0001558370-17-003978.txt : 20170509 0001558370-17-003978.hdr.sgml : 20170509 20170509160836 ACCESSION NUMBER: 0001558370-17-003978 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 20170501 FILED AS OF DATE: 20170509 DATE AS OF CHANGE: 20170509 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANCO NEVADA Corp CENTRAL INDEX KEY: 0001456346 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 000000000 STATE OF INCORPORATION: Z4 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-35286 FILM NUMBER: 17826460 BUSINESS ADDRESS: STREET 1: 199 BAY STREET, SUITE 2000 STREET 2: COMMERCE COURT WEST CITY: TORONTO STATE: A6 ZIP: M5L 1G9 BUSINESS PHONE: 416-306-6317 MAIL ADDRESS: STREET 1: 199 BAY STREET, SUITE 2000 STREET 2: COMMERCE COURT WEST CITY: TORONTO STATE: A6 ZIP: M5L 1G9 6-K 1 f6-k.htm 6-K fnv_Current_Folio_6K

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

Report of Foreign Issuer

Pursuant to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934

 

For the month of May 2017

 

Commission File Number 001-35286

 

FRANCO-NEVADA CORPORATION

(Translation of registrant’s name into English)

 

199 Bay Street, Suite 2000, P.O. Box 285, Commerce Court Postal Station, Toronto, Ontario, Canada M5L 1G9

(Address of principal executive offices)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F

 

Form 20-F   ☐

Form 40-F   ☒

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐

 

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐

 

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

 

 

 

 


 

NOTE

 

Exhibits 99.2 and 99.3 to this current report on Form 6-K are hereby incorporated by reference into our registration statements on Form F-3 (file no. 333-210295), on Form S-8 (file no. 333-176856) and on Form F-10 (file no. 333-210878) (collectively, the “Registration Statements”).

 

 

 

 


 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

FRANCO-NEVADA CORPORATION

 

 

 

 

 

/s/ Lloyd Hong

Date: May 9, 2017

Lloyd Hong

 

 

 

Chief Legal Officer & Corporate Secretary

 

2


 

INDEX TO EXHIBITS

 

99.1

Press Release dated May 9, 2017 – Franco-Nevada Reports Strong Q1 Results

 

 

99.2

Management’s Discussion and Analysis for the first quarter ended March 31, 2017

 

 

99.3

Interim Consolidated Financial Statements for the three months ended March 31, 2017

 

 

99.4

Certification of Chief Executive Officer

 

 

99.5

Certification of Chief Financial Officer

 

3


EX-99.1 2 ex-99d1.htm EX-99.1 fnv_Ex99_1

Exhibit 99.1

 

Picture 1

 

 

NEWS RELEASE

Toronto, May 9, 2017

(in U.S. dollars unless otherwise noted)

Franco-Nevada Reports Strong Q1 Results

Dividend Increased for 10th Consecutive Year

“Franco-Nevada’s diversified portfolio and business model continues to deliver with record Gold Equivalent Ounces and revenue being realized in the first quarter” commented David Harquail, CEO. “Recent acquisitions are performing well and we continue to benefit from increased activity on many of our properties. It is a testament to both the portfolio and our business model that Franco-Nevada has again declared a dividend increase.  This marks Franco-Nevada’s 10th consecutive year of dividend increases since it went public in late 2007.  Franco-Nevada remains debt free with increasing cash balances and we continue to see investment opportunities across various commodities.”

Q1/2017 Financial Highlights

·

131,578 Gold Equivalent Ounces1  (GEOs) sold – a new record and a 23.4% increase year-over-year

·

$172.7 million in revenue – a new record and a 30.8% increase year-over-year

·

$128.5 million of Adjusted EBITDA2 or $0.72 per share

·

$45.6 million of net income or $0.26 per share

·

$44.8 million of Adjusted Net Income3 or $0.25 per share

·

$283.0 million in cash and cash equivalents at quarter-end and no debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue and GEOs by Asset Categories

 

 

 

Q1/2017

 

Q1/2016

 

 

 

    

GEOs

    

Revenue

    

GEOs

 

Revenue

    

 

 

 

#

 

(in millions)

 

#

 

(in millions)

 

Precious Metals:

 

 

 

 

 

 

 

 

 

 

 

 

Gold

 

100,540

 

$

122.9

 

76,753

 

$

91.5

 

 

Silver

 

19,746

 

 

24.4

 

22,627

 

 

26.8

 

 

PGMs

 

8,224

 

 

10.7

 

5,196

 

 

7.6

 

Precious Metals  -  

Total

 

128,510

 

$

158.0

 

104,576

 

$

125.9

 

Other Minerals

 

 

3,068

 

 

3.8

 

2,045

 

 

2.5

 

Oil & Gas

 

 

 —

 

 

10.9

 

 —

 

 

3.6

 

 

 

 

131,578

 

$

172.7

 

106,621

 

$

132.0

 

 

For Q1/2017, revenue was sourced 91.5% from precious metals (71.2% gold, 14.1% silver and 6.2% PGM) and 81.0% from the Americas (13.9% U.S., 16.9% Canada and 50.2% Latin America).  Operating costs and expenses increased year-over-year in-line with the increase in the number of GEOs sold during the quarter.  Oil & gas revenue increased three-fold year-over-year, reflecting higher prices and lower capital expenses year-over-year on the Company’s Canadian assets, as well as the addition of the STACK portfolio of royalties in Q4/2016.  Cash provided by operating activities was $119.8 million, a decrease of 3.5% compared to Q1/2016, as increased gross profits were offset by changes in non-cash working capital.


 

Corporate Updates

·

Dividend Increase: Franco-Nevada is pleased to declare a  quarterly dividend of $0.23 per share. The dividend is a 4.5%  increase from the previous $0.22 per share quarterly dividend and marks the tenth consecutive annual dividend increase for Franco-Nevada shareholders.

·

2017 Warrants:   At the beginning of the year, Franco-Nevada had 6,510,280 common share purchase warrants outstanding. The warrants have an exercise price of C$75.00 per warrant and expire on June 16, 2017. Subsequent to March 31, 2017, Franco-Nevada received proceeds of C$157.6 million from the exercise of 2,100,718 common share purchase warrants. At May 9, 2017, there remains 4,407,675 warrants outstanding.

·

Credit Facilities: On March 22, 2017, Franco-Nevada extended the term of its existing $1 billion credit facility from November 12, 2020 to March 22, 2022.  In addition, on March 20, 2017, Franco-Nevada’s subsidiary, Franco-Nevada (Barbados) Corporation, entered into an unsecured revolving credit facility which provides for the availability of up to $100.0 million in borrowings.

