Franco-Nevada Corporation (FNV) Earnings Call Transcript & Summary

Good morning, and welcome to Franco-Nevada Corporation's 2023 Year-end Results Conference Call and Webcast. This call is being recorded on March 6, 2024. [Operator Instructions] I would now like to turn the conference over to your host, Candida Hayden, Senior Analyst, Investor Relations. Please go ahead.

Thank you, Lara. Good morning, everyone. Thank you for joining us today to discuss Franco-Nevada's year-end 2023 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 Sandip Rana, Chief Financial Officer, who will provide a brief review of our results. This will be followed by a Q&A period. Our full executive team is available to answer any questions. [Operator Instructions] 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 2 of this presentation. I will now turn over the call to Paul Brink, President and CEO of Franco-Nevada.

Thank you, Candida, and good morning. Our diversified top line business has a history of generating leading returns. But in late 2023, we were challenged by the unprecedented production hole from the COVID pandemic. We're hopeful that the issues can be resolved, although we've taken a prudent approach to the carrying value of the asset. Despite the issues at Cobre Panama, our business remains robust. We finished the year with no debt at $1.4 billion of cash. Balance of our long-duration business still generates industry-leading cash flow. Top line business model is fortunately not impacted by industry cost inflation. And in 2023, we generated an 83% adjusted EBITDA margin. During the year, we added a number of attractive royalty interests, principally on gold mines and projects in Canada, Chile, Australia and the U.S. Drop in U.S. natural gas prices also allowed us to add to our natural gas royalty interests. Shareholders depend on us to allocate capital to operations that treat the environment and they host communities responsibly. The work has resulted in top-level ratings from the ESG agencies. Notably, we're top-ranked in the gold sector and in the broader precious metal sector for Sustainalytics for 2024. Our objective is to have a sustainable and progressive dividend that's dependable, even [ involved ] tough times. 2024, our Board, we're proud to increase our dividend for the 17th consecutive year. Investors from our IPO are now achieving a 9.4% yield in U.S. dollars or 12.9% yield in Canadian dollars. Growth outlook for the balance of our business is strong over the next 5 years. Rate assets keep getting better. Antamina has just sanctioned the capital program that will increase production. Candelaria is considering underground expansion. And Agnico Eagle is planning to add underground production and detour to expand output up to 1 million ounces per year. An exciting period of new mine builds. I'm looking forward to new contributions from Tocantinzinho, Greenstone and Salares Norte -- and Salares Norte amongst others, that will drive our organic growth through 2028. This outlook is good certainty, 2/3 of the production is already under construction. $2.4 billion of capital we have available positions us well to add further assets. Cobre Panama represented roughly 20% of our revenue, and the production halt has seen more than that proportional reduction in our market. Prospect of Cobre restarting or an arbitration settlement are all upside optionality from these trading levels. In summary, the outlook for our business is bright. Our strategy of maintaining a strong balance sheet has never been more relevant, giving us a large treasury to grow the business at a time when capital for the industry is otherwise scarce. Now, I hand the call over to Sandip.

