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

Nothing from the webcast.

The formal business of this meeting is now completed. We have received the preliminary results and declare that each of the motions of this meeting have been carried by the votes cast. So congratulations, directors. Congratulations, PricewaterhouseCoopers. I think positive outcome. I declare the persons nominated have been duly directed -- elected as directors of Franco-Nevada Corporation. All the final results will be reported on SEDAR by tomorrow. But I can tell you, it's always the newest director that gets the highest votes. So it's -- so we call that the honeymoon period. So we'll see how that plays out. So congratulations at all. The formal part of the meeting is now concluded, and I'll now pass it over to Paul Brink for his presentation. Thank you.

Thank you, David. Welcome, everybody. Please heed any cautionary statements. I will have a couple. Our greatest [ assets ] are our team, and I mean that in the broader sense, many or all of you have contributed to the success of Franco-Nevada. Thank you all for being part of our team. Cobre Panama has caused the reset at our company. The asset was roughly 20% of our asset value and the unprecedented events that happened at the back end of last year caused us to lose more than that and our share price value. While we're hopeful that the issues can be resolved, we've taken the asset off our books. We don't include it in our current guidance. But here's the good news. We like royalties because they can represent a free option for our shareholders right now the greatest free option is Cobre Panama. In our business, value is so often created at the drill bit. In a bull market, like we have right now on the gold price, the drills are turning, the operators, the developers, they're explorationists. Probably the best indication of that is the success that Agnico is having at Detour. Under Detour Gold, they reveal 20 million ounces at Detour. It moved on to Kirkland Lake. It got up to 30 million ounces. Today, Agnico has revealed 40 million ounces at Detour. The #1 success at Franco has always been Goldstrike, a $2 million investment at Goldstrike will yield more than $1.5 billion to Franco-Nevada. But at today's gold prices, David's $2 million investment in Detour is likely to surpass Pier's $2 million investment in Goldstrike in terms of the value that it creates for Franco-Nevada. Now that value will play out over many, many years. If we're an operator, we would be at risk that some of that value would be eroded by cost inflation. The beauty of our business is we're not subject to that cost inflation. 100% of that value will accrue to Franco-Nevada. Here's a snapshot of our track record, and it really is the best visual of how that top line growth translates down to the bottom line. When you look at GEOs revenue, operating cash flow, it all translates into earnings per share, and that translates directly to the increase in our market capitalization. We're confident in our ability to grow the business. And that's probably best reflected by the Board's decision in January this year to increase our dividend for the 17th time. The total dividends that we've now paid are $2.2 billion. It was only a couple of years ago that we reached $1.2 billion and $1.2 billion is important because that's the amount of money that we raised to buy these assets back from Newmont at our IPO. So I'm really looking forward to next year's meeting because then we would have reached $2.4 billion, and I can boast that we would have paid out in dividends 2x what we paid to buy this business. On the ESG side, we've got 5 main focuses. The first is responsibly allocating capital to operations that minimize their impact on the environment that create net benefits for communities. We partner with our operators to make contributions to the communities to help build social license. We focus on good governance and shareholder alignment through owning stock along with our shareholders. We look to be good employers, inclusive employers and grow the diversity of our workforce and our Board. And we take climate action. Most of that is through how we allocate funds into the assets in which we invest. But also we look to reduce the climate impact of our own office operations. That is a team effort. Everyone from our Board through our management is involved in all of those functions, although probably the toughest part of ESG is the disclosure and in dealing with the detailed requirements of all the agencies that seek to evaluate us. We're highly ranked by those agencies. This year, we're particularly proud we're the top-ranked company in the gold sector and in the precious metal sector globally by Sustainalytics the person who does most of that work in providing that transparency is Christian Thatcher. Christian, please raise your hand. It's been 38 years now that Franco in its various forms has been acquiring royalties and streams. And we've built a portfolio that's unique in its breadth, both in its holdings of royalties and streams. We're able to build a business that is more diversified than you typically can as an operator. If we look at our assets this year, we expect no single asset will contribute more than 15%. If you look at the geographic spreads, the largest areas that we have exposure are Canada, the U.S., Chile, Peru and Brazil. you couldn't find better countries in which to have mining and oil and gas assets. The beauty of a stream on a very long-dated resource is that you can often get your capital back and still have a go-forward NAV that's just as big as the time that you bought your deal. And on many of our largest investments, you see exactly that is playing out. Gold assets are a little different. It sells [indiscernible] at a gold operator will drill more than 10 years of reserves at any time. But what you do have is the ability over time as you build on mine deeper to reveal a multiple of what you thought you had at the outset. The best set of example of that is the assets that we bought at IPO between what they've mined out and what they have in reserves today, there's 3.5x as much gold as when we started with our IPO. So to sum up, we have no debt. We've got $2.4 billion in available capital. We have an active deal pipeline and we absolutely committed to return this business to its premium valuation. The -- so that will end my comments, and I will open up the floor to any questions.