·

Midland Oil & Gas Royalties:  On March 13, 2017, Franco-Nevada agreed to purchase a portfolio of oil & gas royalties in the Midland shale play of the Permian Basin of Texas for $110.0 million.  On March 14, 2017, Franco-Nevada advanced $11.0 million in an escrow account to be applied towards the purchase price upon closing. Closing is expected in Q2/2017 with revenue retroactive to Jan 1, 2017.

 

Q1/2017 Portfolio Updates

·

Precious Metals — U.S.:  GEOs from U.S. precious metals assets increased by 37.9% year-over-year with increases at South Arturo and Stillwater more than offsetting the decrease from Goldstrike. 19,529 GEOs were received from the U.S. precious metal assets.

·

South Arturo (4-9% royalty) – This project, operated by Barrick and Premier Gold, represented an increase of 4,309 GEOs year-over-year.  The partners are looking at a second open pit (Dee) on the property and are advancing permitting for the El Nino underground opportunity below the current pit.  

·

Goldstrike (2-4% royalty & 2.4-6% NPI) – Barrick is integrating the Cortez and Goldstrike mines in an effort to reduce all-in sustaining costs which would benefit the profit royalties. 

·

Stillwater (5% royalty) – Sibanye Gold successfully closed its acquisition of Stillwater Mining. The Stillwater project contributed an additional 2,004 GEOs compared to Q1/2016.  Stillwater is planning low risk organic growth with the Blitz project, which it expects to add between 270,000 and 330,000 PGM ounces of incremental production per annum by 2021.

·

Rosemont (1.5% royalty) – Hudbay released results of a feasibility study for the Rosemont project which outlined a 19 year mine life with annual copper production over the first 10 years of 127,000 tonnes.  Hudbay expects the Record of Decision to be signed in June 2017. Franco-Nevada’s 1.5% royalty covers all commodities.

·

Precious Metals — Canada:  GEOs from Canadian precious metals assets increased by approximately 3.3% to 12,652 GEOs compared with Q1/2016.

·

Hemlo (3% royalty & 50% NPI) –  Barrick filed a Technical Report for Hemlo outlining the life of mine plan and providing additional detail of the increased reserves previously announced.

·

Macassa (various royalties) – Reserves of gold ounces at the Macassa mine increased by 37% from the last estimate at December 31, 2014 which includes two years of depletion.  The reserve grade also increased by 7%.

·

Detour (2% royalty) – Detour Gold provided an updated mine plan in response to near-term permitting constraints.  The updated plan assumes a longer mine life and increased life of mine gold production compared to the previous mine plan.  

·

Brucejack (1.2% royalty) – Pretium Resources reports that it has stockpiled 187,000 tonnes of ore and has started introducing ore to the crusher.

·

Timmins West (2.25% royalty)  – Tahoe Resources expects to provide a maiden reserve estimate for the Gap 144 zone in Q3/2017.

·

Precious Metals — Latin America: GEOs from Latin American precious metals assets represented the largest year-over-year increase.  70,429 precious metal GEOs were earned from Latin America, an increase of 20.4% year-over-year due to higher deliveries from Antapaccay, Guadalupe and Candelaria.

·

Antapaccay (gold and silver stream) – Antapaccay delivered 15,019 GEOs in Q1/2017,  an increase of 68% year-over-year due to only two months of deliveries in Q1/2016, when the stream transaction was closed.  

2


 

·

Antamina (22.5% silver stream) – 13,130 GEOs from Antamina were sold during the quarter, a decrease compared to 17,781 GEOs in Q1/2016. The year-over-year decrease was expected, as 2016 was an exceptionally strong year of silver production for Antamina.  

·

Candelaria (gold and silver stream) – Candelaria earned 22,483 GEOs, compared to 18,626 GEOs in Q1/2016, as expected according to its mine plan. The Los Diques tailings facility construction is progressing on schedule and conceptual studies to increase production from five underground deposits to optimize life-of-mine plan are advancing.  

·

Guadalupe (50% gold stream) – The Guadalupe agreement, which became effective in Q3/2016, delivered 19,300 GEOs in Q1/2017, compared to 12,501 under the Palmarejo agreement in Q1/2016, due to higher production year-over-year and a reduction of inventory that had built up from the prior quarter.  Under the Guadalupe agreement, Franco-Nevada pays an ongoing cost of $800 per gold ounce received versus the inflation adjusted cost of $400 per gold ounce under the prior Palmarejo agreement.

·

Cerro Moro (2% royalty) – Yamana Gold reports that the project is on track for mechanical completion by year-end with startup of production expected early next year.

·

Cobre Panama (gold and silver stream) – During the quarter, Franco-Nevada contributed $50.2 million of its share of construction capital for the Cobre Panama project with a total of $512.4 million of its $1 billion commitment contributed as of the end of Q1/2017.  First Quantum reported that the project is over 50% complete as of the end of Q1/2017 and that the project remains scheduled for phased commissioning during 2018, with continued ramp-up over 2019.  Franco-Nevada expects to contribute between $200-$220 million to the project in 2017. 

·

Precious Metals — Rest of World:  25,900 GEOs from Rest of World precious metals assets were sold during the quarter,  an increase of 31.8% year-over-year.  This reflected the first full quarter of deliveries from Karma, as well as the sale of ounces which had been received in Q4/2016.

·

Subika (2% royalty) – Newmont formally announced plans to develop a new underground mine and expand plant capacity at its Ahafo operation in Ghana.  Together, the two projects are forecast to add incremental gold production between 200,000 to 300,000 ounces per year during the first five years of production.  The proposed underground mine is estimated to be mostly covered by Franco-Nevada’s 2% royalty.

·

Tasiast (2% royalty) – Kinross reports the Tasiast Phase 1 expansion remains on schedule for full production in Q2/2018. Kinross expects to provide a feasibility for a possible Phase 2 expansion in Q3/2017. This is expected to add an additional 18,000 tonnes per day for a total combined throughput capacity of 30,000 tonnes per day.

·

Karma (fixed gold deliveries and stream) – 5,000 GEOs were sold in the quarter of which 1,250 were received in Q4/2016.  

·

Sabodala (fixed gold deliveries and stream)  –7,500 GEOs were sold in the quarter, of which 1,875 were received in Q4/2016. Teranga Gold won the PDAC award for Environmental & Social Responsibility for its work around the Sabodala mine. 

·

Edikan (1.5% royalty) – Perseus Mining released an updated mine plan in February envisioning a 6.5 year mine life. 

·

Agi Dagi (2% royalty) – Alamos Gold has tabled a positive feasibility report for the project projecting annual production of 177,600 ounces of gold over 5 years.  A positive PEA was also completed for the neighbouring Camyurt project on which Franco-Nevada also holds a royalty.

