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

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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

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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

 

 

$

(31.0)

 

 

$

405.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at

 

 

As at

 

 

 

 

March 31, 

 

 

December 31, 

 

 

    

  

2017

    

  

2016

 

Statement of Financial Position

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

$

283.0

 

 

$

253.0

 

Total assets

 

 

 

4,247.8

 

 

 

4,221.6

 

Deferred income tax liabilities

 

 

 

41.0

 

 

 

37.5

 

Total shareholders’ equity

 

 

 

4,174.9

 

 

 

4,146.5

 

Working capital

 

 

 

356.2

 

 

 

323.6

 

(1)

Refer to Note 1 at the bottom of page 5 of this MD&A for the methodology for calculating GEOs, and, for illustrative purposes, to the average commodity price table on page 10 of this MD&A for indicative prices which may be used in the calculations of GEOs.

(2)

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 business. Comparative information has been adjusted to conform to current presentation.

(3)

Adjusted EBITDA, Margin and Adjusted Net Income 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.  

 

 

 

 

8

2017 First Quarter Management’s Discussion and Analysis

FNV TSX NYSE

 


 

REVENUE BY ASSET

Our portfolio is well-diversified with GEOs and revenue being earned from 46 mineral assets and 60 oil & gas interests in various jurisdictions (not including the acquisition of Midland Basin royalties, which is expected to close by June 30, 2017). The following table details revenue earned from our various royalty, stream and working interests for the three months ended March 31, 2017 and 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

(expressed in millions)

 

 

 

 

March 31,

 

Property

    

Interest

    

 

2017

    

 

2016

 

PRECIOUS METALS

 

 

 

  

 

 

 

  

 

 

 

United States

 

 

 

 

 

 

 

 

 

 

 

Goldstrike

 

NSR 2-4%, NPI 2.4-6%

 

 

$

3.6

 

 

$

5.8

 

Stillwater

 

NSR 5%

 

 

 

5.7

 

 

 

3.2

 

Gold Quarry

 

NSR 7.29%

 

 

 

2.3

 

 

 

2.9

 

Marigold

 

NSR 1.75-5%, GR 0.5-4%

 

 

 

2.7

 

 

 

1.6

 

Fire Creek/Midas

 

Fixed to 2018 / NSR 2.5%

 

 

 

2.4

 

 

 

2.4

 

Bald Mountain

 

NSR/GR 0.875-5%

 

 

 

1.1

 

 

 

0.3

 

South Arturo

 

GR  4-9%

 

 

 

5.3

 

 

 

0.1

 

Other

 

 

 

 

 

0.6

 

 

 

0.5

 

Canada

 

 

 

 

 

 

 

 

 

 

 

Sudbury

 

Stream 50%

 

 

 

6.5

 

 

$

5.8

 

Detour Lake

 

NSR 2%

 

 

 

3.2

 

 

 

3.0

 

Golden Highway

 

NSR 2-15%

 

 

 

2.1

 

 

 

2.2

 

Musselwhite

 

NPI 5%

 

 

 

0.9

 

 

 

1.0

 

Hemlo

 

NSR 3%, NPI 50%

 

 

 

1.0

 

 

 

1.8

 

Kirkland Lake(1)

 

NSR 1.5-5.5%, NPI 20%

 

 

 

1.1

 

 

 

1.2

 

Timmins West

 

NSR 2.25%

 

 

 

0.9

 

 

 

0.8

 

Canadian Malartic

 

GR 1.5%

 

 

 

0.4

 

 

 

0.2

 

Other

 

 

 

 

 

 —

 

 

 

 —

 

Latin America

 

 

 

 

 

 

 

 

 

 

 

Antapaccay

 

Stream (indexed)

 

 

$

18.5

 

 

$

11.2

 

Antamina

 

Stream 22.5%

 

 

 

16.3

 

 

 

21.0

 

Candelaria

 

Stream 68%

 

 

 

27.6

 

 

 

22.0

 

Guadalupe-Palmarejo(2)

 

Stream 50%

 

 

 

23.7

 

 

 

14.8

 

Other

 

 

 

 

 

0.6

 

 

 

0.8

 

Rest of World

 

 

 

 

 

 

 

 

 

 

 

MWS

 

Stream 25%

 

 

$

8.6

 

 

$

7.1

 

Sabodala

 

Stream 6%, Fixed to 2019

 

 

 

9.1

 

 

 

6.7

 

Subika

 

NSR 2%

 

 

 

2.0

 

 

 

1.0

 

Tasiast

 

NSR 2%

 

 

 

1.7

 

 

 

1.5

 

Karma

 

Stream 4.875%, Fixed to 75koz

 

 

 

6.0

 

 

 

1.5

 

Duketon

 

NSR 2%

 