Thank you, Paul, and good morning, everyone. I will begin with Slide 4, which shows how the company performed against the guidance that was issued for 2023. The updated guidance provided by the company for last year was 620,000 to 640,000 total GEOs sold. Of this total, we guided to 480,000 to 500,000 precious metal GEOs, with the balance being from diversified assets. The company ended the year with 627,045 GEOs sold well within the guidance range. We're also within the guidance range for precious metals with 488,189 GEOs sold. The diversified assets, which include our non-precious mining assets and energy assets, resulted in just under 140,000 GEOs sold for the year. Before I get further into the financial results, I wanted to speak about Cobre Panama. Turning to Slide 5. Cobre Panama is Franco-Nevada's largest investment and has generated approximately 20% of revenue. Before the halt in production, the mine was operating very well, having successfully completed its expansion to 100 million tonnes per year. We will deliver 28,318 GEOs during fourth quarter and just shy of 129,000 GEOs for the full year. However, as previously disclosed, Cobre Panama has been in preservation and safe management with production halted since November 2023. November 28, 2023, following protest and President Cortizo's call for a mining moratorium, the Supreme Court of Justice of Panama released its ruling to clearing Law 406 unconstitutional. In light of these events, we carried out an impairment assessment of our Cobre Panama streams at December 31, 2023. The recording of impairments is a judgment made by management based on available information at a point in time, which are used to determine the accounting treatment. We took a prudent approach in our judgment of the facts and circumstances and based on the halting of production and the political environment surrounding the ruling by the Supreme Court, as well as the significant share price impact, we determine the recoverable amount under applicable accounting standards to be nailed as at December 31, 2023. As a result, we recognized a full noncash impairment loss of approximately $1.2 billion. As previously disclosed, we have provided a notice of intent to commence arbitration against the state of Panama. While we believe in the strength of our claims, the potential proceeds from the arbitration were not reflected in our impairment valuation. Our streams on Cobre Panama and we are hopeful of a resolution between First Quantum and the state of Panama and a restart of the mine at which time our deliveries would restart. In this situation, we would assess the recoverable amount of Cobre Panama streams at that point in time, which may lead to a reversal of part or all of the impairment loss we recognized. Moving on to the financial performance for the quarter. On Slide 6, we highlight the gold equivalent ounces sold for the last 5 quarters as well as the last 5 years. Total GEOs sold were lower when compared to prior year, with Q4 2023 GEO sold being 152,351 compared to 183,886 in the fourth quarter 2022. Of this, precious metal, GEOs were 119,581, down approximately 8% from prior year. For the quarter, the largest contributors to the lower precious metal GEOs were Cobre Panama due to the halt in production, as mentioned. Stillwater, which was due to the impact of converting weaker platinum palladium revenue to GEOs; and Candelaria, which had lower production during the quarter. The lower GEOs from these assets was partially offset by stronger production from both Antapaccay and MWS, both of which had very strong fourth quarter. Precious metal GEOs represented 79% of total GEOs for the quarter and 78% for the full year. For diversified GEOs, our Vale royalty resulted in an increase in GEOs for the quarter compared to prior due to higher iron ore prices. As you know, each quarter, we make an estimate of what the royalty will be with the actual amount being announced by Vale in late March and September each year. As a result, you will see adjustments to our accruals twice a year in the first and third quarter each year. Energy GEOs were significantly lower at 25,640 GEOs for Q4 compared to 47,713 a year ago. This was the result of lower energy prices, natural gas in particular. 2023 saw continued volatility in commodity prices, as you can see on Slide 7, gold and silver prices were higher for the quarter and year, with gold higher by over 14% for the quarter and almost 8% for the year. Palladium prices were significantly lower year-over-year which did negatively impact the conversion of PGM revenues to GEOs. Energy prices were weaker in '23 coming off multiyear highs from 2022. Slide 8 highlights our total revenue and adjusted EBITDA amounts for the last 5 quarters. As you can see from the bar charts, the revenue and adjusted EBITDA has decreased slightly Q4 2023 compared to prior year. The company recorded $303.3 million in revenue during the quarter and $254.6 million in adjusted EBITDA. Margin of 83.9% was achieved for the quarter. As you turn to Slide 9, you will see the key financial results for the company. As mentioned, total GEOs were 627,045, generating $1.2 billion in revenue. On the cost side, we did have a slight decrease in cost of sales compared to Q4 2022 due to lower energy costs. Also, cost of sales is dependent on which assets deliver stream ounces as not all fixed payments per stream ounce are equal. Depletion decreased to $68.9 million versus $73.5 million a year ago. Depletion is