·

Oil & Gas: Revenue from oil & gas assets increased to $10.9 million in Q1/2017 compared to $3.6 million in Q1/2016,  reflecting higher prices and lower capital expenses year-over-year on the Company’s Canadian assets, as well as the addition of the STACK portfolio of royalties in Q4/2016.  The contribution from the new U.S. royalty assets is expected to become more significant after 2017. 

Dividend Increase

Franco-Nevada is pleased to announce that its Board of Directors has declared a quarterly dividend of $0.23 per share. The dividend is a 4.5%  increase from the previous $0.22 per share quarterly dividend and marks the 10th consecutive annual dividend increase for Franco-Nevada shareholders. Canadian investors in Franco-Nevada’s IPO in December 2007 are now receiving an effective 8.3% yield on their cost base.  The dividend will be paid on June 29, 2017 to shareholders of record on June 15, 2017 (the “Record Date”).  The Canadian dollar equivalent is to be determined based on the daily average rate posted by the Bank of Canada on the Record Date.  Under Canadian tax legislation, Canadian resident individuals who receive “eligible dividends” are entitled to an enhanced gross-up and dividend tax credit on such dividends.

The Company has a Dividend Reinvestment Plan (“DRIP”).  Participation in the DRIP is optional.  The Company will issue additional common shares through treasury at a 3% discount to the Average Market Price, as defined in the DRIP.  However, the Company may, from time to time, in its discretion, change or eliminate the discount applicable to treasury acquisitions or direct that such common shares be purchased in market acquisitions at the prevailing market price, any of which would be publicly announced.  The

3


 

DRIP and enrollment forms are available on the Company’s website at www.franco-nevada.com.  Registered shareholders may also enroll in the DRIP online through the plan agent’s self-service web portal at www.investorcentre.com/franco-nevada.  Beneficial shareholders should contact their financial intermediary to arrange enrollment.

This press release is not an offer to sell or a solicitation of an offer of securities. A registration statement relating to the DRIP has been filed with the U.S. Securities and Exchange Commission and may be obtained under the Company’s profile on the U.S. Securities and Exchange Commission’s website at www.sec.gov.

Shareholder Information 

The complete Condensed Consolidated Interim Financial Statements and Management’s Discussion and Analysis can be found today on Franco‑Nevada’s website at www.franco-nevada.com, on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.

Management will host a conference call tomorrow, Wednesday,  May 10, 2017 at 8:30 a.m. Eastern Time to review Franco‑Nevada’s Q1/2017 results. 

Interested investors are invited to participate as follows:

·

Via Conference Call: Toll-Free: (888) 231-8191; International: (647) 427-7450

·

Conference Call Replay until May 17th: Toll-Free (855) 859-2056; Toronto (416) 849-0833; Pass code 8958319

·

Webcast: A live audio webcast will be accessible at www.franco-nevada.com

Corporate Summary

Franco-Nevada Corporation is the leading gold-focused royalty and stream company with the largest and most diversified portfolio of cash-flow producing assets.  Its business model provides investors with gold price and exploration optionality while limiting exposure to many of the risks of operating companies.  Franco-Nevada is debt free and uses its free cash flow to expand its portfolio and pay dividends.  It trades under the symbol FNV on both the Toronto and New York stock exchanges.  Franco-Nevada is the gold investment that works.

For more information, please go to our website at www.franco-nevada.com or contact:

 

 

 

Stefan Axell

    

Sandip Rana

Director, Corporate Affairs

 

Chief Financial Officer

(416) 306-6328

 

(416) 306-6303

info@franco-nevada.com

 

 

4


 

Forward Looking Statements

This press release contains “forward looking information” and “forward looking statements” within the meaning of applicable Canadian securities laws and the United States Private Securities Litigation Reform Act of 1995, respectively, which may include, but are not limited to, statements with respect to future events or future performance, management’s expectations regarding Franco-Nevada’s growth, results of operations, estimated future revenues, carrying value of assets, future dividends and requirements for additional capital, mineral reserve and mineral resource estimates, production estimates, production costs and revenue, future demand for and prices of commodities, expected mining sequences, business prospects and opportunities. In addition, statements (including data in tables) relating to reserves and resources and gold equivalent ounces (“GEOs”) are forward looking statements, as they involve implied assessment, based on certain estimates and assumptions, and no assurance can be given that the estimates and assumptions are accurate and that such reserves and resources and GEOs will be realized. Such forward looking statements reflect management’s current beliefs and are based on information currently available to management. Often, but not always, forward looking statements can be identified by the use of words such as “plans”, “expects”, “is expected”, “budgets”, “scheduled”, “estimates”, “forecasts”, “predicts”, “projects”, “intends”, “targets”, “aims”, “anticipates” or “believes” or variations (including negative variations) of such words and phrases or may be identified by statements to the effect that certain actions “may”, “could”, “should”, “would”, “might” or “will” be taken, occur or be achieved. Forward looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of Franco-Nevada to be materially different from any future results, performance or achievements expressed or implied by the forward looking statements. A number of factors could cause actual events or results to differ materially from any forward looking statement, including, without limitation: fluctuations in the prices of the primary commodities that drive royalty and stream revenue (gold, platinum group metals, copper, nickel, uranium, silver, iron-ore and oil and gas); fluctuations in the value of the Canadian and Australian dollar, Mexican peso, and any other currency in which revenue is generated, relative to the U.S. dollar; changes in national and local government legislation, including permitting and licensing regimes and taxation policies and the enforcement thereof; regulatory,  political or economic developments in any of the countries where properties in which Franco-Nevada holds a royalty, stream or other interest are located or through which they are held; risks related to the operators of the properties in which Franco-Nevada holds a royalty, stream or other interest, including changes in the ownership and control of such operators; influence of macroeconomic developments; business opportunities that become available to, or are pursued by Franco-Nevada; reduced access to debt and equity capital; litigation; title, permit or license disputes related to interests on any of the properties in which Franco-Nevada holds a royalty, stream or other interest; whether or not the Corporation is determined to have “passive foreign investment company” (“PFIC”) status as defined in Section 1297 of the United States Internal Revenue Code of 1986, as amended; potential changes in Canadian tax treatment of offshore streams; excessive cost escalation as well as development, permitting, infrastructure, operating or technical difficulties on any of the properties in which Franco-Nevada holds a royalty, stream or other interest; actual mineral content may differ from the reserves and resources contained in technical reports; rate and timing of production differences from resource estimates, other technical reports and mine plans; risks and hazards associated with the business of development and mining on any of the properties in which Franco-Nevada holds a royalty, stream or other interest, including, but not limited to unusual or unexpected geological and metallurgical conditions, slope failures or cave-ins, flooding and other natural disasters, terrorism, civil unrest or an outbreak of contagious disease; and the integration of acquired assets. The forward looking statements contained in this press release are based upon assumptions management believes to be reasonable, including, without limitation: the ongoing operation of the properties in which Franco-Nevada holds a royalty, stream or other interest by the owners or operators of such properties in a manner consistent with past practice; the accuracy of public statements and disclosures made by the owners or operators of such underlying properties; no material adverse change in the market price of the commodities that underlie the asset portfolio; the Corporation’s ongoing income and assets relating to determination of its PFIC status; no material changes to existing tax treatment; no adverse development in respect of any significant property in which Franco-Nevada holds a royalty, stream or other interest; the accuracy of publicly disclosed expectations for the development of underlying properties that are not yet in production; integration of acquired assets; and the absence of any other factors that could cause actions, events or results to differ from those anticipated, estimated or intended. However, there can be no assurance that forward looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Investors are cautioned that forward looking statements are not guarantees of future performance. Franco-Nevada cannot assure investors that actual results will be consistent with these forward looking statements and investors should not place undue reliance on forward looking statements due to the inherent uncertainty therein. For additional information with respect to risks, uncertainties and assumptions, please refer to the “Risk Factors” section of Franco-Nevada’s most recent Annual Information Form filed with the Canadian securities regulatory authorities on www.sedar.com and Franco-Nevada’s most recent Annual Report filed on Form 40-F filed with the SEC on www.sec.gov. The forward looking statements herein are made as of the date of this press release only and Franco-Nevada does not assume any obligation to update or revise them to reflect new information, estimates or opinions, future events or results or otherwise, except as required by applicable law.

