Franco-Nevada Reports 3Q:23 Results

 

(Franco-Nevada, 8.Nov.2023) — “Our core precious metal assets anchored the quarter, resulting in increased revenue and earnings over the prior year period,” stated Paul Brink, CEO. We are looking forward to added precious metal contributions from a number of new mines in 2024 and, in particular, from the Tocantinzinho stream where G Mining Ventures is progressing construction on time and budget. Franco-Nevada is debt-free and is growing its cash balances.”

The Panamanian National Assembly approved the revised Cobre Panama concession agreement in Oct. 2023. In response to protests that followed the approval, the Government proposed but did not proceed with a popular consultation on the revised concession contract. The Panamanian Supreme Court is, however, considering a number of lawsuits challenging the constitutionality of the law pertaining to the contract. Production at the Cobre Panama mine has not been impacted and we, along with the operator, First Quantum, are closely monitoring the unfolding situation.

				Q3 2023					YTD 2023
		Q3 results		vs			YTD results		vs
				Q3 2022					YTD 2022
Total GEOs1 sold (including Energy)		160,848 GEOs		-9 %			474,694 GEOs		-13 %
Precious Metal GEOs1 sold		125,337 GEOs		+4 %			368,608 GEOs		-3 %
Revenue		$309.5 million		+2 %			$915.7 million		-8 %
Net income		$175.1 million ($0.91/share)		+11 %			$516.1 million ($2.69/share)		-4 %
Adjusted Net Income2		$175.1 million ($0.91/share)		+10 %			$510.2 million ($2.66/share)		-4 %
Adjusted EBITDA2		$255.1 million ($1.33/share)		-1 %			$760.1 million ($3.96/share)		-10 %
Adjusted EBITDA Margin2		82.4 %		-2.4 %			83.0 %		-2.1 %

 Strong Financial Position

• No debt and $2.3bn in available capital as at 30 Sep. 2023
• Generated $236mn 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 and diversified opportunities

Quarterly revenue and GEOs sold by commodity
		Q3 2023		Q3 2022
		GEOs Sold		Revenue		GEOs Sold		Revenue
		#		(in millions)		#		(in millions)
PRECIOUS METALS
Gold		103,641		$	199.5		96,628		$	166.6
Silver		16,526			31.6		17,883			30.3
PGM		5,170			9.7		6,031			9.8
		125,337		$	240.8		120,542		$	206.7
DIVERSIFIED
Iron ore		6,619		$	12.8		6,311		$	10.8
Other mining assets		1,677			3.2		1,574			2.9
Oil		20,926			38.2		20,930			36.6
Gas		4,098			9.9		23,516			40.9
NGL		2,191			4.6		3,535			6.3
		35,511		$	68.7		55,866		$	97.5
		160,848		$	309.5		176,408		$	304.2

Year-to-date revenue and GEOs sold by commodity
		YTD 2023		YTD 2022
		GEOs Sold		Revenue		GEOs Sold		Revenue
		#		(in millions)		#		(in millions)
PRECIOUS METALS
Gold		303,179		$	585.7		299,173		$	544.9
Silver		49,478			95.5		58,740			107.2
PGM		15,951			31.0		22,830			41.2
		368,608		$	712.2		380,743		$	693.3
DIVERSIFIED
Iron ore		18,801		$	36.0		24,573		$	44.7
Other mining assets		5,435			10.3		3,459			6.4
Oil		54,847			102.2		66,448			121.8
Gas		19,800			41.0		59,597			108.3
NGL		7,203			14.0		11,254			20.8
		106,086		$	203.5		165,331		$	302.0
		474,694		$	915.7		546,074		$	995.3

In Q3 2023, we earned $309.5mn in revenue, up 1.7% from Q3 2022. We benefited from an increase in GEOs from our Precious Metal assets as well as higher gold prices. This more than offset the decrease in revenue from our Diversified assets, which reflect lower oil and gas prices when compared to the relative highs of the prior year quarter.

