquisition of Royalty on Pascua-Lama Project – Chile: Subsequent to quarter-end, we agreed to acquire a sliding-scale gold royalty and fixed-rate copper royalty from private individuals pertaining to the Chilean portion of Barrick’s Pascua-Lama project for a purchase price of $75mn. At gold prices exceeding $800/ounce, we will hold a 2.70% NSR (gold) and 0.54% NSR (copper) on the property.
• Acquisition of Royalty on Volcan Gold Project – Chile: Subsequent to quarter-end, on 6 July 2023, we agreed to acquire a 1.5% NSR on the Volcan gold project located in Chile for a purchase price of $15mn. The project is owned by Tiernan Gold Corporation, a company privately held by Hochschild Mining plc. The NSR covers the entire land package comprising the Volcan project, as well as a surrounding area of interest extending 1.5 kilometers. We already hold an existing 1.5% NSR on the peripheral Ojo de Agua area, which is owned by Tiernan and forms part of the Volcan project.
• Acquisition of Additional Royalty Interest on Caserones – Chile: During the six months ended 30 June 2023, we acquired, through two separate transactions, an incremental effective NSR totaling 0.1120% on Lundin Mining’s Caserones copper-molybdenum mine located in Chile for an aggregate purchase price of $9.4mn. Inclusive of our interest of 0.4582% acquired in April 2022, we now hold an 0.57% effective NSR on Caserones.
• Acquisition Agreement for New Royalties with EMX Royalty Corporation: On 27 June 2023, we executed a binding term sheet with EMX Royalty Corporation for the joint acquisition of newly created precious metals and copper royalties sourced by EMX. Franco-Nevada will contribute 55% (up to $5.5mn) and EMX will contribute 45% (up to $4.5mn) towards the royalty acquisitions, with the resulting royalty interests equally split on a 50/50 basis.
• Acquisition of Royalties on Exploration Properties – Nevada and Arizona, U.S.: On June 15, 2023, we acquired a portfolio of eight royalties on exploration properties located in the states of Nevada and Arizona, including a 0.5% NSR on Integra Resources’ Wildcat and Mountain View gold projects, for a purchase price of $2.5mn.
• Acquisition of Additional Royalty on Valentine Gold Project and Private Placement with Marathon Gold Corporation – Newfoundland, Canada: On June 8, 2023, we acquired an additional 1.5% NSR on Marathon’s Valentine Gold project located in Newfoundland for a purchase price of $45mn. Inclusive of our initial 1.5% NSR (reduced from 2.0% following Marathon’s buy-back of 0.5% in February 2023), we now hold an aggregate 3.0% NSR on the project. Subsequent to quarter-end, on 5 July 2023, we also acquired 6,578,947 common shares of Marathon at a price of C$0.76 per common share for an aggregate of $3.8mn (C$5mn), comprising the back-end of a non-brokered charity flow-through offering.
• Share Subscription with Gold Candle Ltd.: Subsequent to quarter-end, on 26 July 2023, we completed the previously announced subscription for common shares of Gold Candle, a private company, for an aggregate purchase price of $4.6mn (C$6mn). Gold Candle owns the Kerr-Addison project, located in Virginiatown, Ontario, over which we hold a 1% NSR.

Q2 2023 Portfolio Updates

Precious Metal assets: GEOs sold from our Precious Metal assets were 132,033, compared to 131,574 GEOs in Q2 2022, as operations at Cobre Panama and Antapaccay successfully returned to full production, contributing strong deliveries to Franco-Nevada during the quarter.

     South America:

• Antapaccay (gold and silver stream) – GEOs delivered and sold were significantly higher in Q2 2023 compared to Q2 2022. Operations returned to normalized levels in March following the temporary suspension of operations and constrained logistics experienced in early 2023 as a result of political tensions in Peru. In addition, production at Antapaccay during the period benefited from higher copper grades and recoveries based on mine sequencing. Glencore continues to study the Coroccohuayco expansion project at its Antapaccay mine. The Coroccohuayco deposit, located within 10 km of the Antapaccay plant, is currently scoped as an open pit and hosts Measured and Indicated Mineral Resources of 643 million tonnes with a copper grade of 0.60%.
• Antamina (22.5% silver stream) – GEOs delivered and sold were lower in Q2 2023 compared to Q2 2022, as operations at Antamina were affected by Cyclone Yaku, a tropical cyclone that affected Peru’s northern region in March 2023. The effect of the cyclone carried into April 2023 production and, as a result, we anticipate our deliveries of silver ounces in Q3 2023 to be lower than initially expected.
• Candelaria (gold and silver stream) – While gold production at Candelaria was lower in Q2 2023 than in the prior year period, our GEOs delivered and sold during the quarter were slightly higher due to the timing of shipments.
• Tocantinzinho (gold stream) – In Q2 2023, we funded $93.1mn of our $250mn stream deposit on the Tocantinzinho project, for a total of $183.8mn disbursed as at 30 June 2023. G Mining Ventures reported that the physical construction of the project was 27% complete as of the end of May 2023 and remains on track for commercial production in H2 2024.
• Salares Norte (1-2% royalty) – Total project completion was 90% as of the end of March 2023 and Gold Fields expects commencement of commercial production in Q4 2023.