based on actual mining GEOs sold and barrels of oil equivalent received on the energy side of the business. As we received less GEOs from Cobre Panama, Antamina and Candelaria, this impacted depletion as those assets are higher per ounce depletion assets. We did record a net loss for the quarter of $982.5 million or $5.11 per share due to the impairment recorded on Cobre Panama. This compares to net income of $165 million or $0.86 per share in the prior year. However, adjusted net income was $172.9 million or $0.90 per share for the quarter, up 5% and 5.8%, respectively, versus prior year. Slide 10 highlights the continued diversification of the portfolio. From the charts, you can see that 78% of our full year 2023 revenue was generated by precious metals with revenue being sourced 88% from the Americas, with Canada and the United States being the largest. Slide 11 illustrates the strength of our business model to generate high margins. For 2023, the cash cost per GEO, which is essentially cost of sales divided by gold equivalent ounces sold is $286 per GEO. This compares to $242 per GEO in 2022. This amount will fluctuate depending on 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 over $1,600 per ounce in 2023. In a rising commodity price environment, we expect to benefit fully as the cost per GEO sold should not increase significantly. We consider our cost structure to essentially be fixed. The other cost component for the company besides the cost of sales is our corporate administration costs. The royalty streaming business model is a scalable model. Our corporate administration costs have increased at a much slower rate than our revenue. Revenue has increased eightfold from 2008, while corporate admin costs has less than doubled over the same period. Management believes we can continue to add to our portfolio and grow our business without adding significant overhead to the company. With respect to guidance going forward, please refer to Slide 13. For 2024, we are guiding to total GEOs sold of between 480,000 to 540,000 GEOs sold. Of this total GEOs, we are guiding to 360,000 to 400,000 precious metals GEOs for the year. The balance would be GEOs from our diversified assets, of which we expect energy to account for about 75% for 2024. Please note that for all guidance ranges, we have excluded Cobre Panama in our GEOs sold numbers. At Cobre Panama range in production, we would have expected deliveries and sales of between 130,000 to 150,000 GEOs annually. The overall main drivers for GEOs year-over-year are, for precious metals, we will benefit from initial ounces from new mines being completed in 2024, Tocantinzinho, Greenstone, Mara Rosa and Salares Norte. We will have full year deliveries for Magino and Seguela, and we expect an increase in GEOs from Candelaria based on the guidance from the operator. However, we are anticipating lower production at Antapaccay based on the mine plan for lower grades. Our guidance has been calculated using $1,950 per ounce gold, $22.50 for silver, $850 for platinum, $900 palladium. And $115 per ton 62% iron ore. Obviously, prices are volatile, and as they change, it will impact the conversion of non-gold commodities to GEOs. Also, please note that we expect to reach our GEO cap by MWS by the end of 2024. On the energy side, we are using a price of $75 per barrel WTI and $2.50 and CF natural gas. This provides a range of 85,000 to 105,000 GEOs from our energy assets. As we look forward over the next few years, we do forecast 2026 as the current high for GEOs sold based upon what we know today. Thereafter, we will have the step down for Candelaria in 2027 and then Antapaccay in 2028. Our outlook for 2028 is 540,000 to 600,000 GEOs sold. Of this range, precious metals will be 385,000 to 425,000 GEOs. Main contributors will be higher production from Antamina and Guadalupe based on latest mine plants. Mine starts from Valentine Gold, Stibnite Gold, Eskay Creek and Castle Mountain Phase 2. For diversified GEOs, we do expect an increase in GEOs from our Vale royalty as attributable production should increase with the royalty on the Southeastern system becoming payable. For the energy assets, we do assume an increase in production over the next 5 years, resulting in increase in GEOs. Also, we have held energy prices flat at $75 a barrel WTI and $2.50 mcf natural gas for the period. Overall, when you look at the outlook for GEOs sold, the company has approximately 15% built-in organic growth from 2023 to 2028 at budgeted commodity prices, excluding Cobre Panama. This also assumes that no additional assets are added to the portfolio. Two additional items to note. With the legal proceedings that we will move forward related to Cobre Panama, we are expecting to incur annual costs of between $10 million to $15 million per year. These costs will be disclosed separately in our financials going forward. And with the proposed implementation of the global minimum tax, sometime in 2024, we are projecting that our effective tax rate will increase to approximately 18% to 19% going forward. The global minimum tax will be retroactive to January 1, 2024. The effective tax rate will fluctuate based on the jurisdictions that generate tax for income. And lastly, Slide 14 summarizes the financial resources available to the company. When including our credit facility of $1 billion, total available capital at December 31, 2023 is $2.4 billion. And now I'll pass it over to Lara, and we are happy to answer any questions.