Precious Metal revenue accounted for 77.8% of our revenue (64.5% gold, 10.2% silver, 3.1% PGM). Revenue was sourced 88.0% from the Americas (28.7% South America, 28.4% Central America & Mexico, 15.9% U.S. and 15.0% Canada).

Environmental, Social and Governance (ESG) Updates

We continue to rank highly with leading ESG rating agencies. During the quarter, we expanded the Franco-Nevada Diversity Scholarship program by awarding five new diversity scholarships to mining engineering students at Queens, University of Toronto, UBC, and École Polytechnique. We also supported industry initiatives with a strategic partnership level funding to the Canadian Institute of Mining, Metallurgy and Petroleum (CIM). 

Revised Concession Contract for the Cobre Panama Mine

As previously disclosed, on 29 Oct. 2023, President Laurentino Cortizo announced the Panamanian government’s intention to hold a popular consultation regarding Law 406 on 17 Dec. 2023. Law 406, which approved the revised mining concession contract for the Cobre Panama mine, was enacted into law in Panama on 20 Oct. 2023.

During the week commencing 30 Oct. 2023, the National Assembly of Panama held sessions concerning two bills that included a popular consultation regarding Law 406, the repeal of Law 406 and a moratorium on the granting of new mining concession contracts in Panama. Bill 1110 provided for a moratorium on the granting of new concession contracts related to mining in Panama and was approved in the third debate on 3 Nov. 2023.  The proposed popular consultation and repeal of Law 406 were not ultimately approved, and the company understands that no further debates on these issues are currently scheduled. As of the date of this release, Law 406 and the revised concession contract are still in effect. A number of lawsuits challenging the constitutionality of Law 406 have, however, been submitted to the Supreme Court of Justice, a number of which have been admitted for adjudication. We continue to closely monitor the unfolding situation regarding Law 406 and the revised concession contract and are assessing our available protections.

Production at the Cobre Panama mine remains uninterrupted at this time, however, protests, including blockades of key roads, have caused disruptions on site as well as shortages in certain supplies.

Portfolio Additions

• Acquisition of Additional Royalty on Magino Gold Mine – Ontario, Canada: Subsequent to quarter-end, on 2 Nov. 2023, we agreed to acquire an additional 1.0% NSR on Argonaut’s Magino gold mine in Ontario and a portfolio comprised of Argonaut’s existing royalty holdings in Canada and Mexico, for an aggregate purchase price of approximately $29.5mn, with closing of such transactions subject to satisfaction of closing conditions. Inclusive of our initial 2.0% NSR, we will hold an aggregate 3.0% NSR on Magino.
• Acquisition of Royalty on Wawa Gold Project – Ontario, Canada: On 29 Aug. 2023, we acquired a 1.5% NSR on Red Pine Exploration Inc.’s Wawa gold project, located in Ontario, Canada, for a purchase price of $5mn (C$6.8mn). The agreement provides Franco-Nevada the option to acquire an additional 0.5% NSR based on pre-determined conditions.
• Acquisition of Royalties on Pascua-Lama Project – Chile: As previously announced, on 8 Aug. 2023, 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: As previously announced, on July 6, 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.

Q3 2023 Portfolio Updates

Precious Metal assets: GEOs sold from our Precious Metal assets were 125,337, compared to 120,542 GEOs in Q3 2022, driven by strong contributions from Cobre Panama, Guadalupe-Palmarejo and MWS.

South America:

• Antapaccay (gold and silver stream) – GEOs delivered and sold were slightly higher in Q3 2023 compared to Q3 2022. Production at Antapaccay during the period benefited from higher copper grades and recoveries based on mine sequencing.
• Candelaria (gold and silver stream) – GEOs delivered and sold in the quarter were relatively consistent with Q3 2022. Lundin Mining announced that its environmental impact assessment for the extension of operations and mine life from 2030 to 2040 was approved by the regional Chilean authorities. This would also allow for the potential development of the Candelaria Underground Expansion Project.
• Antamina (22.5% silver stream) – GEOs delivered and sold were lower in Q3 2023 compared to Q3 2022, reflecting an anticipated decrease in average silver grades based on the life of mine plan. Production at the mine was also impacted by Cyclone Yaku which constrained logistics in March and April 2023. This was reflected in the deliveries we received in Q3 2023.
• Tocantinzinho (gold stream) – G Mining Ventures reported the physical construction of the Tocantinzinho project was 52% complete as of the end of September 2023 and remains on track for commercial production in H2 2024. In Q3 2023, we disbursed an additional $66.2mn under our stream agreement and have now fully funded our $250mn stream deposit.
• Salares Norte (1-2% royalty) – Gold Fields reported that total project completion was 96% as of the end of Aug. 2023. While first production is anticipated in December 2023, we do not expect meaningful royalty payments to Franco-Nevada until 2024.

