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Operator
Good morning and welcome to Franco Nevada Corporation's second quarter 2024 results conference call and webcast. This call is being recorded on August 14, 2024. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a Q&A session where you may ask a question through the phone line or webcast. If you are joining by webcast, you may submit a written question for the Q&A session at any time during this call by typing your question in the Q&A section of the webcast platform. If you require immediate assistance during this call, please press star zero at any time for the operator. I would now like to turn the conference over to your host, Candida Hayden, Senior Analyst, Investor Relations. Please go ahead.
Candida Hayden
Thank you, Laura. Good morning, everyone. Thank you for joining us today to discuss Franco Nevada's second quarter 2024 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. The presentation is also available to view on the webcast. During our call this morning, Paul Brink, President and CEO of Franco Nevada, will provide introductory remarks, followed by Sandy Brenna, Chief Financial Officer, who will provide a brief review of our results, and Ian Gray, Senior Vice President, Business Development, who will discuss our recent transactions. This will be followed by a Q&A period. Our full executive team is available to answer any questions. Participants may submit questions by telephone or via the webcast. 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 the call over to Paul Brink, President and CEO of Franco Nevada.
Paul Brink
Thanks, Candida, and good morning. Our Q2 results benefited from record gold prices. Revenues and cash flow from operations were up compared with Q1. Results were lower compared to Q2 last year without the contribution from Cobre Panama and due to lower production at Candelaria and Antipokai. Lower quarterly production at the two operating assets is a short-term bump and we expect to return to normal operations at both for the balance of the year. These are two of our best performing assets over the long term. We look forward to the potential underground expansion at Candelaria and the future development of the Coracoaico project at Andapakai. Our business development team have had great success in recent months, and we're very pleased to have added two long-life assets to the portfolio, a gold stream on Solgold's Cascavel copper gold development project in Ecuador, and a royalty on Newmont's Yanacocha operations in Peru. Ian will give more detail on the acquisitions later in the call. Initial contributions from Yanacocha and the growing contribution from the Solaris Norte, Greenstone, and Toca Tocino gold mines that all started production in recent months will boost our results in the second half of the year. With that, I'll hand it over to Santa.
Toca Tocino
Thanks, Paul. Good morning, everyone. I'll turn to slide four to give an overview of the financial results for the quarter. Overall GEO sold were 110,264 for second quarter 2024. This compares to $168,515 for the prior year quarter and $131,865 for the prior year quarter when Cobre Panama geos are excluded. As you are aware, Cobre Panama continues to be on preservation and safe management. In terms of operating assets and geos delivered and sold for the quarter, we did receive less ounces from Candelaria and Antipokai compared to prior year. Geos delivered from both were less than our expectations. At Candelaria, geos delivered and sold in Q2 2024 were lower than those sold in Q2 2023, as mining rates were impacted by the interface of the open pit and historic underground mining stoves. This required more stockpile ore to be processed, which reduced grades and recoveries. With access to higher grade ore anticipated in the second half of 2024, Lundeen Mining anticipates stronger production and has maintained the production guidance for Candelaria. At Antipakai, geos delivered and sold were also lower in second quarter compared to prior year. Mine scheduling was adjusted in part due to a geotechnical event which temporarily limited pit access, resulting in the lower production. Glencore anticipates stronger production in the second half of 2024. and Franco-Nevada expected stream deliveries for the full year to be within its initial expectations of 50,000 to 60,000 geos. The Hemlo NPI was also weaker than expected in the second quarter of 2024. There was less mining on royalty land, along with higher costs, which resulted in a lower NPI paid to Franco. It continues to be difficult to estimate what the Hemlo NPI will be going forward. For the quarter, precious metal geos were 82,350. This compares to 95,383 in prior year when Cobre Panama geos are excluded. Precious metal geos represented approximately 75% of total geos for the quarter. For diversified geos, total geos sold were 27,914 compared to just over 36,000 in Q2 2023. Iron ore geos sold were relatively flat year-over-year, while energy geos were lower at $22,100 for