Franco-Nevada Corp (FNV) 2012 Q2 法說會逐字稿

Good morning, my name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Franco-Nevada Corporation second-quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions).

Stefan Axell, Manager of Investor Relations, you may begin your conference.

Thank you, Stephanie. Good morning, everyone. We are pleased that you have joined us today for Franco-Nevada Q2 2012 financial results overview. Accompanying our call today is the presentation which is available on our website, where you'll also find our MD&A and financial results.

On the line we have David Harquail, President and CEO; and Sandip Rana, CFO; as well as most of our management team, to answer any questions during the Q&A period.

Before we begin formal remarks regarding our Q2 2012 results, we'd like to remind participants that some of today's commentary may contain forward-looking information. In this respect, we refer you to our detailed cautionary note regarding forward-looking statements on slide 2 of our presentation.

I'll now turn the call over to David Harquail, President and CEO of Franco-Nevada.

Thank you, Stefan. I think as most of you have seen the press release, and this was a pretty solid quarter for Franco-Nevada. Sandip is going to review the financial numbers after I make a few brief comments. I think in our press release we also covered what I think was a lot of good news across the portfolio.

In general, we're seeing positive developments among a number of our operating assets, and as well in our development pipeline of assets. I think the press release covers that pretty well, so I'm not going to belabor all those updates. The one thing we couldn't update you on, of course, last night, was Tasiast. Kinross came out about the same time we did, and I apologize to the analysts for that.

We have a 2% revenue royalty at Tasiast. And, personally, I only see upside on that asset for Franco-Nevada. Last year we booked a little short of $3 million on that royalty. This year, we're expecting closer to $7 million. And, even if the Kinross expansion, ultimately, is only half of what they previously projected, this royalty could potentially generate $25 million a year for over 20 years to Franco-Nevada. So this is going to be -- I expect it to be a great asset for Franco-Nevada, going forward. And we're confident where we are going to see the value out of this over time.

On the business development front, you'll recall our last quarterly we had a pretty busy first quarter, with a number of smaller deals. We spent about $110 million in the first quarter. In the second quarter, our focus has been on the larger opportunities, where we're confident that we should be able to report some success in this area. And so, we're working very hard on that.

Yesterday's announcement by Silver Wheaton and HudBay -- that type of transaction, our view is yet a further endorsement of the growth potential of the royalty streaming business model. Royal Gold, as well, made some additional news this morning. There are more than enough opportunities for all the royalty streaming companies. And we fully expect to get our share of the deals.

I'll be happy to take your questions after Sandip reviews our Q2 numbers. Sandip, if you can take it away from here?

Thank you, David. Good morning, everyone. Thank you for taking the time to join on our call to discuss the Company's financial results for the three and six months ended June 30, 2012. With respect to our financial results, as you will have seen from the press release issued yesterday, the Company had another good quarter.

Our royalty and stream operations continued to perform well. This was the fifth consecutive quarter that the Company surpassed the $100 million mark in revenue. Revenue was slightly lower at $102.7 million for second-quarter 2012 when compared to second quarter 2011, but our net income of $36.9 million was higher for the same period, due to lower depletion and lower cost of sales reported.

As mentioned, revenue was $102.7 million for the quarter. This compares to $106.3 million for second-quarter 2011. On a year-to-date basis, revenue was $207.7 million compared to $179.4 million a year ago, a 15.8% increase. Although revenue was slightly less in second-quarter 2012 compared to prior-year, actual production or attributable gold balances to Franco-Nevada from our royalty and stream properties was in line with our expectations for the quarter and six months ended June 30.

With respect to pricing, average commodity prices were mixed in the quarter. The average gold price was $1611 per ounce for the quarter compared to $1504 in second-quarter 2011, an increase of 7.1%. For the six months ended June 30, the average gold price was $1651 per ounce compared to $1444 per ounce for the six months ended June 30, 2011, a 14% increase.