 

 

1.5

 

 

 

1.7

 

Edikan

 

NSR 1.5%

 

 

 

0.9

 

 

 

0.9

 

Other

 

 

 

 

 

1.7

 

 

 

3.0

 

 

 

 

 

 

$

158.0

 

 

$

126.0

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Minerals

 

 

 

 

$

3.8

 

 

$

2.4

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil & Gas

 

 

 

 

 

 

 

 

 

 

 

Weyburn

 

NRI 11.71%, ORR 0.44%, WI 2.56%

 

 

$

8.3

 

 

$

2.3

 

Midale

 

ORR 1.14%, WI 1.59%

 

 

 

0.4

 

 

 

0.3

 

Edson

 

ORR 15%

 

 

 

0.6

 

 

 

0.3

 

STACK

 

Effective Royalty Rate 1.61%

 

 

 

0.6

 

 

 

 —

 

Other

 

 

 

 

 

1.0

 

 

 

0.7

 

 

 

 

 

 

$

10.9

 

 

$

3.6

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

$

172.7

 

 

$

132.0

 

(1)

In October 2016, the overlying NSR on the Kirkland Lake Gold properties was reduced from 2.5% to 1.5% pursuant to Kirkland Lake’s buy-back of 1% of the NSR.

(2)

In July 2016, Coeur met its obligation to deliver 400,000 ounces under the Palmarejo agreement. Deliveries under the new Guadalupe agreement commenced in Q3/2016. 

 

 

 

 

 

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Overview of Financial Performance – Q1/2017 to Q1/2016 

The prices of precious metals, oil and gas and the actual production from mineral and oil & gas assets are the largest factors in determining profitability and cash flow from operations for Franco-Nevada. The following table summarizes average commodity prices and average exchange rates during the periods presented.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

QOQ

 

YOY

Quarterly average prices and rates

    

 

  

  

Q1/2017

  

  

Q4/2016

    

Q1/2016

    

(Q1/17-Q4/16)

    

(Q1/17-Q1/16)

Gold(1)

 

($/oz)

 

 

$

1,219

 

 

$

1,218

 

$

1,181

 

0.1

 %

 

3.2

%  

Silver(2)

 

($/oz)

 

 

 

17.42

 

 

 

17.18

 

 

14.83

 

1.4

 %

 

17.5

%  

Platinum(3)

 

($/oz)

 

 

 

981

 

 

 

944

 

 

914

 

3.9

 %

 

7.3

%  

Palladium(3)

 

($/oz)

 

 

 

767

 

 

 

684

 

 

524

 

12.1

 %

 

46.4

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Edmonton Light

 

(C$/bbl)

 

 

 

64.82

 

 

 

60.70

 

 

41.17

 

6.8

 %

 

57.4

%  

Quality Differential

 

(C$/bbl)

 

 

 

(7.59)

 

 

 

(5.83)

 

 

(8.86)

 

30.2

 %

 

(14.3)

%  

Realized oil price

 

(C$/bbl)

 

 

 

57.23

 

 

 

54.87

 

 

32.31

 

4.3

 %

 

77.1

%  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CAD/USD exchange rate(4)

 

 

 

 

 

0.7555

 

 

 

0.7496

 

 

0.7282

 

0.8

 %

 

3.7

%  

(1)

Based on LBMA Gold Price PM Fix.

(2)

Based on LBMA Silver Price.

(3)

Based on London PM Fix.

(4)

Based on Bank of Canada noon rates.

 

Revenue and Gold Equivalent Ounces

Revenue for Q1/2017 was $172.7 million compared with $132.0 million for Q1/2016, an increase of 30.8%.  The increase year‑over-year is due to the increase of GEOs sold of 131,578 GEOs in Q1/2017,  an increase of 23.4%  from 106,621  GEOs sold in Q1/2016, coupled with higher average precious metals prices. Of this $172.7 million in revenue, precious metals revenue comprised 91.5%, compared to 95.4% in Q1/2016, while revenue from the Americas was 81.0%, compared to 81.5% in Q1/2016. The proportion of revenue earned from precious metals assets decreased year-over-year as a result of higher oil & gas revenues which benefitted from higher prices, higher production levels, and lower capital expenditures, as well as the addition of the STACK portfolio of royalties in Q4/2016.