Central America & Mexico:

• Cobre Panama (gold and silver stream) – GEOs delivered and sold in the quarter were significantly higher than in Q3 2022, driven by higher average copper grades and the continued ramp-up of the CP100 Expansion project. First Quantum reported that a new quarterly record for copper production at Cobre Panama was achieved in Q3 2023.
• Guadalupe-Palmarejo (50% gold stream) – GEOs sold from Guadalupe-Palmarejo increased in Q3 2023 compared to the same quarter in 2022. Production at the Palmarejo mine benefited from higher average grades.

U.S.:

• Stillwater (5% royalty) – Production of PGMs at the mine increased compared to Q3 2022, but continued to be impacted by a shortage of critical skills and geotechnical challenges. Sibanye-Stillwater reported that operations resumed planned mine production run rate in Oct. 2023, driving improved outlook for production for Q4 2023. The decrease in GEOs also reflects a lower PGM to gold GEO conversion ratio.
• Goldstrike (2-6% royalties) – GEOs from our Goldstrike royalties decreased in Q3 2023 compared to Q3 2022 as a lesser proportion of the ore processed at Goldstrike was sourced from our royalty ground.
• Marigold (0.5-5% royalties) – Production at Marigold was higher in Q3 2023 compared to Q3 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 ground with a higher royalty rate.
• Copper World Project (2.085% royalty) – Hudbay provided an updated pre-feasibility study for the Copper World project. The study outlined an extended 20-year mine life for Phase I, where only state and local permits are required, lower initial capital expenditures, and a higher mill feed grade than was previously contemplated.

Canada:

• Detour Lake (2% royalty) – Agnico Eagle reported that production during the quarter was impacted by unscheduled mill downtime in Aug. 2023 due to a temporary transformer issue powering the SAG mill. The mill returned to normal operating levels in Sep. 2023. Mill optimization initiatives continued through the quarter with the objective of continuing to increase throughput to 28.0 million tonnes per annum by 2025 and is targeting production of 1 million ounces per year.
• Kirkland Lake (1.5-5.5% royalty & 20% NPI) – Agnico Eagle reported that the Macassa mill is expected to reach full capacity of 1,650 tonnes per day by mid-2024, driven by the Shaft # 4 commissioning and increased productivity from the Macassa deep mine. Exploration drilling during the quarter targeted the Lower/West South Mine Complex (“SMC”), SMC East and Main Break. Production from the AK deposit is also expected to begin in H2 2024.
• Canadian Malartic (1.5% royalty) – Agnico Eagle reported that production via the ramp at the Odyssey South deposit increased through the quarter, with underground development and surface activities at the Odyssey project progressing well and shaft pre-sinking activities advancing. 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) – Magino poured first gold in Jun. 2023 and achieved commercial production on November 1, 2023, with the plant largely operating at nameplate capacity despite 20 days of unplanned downtime in Sep. 2023. Franco-Nevada earned 230 GEOs from its royalty in Q3 2023.
• Island Gold (0.62% royalty) – Alamos Gold reported that the Phase 3+ Expansion is progressing well with construction of the headframe largely complete and shaft sinking on track to begin by the end of the year. 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 (3% royalty) – Equinox Gold reported that construction of the project is on schedule and budget, with construction 92% complete as of the end of Sep. 2023 and first gold pour expected in H1 2024.
• Valentine Gold (3% royalty) – Marathon reported that overall project completion was 50% as at the end of September 2023 and that the project remains on schedule for first gold production in Q1 2025. Marathon also reported that the Berry Expansion was released from the provincial environmental assessment process and that it did not require a new federal impact assessment. Marathon now anticipates the Berry deposit being fully permitted earlier than had previously been anticipated.
• Wawa (1.5% royalty) – Red Pine continues to report success expanding mineralization within, and in the footwall of, the Jubilee shear zone at its Wawa project. Highlights of the assay results include 8.01 g/t gold over 32.95 meters at the intersection of the Minto B/Jubilee Shears.