This increase in average gold prices did lead to an increase in gold revenue. Gold revenue of $81.4 million was higher by 13% for the quarter ended June 30, 2012, compared to the prior year. This is not only due to this increased average gold prices in second quarter, but also a combination of acquisitions made by the Company over the last year, such as Timmins West and Edikan; and organic growth from our portfolio, with assets such as Musselwhite and Tasiast beginning to generate revenue.

The benefit of these drivers was slightly offset by the absence of a guaranteed minimum ounce requirement from Ezulwini in 2012. As you may recall, in 2011, the Company did benefit from its minimum ounce requirement. The full-year minimum ounce requirement was 19,500 ounces. That minimum ounce requirement is not in place for 2012.

PGM revenues have decreased from $23.3 million in second-quarter 2011 to $11.4 million in second-quarter 2012. That decrease is due to lower average platinum and palladium prices, and a reduction in the number of stream ounces delivered from our Sudbury assets in second quarter of 2012.

With respect to pricing, platinum averaged $1500 per ounce, down just under 16% from $1782 per ounce in second-quarter 2011. And palladium prices averaged $629 per ounce, down 17% from $759 per ounce in second quarter of 2011.

As we received gold equivalent ounces from our Sudbury assets, the lower PGM prices do have an impact on the number of gold ounces the Company does receive.

With respect to the six months ended June 30, 2012, revenue was $207.7 million compared to $154.9 million a year ago, a 34.1% increase. The increase is due to a combination of higher average gold prices; recording of six months of financial results from Sudbury, MWS -- Mine Waste Solutions, and Ezulwini; as in 2011, the Company only owned these assets from March 14, 2011, onward.

For second quarter of 2012, net income was $36.9 million or $0.26 per share, compared to $33.3 million $0.27 in Q2 2011. Although revenue was slightly lower quarter over quarter, the Company did benefit from the lower cost of sales and depletion, resulting in higher net income in 2012. For the six months ended June 30, 2012, net income was $83.7 million or $0.59 per share compared to $54.5 million or $0.45 per share in 2011.

The Company does use certain non-IFRS measures which management believes do provide a better measure of performance, these being adjusted EBITDA and adjusted net income.

For the three months ended June 30, 2012, adjusted EBITDA was $82.5 million or $0.57 per share compared to $82.6 million or $0.65 per share in the second quarter of 2011. Adjusted net income for the three months ended June 30, 2012, was $35.1 million or $0.24 per share compared to $33.2 million or $0.26 per share for the three months ended June 30, 2011.

The majority of our revenue was generated from five key assets -- Palmarejo, Goldstrike, Mine Waste Solutions, Sudbury Basin and Weyburn. Together, they accounted for 63% of our total revenue. Revenue earned from Goldstrike was $13.2 million in the quarter, a 23.4% increase over second quarter of 2011. The increase is due to higher gold price, which has led to a higher NPI payout in the quarter.

Production in the quarter was still affected by the continued maintenance and retrofitting taking place at the mine. We do expect stronger performance in the second half of the year from Goldstrike, as higher-grade underground ore mined. Palmarejo continues to perform well. We purchased 32,000 gold ounces in the first half of the year, resulting in $52.9 million in revenue for the six months ended June 30, 2012. At this point in time, Coeur d'Alene, the operator, has not adjusted its full-year production guidance of 98,000 to 180,000 gold ounces.

Turning to slide 4, we illustrate revenue by commodity growth of the portfolio. As can be seen from the chart, (technical difficulty) gold, PGM and Other have seen growth (technical difficulty) with gold revenue showing the largest increase. In Q1 2009, gold revenue was approximately $20 million. For second-quarter 2012 gold revenue was $81.4 million, an increase of over 300% during this period.

When combining gold revenue with PGM revenue, precious metals overall comprises 90% of total revenue for second-quarter 2012. (technical difficulty) Q2 2011 and Q1 (technical difficulty). As you can see on the chart, there are some fluctuations in the results of our (technical difficulty), but this is due to timing of when certain NPIs and minimums are recorded for accounting purposes.