Picture 15

 

     

 

 

 

 

10

2017 First Quarter Management’s Discussion and Analysis

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The following table outlines GEOs and revenue attributable to Franco-Nevada for the three months ended March 31, 2017 and 2016 by commodity, geographical location and type of interest: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gold Equivalent Ounces(1)

 

 

Revenue (in millions)

 

For the three months ended March 31, 

  

  

2017

  

  

2016

    

Variance

  

  

2017

  

  

2016

    

Variance

 

Commodity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Precious Metals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gold

 

 

100,540

 

 

76,753

 

23,787

 

 

$

122.9

 

 

$

91.5

 

$

31.4

 

Silver

 

 

19,746

 

 

22,627

 

(2,881)

 

 

 

24.4

 

 

 

26.8

 

 

(2.4)

 

PGM

 

 

8,224

 

 

5,196

 

3,028

 

 

 

10.7

 

 

 

7.6

 

 

3.1

 

Precious Metals - Total

 

 

128,510

 

 

104,576

 

23,934

 

 

 

158.0

 

 

 

125.9

 

 

32.1

 

Other Minerals

 

 

3,068

 

 

2,045

 

1,023

 

 

 

3.8

 

 

 

2.5

 

 

1.3

 

Oil & Gas

 

 

 -

 

 

 -

 

 -

 

 

 

10.9

 

 

 

3.6

 

 

7.3

 

 

 

 

131,578

 

 

106,621

 

24,957

 

 

$

172.7

 

 

$

132.0

 

$

40.7

 

Geography

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

19,634

 

 

14,275

 

5,359

 

 

$

24.0

 

 

$

16.9

 

$

7.1

 

Canada

 

 

14,601

 

 

13,284

 

1,317

 

 

 

29.2

 

 

 

20.9

 

 

8.3

 

Latin America

 

 

70,429

 

 

58,510

 

11,919

 

 

 

86.7

 

 

 

69.8

 

 

16.9

 

Rest of World

 

 

26,914

 

 

20,552

 

6,362

 

 

 

32.8

 

 

 

24.4

 

 

8.4

 

 

 

 

131,578

 

 

106,621

 

24,957

 

 

$

172.7

 

 

$

132.0

 

$

40.7

 

Type

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue-based

 

 

25,914

 

 

23,145

 

2,769

 

 

$

34.1

 

 

$

28.7

 

$

5.4

 

Streams

 

 

94,225

 

 

75,294

 

18,931

 

 

 

116.3

 

 

 

91.4

 

 

24.9

 

Profit-based

 

 

2,809

 

 

4,666

 

(1,857)

 

 

 

8.9

 

 

 

6.3

 

 

2.6

 

Other

 

 

8,630

 

 

3,516

 

5,114

 

 

 

13.4

 

 

 

5.6

 

 

7.8

 

 

 

 

131,578

 

 

106,621

 

24,957

 

 

$

172.7

 

 

$

132.0

 

$

40.7

 

(1)

Refer to Note 1 at the bottom of page 5 of this MD&A for the methodology for calculating GEOs, and, for illustrative purposes, to the average commodity price table on page 10 of this MD&A for indicative prices which may be used in the calculations of GEOs.

GEOs and revenue from precious metals were earned from the following geographical locations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gold Equivalent Ounces(1)

 

 

Revenue (in millions)

 

For the three months ended March 31, 

  

  

2017

  

  

2016

    

Variance

  

  

2017

  

  

2016

    

Variance

 

Geography for Precious Metals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Precious Metals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 

19,529

 

 

14,165

 

5,364

 

 

$

23.7

 

 

$

16.8

 

$

6.9

 

Canada

 

 

12,652

 

 

12,252

 

400

 

 

 

16.1

 

 

 

16.0

 

 

0.1

 

Latin America

 

 

70,429

 

 

58,510

 

11,919

 

 

 

86.7

 

 

 

69.8

 

 

16.9

 

Rest of World

 

 

25,900

 

 

19,649

 

6,251

 

 

 

31.5

 

 

 

23.3

 

 

8.2

 

Precious Metals - Total

 

 

128,510

 

 

104,576

 

23,934

 

 

$

158.0

 

 

$

125.9

 

$

32.1

 

Other Minerals

 

 

3,068

 

 

2,045

 

1,023

 

 

 

3.8

 

 

 

2.5

 

 

1.3

 

Oil & Gas

 

 

 -

 

 

 -

 

 -

 

 

 

10.9

 

 

 

3.6

 

 

7.3

 

 

 

 

131,578

 

 

106,621

 

24,957

 

 

$

172.7

 

 

$

132.0

 

$

40.7

 

(1)

Refer to Note 1 at the bottom of page 5 of this MD&A for the methodology for calculating GEOs, and, for illustrative purposes, to the average commodity price table on page 10 of this MD&A for indicative prices which may be used in the calculations of GEOs.

 

 

 

 

 

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Picture 11

Precious Metals

Revenue from precious metals assets was $158.0 million in Q1/2017 compared to $125.9 million in Q1/2016, reflecting 128,510 GEOs from precious metals assets, an increase of 22.9% from 104,576 GEOs in Q1/2016. The largest component of these increases was contributed by our Latin American assets which realized an increase of 20.4% in GEOs, and 24.2% in revenue compared to the prior year.