5


 

NON-IFRS MEASURES:  Adjusted Net Income and Adjusted EBITDA are intended to provide additional information only and do not have any standardized meaning prescribed under IFRS and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.  These measures are not necessarily indicative of operating profit or cash flow from operations as determined under IFRS.  Other companies may calculate these measures differently. For a reconciliation of these measures to various IFRS measures, please see below or the Company’s current MD&A disclosure found on the Company’s website, on SEDAR and on EDGAR. Comparative information has been recalculated to conform to current presentation.

1

GEOs include our gold, silver, platinum, palladium and other mineral assets. GEOs are estimated on a gross basis for NSR royalties and, in the case of stream ounces, before the payment of the per ounce contractual price paid by the Company. For NPI royalties, GEOs are calculated taking into account the NPI economics. Platinum, palladium, silver and other minerals are converted to GEOs by dividing associated revenue, which includes settlement adjustments, by the relevant gold price. The gold price used in the computation of GEOs earned from a particular asset varies depending on the royalty or stream agreement, which may make reference to the market price realized by the operator, or the average for the month, quarter, or year in which the mineral was produced or sold. For Q1/2017, the average commodity prices were as follows: $1,219 gold (Q1/2016 - $1,181), $17.42 silver (Q1/2016 - $14.83), $981 platinum (Q1/2016 - $914) and $767 palladium (Q1/2016 - $524).

2

Adjusted EBITDA and Adjusted EBITDA per share are non-IFRS financial measures, which exclude the following from net income and EPS: income tax expense/recovery; finance expenses; finance income; depletion and depreciation; non-cash costs of sales; impairment charges related to royalty, stream and working interests and investments; gains/losses on sale of royalty interests; gains/losses on investments; and foreign exchange gains/losses and other income/expenses.

3

Adjusted Net Income and Adjusted Net Income per share are non-IFRS financial measures, which exclude the following from net income and earnings per share (“EPS”): foreign exchange gains/losses and other income/expenses; impairment charges related to royalty, stream and working interests and investments; gains/losses on sale of royalty interests;  gains/losses on investments; unusual non-recurring items; and the impact of income taxes on these items.

 

 

 

 

Reconciliations to IFRS measures

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

 

 

March 31, 

 

(expressed in millions, except per share amounts)

    

    

2017

    

2016

 

Net Income

 

 

$

45.6

 

$

30.0

 

Income tax expense

 

 

 

10.4

 

 

8.1

 

Finance expenses

 

 

 

0.8

 

 

1.3

 

Finance income

 

 

 

(0.9)

 

 

(1.1)

 

Depletion and depreciation

 

 

 

71.5

 

 

65.5

 

Non-cash costs of sales

 

 

 

1.8

 

 

1.8

 

Gain on investments

 

 

 

 —

 

 

(1.5)

 

Foreign exchange (gains)/losses and other (income)/expenses

 

 

 

(0.7)

 

 

0.3

 

Adjusted EBITDA

 

 

$

128.5

 

$

104.4

 

Basic weighted average shares outstanding

 

 

 

178.5

 

 

166.7

 

Adjusted EBITDA per share

 

 

$

0.72

 

$

0.63

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

March 31, 

 

(expressed in millions, except per share amounts)

    

2017

    

2016

 

Net Income

 

$

45.6

 

$

30.0

 

Foreign exchange (gains)/losses and other (income)/expenses

 

 

(0.7)

 

 

0.2

 

Gain on investments

 

 

 —

 

 

(1.5)

 

Tax effect of adjustments

 

 

(0.1)

 

 

(0.7)

 

Adjusted Net Income

 

$

44.8

 

$

28.0

 

Basic weighted average shares outstanding

 

 

178.5

 

 

166.7

 

Adjusted Net Income per share

 

$

0.25

 

$

0.17

 

 

6


 

FRANCO-NEVADA CORPORATION

 

 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 (unaudited, in millions of U.S. dollars)

 

 

 

 

 

 

 

 

 

 

 

 

At March 31, 

 

 

At December 31, 

 

 

    

2017

  

  

2016

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents (Note 4)

 

$

283.0

 

 

$

253.0

 

Receivables

 

 

69.1

 

 

 

71.1

 

Prepaid expenses and other (Note 6)

 

 

36.0

 

 

 

37.1

 

Current assets

 

 

388.1

 

 

 

361.2

 

 

 

 

 

 

 

 

 

 

Royalty, stream and working interests, net (Note 3)

 

 

3,665.4

 

 

 

3,668.3

 

Investments (Note 5)

 

 

150.6

 

 

 

147.4

 

Deferred income tax assets

 

 

21.9

 

 

 

21.3

 

Other assets (Note 7)

 

 

21.8

 

 

 

23.4

 

Total assets

 

$

4,247.8

 

 

$

4,221.6

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

16.8

 

 

$

21.0

 

Current income tax liabilities

 

 

15.1

 

 

 

16.6

 

Current liabilities

 

 

31.9

 

 

 

37.6

 

 

 

 

 

 

 

 

 

 

Deferred income tax liabilities

 

 