[Operator Instructions] Our first question comes from the line of Josh Wolfson from RBC Capital Markets.

First question is just on the long-term guidance. The structure of the deals the company has signed for a lot of its cornerstone assets incorporates the step-downs, which -- 2 of which I guess are coming into play here for the 5-year guidance. When you look at the outlook for growth and the replacement of some of this production, how do you sort of factor the step downs into the timing of deals? Or is there any motivation to sort of structure these deals, so there's consistent growth on a year-over-year basis longer term?

Josh, it's Paul. At the time we do the deals, the -- it's more looking at what the reserves are and what you're confident will be mined over time and making sure that we get a minimum return or minimum estimated return based on that. And then also sizing the long term of the deal so that you've got an acceptable burden on the assets that you're going to maximize the optionality. So it really is deal by deal that you're trying to strike that balance. The -- obviously, it's a negotiation. We would love to push that out further in time. But you see what you can achieve on each transaction.

Okay. And then on Cobre, my understanding is there is some volume of concentrate on site that could potentially be sold down. Has this already been recorded at all in terms of value, I guess, for Franco? And if there was any concentrate sales would that registers as production to Franco this year?

So Josh, since the concentrate has not yet been shipped, no deliveries have been made to Franco for our share of the gold and silver over there. Under our agreement, we are entitled to deliveries of gold and silver based on that concentrate.

Okay. And then last question, again on Cobre. The $5 billion damage is value. Just so I understand this is a separate case that would be in addition to the First Quantum arbitration for $20 billion?

It is in addition, yes. So both -- we're pursuing independent arbitrations. So the 2 numbers are [indiscernible].

Okay. And then under the stream agreement, Franco would be entitled as well to the proportional share for that $20 billion, and I hope it doesn't come to that -- that situation. But is that -- my understanding is still correct there?

So I mean that was the one approach that we could have taken was just First Quantum pursued, and then we get a share of proceeds. The approach that we've agreed to take between assets that we would each independently pursue it. You're assuming we're both successful that we wouldn't share on their side as well.

Our next question comes from the line of Lawson Winder from Bank of America Securities.

I wanted to ask about Cobre Panama as well. How much of the upfront between the 2 streams, the cores and the First Quantum stream has been paid back up to today and before the potential any potential concentrate sales?

It's roughly half, Lawson. Off the top of my head, it's close to about $700 million.

Okay. Perfect. And then sometimes with these agreements, do these partner guarantees where any sort of like outstanding upfront that hasn't been paid back in the event of mine closure, the operator then would be on the hook for that. Is that a feature of this agreement?

Yes, there is an uncredited balance. So as I said, of the $1.35 billion that we invested, we've received around half of that back, the remainder is an uncredited balance that we would be entitled to at the end of the contract.

Will you be seeking that now that you've written the asset down to nil, will you be seeking that now going forward from First Quantum?

Not at this time. We want the contract to remain valid, and we're hopeful of a restart at which time the mine resumes production, and we receive our deliveries.

Okay. Perfect. And then I also wanted to ask about Palmarejo. Are you -- which mine plan are you assuming? Are you assuming a reserve-only mine plan? Or is there some resources in the mine plan that you've assumed with those GEOs?

Reserves and resources based on a mine plan that the operators provided to us.

So would that reflect their most recent technical report?

I'd have to double check the information we've received.

Our next question comes from the line of Cosmos Chiu from CIBC.

Paul, and Sandip, if I can, if I can ask about the write-down at Cobre Panama. I just find it interesting that when First Quantum reported about 2 weeks ago now, they didn't take a write-down, and on the other hand, yesterday night, you did take a write-down on Cobre Panama. And I [indiscernible] same auditors, PwC Toronto. So I'm just wondering about the different approach. And should we be at all concerned about the security that you have of your economic interest on the asset?

Cosmos, as I said, recording impairments is a management judgment. It's based on the information at that point in time. And based on the facts, we opted to be prudent and recorded an impairment. It does not question the validity of our stream agreement. Our stream agreement is in place. And if the mine does resume production, which we're hopeful that it does, we would look to reverse that impairment.

