Franco-Nevada Corp (FNV) 2013 Q4 法說會逐字稿

Good morning, my name is Sally and I will be your conference operator today. At this time I would like to welcome everyone to the Franco-Nevada Corporation's 2013 results and 2014 outlook. All lines have been placed on mute to prevent any background noise.

After the speaker's remarks that will be a question-and-answer session. (Operator Instructions). Thank you. Mr. Stefan Axell, Manager of Investor Relations, you may begin your conference.

Thank you, Sally. Good morning everyone. We are pleased that you have joined us either in person or over the phone for the Franco-Nevada 2013 results investor day conference call. Accompanying our call today is a presentation which is available on our website, where you will also find our updated 2014 asset handbook as well as our 2013 MD&A and financial results.

Before we begin formal remarks, we'd like to remind participants that some of today's commentary may contain forward-looking information and refer you to their detailed cautionary note on slide 2 of our presentation.

Participating on our call today is our entire executive team, but more specifically we have Sandip Rana, who will discuss our 2013 results; Paul Brink, who will provide insight into our business model. Phil Wilson will discuss gold ounces associated with our assets and provide an [RAU] update. And finally, David Harquail, our CEO, will detail our outlook moving forward.

I will now turn the call over to Sandip to discuss our 2013 results.

Thank you, Stefan. As you have seen from the press release we issued yesterday, the Company did report lower revenue for fourth quarter of 2013 and for the full year of 2013. In addition, we did record a net loss for the quarter and lower net income for the year.

But I think if you step back and you look at 2013 in general for the mining industry as a whole, it was a period of volatile commodity prices, a period of depressed share prices and just a general negative market sentiment towards the industry as a whole. But I think Franco-Nevada was not immune to this, but when you step back and you look at our Company, it showed the strength of our business model, the quality of our assets, and the diversity of our portfolio. And this is clearly evident in the number of gold equivalent ounces that we earned in 2013.

If you turn to slide 6, we provide a summary -- if you look at slide 6, we provide a summary of our gold equivalent ounces for 2013. Last year we provided guidance to The Street of a range of 215,000 gold equivalent ounces to 235,000. This was done at a gold price of $1600 per ounce; platinum price of $1600 an ounce and palladium of $725. We also guided oil and gas revenue of $55 million to $65 million.

While I am happy to say that we beat both of those guidance levels, we surpassed our 2012 guidance -- actual results, as well as the guidance that we did provide. We achieved 241,000 gold equivalent ounces for the year at lower commodity prices. On the oil and gas side, we achieved revenue of $67 million in revenue.

Contributing to this exceeding guidance was a number of key assets. Palmarejo delivered 59,000 gold equivalent ounces to the Company in 2013. Our Subika royalty had higher production, and accordingly, higher mining levels on our royalty lands, resulting in higher GEOs for the Company. This was an asset that generated revenue and GEOs to us in 2012 for a partial year versus full-year in 2013.

Our Sudbury stream assets perform very well for us in 2013, as did our South African stream assets.

With respect to new royalties, we started receiving production from Detour and we look forward to a full year of production from Detour in 2014. In addition we received GEOs from the Rosemont property at Duketon in Australia in 2013 and look forward to some additional production from there in 2014.

With respect to oil and gas for the year, as you'll recall we purchased an additional interest in the Weyburn asset in late 2012. That contributed a significant increase in oil and gas revenue for us in 2013. The higher volume combined with higher oil prices allowed us to exceed our guidance of $55 million to $65 million with $67 million in revenue.

So we did beat on our GO guidance, but obviously with lower commodity prices and in particular gold and platinum for Franco-Nevada did result in lower revenues. If you turn to slide number 7, you will see a table that separates out our IFRS measures versus non-IFRS for both the quarter and the year.

And as you will see, on a revenue basis for the quarter we achieved $100 million in revenue versus $114.1 million last year. To put it in perspective, the average gold price in Q4 was lower by $447 per ounce versus 2012. So, obviously, that did have an impact across the board.