Q2 compared to $28,683 a year ago. A decrease in geos is a combination of lower revenue due to weaker natural gas prices, as well as the impact of converting energy revenue to geos by higher gold prices. Also in Q2 2023, revenue included a catch-up royalty payment related to new wells in the Permian Basin, which was not present in Q2 2020. As we look at total revenue, revenue was $260.1 million for the quarter compared to $329.9 million a year ago. When you exclude Cobre Panama from prior year revenue, revenue was actually up from $258.2 million. Due to 2024 saw continued volatility in average commodity prices. As you see on slide five, gold and silver average prices were significantly higher for the quarter when compared to prior year. However, platinum and in particular palladium average prices were lower year-over-year, which did negatively impact conversion of PGM revenues to GEOS. Oil prices were higher as well, while natural gas average prices were essentially flat. Slide 6 highlights the financial results for the quarter and year-to-date 2024. As mentioned, GEOS sold and revenue were lower year-over-year. Adjusted EBITDA was $221.9 million, while adjusted net income was $144.9 million. On a per share basis, adjusted net income was $0.75 for the quarter. On the cost side, we did have a decrease in cost of sales compared to prior year, as we did not incur the ongoing fixed cost for ounces delivered for Cobre Panama and had lower GEOs delivered and sold from Antipakai and Candelaria. With respect to the arbitration costs for Cobre Panama, The company incurred costs of $800,000 in Q2 2024 and have incurred $2.3 million year-to-date. We expect approximately $3 million to be incurred for the rest of the year. Depletion decreased to $52.9 million versus $75.1 million a year ago. Again, the decrease was due to no depletion recorded for Cobre Panama, as well as lower depletion recorded for Antipokai because of the lower deliveries in the quarter. One additional item to note in Q2 2024 is the tax adjustment recorded. In May 2024, the government of Barbados enacted legislation to implement tax measures also in response to the OECD's Pillar 2 Global Minimum Tax Initiative. These measures include an increase of the Barbados corporate tax rate to 9% and the introduction of a qualified domestic minimum top-up tax, which together aim to ensure that the Barbados effective tax rate payable subject to Pillar 2 is at least 15% going forward. What's important to note is that of the $122.8 million total tax expense recorded for the six months ended June 30th, 2024, 49.1 relates to an adjustment for prior years and the actual incremental tax expense related to 2024 is about $21 million because of exchanges. Going forward, we estimate that our effective tax rate will be about 19% to 20%, depending upon where taxable income is generated. Slide 7 highlights the continued diversification of the portfolio. From the charts, you can see that 75% of our second quarter 2024 revenue was generated by precious metals, with revenue being sourced 82% from the Americas. Slide 8 illustrates the strength of our business model to generate high margins. For Q2 2024, the cash cost per geo, which is essentially cost of sales divided by gold equivalent ounces sold, was $264 per geo. This compares to $280 per geo in Q2 2023. This amount will fluctuate depending upon the mix of royalty versus stream geos, including mining and energy. But as you can see, at current average gold prices, the company generates significant margins. Margin was approximately $2,100 per ounce in Q2 2023. A rising commodity price environment, we expect to benefit fully as the cost per geosol should not increase in this account. As we turn to available capital, the company has $2.4 billion as of June 30, 2024, as highlighted on slide 9. Please note that subsequent to June 30, 2024, the company has funded a number of transactions. The acquisition of a Royalty of Newmont's Yanacocha property for $210 million, which Ian will speak to shortly. $23.3 million advance to SolGold as part of the $525 million stream commitment agreed to in July. Purchase of shares in G-Mining Ventures as part of the Reunion Gold business combination for $25 million and the funding of a five-year $35 million loan to EMX Realty. Even after funding of the above, the company still has a strong balance sheet to complete additional transactions. Also during the quarter, the company amended its $1 billion unsecured revolving term credit facility to extend its term to June 3, 2029. Finally, with respect to the geo-sold guidance for 2024, 480,000 to 540,000 total geo-sold and 360,000 to 400,000 precious metal geo-sold, we reiterate those guidance ranges but expect to be at the lower end of both ranges. To anticipate stronger deliveries from Candelaria in the second half of the year, and continued contributions from Tokens Inyo, Greenstone, and Solaris Norte. And with that, I will now pass it over to Ian, who will speak to the recent business development transactions completed.