41.0

 

 

 

37.5

 

Total liabilities

 

 

72.9

 

 

 

75.1

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY (Note 14)

 

 

 

 

 

 

 

 

Common shares

 

 

4,675.6

 

 

 

4,666.2

 

Contributed surplus

 

 

43.2

 

 

 

41.6

 

Deficit

 

 

(330.6)

 

 

 

(336.8)

 

Accumulated other comprehensive loss

 

 

(213.3)

 

 

 

(224.5)

 

Total shareholders’ equity

 

 

4,174.9

 

 

 

4,146.5

 

Total liabilities and shareholders’ equity

 

$

4,247.8

 

 

$

4,221.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subsequent events (Note 17)

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements and can be found in our Q1/2017 Report available on our website

 

7


 

FRANCO-NEVADA CORPORATION

 

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

 (unaudited, in millions of U.S. dollars, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

 

March 31, 

 

 

    

 

2017

  

  

2016

 

Revenue (Note 10)

 

 

$

172.7

 

 

$

132.0

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

 

 

 

 

 

 

 

Costs of sales (Note 11)

 

 

 

39.9

 

 

 

24.4

 

Depletion and depreciation

 

 

 

71.5

 

 

 

65.5

 

Total cost of sales

 

 

 

111.4

 

 

 

89.9

 

Gross profit

 

 

 

61.3

 

 

 

42.1

 

 

 

 

 

 

 

 

 

 

 

Other operating expenses (income)

 

 

 

 

 

 

 

 

 

Corporate administration

 

 

 

5.3

 

 

 

5.4

 

Business development

 

 

 

0.8

 

 

 

0.3

 

(Gain) on sale of gold bullion (Note 16)

 

 

 

 —

 

 

 

(0.6)

 

Total other operating expenses

 

 

 

6.1

 

 

 

5.1

 

Operating income (Note 16)

 

 

 

55.2

 

 

 

37.0

 

Foreign exchange gain (loss) and other income (expenses) (Note 16)

 

 

 

0.7

 

 

 

(0.2)

 

Realized gain on investments

 

 

 

 —

 

 

 

1.5

 

Income before finance items and income taxes

 

 

 

55.9

 

 

 

38.3

 

 

 

 

 

 

 

 

 

 

 

Finance items

 

 

 

 

 

 

 

 

 

Finance income

 

 

 

0.9

 

 

 

1.1

 

Finance expenses (Note 9)

 

 

 

(0.8)

 

 

 

(1.3)

 

Net income before income taxes

 

 

 

56.0

 

 

 

38.1

 

 

 

 

 

 

 

 

 

 

 

Income tax expense (Note 13)

 

 

 

10.4

 

 

 

8.1

 

Net income

 

 

$

45.6

 

 

$

30.0

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Items that may be reclassified subsequently to profit and loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) in the market value of available-for-sale investments, net of income tax expense of $0.2 (2016 - income tax expense of $0.2) (Note 5)

 

 

 

1.5

 

 

 

15.8

 

Realized change in market value of available-for-sale investments (Note 5)

 

 

 

 —

 

 

 

(1.5)

 

Currency translation adjustment

 

 

 

9.7

 

 

 

49.5

 

Other comprehensive income

 

 

 

11.2

 

 

 

63.8

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income

 

 

$

56.8

 

 

$

93.8

 

Basic earnings per share (Note 15)

 

 

$

0.26

 

 

$

0.18

 

Diluted earnings per share (Note 15)

 

 

$

0.25

 

 

$

0.18

 

 

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements and can be found in our Q1/2017 Report available on our website

8


 

FRANCO-NEVADA CORPORATION

 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 (unaudited, in millions of U.S. dollars)

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

 

March 31, 

 

  

2017

  

  

2016

  

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

45.6

 

 

$

30.0

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depletion and depreciation

 

 

71.5

 

 

 

65.5

 

Non-cash costs of sales

 

 

1.8

 

 

 

1.8

 

Share-based payments

 

 

1.5

 

 

 

1.3

 

Unrealized foreign exchange (gain) loss

 

 

(0.4)

 

 

 

0.2

 

Gain on investments

 

 

 —

 

 

 

(1.5)

 

Deferred income tax expense

 

 

2.6

 

 

 

2.6

 

Other non-cash items

 

 

(0.4)

 

 

 

(0.5)

 

Acquisition of gold bullion (Note 16)

 

 

(5.9)

 

 

 

(15.8)

 

Proceeds from sale of gold bullion (Note 16)

 

 

3.1

 

 

 

24.9

 

Operating cash flows before changes in non-cash working capital

 

 

119.4

 

 

 

108.5

 

Changes in non-cash working capital:

 

 

 

 

 

 

 

 

Decrease in receivables

 

 

2.0

 

 

 

15.2

 

Decrease in prepaid expenses and other

 

 

4.1

 

 

 

1.2

 

Decrease in current liabilities

 

 

(5.7)

 

 

 

(0.9)

 

Net cash provided by operating activities (Note 16)

 

 

119.8

 

 

 

124.0

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Acquisition of royalty, stream and working interests

 

 

(61.5)

 

 

 

(516.1)

 

Acquisition of oil & gas well equipment

 

 

(0.4)

 

 

 

(0.7)

 

Proceeds from sale of investments

 

 

 —

 

 

 

10.6

 

Acquisition of investments

 

 

 —

 

 

 

(0.7)

 

Net cash used in investing activities (Note 16)

 

 

(61.9)

 

 

 

(506.9)

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Net proceeds from issuance of common shares

 

 

 —

 

 

 

883.5

 

Repayment of Credit Facility

 

 

 —

 

 

 

(460.0)

 

Credit facility amendment costs

 

 

(1.0)

 

 

 

 —

 

Payment of dividends

 

 

(30.1)

 

 

 

(28.3)

 

Proceeds from exercise of stock options and warrants

 

 

0.1

 

 

 

10.2

 

Net cash (used in) provided by financing activities

 

 

(31.0)

 

 

 

405.4

 

Effect of exchange rate changes on cash and cash equivalents

 

 

3.1

 

 

 

4.6

 

Net change in cash and cash equivalents

 

 

30.0

 

 

 

27.1

 

Cash and cash equivalents at beginning of period

 

 

253.0

 

 

 

149.2

 

Cash and cash equivalents at end of period

 

$

283.0

 

 

$

176.3

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest expense and loan standby fees

 

$

0.6

 

 

$

1.2

 

Income taxes paid

 

$

10.1

 

 

$

5.5

 

 

 

The accompanying notes are an integral part of these condensed consolidated interim financial statements and can be found in our Q1/2017 Report available on our website

 

9


EX-99.2 3 ex-99d2.htm EX-99.2 fnv_Ex99_2

 

Exhibit 99.2

 

 

Picture 4

 

 

 

 


 

 

 

 

MANAGEMENT’S DISCUSSION AND ANALYSIS

This Management’s Discussion and Analysis (“MD&A”) of financial position and results of operations of Franco-Nevada Corporation (“Franco-Nevada”, the “Company”, “we” or “our”) has been prepared based upon information available to Franco-Nevada as at May 9, 2017 and should be read in conjunction with Franco-Nevada’s unaudited condensed consolidated interim financial statements and related notes as at and for the three months ended March 31, 2017 and 2016.  The unaudited condensed consolidated interim financial statements and MD&A are presented in U.S. dollars and have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) applicable to the preparation of interim financial statements in accordance with IAS 34 Interim Financial Reporting.  