Of course. And then Sandip mentioned earlier, there is a $10 million to $15 million of ongoing costs annually. Could you -- are those just legal costs? What kind of costs are they? And could you maybe give us a bit more color?

Sure. So as you know, we have filed a notice of arbitration with the state of Panama under the Canada Panama free trade agreement. Going forward, if this arbitration is pursued and the mine is not restarted, you're basically having [ Lloyd ] legal fees and other consulting fees associated with that arbitration. So we're -- another scenario where this arbitration does actually proceed, that's our estimate right now on an annual basis.

Of course. And then maybe one last question on 2024 guidance. As you mentioned, there's a number of assets coming on, in part, that's why it is growing year-over-year without Cobre Panama. Could you maybe talk about -- is there any kind of lag between production and when Franco-Nevada receives -- starts receiving a stream or a royal payment on those assets? And how much conservatism, how much kind of lag have you factored in just in case there's any kind of delay in the start-up of some of these assets?

Obviously, we're basing our projections of what the operators or the developers have released publicly. But in terms of delays of receiving ounces, there shouldn't be, Greenstone and it's a royalty as it's Salares Norte. And [indiscernible] at a stream where we should get deliveries on a regular basis. So I don't anticipate any timing delays.

Our next question comes from the line of Tanya Jakusconek from Scotiabank.

Just wanted to follow up on the write-down. So it appears, Sandip, from what you answered the question for Cosmos is that you guys decided that you wanted to take a write-down full amount even before having any visibility on the new government. Is that a fair assumption?

Yes. As I said, it's a management judgment based on information that's available to us and that was the decision we made.

So you wanted to go that route rather than take a little bit every quarter. Would that be a fair statement?

That's a fair statement.

Okay. And the $10 million to $15 million would be expensed in the income statement that we would put in for this year, assuming the mine comes back up next year?

Correct. Yes. Yes. So obviously, those costs are if it doesn't restart.

Yes. And then just on the global minimum tax, we did see that Barbados has implemented it and you've given us attach for the year. Is it safe to assume that so far, like Q1 should have a lower tax rate and then we would have a pop-up like back up to that 18, 19x sometime in 2024?

So Barbados has not -- Barbados has -- it's not substantively enacted. So for us in Q1, we would have a lower tax rate until it actually is implemented in Canada. The key risk for Canada is to implement the global minimum tax, which then puts Barbados in effect and our tax rate would change.

Okay. So let's assume this isn't until midyear, you'd go through 2 quarters at the lower tax rate and then we go back up to the higher tax rate and potentially then have to go back to restate for Q1 and Q2?

There won't be a restate, it would be a cash adjustment.

Yes. Okay. And just on the guidance if I could ask, I mean we were a bit higher, 8% higher from your midpoint. So I appreciate the assets that are doing well, and we have a -- You mentioned Antapaccay that is coming off. Are there any other assets like -- there is halt, I mean we are always off on halt -- Is there any other assets within the portfolio that you can help us understand what would be weaker this year versus last?

In our guidance, we've highlighted the material ones. Obviously, other assets, they are small movements positive and negative, but I think we've highlighted the large movers.

Okay. we'll take it. And it's fair to assume that as you look at your year second half weighted with the better coming on with some of these Tocantinzinhos and Salares Nortes, et cetera?

That is correct.

Okay. And then if I could ask on just the natural gas acquisition that you did, is there any guidance that can be provided on these royalties or contribution and/or other? Like is there anything you can help us with on that?

Tanya, it's Jason here. So you'll have noted that acquisition at the end of last year was $125 million that we spent on assets in the Haynesville. They are a complementary set of assets to what we already own in the Haynesville. In terms of contribution, I guess what we can tell you is, last year, on an annualized basis, the royalties that we acquired generated about 6.5 million Mcf. And so depending on your gas price, so if you had a $2.50 gas price, that would be a little over $16 million in revenue. There are some deductions in costs associated with that. So you'd have to deduct those, but that's a rough guide as to how the assets performed last year. We would expect volumes to be sort of in a similar range this year, although they do depend on drilling activity and operators have been a little bit more conservative in their drilling activity or drilling pace so far this year. But that's sort of a rough estimate.