Ian
Thank you, Sandy, and good morning. As Paul mentioned, we were happy to announce Goldstream financing on SolGold's Apollo project in July. We view this as a world-class copper-gold porphyry. Goldstream is tailored to SolGold's needs, allowing for de-risking with initial funding is secured. The transaction was syndicated 70-30 with the Cisco Gold Royalties and we believe represents a prudent capital allocation and risk-adjusted return. The Alpolla deposit stands out amongst copper-gold projects globally based on its size and grade. To summarize the recent pre-feasibility study which demonstrates a robust project and look forward to management steps to advance and de-risk the project. Our team sees great upside at El Palo and on the broader Cascavel concession which the stream covers. Projects like Tandiyama increase the value of the stream in our view. Our experience is that these types of deposits also tend to cluster and we see great potential in the drill bit over time on the property. The transaction includes a number of risk mitigates to determine when funding takes place and various protections for streamers should there be delays or rescoping of the project. An acquirer would benefit also from the ability to reduce the stream, but to do so would have to provide a payment to both Franco Nevada and ASISCO. We along with ASISCO look forward to the steps management is taking to advance the project and believe that Cascabel will be a meaningful contributor to Franco Nevada for years to come. We'd also point investors to Solgold's recent update released this morning providing information on their steps to add value to the project. Moving to the Anacotra royalty acquisition from Buena Ventura, which was announced yesterday, we're happy to add this asset to the portfolio. Royalty will contribute immediately given significant oxide production, and we expect it would step up significantly with the sulfides project. We're very positive on the sulfides. currently envisaged. The Royalty also covers the Conga and Killish projects, providing excellent upside. We were able to visit the site as part of our review and have good institutional knowledge of the asset dating back to Newmont and maintain an excellent relationship with Beneventura, providing comfort in the long-term potential. We view this as another world-class geological setting, as evidenced by past production and extensive resource. We see great potential to contribute for decades to come and further potential in the ROFR that we maintain on the additional royalties.
Anacotra
With that, I'll hand it back to the operator and Candida for any questions.
Operator
Of course. During this Q&A session, if you would like to ask a question, simply press star, then the number one on your telephone keypad. If you would like to avoid your question, please press star, too. If you're... Joining us on the webcast, please submit your questions through the Q&A section of the webcast platform. Our first question comes from the line of Josh Wolfson from RBC Capital Markets. Go ahead, please.
Josh Wolfson
Thanks very much. First question on the Yannick Kocha transaction. you know, the returns that we calculate would be comparable to some of the, I guess, mega type of returns we saw maybe 2015, 2016, which I would know, you know, ultimately worked out fairly well for the company. You know, if we're looking at these deals today, like Yanacocha and maybe others that could be on the horizon, you know, what's the sort of appeal here? And I would note from our perspective, like the main bulk of the economics are not really, the project hasn't really been developed versus some of the historical low-return deals where large producing known assets. Just a bit more insight on what the company sees versus what we know in the market today.
Ian
Thanks, Josh. It's Ian speaking. We see great potential in the asset. It's been a huge producer over the years. It's a brownfield site. There should be a decision on the sulfides. We were able to do an on-site diligence as part of the transaction, which provided additional comfort, especially in the sulfides. We see that as a great project that Newmont, we expect, will advance. I think they've put off a decision until 2025, but then on top of that, you have fantastic of time, there is potential there, and the Killish project, both very, very large. And so you get the benefit both of immediate cash flow and fantastic optionality longer term. So that is why we find it attractive. And it's a great partner. Newmont, as I'm sure you know, has a great track record of both advancing projects and operating successfully. So we're happy to be involved there.