Readers are cautioned that the MD&A contains forward-looking statements and that actual events may vary from management’s expectations. Readers are encouraged to read the “Cautionary Statement on Forward-Looking Information” at the end of this MD&A and to consult Franco-Nevada’s audited consolidated financial statements for the years ended December 31, 2016 and 2015 and the corresponding notes to the financial statements which are available on our website at www.franco-nevada.com, on SEDAR at www.sedar.com and in our most recent Form 40-F filed with the Securities and Exchange Commission on EDGAR at www.sec.gov.

Additional information related to Franco-Nevada, including our Annual Information Form, is available on SEDAR at www.sedar.com, and our Form 40-F is available on EDGAR at www.sec.gov. These documents contain descriptions of certain of Franco-Nevada’s producing and advanced royalty and stream assets, as well as a description of risk factors affecting the Company.  For additional information, our website can be found at www.franco-nevada.com.

 

 

 

 

2

2017 First Quarter Management’s Discussion and Analysis

FNV TSX NYSE

 


 

 

TABLE OF CONTENTS 

 

 

Abbreviations used in this report

The following abbreviations may be used throughout this MD&A:

 

 

 

 

 

Abbreviated Definitions

 

 

 

 

 

 

 

 

Periods under review

 

 

 

"Q1/2017"

The three-month period ended March 31, 2017

"Q4/2016"

The three-month period ended December 31, 2016

"Q3/2016"

The three-month period ended September 30, 2016

"Q2/2016"

The three-month period ended June 30, 2016

"Q1/2016"

The three-month period ended March 31, 2016

 

 

 

 

 

Places and currencies

 

Measurement

"U.S."

United States

 

"GEO"

Gold equivalent ounces

"$" or "USD"

United States dollars

 

"oz"

Ounce

"C$" or "CAD"

Canadian dollars

 

"oz Au"

Ounce of gold

 

 

 

"oz Ag"

Ounce of silver

Interest types

 

"oz Pt"

Ounce of platinum

"NSR"

Net smelter return royalty

 

"oz Pd"

Ounce of palladium

"GR"

Gross royalty

 

"LBMA"

London Bullion Market Association

"ORR"

Overriding royalty

 

"bbl"

Barrel

"GORR"

Gross overriding royalty

 

"boe"

Barrels of oil equivalent

"FH"

Freehold or lessor royalty

 

"WTI"

West Texas Intermediate oil

"NPI"

Net profits interest

 

 

 

"NRI"

Net royalty interest

 

 

 

"WI"

Working interest

 

 

 

 

 

 

 

 

 

 

 

The Gold Investment that WORKS

Franco-Nevada Corporation

Star_New

3

 


 

 

BUSINESS OVERVIEW AND STRATEGY

Franco-Nevada is the leading gold-focused royalty and stream company by both gold revenue and number of gold assets. The Company has the largest and most diversified portfolio of royalties and streams by commodity, geography, revenue type and stage of project.  The portfolio is actively managed with the aim to maintain over 80% of revenue from precious metals (gold, silver & PGM). 

 

 

 

 

 

 

 

 

 

 

Franco-Nevada Asset Count at May 9, 2017

 

    

Precious Metals

    

Other Minerals

    

Oil & Gas

 

        

TOTAL

Producing

 

41

 

 5

 

61

(1)

 

107

Advanced

 

34

 

 7

 

 —

 

 

41

Exploration

 

135

 

37

 

19

 

 

191

TOTAL

 

210

 

49

 

80

 

 

339

(1)

Includes acquisition of Midland Basin royalties expected to close by June 30, 2017.

The Company does not operate mines, develop projects or conduct exploration.  Franco-Nevada’s business model is focused on managing and growing its portfolio of royalties and streams. The advantages of this business model are:

·

Exposure to precious metals price optionality;

·

A perpetual discovery option over large areas of geologically prospective lands with no additional cost other than the initial investment;

·

Limited exposure to many of the risks associated with operating companies; 

·

A free cash-flow business with limited cash calls;

·

A high-margin business that can generate cash through the entire commodity cycle;

·

A scalable and diversified business in which a large number of assets can be managed with a small stable overhead; and

·

A forward-looking business in which management focuses on growth opportunities rather than operational or development issues.

Franco-Nevada’s financial results in the short-term are primarily tied to the price of commodities and the amount of production from its portfolio of producing assets. Financial results have also been supplemented by acquisitions of new producing assets.  Over the longer-term, results are impacted by the availability of exploration and development capital applied by other companies to expand or extend Franco-Nevada’s producing assets or to advance Franco-Nevada’s advanced and exploration assets into production.

Franco-Nevada has a long-term investment outlook and recognizes the cyclical nature of the industry.  Franco-Nevada has historically operated by maintaining a strong balance sheet so that it can make investments during commodity cycle downturns.

Franco-Nevada’s shares are listed on the Toronto and New York stock exchanges under the symbol FNV.  An investment in Franco-Nevada’s shares is expected to provide investors with yield and exposure to gold price and exploration optionality while limiting exposure to many of the risks of operating companies. Since its Initial Public Offering (“IPO”) over nine years ago, Franco-Nevada has increased its dividend annually and its share price has outperformed the gold price and all relevant gold equity benchmarks.

Franco-Nevada’s revenue is generated from various forms of agreements, ranging from net smelter return royalties, streams, net profits interests, net royalty interests, working interests and other. For definitions of the various types of agreements, please refer to our most recent Annual Information Form filed on SEDAR at www.sedar.com or our Form 40-F filed on EDGAR at www.sec.gov.  