On a full-year basis are revenue was $400.9 million versus $427 million a year ago. On a net income basis, as I mentioned, we did book a net loss for the quarter. This was due to some impairments that were recorded which I will speak to shortly. But as we've said previously, we like to focus on non-IFRS measures as a performance metric.

I've already spoken about gold equivalent ounces and how well we did in Q4 and in the full-year 2013. However, when you factor in the lower commodity prices, it did have an effect on our adjusted EBITDA and our adjusted net income for the year.

On an adjusted net income basis, we did $30.5 million or $0.21 per share, versus $47 million or $0.32 per share for the quarter. And on a full-year basis $138.3 million net income or $0.94 per share versus $171 million, or $1.19 a year ago. So they are both lower, year-over-year.

But what is also lower for us is our corporate G&A and corporate main costs. For the year we are down approximately 10% year-over-year. And if you go back to 2008, at that time we had approximately $15 million in G&A; $18 million last year, not a significant increase.

And if you look at the revenue growth that this Company has delivered, going from $150 million in revenue to in excess of $400 million, I think it shows another strength of our business model which is the scalability. We can grow this Company without increasing our G&A significantly.

You will notice that on the march in mind we are at 77.3% for the quarter, which is lower than us historically achieving the 80% range. The reason for this is that in Q4 we did receive a higher number of stream ounces; in particular, Palmarejo, the Sudbury assets and our South African assets. With that, we had a higher cost of sales which is associated with the ongoing fixed payment of $400 an ounce that we pay. So it resulted in a lower margin percentage for the quarter.

Slide number 8 provides a breakdown further of our GEOs for 2013 versus 2012. And across the commodity categories -- gold, PGM, and other minerals -- you can see that they are all up year-over-year for the reasons I mentioned earlier in those specific properties.

But one area that is affected by the lower commodity price, in particular gold, is our NPIs and Goldstrike, to be specific. That property was affected in 2013 not only by lower gold price, lower production, but also a thiosulfate project that they are doing there, resulting in some significant capital being spent which did affect our NPI.

But our NPIs are very leveraged to the gold price. But if you do adjust our GEO performance in 2013 for NPIs, you can actually see that our GEOs from our revenue royalties and are streams increased by over 13% and in a rising gold price environment we look forward to the NPIs contributing more as they are highly leveraged to the gold price.

Turning to slide 9, we provide a breakdown of our revenue sources by commodity and by jurisdiction. So by commodity, 80% precious metals; 17% oil and gas; and 3% other minerals.

In terms of geographic profile, 77% of our revenue is from North America with Canada being the largest contributor at 36%. In total we have 47 revenue-producing properties. And as we add new assets and we have organic growth, this number will grow.

Turning to slide 10 is a chart that takes our adjusted net income from a year ago to adjusted net income for 2013. And the biggest movement is obviously revenue due to the lower commodity prices.

In addition we have lower finance income, which is a result of the composition of our cash. We are holding predominantly US dollars, which are earning less interest, and we have had lower financing associating with that.

We had an increase in depletion. On the positive side, we had a lower income tax expense. So when you net everything through, we've gone from $171 million adjusted net income down to $138.3 million for the year.

Slide 11, with respect to impairments, we did book some impairments in the quarter resulting in a net loss. There were some small ones associated with some securities recorded, but the two larger ones were McCreedy and Falcondo.

With respect to McCreedy, this is an asset purchased in 2011 when we did the Gold Wheaton transaction. At that time Quadra FNX, now KGHM, made a decision to start mining the nickel ore and putting on hold the mining of the PM zone.

Earlier this year -- I guess in Q1 2014 -- they came out and said they were going to stop mining the nickel zone and not resume the PM zone at this time. We took that from an accounting standpoint as a triggering event, and accordingly we booked an impairment of $107.9 million.