Turning to slide 5, you can see that the Company has achieved annual revenue growth each year, with significant increases in 2010 and 2011. For the six months ended June 30, 2012, revenue has again shown significant growth, increasing 34% compared to the six months ended June 30, 2011. This growth can be attributed to a number of factors, the most influential being timely acquisitions and organic growth from within the portfolio.

One of the key advantages that we'd like to stress of our business model is scalability. Our costs have increased over the last few years, as can be seen on slide 6. The increase is due to the addition of streams to our business model; in particular, Palmarejo, Sudbury Basin and Mine Waste Solutions streams. In general, you have to pay $400 per ounce for each ounce of gold delivered, which, after a period of time, is adjusted for an inflation factor. This has led to an increase in our cost of sales line item.

However, the increase is far outweighed by the increase in revenue. And even more impressive is how corporate administration costs have remained fairly constant. In fact, the Q2 2012 G&A is 4.7% of revenue, compared to 4.9% in Q2 2011.

As you turn to slide 7, the geographic revenue profile continues to be lower-risk, with 84% of revenue being from North America, with the US being the largest contributor. The African portion is now at 12% with the additions of Mine Waste Solutions, Ezulwini and Edikan; and the start of the Tasiast royalty last year.

Also, please note that the diversification by asset is also expanding, with revenue being sourced from more and more properties, resulting in the Company being less economically dependent on certain royalties as it once was. This will continue to grow as our advanced stage royalties begin to provide revenue. The Company now benefits from 43 revenue-generating mineral assets.

Slide 8 provides a reconciliation of net income earning in Q2 to 2011 to net income generated in Q2 2012. The [politics] for the yearly change include lower depletion due to the mix of assets generating revenue. The Sudbury and Ezulwini assets have higher book values. And with the lower revenue generated, resulted in lower depletion for the quarter. As well, this results in a lower cost of sales for the quarter.

Offsetting these positives were a reduction in overall revenue, discussed earlier; movements in foreign exchange; and an increase in income tax expense. The annual result is an increase in net income from $33.3 million in Q2 2011 to $36.9 million in Q2 2012.

On slide 9, you can see that the Company continues to have the resources to complete additional transactions. The Company has working capital and June 30, 2012, of just over $1 billion; marketable investments of $74 million; and an undrawn credit facility of $175 million. As a result, at the end of June 30, 2012, available capital was approximately $1.3 billion.

Slide 10 provides an update on the credit capital structure of the Company. There are currently 145 million shares outstanding as at June 30, 2012. On a fully diluted basis, including the warrants inherited from the Gold Wheaton transaction, the share amount would be 161.5 million.

In closing, as you are aware, the Company issued revenue guidance earlier this year of $430 million to $460 million. As stated earlier, the overall actual production at our royalty in stream properties has been in line with what our expectations were thus far in 2012. However, most commodity prices have averaged lower than what expectations were for the first six months of 2012. Based on these realized prices and current spot commodity prices, we anticipate our full-year revenue to be at the lower end of the previous range provided.

And with that, I will turn it over to Stephanie to initiate the question-and-answer session. Thank you.

(Operator Instructions). Stephen Walker, RBC Capital Markets.

Thank you very much. Just a couple questions on Mine Waste Solutions and Ezulwini. On Mine Waste Solutions, my understanding is that the grades that AngloGold Ashanti would be delivering would be slightly higher than what were being mined previously from those dumps. In your guidance, you talk about production being very similar to the second half of the year to the first half of the year. Is there, at some point, a positive impact on grades from Mine Waste Solutions?

Stephen, it's Paul Brink. Thanks for the question. When you look at the overall reserves of the original mine waste dumps and then of the dumps that Anglo have, I think you're quite right. They are -- on average, they do have higher grades. So there is some expectation, over time, that that would be a positive. Obviously, in terms of putting in the piping to be able to start accessing those dumps, that's something that's going to take time; and also how they pack their dumps into the float. So I think there is a longer-term benefit, just not quite sure when it will kick in, in terms of timing.

There is no discussion on when the piping is going to be installed at this stage?

No, I don't have any details yet.

