Franco-Nevada Corporation

Good morning, ladies and gentlemen, and welcome to the Franco Nevada Corporation Q3 2020 results conference call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on November 5th, 2020. I would now like to turn the conference over to Candida Hayden. Please go ahead.

Thank you, Veronica. Good morning, everyone. Thank you for joining us today to discuss Franco Nevada's third quarter 2020 results. Accompanying this call is a presentation, which is available on our website at franco-nevada.com, where you will also find our full financial results. Sandy Perenna, CFO of Franca Nevada, will provide a brief review of our results. Ian Gray, VP of Business Development, will provide a business development update. And Paul Brink, President and CEO of Franca Nevada, will comment on our growth outlook. This will be followed by a Q&A period. Our full executive team is available to answer any questions. We would like to remind participants that some of today's commentary may contain forward-looking information, and we refer you to our detailed cautionary note on slide two of this presentation. I will now turn over the call to Sandy Brenna, CFO of Franco Nevada.

Thanks, Candida. Good morning, everyone. Third quarter 2020 was a return to some form of normalcy for Franco Nevada, as we saw most of our royalty and stream interests. resume normal operations by the end of the quarter, other than the Golden Highway assets, which are still on current maintenance and are expected to remain so for the remainder of the year. Our partners at our Royalty & Stream assets have done a great job managing the COVID-19 pandemic and implementing the necessary safety protocols and procedures while still delivering excellent operating performance. With the increase in precious metal prices and the return to normal operations, Franklin, Nevada delivered a very strong financial quarter. achieving a number of financial records. On slide three, we have highlighted the gold and gold equivalent ounces for the three months and nine months ended September 30th, 2020 and 2019. Overall, despite the impact of the pandemic, GEO sold were fairly stable for both periods shown with 134,817 in third quarter 2020 compared to 133,219 a year ago. Gold ounces represent 80.6% of GEO sold for the quarter, compared to 76.4% a year ago. For the quarter, we had strong performance from a number of key assets. Four key contributors were Cobre Panama, Candelaria, Antipakai, and Guadalupe. Cobre Panama resumed production in early August and reached full production ahead of schedule. The ramp-up has gone well, and we look forward to the growth Cobre Panama will deliver for the company in the coming years. Candelaria was a strong contributor, resulting in just over 20,000 geos sold compared to 16,573 a year ago. It was the largest revenue generator for Franklin, Nevada during the quarter, being 14% of total revenue. Subsequent to quarter end, Lundin Mining temporarily suspended operations due to labor union issues. This suspension will impact a portion of the gold and silver deliveries in the fourth quarter for the company. Our stream on Guadalupe in Mexico with Core had a strong quarter delivering 23% more gold ounces than a year ago due to mining of higher grade, while Antipokai Geo sold were relatively flat year over year, but significantly higher than second quarter 2020. One of the strengths of Franco Nevada is the depth of the portfolio. During a rising commodity price environment, our net profit interest royalties typically do well. This has been the case for the Hemlo MPI. Franklin, Nevada has a 50% MPI on the interlake underground deposit within Hemlo. The company earned approximately 13,000 geos or $23.9 million in revenue from Hemlo during the quarter. The increase was due to the rising gold price along with higher production on the interlake claims. It can be difficult to predict what the MPI amount will be each quarter due to the nature of the calculation and timing of incurring development costs. Franklin, Nevada did record approximately $13 million in revenue for the MPI that was related to prior periods. With respect to silver and PGMs, the company did recognize less GEO sold during the quarter compared to the prior year. This was in line with expectations. With respect to silver, please note that the antimina deliveries during third quarter were based on production from second quarter, which had been impacted by the pandemic. Slide four highlights our total revenue and adjusted EBITDA for three quarters shown. As you can see from the bar charts, revenue has increased significantly compared to the comparable quarter shown. The $279.8 million in revenue in third quarter is a record for the company, as is the adjusted EBITDA of $235.1 million for the quarter. A margin of 84% was achieved. The average gold price for the quarter was $19.11 per ounce compared to $14.74 per ounce a year ago, a 29.6% increase This increase in gold price combined with the increase in gold ounces sold in the quarter resulted in gold revenue increasing from $151.1 million in Q3 2019 to $206.1 million, a 36% increase. Third quarter also saw a rebound in energy revenue as it increased from $14.6 million in Q2 2020 to $22.8 million this quarter as we saw a rebound in oil and gas prices. For the quarter, gold was 74% of revenue, silver 9%, PGM 8%, other 1% and energy 8%. As you turn to slide 5, you will see the key financial results for the company. I won't get into the detailed numbers, but the company delivered strong financial results with it achieving records for a number of the key financial metrics during the quarter. As mentioned, the increase in revenue in adjusted EBITDA was predominantly due to the increase in precious metal prices. Adjusted net income and adjusted net income per share also increased significantly in third quarter. Adjusted net income of 152.3 million or 80 cents per share were increases of 50% and 48% respectively over the prior year. This increase was a combination of the higher revenue but also to the lower depletion being recorded. Depletion is dependent on the source of gold equivalent ounces sold during a period. For example, Hemlo, which was a significant contributor during the quarter, has a nominal book value, and thus there is no depletion associated with the GEO sold from this asset. With respect to depletion, the company is now guiding depletion expense of between $225 to $245 million for 2020. Franco Nevada has always been a royalty company, although it did add streaming to the business model a few years ago. Slide 6 breaks down the mix between streams and royalty revenue for the quarter. The streams that Franklin Nevada has added have been very successful for the company, adding significant top-line growth. They have become the largest component of our revenue, generating $170.4 million in revenue during the quarter. However, it is royalties, whether mining or energy, which generate higher margin and thus cash flow. As you can see, the costs related to royalties are minimal, with a combined cost of $2 million related to the $109.4 million in revenue generated by royalties. We believe our business model of both stream and royalty assets will allow us to continue to achieve peer-leading EBITDA margins. With respect to margins, the chart on slide 7 illustrates how the margin for the company increases as gold prices increase. Our mining cost structure, which we reflect in our cash cost per ounce, includes our cost of sales, less cost associated with the energy business, which are minimal. As you can see, it does fluctuate, but approximates $275 to $300 per ounce. The average gold price increased approximately 30% year over year, but our cash cost per ounce increased 5%. In a rising gold price environment, we expect to benefit fully as the cost per ounce should not increase significantly. The other cost component for the company, besides the cost of sales, is our corporate administration costs. Our board and management are very proud of our focus on cost management. We like to stress the strength of our business model and the scalability. The chart on slide 8 clearly illustrates our focus on being as cost efficient as possible in managing this business. Here we have highlighted our quarterly revenues and our quarterly general and administrative expenses since our IPO. Since 2008, our revenues have grown from approximately $25 million to $280 million this quarter. That is more than a tenfold increase. This while our G&A has remained fairly stable over this period. G&A costs have averaged $5 to $8 million per quarter for the last 12 years. For Q3 2020, G&A was less than 2.5% of revenue at $6.3 million. Management believes we can continue to add to our portfolio and grow our business without adding significant overhead to the company. Before I turn it over to Ian, I wanted to provide an update on the CRA audit. With respect to the various audits ongoing, both international and domestic, there are no material changes. The only additional item to note is that the CRA has now added 2016 to the list of years being audited. And now I'll pass it over to Ian who will provide an update on the recent royalty acquisitions.