Okay. So somewhere in that if we were to be conservative $10 million to $15 million for 2024 and into the 2028, we would be somewhere in there on the revenue line?

Yes, I think that's a reasonable estimate. And our best guess in terms of 5-year guidance would be similar to the coming year.

Okay. Perfect. And then just lastly, maybe someone can just address some of the M&A opportunities out there, I would assume, and maybe you can correct me if I'm wrong that the focus will shift back to precious metals? Or maybe someone can just tell me how you're looking at transactions right now from either commodity base, producers versus developers helping on the funding of these assets potentially for sale from Newmont and/or maybe corporate transactions. So size-wise, that would be very helpful.

Thank you for the question, Tanya. It's Eaun speaking. I think those are very astute observations. I'd say we're spending a majority of our time on fresh channels, first off, so we do look at other commodities. And increasingly, I think we see a lot of opportunity there. So coming out of the last couple of weeks of conferences, we see good opportunities kind of across commodities, but we are spending the majority of our time on precious metals. In terms of the types of transactions, I would say this is certainly a bed towards project finance, getting things constructed. But M&A finance, of course, is also pretty near the front of the package towards a potential transaction. So looking at that carefully as well.

Would it fair to assume from what you said that you're looking at project financing to help fund that also corporate transaction from an M&A standpoint?

Yes. Yes. Certainly, both. I'd say, in terms of volume, though, there's more project financings than acquisition financings, in terms of the pipeline.

And size-wise, that, Eaun, if I could, what you're seeing out there?

I don't think it's changed much since we last spoke, probably more towards the kind of medium size $200 million to $300 million is, I would say, the typical kind of size of those transactions, there are some smaller. We don't mind doing some of the smaller transactions if they give us good torque on resource, but that's the general kind of median size.

Our next question comes from the line of Martin Pradier from Veritas.

My first question is in terms of the arbitration, is there any legally established time for the arbitration to take time? I mean, is it like 2 years, 1 year or there is no limit on how long this can go on?

Martin, it's Lloyd Hong. There is no sort of prescribed time line for these things. As a general rule, I think you should probably expect that if it does go to a conclusion, it will take several years.

And the second question will be how enforceable will an arbitration be? Because these things like other countries had legal rulings against them and people will never be able to enforce it.

Yes. So in terms of the recognition of the award pursuant to international conventions, I think it would be treated as if it were a final judgment to the highest court of any given country that's a party to that convention. Collection following that is something that would have to be pursued.

Okay. And in terms of Condestable, can you provide some guidance, what do you expect on that mine?

So Condestable, there's a minimum delivery in place. It's roughly 11,000 GEOs a year. But I can call you afterwards to give you the specifics.

Our next question comes from the line of Jackie Przybylowski from BMO.

I just -- I wanted to ask you about your arbitration claim. The amount that you disclosed of $5 billion, it just -- it seemed like it was higher than, I guess, than what we would have expected in terms of the amount that would be owed to you in arbitration for Cobre Panama. And I was wondering if you might just be able to walk us through how you arrived at that number and sort of what that represents to Franco-Nevada?

Jackie, it's Paul. The -- so under the Canada-Panama trade agreement, the -- in terms of our claim and what we've got right to recover is, I think it's the wording is full reparations, full amount of the damages we suffered. So there are a number of ways that you get to that in terms of calculating the value of the assets within our company. One of those measures is any loss of market valuation, that, for us, is a minimum of $5 billion. But we expect the -- as we work through the details, we'll finalize what that number is, but I expect that it will be well supported by the valuation for the asset and would be a minimum of $5 billion.

That's super helpful. I hadn't talked through that in. So thank you for clarifying that. And maybe just one other question. This is probably unlikely, but I'm going to ask anyway, is -- is there any recourse to you if you don't collect on arbitration or arbitration doesn't conclude favorably. Is there any other recourse to you? Could you or would you put a direct lawsuit against First Quantum. Is that something that's available? Or would you consider that?