With respect to Ezulwini, what's the timing for Gold One or two -- are Gold One mining there now? And that's the scale of the operation? And what's the timing on when that could be brought up to a reasonable run rate, versus the dwindling run rate that we've seen previously?

Gold One has been running the operation for a couple of months now, Stephen. I think one of the things they want to do is first get a handle on the operation before they start making any projections, in terms of what they would do to the throughput rate. So, again, I don't have any details on when they would expect to stabilize and, hopefully, improve that rate. Although they have had control of the operation for a number of months now.

Okay, thanks, Paul. Just one last question on the assets. KGHM up in Sudbury -- do we have a sense on what the revenue split may be, with respect to nickel and PGMs in the back half of the year and into 2013? Is it safe -- you do suggest that similar production levels. It is that on a tonnage basis? On a metal basis, in the second half of 2012 versus, the first half? And is there any sense on what 2013 could look like?

That's on a contained metal basis. In terms of 2013, they did announce, at the end of last year, that they will be shutting down Podolsky at the end of this year. So right now, on McCreedy, they're only mining on the nickel with some precious metals. You have Levack Morrison going, but Podolsky is not in the plan right now for next year.

Right, okay. That's it for now. Thank you very much.

(Operator Instructions). Greg Barnes, TD Securities.

Yes, thank you, Operator. I guess a question for David or Paul. The transaction announced yesterday between Silver Wheaton and HudBay, I assume you are in the mix. But was there a reason you didn't pursue it harder? Or that you didn't win out the business?

Greg, maybe I'll just be emphasized what I said at the beginning. There's going to be more than enough business for all the companies involved. And so I expect -- I don't think there should be an expectation that we'll be doing everything out there. I think it says healthy if you see deals done being done sequentially by the different royalty companies. Just like any banks doing financings for projects, I wouldn't expect TD to finance everything out there. So we've got a good, healthy market. We're going to get more than our fair share of the good deals out there.

Was this particular one a bit more silver-weighted than you would have liked?

Again, there's different ways of cutting the deals. And you can look at different assets and how you want to package it. I think it's, again, every company is looking at their own portfolios. How much do they want in terms of -- or the need, in terms of near-term cash flow accretion versus having some very long-term assets? I think all of us, as well, are looking at what, is the right mixture of come out of these commodities? So we're all starting at different weightings, and we all have in mind what we believe are the optimal weightings.

We've made it clear we're trying to be at least 80% precious metals in his Company. But we have the flexibility right now to make investments in different commodities. We are not short of investment opportunities at this stage. Right now, we're just focusing on trying to do some more material or larger deals. But these tend to be chunky, and they take time.

And how are you focused with terms of nearer-term cash flow accretion, versus the these bigger deals that maybe impact cash flow longer-term?

Well, you know, in terms of -- we're somewhat agnostic, in that we just want to do the best deals in front of us as possible. We don't have to buy near-term cash flows, because our portfolio is very strong, and we're generating steady-state numbers. We believe if we buy something that is still even a number of years away from production, if there is enough visibility in terms of when those revenues will come in, we believe we'll get credit for it from a street perspective.

And we are, ourselves, look at this Company purely from a very long-term net asset value accretion basis on a per-share basis. So whether it's gold, or whether oil and gas transactions or other commodities, we've got the flexibility as we can build our portfolio in all components -- near term, long-term, different commodities and different risk profiles. The nice thing is, when you've already got 43 producing assets, the more you buy, I think the more strength the portfolio is gaining from the increased diversity. And we just intend to continue building it.

And how do you respond, David, when people put to you the point that if you buy these longer-term assets, that your payback on the capital investment is stretching out to 7 to 10 years?

Yes, it's -- I think the people have made those criticisms when we bought into -- when you look back at assets such as Detour, when we bought that royalty back in the mid-90s; or even our Hemlo royalties, again, in the early 90s; absolutely long-dated. And I think there is a large component of the market out there that wants the instant gratification of near-term cash flows. We've been building this portfolio for over 25 years. I'm actually very comfortable buying things that I might not even get the benefit of as CEO of this Company. It might be to the benefit of the next CEO of the Company. And Seymour Schulich, I can tell you, in the old days, he was always complaining. He was buying stuff that only Harquail would benefit from in the future.