Falcondo, run by Glencore, an asset down in the Dominican Republic, has been in operation off and on for over 20 years. It's a nickel asset. We hold an interest there. Again, they made a decision in Q4 to put that on care and maintenance. From an accounting standpoint we considered that a triggering event and recorded an impairment accordingly.

What I would like to point out is that both these assets have reserves and resources, the infrastructure is still there. So in a rising commodity price environment these assets -- these deposits should be mined. As well, there's no impact in the 2013 results in terms of our revenue and EBITDA associated with these assets or for 2014. So, yes, we booked some impairments, but there's no financial impact at this time.

Turning to slide 12, to give you an update on our credit facility we have amended it. It was previously a three-year facility; now it is a five-year facility. It expires -- matures in March 2019. It remains unsecured.

We've managed to get some lower pricing at a leverage ratio of less than or equal to 1. Our pricing will be 30-day LIBOR plus 120 basis points. The accordion feature to take it up to $750 million is still there, so we think this facility along with our strong balance sheet still provides us with great financial flexibility to grow this Company.

And with that I will turn it over to Paul Brink.

Well, thanks, Sandip, and good morning everybody. I'm going to start with just some comments on our business principles.

The royalty in the streaming business keeps changing over time, but our core principles really don't change. And when we are investing in a deposit, the key thing that we are looking to do is share in any future exploration success over the long term in the deposit. So the key thing in doing that is obviously tenure and we need to make sure there is good tenure. We need to make sure that we are going to be there over the long term.

And what we're trying to minimize is obviously any exposure to cost inflation. Also any encroachments on the property; mostly that means trying to avoid increases in tax rates, resource nationalism. We don't operate any of the assets that we are involved in, and really the key to that is it means we can spend all of our management time on trying to find new opportunities to grow the Company.

So, turning to the latest of the new ones, it's a small acquisition. This is a 2% NSR that we are acquiring. It's on Yamana's Cerra Morro property -- it's in Santa Cruz province in Argentina. The Yamana team -- both the operating team and the asset development team in the region has done a terrific job over time, so we are very pleased to have an asset or a piece of an asset that's in their hands.

They are due to put out a feasibility later on this year. They are looking for first production in 2016 on this asset. We like the property position here. There are similarities to El Penon.

There are multiple vein structures; they are shallow structures. We think there's a great potential to expand the production coming out of this asset and to add a lot more ounces over time.

In terms of the way that our business has evolved, the old Franco, the principal business was buying third-party royalties which has been a good business. It's a steady business. But the model changed, and really, while we were part of Newmont, it was Silver Wheaton who invented the byproduct streaming model, and it's been a great model for all of the players in the streaming business. It's been a second avenue for growth. It's allowed all of us to do very well. Some examples of that: Cobre Panama, Palmarejo for ourselves.

Really what's happened, though, over the last 24 months now with the malaise in the gold market is that there has been a new set of opportunities. And that's gold companies that have been looking to finance new projects. They just aren't able to get decent terms in the debt or the equity markets.

So we've been challenging ourselves to say, how can we adapt our model and take advantage of this additional opportunity? So we started off with a couple of smaller deals on gold medals with Midas Gold; a small royalty on Kirkland Lake, both financing the operator there. And then by the end of the year two other transactions -- one with Durango and Sabodala, and another one with Klondex one their Fire Creek Mine, all those where we are now financing gold companies, helping them to develop their assets.

So the key thing in terms of these financings is not there is a particular structure that works. It's more that we are able to be flexible in terms of what we provide to the operator, and come up with a structure that works for their particular requirements, if they are looking to either replace debt or equity and the way they think about their capital structure.

But in particular the last two transactions that we've done has been a new structure for us. That has worked well for the operators and that's been a fixed number of prepaid ounces at the front end, and then a smaller royalty stream on the back end. And that's been attractive to the gold players particularly because they are trying to maximize their exposure to gold optionality on the back end. And so, by reducing the stream, it allows them to do that; gives us more certainty in our return on the front end. But we still get to participate in a piece of the longer-term exploration success.