Josh Wolfson
Great. And then just, you know, in terms of the opportunity for maybe more of this style transaction that skews towards the optionalities, are these the type of opportunities you're seeing out there or, you know, there's been a focus at least from commentary for other companies about, you know, project financing type of deals?
Ian
We see both. In short, I think there is certainly opportunity for project financing type transactions, operating assets. there's a pretty rich deal environment at the moment. So we'll continue to advance all fronts.
Josh Wolfson
Thank you. And one last question, just on one of the deals that was done early this year on the energy side of things for Haynesville. I'm not sure if this is an anomaly for the quarter, but Haynesville production or revenues hasn't really... improve that much, and there was a large investment made in the first quarter, when should we start to see the increased royalty revenues from this asset?
spk04
Hi, Josh. It's Jason speaking. You're right. We did add incrementally to Hainesville at the end of last year, and despite that, revenues were sort of flat. A lot of that is timing and commodity price. So gas prices, as you probably know, have fallen off fairly dramatically in the period we're speaking about. That impacts the royalty both in terms of straight royalty economics, but it also impacts the way the operators are managing their production. Low gas prices in Hainesville have resulted in softer drilling rates and at times operators dialing back their production levels to try to rebalance the market. So there's a bit of a, there's a large commodity price, I guess, impact there in two ways. We're also onboarding, continuing to onboard the assets that we acquired at the end of last year. It does take some time for all the ownership interests to transfer over. So I think as you'll see commodity prices rebound here in the coming quarters, I think you'll see volumes and revenues normalize a bit.
Anacotra
Those are my questions. Thank you.
Operator
Thank you. Our next question comes from the line of Lawson Winder from Bank of America. Go ahead, please.
Lawson Winder
Yeah, thanks, operator, and good morning, Franklin team. Thanks for taking the question here. I wanted to ask, first of all, about the deal on Yanacotra. Congratulations on getting another big deal done. What was the assumption in terms of the startup of the sulfides when you got to an IRR that you were comfortable with for this?
Ian
Thanks, Lawson. Ian again here. In terms of the sulfides, I think what Newmont has said is 2025, that's would indicate there's potential there to continue to do leaching if there is delay but i think we are expecting something around the 2029 timeline production okay great very helpful and then um just thinking about the deal pipeline and uh the relative metal mix i mean that's improved uh
Lawson Winder
I shouldn't use the word improve, but that's swung back in the favor of gold and silver and the precious metals quite significantly in Q2 versus Q1, where it dipped to quite a low level. So you're now back to 70% of revenue from gold and silver. In that context, how do you think about adding new streams in terms of metal mix? Is gold and silver still a continued priority here? Or does the rebound in gold and silver prices and the move to the metal mix as a result perhaps shift your focus now going forward more to non-precious deals?
Paul Brink
Lawson, it's Paul. Thanks for the question. Focus as always is precious metals. And it starts, as always, with asset quality. Anytime we're looking at stuff, it's what are the great assets? That is the biggest driver and what generates the best returns over time. And then we get on to commodity mix. So first is, do we like the asset? And second, can we get it done within the guidelines of what we do with the commodity mix? So as always, golden precious metal is number one on our list in terms of what we'd like to do. But always open-minded. If they're great assets in other commodities, but we think we'll get long-term returns. We're happy to add those two.
Anacotra
Okay, that's great context.
Lawson Winder
Thanks very much, Paul.
Anacotra
Thank you.
Operator
Thank you. Our next question comes from the line of Tanya Jigaskona from Scotiabank. Go ahead, please.
Tanya Jigaskona
Hi, good morning. Thank you so much for taking my questions. I'm just going to start off on just some of the guidance And thanks, Sandy, for that. Hemlo is always difficult to forecast. But just as we look at the second half of the year, and we do have, you know, the, you know, Candelaria, I think, was one that you had mentioned, and Tocanvino, Solaris Norte, those ones ramping up. Am I to think that, like, it's a second half? Is second half weighted, but is it more weighted to Q4? Or is it more of an even distribution? Plus, I have the valet top up in Q3. So I'm just trying to understand, you know, Q3 versus Q4.