And I think it's the right thing to do. I think we have the luxury that very few other companies have, of actually thinking real long-term. I think there is always going to be a component of our investment opportunities that were going to be active on that are going to be long-dated. But it doesn't preclude us, at the same time, from doing other deals that are going to be near-dated. So I think you're always going to see a blend of near-term and longer-date acquisitions. And you're going to see a blend of different commodities, as well. So we've got a large portfolio; we've got a lot of flexibility; and we continue to take full advantage of that.

Okay, thank you.

Adrian Day, Adrian Day Asset Management.

Yes, good morning. I had sort of a general question, if I may. I think, partly, you touched on it. But, as you know, many of the big mining companies have put a lot of major projects on hold recently. And I'm wondering -- apart from showing up a royalty model as even better than we knew it was -- I'm wondering if there's any implications for you in this. And I'm thinking, specifically, do you think Sienna miners, maybe, are going to be a little less likely to make acquisitions of specific properties from juniors? And does that mean some of the royalty cash flow might be delayed for you?

Adrian, in terms of what we're seeing right now, is that there is about 11,000 different projects being advanced around the world right now. A lot of them, I guess, we could almost say they are already pregnant and they're going to be pushed forward. And that's creating just a cornucopia of investment opportunities for these royalty and streaming companies right now, that these projects need to get the balance of financing to get them through the various stages that they are right now.

It only becomes a concern, I think, when the industry as a whole -- and this is what we saw in the late 90s -- no longer is willing to invest risk capital in terms of exploration or development of projects. And that's what the old Franco-Nevada faced in the late 90s, is buying a royalty or stream, if these projects aren't being advanced, is dead money. And that's why we looked, ultimately, to merge our Company with an operating company.

We are nowhere near that right now. I don't think we would get to a stage where we are running out of investable projects that need advancing for at least a number of years yet. So I see this is actually the most opportunity-gifted era that I've ever seen in the mine financing business in my career. I couldn't be more excited about it. I believe we've got several years in front of us to take advantage of it.

And what comes after that, I think we've demonstrated that we can evolve our business model if we ever went into an era that the risk capital was no longer going into the business. Because, really our business model takes and levers itself from other people's risk money going into properties for exploration and development. We try to be at a more secure level. If that's not going available, then we're going to evolve the business model. But there's no need to do it right now.

Great, thank you.

Stephen Walker, RBC Capital Markets.

David, just a follow-up to Greg's question; two parts to this question. Over the years that I've been covering Franco and Euro and Royal Gold, we've seen the IRR for the number of the royalty and streaming agreements decline from a range of 8% to 10%, 11% down to 5% or 6%. I'm only assuming that that's because it's much more competitive now, that you've got three major companies that are looking for precious metals royalty and streaming agreements. Is that, in fact, the way you're looking at that internal rates of return now? You're now looking being in a competitive environment for royalty streams?

Stephen, I would actually disagree. But if you actually go back and benchmark some of our deals -- we went back in, I guess, in late 2008, 2009, we were buying a royalty on Gold Quarry in Nevada. And if you were looking at it, at the gold price then, I think it was $800. What was known about the reserve then, you're looking at probably a 5% discount rate in how we priced that project.

What we were really looking for is, what is the expiration or expansion, or reserve and resource additional potential beyond what we're buying. And that was what we see as what we're getting for free on top of those -- I guess what you might calculate as the initial IRR rates. I think it's something that, if not the right way to measure a transaction -- because you have to factor in that the upside resource and reserve are upside for our royalty or stream is so much higher than from the operating company. They are often mining lower-grade materials and they have to make additional capital cost commitments. Generally, the royalty and streaming companies are getting those upsides for free. So their IRR on those additional increments tend to be much higher than the operating companies.