In particular, the structure is more debt-like than a straight royalty structure. But some of the advantages that the operators have been seeing in it is, even though there are fixed payments, it doesn't come with all the bells and whistles that come with a debt package. There's no cash flow sweep, there are no covenants that are going to trip them up, which makes it a more attractive, more flexible form of financing for them.

And we've also -- in the past on the streams, we would all use a fixed $400 per ounce. We are happy to do that, going forward. We've also found another way to do those operating costs -- it's just to do them as a percentage of the gold price going forward.

Really what that does is it makes stream economics comparable to the economics on an NSR. It also makes it easier for an operator -- both for them to conceptualize and also in speaking to the investors, they can take something that's a 5% stream; if we get 80% of the economics that really is like a 4% NSR. It's easier for everybody to think about in putting the deal together.

So, two of the transactions that we have done [of this built] -- and the first was with Klondex Mines, where we were helping to finance the acquisition of the Midas mill -- will help process their oil coming out of Fire Creek.

Paul Huet is the CEO of the company. Paul, we know from our days at Newmont. There couldn't be a better guy to be putting these assets, consolidating assets in Nevada. Paul has operated the Midas Mill. He's operated Hollister. So we think he and his team are a tremendous group to be supporting in doing this.

We couldn't be more comfortable with the Midas mill. It is the only mill that Franco has built in its history and we still think the Midas property has got some good legs on it.

But in particular, the draw on this transaction is the Fire Creek property. The resource there is an analogy to the Midas resource. It's very high grade, vein type systems. To date, they have outlined some ore resources -- about 800,000 ounces.

But to put in perspective, that resource is about 1000-foot of what's an 8000-foot structure that really is part of an eight mile long trend. So we think that there's lots more room to add ounces on this property over time.

The bigger of the two transactions was with Teranga. Again, similarities here, we were putting together what was their Sabodala property and existing mill together with the adjacent property, the OJVG property, adding good resources to existing infrastructure.

The team, Richard Young and his group we think did just a phenomenal job. There were a lot of pieces to pull together in getting this done, both with the various parties to the OJVG joint venture, the government at the time, so very impressed with what they were able to achieve in a very short amount of time on this property.

I wanted to speak just a little bit about the property position, and this really is what caught our eye initially. When you look at the location of it, the Sabodala property is just over the border in Senegal from Mali. You've got the Malian Shear that runs right down that border.

And right along that shear zone, you have got a number of large deposits. You've got Sadi-Olo, which is 12 million ounces -- sorry, Loulo, which is 12 million ounces. You've got Gounkoto, Fekola, which is Papillon Resources, which is being discovered -- both of those, 4 million ounces to 5 million ounces. So, right along that shear zone you've had continued success in finding new ounces.

Sabodala is on a set of shear zones that are parallel to that, just on the Senegal side. What we'll point out to the north of that, and in the same volcanic host structure, you've got Sadi-Olo. That's 30 million ounces. You've got Yatela, which is another 4 million ounces.

So you are sitting on the same shear structures. You are sitting on the same host rocks? And our view is, over time, that structure is going to fill in just like the parallel structure with multiple deposits down it.

Already on that property the total resource is 8.8 million ounces that they have defined. It's a very large property. They cover it from end to end; it's about 70 kilometers of strike plans that they've got covered, so a very prospective property. And we think there's a good chance of adding a lot more ounces over time.

The transaction was a win/win. We are very happy with it. It's been very well received for ourselves, also for Teranga. The announcement of the transaction was very fortuitous in that the gold price was running at the time; the sector was up roughly 33% over that time. Teranga, though, was up 125%. I think the deal is being perceived very positively for them.

And to finish off, then, despite the money that we've spent, we still have $1.2 billion in available capital. We see a lot of opportunities out there and we are confident there will be more acquisitions as we go down the line. Thanks, and I will hand it to David (sic).