     Central America & Mexico:

• Cobre Panama (gold and silver stream) – Operations at Cobre Panama ramped back up to full production in Q2 2023, following an interruption due to export restrictions in Q1 2023. Production for the quarter also benefited from additional processing facilities related to the CP100 Expansion project and we received strong deliveries from Cobre Panama. GEOs delivered and sold in Q2 2023 exceeded those from Q2 2022. Following a public consultation process, the Refreshed Concession Contract was signed by the Government of Panama and First Quantum on June 26, 2023, and is expected to be presented before the National Assembly of Panama during the current legislative term that commenced on July 1, 2023.
• Guadalupe-Palmarejo (50% gold stream) – GEOs sold from Guadalupe-Palmarejo decreased in Q2 2023 compared to the same quarter in 2022 due to lower production at the mine and a lesser proportion of production being sourced from ground covered by our stream.

     U.S.:

• Stillwater (5% royalty) – Production at the mine was impacted by an incident that damaged shaft infrastructure in March 2023, which was remediated in April 2023. The decrease in GEOs also reflects a less favourable PGM to gold GEO conversion ratio.
• Goldstrike (2-6% royalties) – Barrick reported that production returned to normal throughput in Q2 2023. Production in the first four months of 2023 had been impacted by maintenance, capital projects and weather conditions.
• Marigold (0.5-5% royalties) – Production at Marigold was higher in Q2 2023 compared to Q2 2022 as a result of mine sequencing. In addition, our GEOs earned were higher than in the prior year period primarily due to mining occurring on higher royalty ground.
• Copper World Project (2.085% royalty) – Hudbay announced a positive permitting update from the Army Corps of Engineers in April 2023 and that the required state level permits continue to be expected in 2023. A pre-feasibility study for Phase I of the Copper World project is expected in 2023.

     Canada:

• Detour Lake (2% royalty) – Agnico Eagle indicated that the mill set a record for quarterly throughput and that the continued focus on mill process optimization and availability is tracking well to reach and potentially exceed throughput of 28mn tonnes per annum. Agnico Eagle is expecting to complete an underground mining scenario study in H1 2024.
• Kirkland Lake (1.5-5.5% royalty & 20% NPI) – Agnico Eagle reported record quarterly mill throughput at the Macassa mine, supported by the new ventilation system and commissioning of Shaft #4. Exploration drilling during the quarter targeted the Main Break and eastern extension of the South Mine Complex. Drilling is also continuing at the AK deposit in 2023 where production could potentially begin in 2024.
• Canadian Malartic (1.5% royalty) – Agnico Eagle reported that underground development and surface activities at the Odyssey project are progressing well. Drilling activities were focused on infilling the internal zones at the Odyssey South deposit and mineral resource expansion of the East Gouldie deposit to the east and west.
• Magino (2% royalty) – Argonaut Gold reported that it poured first gold at the Magino mine in June 2023 and that the process plant ramp-up remains on schedule, with commercial production expected in Q3 2023.
• Island Gold (0.62% royalty) – Alamos Gold reported that the Phase 3+ Expansion is progressing well with the construction of the hoist house largely complete, the headframe well underway, and shaft sinking on track to start in Q4 2023. The Phase 3+ Expansion is expected to more than double gold production to an average of 287,000 ounces per year starting in 2026.
• Greenstone (Hardrock) (3% royalty) – Equinox Gold reported that construction of the project is on schedule and budget, with construction 83% complete as of the end of June 2023 and first gold pour expected in H1 2024.
• Valentine Gold (3% royalty) – Construction was 15% complete as of the end of June 2023. Marathon reported that the project remains on schedule for first gold production in Q1 2025.
• Eskay Creek (1.5% royalty) – Skeena Resources announced an updated mineral resource estimate in June 2023, with estimated pit-constrained Measured and Indicated Mineral Resources of 5.6 million contained gold equivalent ounces (50.1 million tonnes grading at 2.57 g/t of gold and 63.63 g/t of silver). The announcement also includes a preliminary assessment of the Mineral Resources for underground potential proximal to the planned pit.