So if you actually look at a lot of our assets, the initial IRRs look extremely low. But when you see the ultimate reserves and resources expansions that occur on the properties, then there's an acceleration in terms of returns we're getting on these assets.

And, generally, it was very hard. I can tell you, with the deals we did back in the 80s and 90s, it was so slow we would have to wait 10 years before we could actually see the potential of some of these assets; say, Hemlo, for instance, or Detour. Now we're getting gratification so much faster. Deals that we just bought in the last two years, things such as the Agi Dagi in Turkey, where they found [all] Camyurt on that same royalty property. The Edikan property with Perseus in Ghana, where they found a substantial expansion on reserve numbers since we first bought in that property. I'd say even the Timmins West where they are announcing additional zones on the Gold River. Where we are seeing those additional ounce increments that weren't part of the additional IRR calculations to start with, coming to the forefront even faster.

So if I had to call it, Stephen, I think we're actually getting better returns today than we did a decade ago when we were first doing this business with no competition. I think it's a great investment opportunity. And also, I think we've always said, to buy these assets, the sellers have a good understanding of what they have already. They also know what the consensus outlook is for gold prices. They want to get a fair value for what they're getting. We're willing to pay them the fair value. We're just trying to pick the ones that have that upside. And we're willing to be patient to realize that upside. We're just seeing that upside much earlier in this business model. So I can't buy IRRs are getting lower in this business.

Okay. One last question, David. One of the questions investors keep asking, and we struggle as analysts is, should we look at the streaming business and royalty business as having a hurdle rate of -- or cost of capital of, whatever, 5% to 6%? Or, which given the cash position, non-debt position of these companies, should we be looking at it as, what is the opportunity cost of having $1 billion of working capital or excessive amounts of cash on the balance sheets, that you're getting 50 to 100 basis points. What is the benchmark here for investors or for analysts, when looking at what the actual hurdle rate is? Is it that opportunity cost 50 to 100 bps? Is it a cost of capital, a lack that you calculate internally? Out of curiosity, what are your thoughts on that?

Again, we look at this so differently, Stephen. And, really, we look at the royalty and streaming segment as a different business segment from the operating companies altogether. We're in between the gold ETFs and were in between the gold operating companies. And when you look at what is the hurdle rate or acquisition, I guess, the cost for a gold ETF is now $120 billion of investors' money attached to those. It's negative. It's because people are willing to pay 40 basis points just for someone to hold their gold, with no opportunity for a dividend or return. We can provide a dividend and a return, but we shouldn't be measured at the same metrics as an operating company. Because we have a lot of the same characteristics and lower risks, closer to an ETF than an operating company.

So what I like is actually having multiple royalty companies, the streaming companies out there. We're becoming more and more, at these conferences, a separate business segment. I think we're also demonstrating we are now that growth component within the precious metals industry, and that we're creating new product, and able to actually even get into the bank financing side of the projects, which is opening a lot of growth for us.

So I think the best thing to do is that the metrics for royalty and streaming companies should be on a relative basis for that segment. And it's got to be a hybrid between gold ETFs and the operating companies. But we will always appear expensive when you put us on the same table as the operating companies. But I think, right now, the investment market has demonstrated in the last four or five years that the group as a whole has been able to perform. Because I think there's been a re-rating in terms of the risk metrics attached to the type -- our Company.

Am I answering your question, in terms of what's the specific cost of capital, or hurdle rate? All I can do is, Stephen, is say it is a hybrid between the ETFs and the operating companies.

Great. Thank you very much, David.

Tanya Jakusconek, Scotiabank.

Yes, hi. Good morning, gentlemen. Maybe just a question for David. We just talked about your over $1 billion of cash and available lines of credit for acquisitions. And I just wanted to get a feel -- you talked about precious metals, oil and gas, other commodities. I know you had talked in the past about iron ore, phosphate, et cetera. Just wanted to have your views on diamonds. A lot of opportunities there, and I know you are in Nevada, used to own a portion of a diamond investment at some point in their past. Just wondered what your thoughts were on the diamond market.