Toca Tocino
Sure, Tanya. As of right now, from the visibility that we have, I would say it's probably going to be pretty even between the two. Maybe, you know, Q4 might get a little bit higher as, you know, Greenstone and Solaris North Day ramp up. but I don't expect too much of a difference. Obviously, part of it is all dependent on commodity prices with respect to the NPIs, but for simplicity, I would say they should be pretty close.
Tanya Jigaskona
Okay, that's helpful. Thank you for that. And then if I can move on to just the, you know, the transactions and just the environment itself. And Ian, for you, you know, thank you for, you know, your, you know, forecast of 2029 for the startup of the sulfides we modeled it into the next decade ourselves but when you look at the internal rate of return and again making that decision you know whatever gold price you want to use for both of your transactions that you recently did what are you getting are you getting the middle you know single digit internal rate of return just a benchmark for us to see on that and same with Casabelle like when did you you know, figure startup on that asset as well.
Ian
Thank you, Tanya, for the question. There's a lot there to unpack. I would say, you know, first of all, it's, you know, risk-adjusted returns is what we think about, and optionality is important in the investments. We want to see that there's a lot there that can go right over time, and we can earn an outsized return Even if it does take time, it might not show up in an IRR, but certainly enhances the profile of the company, providing gold for years to come. So with Yanacocha, yes, I would say it's a pretty reasonable return we see with the oxides and the sulfides. And beyond that, you have fantastic projects which stand to provide you many multiples on your investments. as those move forward. Now, Conga, you know, Gilish could take a lot of time if they get developed, but certainly that skew towards outsized cash flows from the investment was tracked to us. So maybe that provides a bit of context.
Tanya Jigaskona
Is reasonable for you single digit, middle single digit, like 5%? I don't know what reasonable is for you.
Ian
Yeah, for an asset that has a great degree of optionality, that would be a reasonable return. Again, all things equal, it's risk-adjusted. In other cases, like Solvold, the return was meaningfully higher, and it just represents, again, I mentioned a risk-adjusted rate of return.
Tanya Jigaskona
Okay, and for Sogo, when did you assume startup of that one? And when you say significantly higher, are you implying double digit?
Ian
Yeah, in terms of, I don't want to get too much into deal specifics. I don't think it's appropriate, but roughly, you know, we look at scenarios for startup there in the early 2030s and rate of return certainly above the, mid-single digits, but beyond that, I don't think it's appropriate to comment.
Tanya Jigaskona
Okay, no, thank you for that, Tyler, Ian, and maybe just turning to the M&A environment. Just I wanted to, you know, on the last conference call, we talked about seeing bigger size deals, you know, plus $500 million. I guess the Casavel one was over $500 million. what sort of opportunity size are we still looking at now? Is it still over that 500? Are we back to that 100 to 300 million on the gold side? That's my first question on the transaction side.
Ian
Thanks, Tanya, for the question. Good question. I would say expect more of the same in terms of what you've seen recently for deal size. 1 to 300 is a pretty good kind of average size within the pipeline. The overall comments, I think, is that it remains extremely busy. So there's lots to look at, which is great, and plenty on the precious metal side. So the team remains very focused.
Tanya Jigaskona
Thank you. Okay. And then in terms of royalties, I mean, Buena Ventura has been talking about the selling of this royalty on Yannick Coaches since last year, so congrats on finally getting this done. Are you seeing other opportunities on the royalty side in the environment separate from Stream?
Ian
Certainly. We like royalties. I think they're great within the portfolio, so we see a bit of both. both in terms of streams and royalties.
Tanya Jigaskona
Okay, and then maybe just for Paul, I think the last conference call we talked about transactions in the non-gold space. We specifically talked about lithium in the $50 to $400 million range. And just looking at opportunities in the part of the market where commodities are not as strong as we see in the gold markets, So I'm just wondering what your thoughts. Have they changed? Are the opportunities for lithium still there, and is that something you still want to pursue?