     Rest of World:

• Tasiast (2% royalty) – Production at Tasiast benefited from higher grades, improving recoveries, and increased throughput. Kinross reported that construction and initial commissioning at the Tasiast 24k project are complete. The operation is expected to ramp up for the remainder of the year to consistently achieve 24,000 tonnes per day.
• Subika (Ahafo) (2% royalty) – Newmont reported it expects to reach higher grade and tonnes mined from the Subika Underground mine, in addition to higher ore tonnes mined and improved grade at the Subika Open Pit.
• Séguéla (1.2% royalty) – Fortuna Silver Mines reported the Séguéla mine poured first gold in May 2023 and produced 4,023 ounces during the initial ramp-up weeks of Q2 2023.
• Yandal (Bronzewing) (2% royalty) – Northern Star Resources reported that ore from the Orelia pit was processed for the first time during the quarter as feed for the expanded Thunderbox mill. The Thunderbox mill expansion, which doubles capacity to 6 million tonnes per annum, was completed in December 2022 and commissioning is underway.

Diversified assets:  Our Diversified assets, primarily comprising our Iron Ore and Energy interests, generated $70.7mn in revenue, down from $108.5mn in Q2 2022. The decrease is primarily due to lower oil, gas and iron ore prices compared to the relative highs of the prior year period.

     Iron Ore & Other Mining: 

• Vale Royalty (iron ore royalty) – Revenue from the Vale royalty decreased compared to Q2 2022 due to lower estimated iron ore prices, as well as lagging sales to production, which are expected to normalize in H2 2023.
• LIORC – Production at Iron Ore Company of Canada was impacted by a 3.5-week shutdown due to wildfires in Northern Quebec.
• Caserones (0.57% effective NSR) – Lundin Mining completed the acquisition of a 51% majority interest in Caserones in July 2023. We earned revenue of $2.5mn in Q2 2023, compared to $1.2mn in Q2 2022.

     Energy:

• U.S. (various royalty rates) – Revenue from our U.S. Energy interests decreased compared to Q2 2022, largely due to lower realized oil and gas prices. Partly offsetting the impact of lower prices, we received approximately $7mn in royalty payments related to new wells primarily at our Permian assets, which are not expected to reoccur.
• Canada (various royalty rates) – Revenue from our Canadian Energy interests decreased compared to Q2 2022, also due to the decrease in commodity prices. For our Weyburn NRI, the impact of lower prices was partly offset by lower operating and capital expenditures incurred at the Weyburn Unit.

Dividend Declaration

Franco-Nevada announced that its Board of Directors has declared a quarterly dividend of $0.34 per share. The dividend will be paid on 28 September 2023 to shareholders of record on 14 September 2023 (the “Record Date”). The dividend has been declared in U.S. dollars and the Canadian dollar equivalent will be determined based on the daily average rate posted by the Bank of Canada on the Record Date. Under Canadian tax legislation, Canadian resident individuals who receive “eligible dividends” are entitled to an enhanced gross-up and dividend tax credit on such dividends.

The company has a Dividend Reinvestment Plan (the “DRIP”) which allows shareholders of Franco-Nevada to reinvest dividends to purchase additional common shares at the Average Market Price, as defined in the DRIP, subject to a discount from the Average Market Price in the case of treasury acquisitions. Pursuant to the terms of the DRIP, the company has changed the discount applicable to the Average Market Price from 3% to 1%, effective from the dividend payable on 30 March 2023. The company may, from time to time, in its discretion, further change or eliminate the discount applicable to treasury acquisitions or direct that such common shares be purchased in market acquisitions at the prevailing market price, any of which would be publicly announced. Participation in the DRIP is optional. The DRIP and enrollment forms are available on the company’s website at www.franco-nevada.com. Canadian and U.S. registered shareholders may also enroll in the DRIP online through the plan agent’s self-service web portal at www.investorcentre.com/franco-nevada. Canadian and U.S. beneficial shareholders should contact their financial intermediary to arrange enrollment. Non-Canadian and non-U.S. shareholders may potentially participate in the DRIP, subject to the satisfaction of certain conditions. Non-Canadian and non-U.S. shareholders should contact the company to determine whether they satisfy the necessary conditions to participate in the DRIP.

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