Thank you, Paul. All right. Good morning, everybody. So the next few slides, what I'm going to cover are the gold ounces that are associated with some of our assets. We'll examined the impact of gold prices on these ounces, and then finally we will take a look at the royalty equivalents units and make a comparison of those two to previous years.

So if you could start off with a turn to slide number 24, this chart destroying the total ounces on roughly 60 properties where we hold royalties or streams. I just want to emphasize a couple of points here.

We are showing all the ounces on the property by category and it's based on the operator's public disclosures. And we are only showing the gold ounces here; there are no silver equivalents. There's no platinum or metal equivalents.

Now obviously, looking at a slide like this has its limitations, and principally that is that not all of these ounces are covered by our royalty position. And so they are certainly not our attributable share. Nevertheless, it is somewhat indicative of the level of activity on these properties, and it's somewhat directional, so we find it a useful slide to show.

Now as Stefan mentioned earlier, this morning we released our updated asset handbook. That's available on our website, or you can get hard copies here in the offices. And this contains all the supporting information behind this slide as well as more discussion on the limitation of a slide such as this. So we do encourage you to pick up a copy of the handbook and study it.

We move on to slide number 25. So just staying with the associated ounces for awhile still, but this time we are looking at some of the key drivers behind the changes from a year ago, and in particular, the impact of gold price and of acquisitions.

In the reserves category we are seeing a reduction of a little over 9%, mainly due to gold price effects. And, that said, we also saw that acquisitions during the year were able to offset these reductions and show a net increase year on year.

In the measured and indicated categories, we didn't see any negative effect from gold price during the year. And moreover, we actually added a substantial amount of ounces through acquisitions. And also we were able to move a couple of assets from our exploration classification through to advanced classification and include them in account for the first time.

The net result was a sizable increase in M&I associated ounces. And together the gains on the reserves and the M&I associated ounces more than offset the reduction that we saw in the inferred category.

If we could move to slide number 26, again still with associated ounces, but now we are looking at the changes year-on-year, on a per-share basis. And as you can see from the slide, in both the reserves and the resource categories, which is shown in gold and blue respectively, we are seeing a continuation of the upward trend of recent years.

Moving on then to slide number 27, this one is all about the royalty equivalent units, or the REUs. You probably recall that this is a concept that we introduced a couple of years ago, primarily to overcome some of the limitations at just looking at a simple count of associated ounces and also to try and give a better representation of value to a royalty and streaming company.

Essentially what we do is we look at the different types of royalty and we normalize them to that of an NSR equivalent. And then we apply our best judgment to what portion of the associated ounces are actually covered by the royalty ground. So the REUs are certainly an improvement over a simple ounce count, but they've also got their limitations as well.

Again, I would encourage you to look at the asset handbook to see how we calculated them this year and to read the discussion on the royalty equivalent units.

The final slide from me is number 28, and this one is showing the changes in the REUs on a year on year basis. And as you can see, compared to last year it's essentially stable and certainly somewhat higher than the count from a year or two ago. So, with that, I am going to pass you on to David who will talk about outlook and Q&A.

Thank you, Phil. And thank you for being here on Franco-Nevada's investor day. I can't think of a better way to start spring.

You have just had some very high-level summaries from Phil on our associated ounces and our REUs, and I take great comfort that we actually have slider numbers in total in terms from our assets. I think one of the things we get asked by investors is always to stress test our portfolio, what's going to be challenged.

And the way I look at our portfolio is -- what I particularly focus on is the M&I REUs from our portfolio, because in my mind that is essentially what we are going to gross from our assets that we can measure today. And so we are still looking at slightly higher M&I REUs of just north of 10 million ounces.

So, to my mind, I expect to gross over the life of mine about $13 billion at today's gold price. So, to me, it's a measure -- a personal measure to me of the strength of the portfolio and how well it is doing.

In slide number 30, it's a plug for the asset handbook. It came out -- it's hot off the press as of just this morning. It just posted on our website. It's a lot of work that has been put in by the management team here to put it together. I think this is something that is much more relevant than any Annual Report that is put out by any company.