Tanya, we love diamonds. And we know you do, too.

I do, I do.

And we've looked at a lot. And [Tierra] has a strong affinity. And, of course, even when we were at Newmont we were looking at diamond opportunities then. And I guess it's just our own experience is, the diamond sector, it's a fraction of the gold sector. About one-seventh, in terms of the value of commodity per use, so you're dealing with a much smaller space. And two, it's so much harder, in terms of evaluating these projects, in terms of what's going to be the outcome. But I think the other key reason is the tenure on the land positions in a lot of these projects is so much more tenuous. A lot of what we're doing in the gold space, we're dealing with patented lands or private lands in the US, where we know someone's going to pay at least -- or even in Australia -- where that tenure is going to last for 50 to 100 years. So we have an opportunity to realize an expiration outcomes through multiple commodity cycles.

The trouble with a lot of the diamond projects, especially in North America; they're very temporary rentals of land. So they look like wonderful huge land positions, but they're very expensive to hold. And they tend to be shrunk very quickly. Within seven years, they are often 5% of the original landholding. And they will be focusing on a number of pipes. But again, what is the longer-term optionality that we get out of these assets? It's harder to get that longer-term optionality, or land optionality, in diamonds and gold.

The nature of the gold business is so many more projects. They are so much more easier to evaluate. And you get much better land positions. That's why we tended to gravitate 99% of our efforts on gold rather than diamond opportunities, just for those reasons.

So would it be fair to say that, today, your opportunities as you rank them would be first, gold; let's say gold/silver. Then the other non-gold -- there's oil, gas, other commodities. And diamonds would be way at the bottom of your opportunities?

In terms of number of opportunities, I think -- well, Paul, why don't you speak to that?

Yes, maybe Paul, yes.

And Tanya, you're right in saying, obviously, we spend most of our time looking at gold and precious metal. In terms of the other commodities, for the most part, we are agnostic. We're looking to expose ourselves to resources that we think have got good expansion potential. So whether that is oil and gas, Box, base metals, or diamonds -- I think all of those, it's more just the quality of the opportunity rather than us trying to rank or rate the commodity.

All right. Great. Thank you.

Sorry about the diamonds, Tanya.

Brian MacArthur, UBS.

Good morning. You've talked a little bit about doing larger transactions. Can you give me general views on size? I know that you said you would do up to $1 billion. But the second part of the question would then be, is how do you risk adjust that? Because as you do larger deals, say, versus 10 years ago, when you were not making anything near the size you might be considering now. How can you actually adjust for that in your IRR? Or how do you actually think about that?

Paul, why don't you do that one.

Sure. So, we don't specifically adjust the IRRs based on the size of the transaction. When we are thinking of size, we are looking at transactions to say, can they be meaningful to our organization? Obviously in terms of where we prioritize our time, the more meaningful the transaction, the more time we can put on it. But whether it's a smaller transaction or a larger transaction, I think we look at them all on the same basis. And I think as David has alluded before, we look at what we are confident will be mined. We like think that we'll pay a fair price, or as much as anybody else for what that is. And we just like to participate with the operator if there is upside on the property.

So, really, when we're looking at prospects, it's more that assessment of what do you think the potential upside is that drives our level of interest.

Got me ask it this way -- if I gave you four $250 million deals or one $1 billion deal with the same IRRs, which -- equal commodities -- which would you do?

You've got to just assess the reality it comes down to; what's actionable at the time.

Right.

And it's more -- rather than being faced with that theoretical option, as the deals come in, there is a timeframe in which they are actionable. And we have to look at them and say, is this something that we want to do? Does it meet our criteria? Is it actionable? And if it is, we go for it. And you've got to take them as they come.

Great. Thank you.

And there are no further questions at this time. I'll turn the call back over to the presenters.

Thank you, Stephanie. I want to remind investors that our Q3 2012 results are expected to be released on November 6, and with a conference call scheduled for the following morning. Thanks for joining us today, and your interest in Franco-Nevada.

And this concludes today's conference call. You may now disconnect.