Paul Brink
We're still busy on that front. As Ian mentioned, most of our assets are on the precious metal side, but we are looking at some diversified. Some of that is lithium, some in other commodities. So I think there's still good potential to get some deals done in those areas.
Tanya Jigaskona
And that 50 to 400 million range is still the range that those would fit into?
Paul Brink
Yeah, that's a good range.
Tanya Jigaskona
Okay, looks like you're very busy. Congratulations on both of those deals.
Anacotra
Thank you, Tanya.
Operator
Thank you. Our next question comes from the line of Martin Perdiere from Veritas Investment Research. Go ahead, please.
Anacotra
Thank you.
spk10
it looks like you need the, the sulfide project to go ahead to make your money back on Yanakocha. Is that the correct assumption?
Ian
Uh, that is correct. Ian speaking here.
spk10
Okay. And did I hear that there was a 49 million tax adjustment from previous year? Is that correct? Or is it just previous quarter?
Toca Tocino
Yes. So, um, Because Barbados increased its tax rate to 9%, its corporate tax rate, our deferred tax liability on our balance sheet was set up at the old rate, so we had to adjust that, and that was $49.1 million, one-time adjustment.
spk10
Okay, perfect.
Anacotra
Thank you. That's all. Thank you very much.
Operator
Thank you. There are no further questions on the phone line. I will now turn the Q&A session over to Candida Hayden. We'll take questions from the webcast.
Candida Hayden
Thank you, Lara. Our first question comes from Bernie Peachey from Palisade Capital. Given the recent social and political turmoil in Ecuador, I'm a bit surprised by your commitment to the Cascabel project, especially after Panama experience. To what extent have you balanced your attention to the project geology versus your view of the political environment there?
Ian
Thank you for the question. secured and a robust investment agreement being signed with the government of Ecuador, with criteria included as conditions of funding. So we take a lot of comfort from that. But I would probably say, bigger picture, Ecuador has a very fair split of fiscal flows versus other countries, and so we draw a lot of comfort from that as well. With mines like Cruz del Norte, the government derives 50% of the economic benefit of the projects. So that provides what I believe is a good backdrop towards stability going forward and social acceptability of mining projects. The government is also quite supportive of the project, which gave us a lot of comfort as part of our diligence. We met with a number of government officials in Quito, along with our partners at Cisco, and also Canadian and U.S.
Anacotra
embassy staff.
Candida Hayden
Next question is also from Bernie Pichi at Calisade Capital. An update on Panama, especially given the new government.
Paul Brink
So Bernie, it's Paul. Since the Molino administration has come in, I think all the indications have been positive. They've indicated a willingness to look at a reopening of the mine, enter into negotiations, that is, with some conditions. And I'd say most positive is the steps that they're taking. The first item is that they want to do a comprehensive environmental review, and so they're putting together a panel of experts so that they can do that. I'm very hopeful that that will help demonstrate that the asset has been very well operated and that some of the misgivings that have been promoted in the population that there was environmental damage will be dispelled. So I think taking very positive steps to set the table so that they can, one, have a discussion with the company, and two, position this project better with the public in Panama.
Candida Hayden
The last question comes from Bjorn Wicklander. Current cash portfolio is 1.4 billion USD. Is there deals out there such as royalties or streams that are coming that can match this cash position? Or are there other opportunities that this cash position can be used for? And if so, what could that be?
Ian
Thank you for the question. Ian speaking. As I mentioned, we see a very robust pipeline. There's good potential to deploy that capital with what we have in the pipeline. Going forward, I think you will see us continue to transact on a number of opportunities. So I don't see it as a surplus. It's quite beneficial for us in terms of bidding competitively.
Candida Hayden
Thank you, Ian. There are no further questions from the webcast. This concludes our second quarter results conference call and webcast. We expect to release our third quarter 2024 results after market close on November 8th with a conference call held the following morning. Thank you for your interest in Franco, Nevada. Goodbye.
Operator
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
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