 

 

 

 

4

2017 First Quarter Management’s Discussion and Analysis

FNV TSX NYSE

 


 

Picture 1 

Highlights

Financial Update – Q1/2017

·

131,578 GEOs(1) recognized in revenue in Q1/2017, an increase of 23.4% from  106,621 GEOs in Q1/2016;

·

$172.7 million in revenue, an increase of 30.8% from revenue of $132.0 million in Q1/2016;

·

$128.5 million, or $0.72 per share, of Adjusted EBITDA(2), (3) in Q1/2017, an increase of 23.1% from $104.4 million or $0.63 per share, in Q1/2016;

·

74.4% in Margin(2), (3), compared to 79.1% in Q1/2016;

·

$45.6 million, or $0.26 per share, in net income for Q1/2017,  an increase of 52.0% compared to $30.0 million, or $0.18 per share, in Q1/2016;

·

$44.8 million, or $0.25 per share, in Adjusted Net Income(2), (3) in Q1/2017, an increase of 60.0% compared to $28.0 million, or $0.17 per share, in Q1/2016;  

·

$119.8 million in net cash provided by operating activities(3) in Q1/2017, a decrease of 3.4% compared to $124.0 million in Q1/2016;  and

·

$1.6 billion in available capital at March 31, 2017, comprising of $356.2 million of working capital, $117.3 million in marketable equity securities, and $1.1 billion available under the Company’s credit facilities. Of this, $99.0 million will be used to fund the remainder of the Company’s acquisition of oil & gas royalty interests in the Midland Basin which is expected to close by June 30, 2017. Further, subsequent to March 31, 2017, Franco-Nevada received proceeds of C$157.6 million from the exercise of 2,100,718 common share purchase warrants at an exercise price of C$75.00 per warrant. As of the date of this report, there remained 4,407,675 warrants outstanding.  

 

(1)GEOs include our gold, silver, platinum, palladium and other mineral assets, and do not include Oil & Gas assets. GEOs are estimated on a gross basis for NSR royalties and, in the case of stream ounces, before the payment of the per ounce contractual price paid by the Company. For NPI royalties, GEOs are calculated taking into account the NPI economics. Silver, platinum, palladium and other minerals are converted to GEOs by dividing associated revenue, which includes settlement adjustments, by the relevant gold price. The gold price used in the computation of GEOs earned from a particular asset varies depending on the royalty or stream agreement, which may make reference to the market price realized by the operator, or the average for the month, quarter, or year in which the mineral was produced or sold. For illustrative purposes, please refer to average commodity price tables on page 10 of this MD&A for indicative prices which may be used in the calculation of GEOs.    

(2)Adjusted Net Income, Adjusted EBITDA and Margin are non-IFRS financial measures with no standardized meaning under IFRS. For further information and a detailed reconciliation, please see the “Non-IFRS Financial Measures” section of this MD&A.

(3)In Q3/2016, the Company adopted a retrospective change in accounting policy with respect to its classification of proceeds from sales of gold bullion in its statement of cash flows and statement of income and comprehensive income. For further information, refer to Note 16 of the condensed consolidated financial statements for the three months ended March 31, 2017. The Company’s non-IFRS measures, as defined in the “Non-IFRS Financial Measures” section of this MD&A, were also adjusted accordingly to reflect gains/losses on sales of such gold bullion as an operating activity that is part of the Company’s underlying operating business. Comparative information has been adjusted to conform to current presentation.

 

 

 

 

 

The Gold Investment that WORKS

Franco-Nevada Corporation

Star_New

5

 


 

Corporate Development

Acquisition of U.S. Oil & Gas Royalties – Midland Basin

On March 13, 2017, Franco-Nevada, through a wholly-owned U.S. subsidiary, agreed to purchase a package of royalty rights in the Midland Basin of West Texas for a price of $110.0 million. The Midland Basin forms the eastern portion of the broader Permian Basin and represents one of the most active and profitable oil plays in North America.  The royalties consist of approximately 97% mineral title rights, along with some GORRs, which apply to approximately 908 acres (net after royalties) that, with pooling, provides exposure to an estimated gross acreage of 675,000 acres (a significant portion of the overall Midland Basin) at an estimated average royalty rate of 0.14%.  The royalties are subject to a diverse operator base, which is anchored by Pioneer Natural Resources.  Royalty revenue is expected to grow in future years as horizontal drilling activity in the area continues to ramp up. The transaction is expected to close in the second quarter of 2017.

Funding of Cobre Panama

The Company funded an additional $50.2 million towards the Cobre Panama precious metals stream in Q1/2017. As at March 31, 2017, the Company has funded a  cumulative total of  $512.4 million of its $1 billion maximum commitment. First Quantum Minerals Ltd. (“First Quantum”) expects total capital expenditures of $1,060 million in 2017. According to First Quantum, capital expenditure for the first quarter of 2017 was $243 million, and the project was just over 50% complete. 

Financing

On March 22, 2017, the Company extended the maturity of its existing $1 billion credit facility, from November 12, 2020 to March 22, 2022.

On  March 20, 2017, Franco-Nevada’s subsidiary, Franco-Nevada (Barbados) Corporation (“FNBC”), entered into an unsecured revolving credit facility (the “FNBC Credit Facility”). The FNBC Credit Facility provides for the availability over a one-year period of up to $100.0 million in borrowings. Refer to “Liquidity and Capital Resources” for details.  

Dividend Increase

Franco-Nevada is pleased to declare a quarterly dividend of $0.23 per share. The dividend is a 4.5% increase from the previous $0.22 per share quarterly dividend and marks the tenth consecutive annual dividend increase for Franco-Nevada shareholders.

 

GUIDANCE

The following contains forward-looking statements. Reference should be made to the “Cautionary Statement on Forward-Looking Information” section at the end of this MD&A. For a description of material factors that could cause our actual results to differ materially from the forward-looking statements below, please see the Cautionary Statement and the “Risk Factors” section of our most recent Annual Information Form filed with the Canadian securities regulatory authorities on www.sedar.com and our most recent Form 40-F filed with the Securities and Exchange Commission on EDGAR at www.sec.gov. 2017 guidance is based on assumptions including the forecasted state of operations from our assets based on the public statements and other disclosures by the third-party owners and operators of the underlying properties (subject to our assessment thereof).

With a strong performance in Q1/2017, Franco-Nevada is on-track to meet its previously announced guidance. 

 

 

 

 

 

 

 

 

 

 

 

 

    

Q1/2017 Actual

    

    

2017 Guidance

    

    

2016 Actual

Mineral assets - GEO production(1),(2)

 

 

131,578 GEOs

 

 

470,000 - 500,000 GEOs

 

 

464,383 GEOs

Oil & Gas assets - Revenue(3)

 

 

$10.9 million

 

 

$35.0 million - $45.0 million

 

 

$30.1 million

(1)Of the 470,000 to 500,000 GEOs, Franco-Nevada expects to receive 335,000 to 345,000 GEOs under its various stream agreements. For the three months ended March 31, 2017, the Company has earned 94,225 GEOs from its stream agreements.