I'm Paul Durnan from Burlington. Do you have an investment in Seabridge Gold. Can you say something about that company if you do or don't or want it or don't want it.

Seabridge has a couple of assets, probably the largest is KSM. The second asset, also a very big asset is Courageous Lake. And we hold a royalty on that asset, and they have recently updated their studies for their asset. Looks like an economically feasible mine. It is quite far up north. And so they would need to put in an ice road to get it developed. But we do like the asset and think there's a good prospect it will get developed in due course.

They have done no construction at all. Am I right in saying that?

It's a development stage asset.

My name is [ Mike Elm ]. I have a question about lithium. I've seen the lithium price decrease significantly. We've seen lithium companies share price is go with the commodity price. And I'm interested if you see any opportunities in that sector.

Thank you, Mike. Appreciate the question. I'm going to -- Jason O'Connell, heads up the diversified side of our business. I'll pass it to Jason.

Thanks for the question, Mike. With the transition toward electric vehicles, there will be a continued demand for lithium batteries, and there will be a significant amount of capital that needs to be spent on new mines in the years to come. As a royalty holder, we'd love to position ourselves in front of that new capital and in front of what will likely be an increase in production and supply going forward. With the pullback in prices, traditional forms of financing are harder to come by for lithium companies. So we do see, as a consequence, increased opportunities for royalty financing. And if we can find good assets with good underlying economics, we think this is a good time to be countercyclical and potentially invest when lithium prices are low.

My name is [ Brandon Jobson ]. My question is, how active is your deal pipeline? And how are you planning to replace the production from Cobre Panama?

Thank you. Thank you, Brandon. I'm going to pass that one Eaun Gray. Eaun heads up our business development.

Thank you for the question, Brandon. We've seen an uptick in activity in our deal pipeline. I'd say it's quite healthy at the moment. Notably, there are some larger transactions that we are hopeful will progress. In terms of Cobre Panama, given the healthy pipeline, I think over the short to medium term, there's good prospect that we'll be able to replace many of those ounces that we were expecting. So with time, I think we should have good success there. And as Paul points out, we're quite hopeful and positive result with Cobre Panama as well. Thank you.

My name is Andy. Just a general question. As your cash levels continue to grow, are you considering any form of special dividend?

Sandip, going to hand that to you?

Sure. Thanks for the question, Andy. You're right, we do have a substantial amount of cash on the balance sheet, but our #1 goal is to continue to add good assets to the portfolio. So the #1 priority is deploying that on good acquisitions. Dividend is important for us. And as Paul highlighted, we've raised it for 17 years in a row, and our strategy is progressive and sustainable going forward. So right now, we're not considering any sort of special dividend or tying it to some sort of formula. It's just long term is progressive and sustainable. Thanks.

I don't see any more questions from the floor. Lloyd, any questions from the webcast?

There are no questions from the webcast.

Great. Well, thank you. That will close up on the formal part of the session. As a reminder for those here in-person, these are the questions instructions, we're past that. Before we close the meeting, a reminder, we'll be releasing our Q1 results later today and a press release should cross the wire early this evening. We hope you'll be able to join us for our Q1 conference call, which is scheduled for 10:00 a.m. tomorrow morning. That concludes the formal events for the evening. The bar is now open. Please join our Board and management for a refreshment at the back doors. Thanks for your attendance.