And I think we've done is we've gone the extra mile in terms of trying to provide disclosure on our over 370 assets that we have in this Company. We just can't do them justice in a presentation like this.

And besides having an update, at least on our advanced and producing properties, there's about 60 of those in the book, plus there's a listing of all the exploration assets. We also have our oil and gas reserves information in the book as well as the NPVs put out by an independent consultant. Those details are there.

Last year we had a very lengthy discussion on our oil and gas assets. Really, nothing has changed. Mostly dominated by Weyburn, the resource and reserve numbers have been very stable, and so you will find those details in the book. Geoff Waterman is here, though. If there's any questions, we can talk about oil and gas.

You'll also find information in our land positions. We are up to, now, 44,000 square kilometers of lands that are covered by our royalties and streaming interests and some other corporate information. So, please, take this -- this is the bible in our Company and as I say, I think we've gone the extra mile in trying to provide you the best disclosure in the resource business.

For any of those that want to get a hard copy you can email Stefan at info at Franco-Nevada.com.

On slide number 31 it's just I'd like to take great pride -- is that I am the CEO of a Company that can differentiate itself. And despite declining gold prices, we are again increasing the dividend for the seventh consecutive year since we've come back into business. And so I think it's a great demonstration of the strength of our business model and the strength of our portfolio.

I also get challenged all the time -- I get various investors that say, what? Your yield is only 1.7%? We want more. I keep reminding them that it's because our share price has been going up over time.

Anyone who has bought our shares at our IPO six years ago is now getting almost 6% yield on their cost base from our IPO. So I think that's the much more important aspect in terms of how is that dividend growing over time, and what is the yield at any specific time.

So, anyways, it's a track record -- is driven totally by the ego of the board and management here. We hope to continue to increase our dividend going forward.

On the next slide, we have -- we will move on to our outlook and how do things look going forward. And what you can see is that for 2014, we are projecting some modest growth from our existing portfolio. And what this shows you is the various components of what we expect to be higher or lower in 2014 compared to 2013.

We have a number of new assets. Of course, those are accretive, and some other assets that are ramping up. Offsetting growth is we are again assuming Palmarejo at its minimum. If you recall, we have a minimum 50,000 ounce commitment from Coeur D'Alene. We always use that in our assumptions and Palmarejo always seems to surprise us by doing a bit better than that. But since we don't know any better, we continue to assume the 50,000 ounce minimum and we will probably continue to doing that. And I think the other changes are self-explanatory. So that's the sum up for 2014.

If you go on to the next slide, we actually pull them together in the range that we are expecting for 2014. And that's again, as I said, modest growth up to 245,000 ounces to 265,000 ounces of GEOs. This compares to the 241,000 that we produced in 2013 and 230,000 that we did in 2012.

Oil and gas revenues are projected between $60 million to $70 million, roughly where we are right now. But what we are assuming now is $95 WTI oil with a higher differential than we had last year, because that's what we are experiencing right now. So that's the best projection we can make.

We are also expecting to begin funding of our Cobre Panama asset this year. As you know, we are discussing with First Quantum some changes to the reporting and security arrangements under the existing contract. We do not expect the commercial terms of our contract to change. Based on First Quantum's publicly announced capital spending plans, we expect Franco-Nevada to contribute in the area of $200 million to Cobre Panama this year.

On slide 34 is our five-year outlook. And what we've done is we have netted out the pluses and minuses for a lot of operations and projects. Overall, we are seeing positive growth.

And for those of you that have really good memories, last year we projected exactly the same number, out five years -- 300,000 ounces to 325,000 ounces. But the big difference last year is that we expected Inmet would actually have the Cobre Panama project fully in production by 2017, and we are aiming to get an early 2016 start. And so we are factoring that into our forecast.

Now, we are only factoring First Quantum, because they are working on a longer timeline, to be only at half of their new capacity numbers by 2018. So we are reflecting only half that number in our five-year projection. So, actually, next year I am hoping when we bring all of Cobre Panama in, we will be able to show you even more growth. But this is the best expectation we can get right now.