(2)In forecasting GEOs for 2017, gold, silver, platinum and palladium metals have been converted to GEOs using commodity prices of $1,200/oz Au, $17.50/oz Ag, $950/oz Pt and $750/oz Pd. 

(3)In forecasting revenue from Oil & Gas assets for 2017, the WTI oil price is assumed to average $50 per barrel with a $3.50 per barrel price differential between the Edmonton Light and realized prices for Canadian oil.

We expect to fund approximately $200.0 million to $220.0 million towards the Cobre Panama precious metals stream in 2017. In Q1/2017, the Company funded $50.2 million, for a cumulative total of $512.4 million of its $1 billion maximum commitment.

In addition, the Company estimated depletion and depreciation expense to be $265.0 million to $295.0 million for 2017. For the three months ended March 31, 2017, depletion and depreciation expense totaled $71.5 million.

Franco-Nevada strives to generate 80% of revenue from precious metals over a long-term horizon which includes gold, silver and PGMs. In the short-term, we may diverge from the long-term target based on opportunities available. With 91.5% of revenue earned from precious metals in Q1/2017, the Company has the flexibility to consider diversification opportunities outside of the precious metals space and increase its exposure to other commodities. 

 

 

 

 

6

2017 First Quarter Management’s Discussion and Analysis

FNV TSX NYSE

 


 

Picture 10

MARKET OVERVIEW

The prices of precious metals are the largest factors in determining profitability and cash-flow from operations for Franco-Nevada. Historically, the price of gold has been subject to volatile price movements and is affected by numerous macroeconomic and industry factors that are beyond the Company’s control. Major influences on the gold price include macroeconomic factors such as the level of interest rates, inflation expectations, currency exchange rate fluctuations including the relative strength of the U.S. dollar, and the supply of and demand for gold.

The gold price performed well in the first quarter of 2017, somewhat reversing most of the losses it had incurred in the last quarter of 2016. As was widely anticipated, in March 2017, the U.S. Federal Reserve increased its benchmark interest rate for a second time in three months. There continues to be significant uncertainty as several elections take place in Europe, including an unexpected election in the U.K., and the current U.S. administration continues to implement its various economic initiatives including potential tax cuts and renegotiations of trade agreements. 

Overall, the gold price ended Q1/2017 at $1,245/oz, approximately 8.6% higher than at the end of Q4/2016. During Q1/2017, gold prices traded between $1,151/oz and $1,284/oz with an average price of $1,219/oz. This represents an increase of 3.2% compared to the Q1/2016 average gold price of $1,181/oz, while remaining relatively consistent with the average price of  $1,218/oz for Q4/2016. 

The price of silver ended Q1/2017 at $18.06/oz, 11.2% higher than at the end of Q4/2016. Silver prices averaged $17.42/oz in Q1/2017, compared to $14.83/oz in Q1/2016, an increase of 17.5%. As for platinum and palladium, the price per ounce at the end of Q1/2017 was $940/oz and $798/oz, respectively, increases of 4.7% and 19.1%, respectively, when compared to prices at the end of Q4/2016. Average prices for the quarter were $981/oz and $767/oz, for platinum and palladium respectively, compared to $914/oz and $524/oz, for Q1/2016, increases of 7.3% and 46.4% year-over-year, respectively. 

Commodity price volatility also impacts the number of GEOs contributed by non-gold mineral assets when converting silver, platinum, palladium and other minerals to GEOs. Silver, platinum, palladium and other minerals are converted to GEOs by dividing associated revenue, which includes settlement adjustments, by the relevant gold price. The gold price used in the computation of GEOs earned from a particular asset varies depending on the royalty or stream agreement, which may make reference to the market price realized by the operator, or the average for the month, quarter, or year in which the mineral was produced or sold.  

Despite the volatile commodity prices, the Company continued to deliver strong results and significant increases in GEOs compared to Q1/2016, reflecting the performance of our mineral assets.  One of the strengths of the Franco-Nevada business model is that our business is not impacted when producer costs increase as long as the producer continues to operate. Royalty and stream payments/deliveries are based on production levels of the underlying operations with no adjustments for the operator’s operating costs, with the exception of NPI and NRI royalties, which are based on the profit of the underlying mining operation. Profit-based royalties accounted for approximately 5.2% of total revenues in Q1/2017.

 

 

 

 

 

The Gold Investment that WORKS

Franco-Nevada Corporation

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SELECTED FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

 

 

 

    

 

For the three months ended

 

(in millions, except Average Gold Price,

 

 

March 31, 

 

GEOs, Margin and per share amounts)

    

  

2017

  

  

2016

 

 

 

  

 

 

 

  

 

 

 

Statistical Measures

 

 

 

 

 

 

 

 

 

Average Gold Price

 

 

$

1,219

 

 

$

1,181

 

GEOs sold(1)

 

 

 

131,578

 

 

 

106,621

 

 

 

 

 

 

 

 

 

 

 

Statement of Income and Other Comprehensive Income

 

 

 

 

 

 

 

 

 

Revenue

 

 

$

172.7

 

 

$

132.0

 

Depletion and depreciation

 

 

 

71.5

 

 

 

65.5

 

Cost of sales

 

 

 

39.9

 

 

 

24.4

 

Operating income(2)

 

 

 

55.2

 

 

 

37.0

 

Net income

 

 

 

45.6

 

 

 

30.0

 

Basic earnings per share

 

 

$

0.26

 

 

$

0.18

 

Diluted earnings per share

 

 

$

0.25

 

 

$

0.18

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per share

 

 

$

0.22

 

 

$

0.21

 

Dividends declared (including DRIP)

 

 

$

39.4

 

 

$

38.5

 

Weighted average shares outstanding

 

 

 

178.5

 

 

 

166.8

 

 

 

 

 

 

 

 

 

 

 

Non-IFRS Measures

 

 

 

 

 

 

 

 

 

Adjusted EBITDA(2),(3)

 

 

$

128.5

 

 

$

104.4

 

Adjusted EBITDA(2),(3) per share

 

 

$

0.72

 

 

$

0.63

 

Margin(2),(3)

 

 

 

74.4

%

 

 

79.1

%

Adjusted Net Income(2),(3)

 

 

$

44.8

 

 

$

28.0

 

Adjusted Net Income(2),(3) per share

 

 

$

0.25

 

 

$

0.17

 

 

 

 

 

 

 

 

 

 

 

Statement of Cash Flows

 

 

 

 

 

 

 

 

 

Net cash provided by operating activities(2)

 

 

$

119.8

 

 

$

124.0

 

Net cash used in investing activities(2)

 

 

$

(61.9)

 

 

$

(506.9)

 

Net cash (used in) provided by financing activities