GEOs and revenue increases for the quarter are attributable to the following assets:

·

Guadalupe  - The Guadalupe stream, which became effective in Q3/2016, delivered 19,300 GEOs in Q1/2017, compared to 12,501 GEOs 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.

·

Antapaccay - The Company sold 15,019 GEOs from its Antapaccay agreement in Q1/2017,  compared to 8,918 GEOs in Q1/2016, a year-over-year increase of 68.4% due to only two months of deliveries taking place in Q1/2016, upon closing of the stream acquisition in late February 2016. 

·

South Arturo - The South Arturo mine generated payments of 4,392 GEOs, compared to 83 GEOs in Q1/2016. The South Arturo mine poured its first gold pour in August 2016.

·

Karma - The Company sold 5,000 GEOs in Q1/2017 in relation to its Karma stream, of which 1,250 were received in Q4/2016. This compares to 1,250 GEOs received and sold in Q1/2016.  Deliveries from Karma are fixed in the initial years of the stream at a rate of 1,250 ounces per month.

·

Candelaria - The Company sold 22,483 GEOs from its Candelaria stream, compared to 18,626 in Q1/2016. The increase in GEOs sold is partly due to the sale of 2,032 GEOs which had been delivered in Q4/2016.

·

Stillwater - Stillwater generated payments of 4,646 GEOs, compared to 2,642 GEOs in Q1/2016, as a result of higher platinum and palladium production in the quarter.

The above significant increases in GEOs were partially offset by decreases in GEO deliveries compared to Q1/2016 from the following assets:

·

Antamina – Sales from the Antamina stream decreased by 4,651 GEOs year-over-year,  as 2016 was an exceptionally strong year of silver production for Antamina.

·

Goldstrike – Payments from both the NSR and NPI royalties were lower in Q1/2017 compared to Q1/2016, resulting in 1,845 fewer GEOs.

During Q1/2017, 1,385,922 ounces of silver were sold from our Candelaria, Antapaccay, Antamina and Cerro San Pedro interests which were converted to 19,746 GEOs.

Other Minerals

Other Minerals generated 3,068 GEOs and $3.8 million in revenue, compared to 2,045 GEOs and $2.5 million in revenue in Q1/2016.  

 

 

 

 

12

2017 First Quarter Management’s Discussion and Analysis

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Oil & Gas

Oil & Gas assets generated revenue of $10.9 million for the quarter (94% oil and  6% gas), a three-fold increase compared to $3.6 million for the Q1/2016 (93% oil and 7% gas).  Production for the quarter was 5.5% higher than in Q1/2016; coupled with higher oil prices and lower capital costs from the operators. 

Revenue from the Weyburn Unit for the quarter increased to $8.3 million (Q1/2016 - $2.3 million) with $5.5 million earned from the NRI (Q1/2016 - $0.8 million), $2.3 million earned from the working interest (Q1/2016 - $1.2 million) and $0.5 million earned from the overriding royalties (Q1/2016 - $0.3 million). Revenue from the Weyburn NRI was higher due to the higher average realized prices, coupled with lower costs and higher production levels.  Although operating expenses were 10% higher than in Q1/2016, capital expenses were 45% lower in Q1/2017 compared to Q1/2016. The actual realized price from the NRI was 70% higher in Q1/2017, at C$57.82/boe compared to C$33.97/boe for Q1/2016.

Oil & Gas revenue also included $0.6 million from the STACK acquisition which took place in Q4/2016.  

 

Operating Costs and Expenses

The following table provides a list of operating costs and expenses incurred in the periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended March 31, 

 

(expressed in millions)

  

  

2017

  

  

2016

    

Variance

 

Costs of sales

 

 

$

39.9

 

 

$

24.4

 

$

15.5

 

Depletion and depreciation

 

 

 

71.5

 

 

 

65.5

 

 

6.0

 

Corporate administration

 

 

 

5.3

 

 

 

5.4

 

 

(0.1)

 

Business development

 

 

 

0.8

 

 

 

0.3

 

 

0.5

 

(Gain) loss on sale of gold bullion

 

 

 

 —

 

 

 

(0.6)

 

 

0.6

 

 

 

 

$

117.5

 

 

$

95.0

 

$

22.5

 

Costs of Sales

The following table provides a breakdown of cost of sales incurred in the periods presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended March 31, 

 

(expressed in millions)

  

  

2017

  

  

2016

    

Variance

 

Cost of stream sales

 

 

$

36.4

 

 

$

21.7

 

$

14.7

 

Cost of prepaid ounces

 

 

 

1.8

 

 

 

1.8

 

 

 —

 

Mineral production taxes

 

 

 

0.6