We haven't considered that, Jackie. In terms of the plans, Plan A is as a negotiated solution to get the mine restarted. Plan B would be the arbitration.

Our next question comes from the line of Greg Barnes from TD.

Sandip, I'm going to apologize. I'm going to ask about the impairment as well. Are there any tax issues that went into you deciding to take the impairment now? It just seems rather early. And what are the factors that maybe went into your thinking given it's a management's decision?

Greg, no, tax had nothing to do with it. As I've said, it's a management judgment based on the impact on our share price, based on the Supreme Court decision, based on the mine being halted all triggers in our analysis of recording an impairment and that is -- we try to be prudent, and that's the decision that management made.

Okay. Okay. Fair. I would think the share price reaction may have been one of the biggest factors in that decision?

It was part of it.

We have a follow-up question coming from the line of Martin Pradier from Veritas.

Just one question about the uncredited balance that you could have some recourse against First Quantum, if I understood correctly, that you could probably go for like $650 million, if my math is correct. But that you did not account of any of that when you do -- you did your impairment?

Correct. We did not factor that into our analysis.

That is a potential course of action?

It is, yes.

As Sandip said, it's not the current plan. We're hopeful that there is the potential for restart. So we wouldn't want to terminate the contract to make that claim, we will keep it open, and we're hopeful for success.

We have a follow-up question coming from the line of Lawson Winder from Bank of America Securities.

I just wanted to follow up on the discussion around deal flow and ask whether or not you're seeing any deal flow in terms of transactions where there's a balance sheet repair element? I mean, obviously, -- those were some of the biggest transactions you guys have done? And are you seeing any signs of those in your discussions?

Lawson, it's Eaun again. Yes is a short answer. We do have some of those that we're currently looking at. They do make up part of our typical deal flow with higher interest rates, I think continuing that is likely to remain part of what we do over the next little while.

And so when you discuss the various sizes of those transactions, would that fall into that sort of like lower hundreds of millions of dollars ranges? Are some of those getting bigger like they had been in sort of the 2015 to 2017 period?

It varies. There are some out there that would be meaningfully larger as I said that was kind of the median size of what we're looking at, and there are some that are smaller that still fall into that category.

There are a couple of things driving it there. And the one is the cost of debt. People who've got debt and rates are high and struggling to repay that. The other area is the availability of equity. And so there are folks where they're hoping to raise the next set of funds to advance their projects to feasibility of do the next stage of economic study, and they're just not able to get that money in the equity market. So the industry is feeling a squeeze. And so the -- as I characterized the portfolio, it's very active right now because of the need for capital.

There are no further questions on the phone line. I will now turn the Q&A session over to Candida Hayden, who will take questions from the webcast.

Thank you, Lara. First question comes from Michael Fine of investing for retirees. What have you learned from the Cobre Panama experience? And how are you applying that to your business strategy?

So Michael, it's Paul. The -- so we didn't at the time anticipated the political risk in Panama. Part of that is the world has changed. The -- in terms of what went on, we see how -- despite having a government that was supportive of the mine and negotiating contracts with the company. There was a popular stop raising that has caused these issues. And so as we look at countries going forward, that is the new world we're in, and we've got to take that into account.

Our next question is from Bior Wicklander from Sweden. How is the current market environment in finding new high-quality streams in royalties? And how is the competition for the opportunities?

Thank you for the question. I think we covered a lot of that with Tanya and Lawson's question. I would say competition remains relatively vigorous. That said, I think we're benefiting significantly from our strong liquidity and cash flow position vis-a-vis some of our peers. A larger balance sheet helps us compete on a number of transactions. And also, we've demonstrated, I think, in a number of cases that we're a partner of choice as people look towards project financing that we can offer a unique and very helpful solution, as you saw in the Tocantinzinho transaction, that was very well conceived and I think received by the market.

Thank you, Ian. There are no further questions from the webcast. This concludes our 2023 results -- year-end results conference call and webcast. We expect to release our first quarter 2024 results after market close on May 1, with the conference call held the following morning. Thank you for your interest in Franco-Nevada. Goodbye.