Rest of World:

• Tasiast (2% royalty) – In Oct. 2023, Kinross indicated that its Tasiast 24k expansion project was progressing as planned, with mill modifications complete and throughput of 24,000 tonnes per day being achieved for sustained periods of time. Kinross also indicated it was evaluating underground potential to supplement low-grade stockpile ore with high-grade underground ore once open-pit mining ceases.
• Subika (Ahafo) (2% royalty) – Newmont reported that mill throughput at Ahafo has been reduced to approximately 80 percent of its full capacity since Oct. 2023 in order to replace a mill girth gear. Processing rates are expected to return to full levels in Q2 2024 once the gear has been replaced.
• Séguéla (1.2% royalty) – Séguéla poured first gold in May 2023. Fortuna Silver Mines reported that throughput exceeded nameplate capacity in Q3 2023 and production for H2 2023 was expected to be between 60,000 to 75,000 gold ounces. Fortuna Silver Mines also indicated that the Sunbird deposit will be incorporated into an updated Mineral Resource and Mineral Reserve estimate to be released in Q4 2023. The Sunbird deposit has an Indicated Mineral Resource of 279,000 gold ounces (3.3 million tonnes grading at 2.66 g/t) and an Inferred Mineral Resource of 506,000 gold ounces (4.2 million tonnes grading at 3.73 g/t).
• Yandal (Bronzewing) (2% royalty) – Northern Star Resources reported the Thunderbox mill continued to ramp-up towards its 6 million tonnes per annum nameplate capacity, achieving 501,000 tonnes milled in Aug. 2023. Mining continued at the Orelia open pit mine, where the ore will be used as feed for the expanded Thunderbox mill.

Diversified assets:  Our Diversified assets, primarily comprising our Iron Ore and Energy interests, generated $68.7 million in revenue, down from $97.5mn in Q3 2022. The decrease is primarily due to lower oil and gas 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 increased compared to Q3 2022, reflecting higher estimated iron ore prices than in the prior year quarter.
• LIORC – Revenue from our attributable interest in LIORC was relatively consistent with Q3 2022. Rio Tinto reported that operations at Iron Ore Company of Canada were impacted by extended plant downtime and a conveyor belt failure in Q3 2023, while also recovering from wildfires which took place in Northern Quebec in Q2 2023.
• Caserones (0.57% effective NSR) – Lundin Mining, which now owns a 51% majority interest in the mine, reported that it had launched one of the largest exploration programs at the mine since it began operation in 2013. The initial phase of the drilling program is expected to be over 10,000 meters and results are expected in H1 2024.
• Crawford Nickel (2% royalty) – Canada Nickel Company announced a feasibility study for its Crawford Nickel Sulphide project. The feasibility study outlined 3.8 million tonnes of contained nickel (1.7 billion tonnes of ore grading 0.22% nickel) in Proven & Probable Mineral Reserves.

Energy:

• U.S. (various royalty rates) – Revenue from our U.S. Energy interests decreased compared to Q3 2022, largely due to lower realized oil and gas prices. Partly offsetting the impact of lower prices, we received approximately $1.3mn in lease bonus revenue in relation to our Haynesville interests. We also benefited from higher production at our Permian assets due to the completion of new wells.
• Canada (various royalty rates) – Revenue from our Canadian Energy interests was relatively consistent with Q3 2022. For our Weyburn NRI, the impact of lower prices was partly offset by lower operating and capital expenditures incurred at the Weyburn Unit.

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