Again, our projections for oil and gas revenues, somewhat higher -- and that's assisted by some expectation that we will get some normalizing in the Canadian oil price differentials going forward.

So, with slide 35, I am going to try to wrap this up -- at least the formal part of the presentation. And what I am showing you is our six-year performance chart. What I'm proud of is that this management team has been able to create real value for shareholders since our IPO. And we just calculated this morning our total return compounded annual growth rate for shareholders as of the close of yesterday is 23.8%. So that's something that it's going to be tough to keep it up at that level, but it's a great six-year performance number for us.

I believe that we have a business model that can continue to provide investors with a gold investment that can also provide yield and alpha to gold. We want Franco-Nevada to continue to be the gold investment that works.

And with that I think the management team is ready to take questions. We have people on the conference line. What I would like to do is -- we also have some visitors in our board room here in Toronto.

What we will do is we'll queue up some questions on the phone. But before we start that, I would like to take any questions that might be in the room from any of the analysts here. There is a microphone here -- so are there any questions in our room? Cosmos?

Thanks, David and team. Congrats on a good year. I guess my first question is, given what we've seen in the past week or so in terms of base metal prices, especially copper prices coming under pressure, there's been some concern in terms of gold companies' exposure to copper prices.

Maybe -- you talked about that as well in terms of stress testing your model. But could you give us a sense in terms of your exposure to copper? I guess what would be Cobre Panama, but beyond that as well?

Yes. Just off the top of my head, Cobre Panama, by far. But the nice thing about it is I think we are somewhat hedged, is that if they slow down the project, well, we slow down putting money into that project, because there's a formula there that basically we put in $1 for every $5 other that go into that project.

And in terms of First Quantum's spending, they have to put $3 for every $1 dollar we put in, the Koreans put another $1. So what it might turn out is that we might have a longer-term option on a very good gold deposit that will take longer to come. I am looking at it in the very long-term.

I'm not particularly concerned if it starts in 2017 or 2020 -- is that we have the rights to that gold forever and that is something that I am confident will get produced at some point.

In terms of other projects, you know, most of our gold projects are established primarily primary gold producers. I can think of Robinson, which is in material in Nevada, which is a byproduct copper operation. Our Sudbury operations which are really mostly platinum/palladium driven rather than gold and depend a bit on some nickel production and nickel offtake and copper offtake.

But beyond that, I think we are much less exposed to base metal retrenchment than almost any other company out there.

That's great. Thanks, David. Maybe another question here for those of us in Toronto and also certainly in other parts of Canada, it's actually been quite cold. I'm happy, as you said it's the first day of spring today.

Maybe this is a question for Geoff. You talk about oil and gas being 17% of your portfolio in terms of revenue. How much of that is kind of direct exposure to, A, coal gas prices? And how should we look at that in terms of what you kind of factored in, in terms of your 2014 guidance?

Thanks, Cosmos. With respect to 2014 guidance, it's based on about 12% of our volumes are going to come from gas. And that's going to generate about 6% of our forecast revenues in 2014; just directly from gas.

I was going to say it's a pretty safe assumption that to sort of have a positive impact at least on Q1 2014.

Yes.

Maybe just one last question for me -- I don't want to be hogging the mic here -- in terms of the write-down, this isn't the first write-down that we've seen. I guess the last one was also related to the Gold Wheaton assets which, Sandip, you mention that it was acquired back in 2011. What's the current carrying value now for those former Gold Wheaton assets?

Okay. So there is a slide in the appendices that does give our net book value of our assets. But in total, the Gold Wheaton assets, so including the two South African streams, is about $450 million remaining in book value. A large portion is obviously mine waste solutions and then the Morrison Levack deposit.

Okay. Great. Thank you.

Good morning, guys. I just have a question on your oil and gas division. Last year you had guided to revenues from Weyburn by 2017 around $67 million. This year you are guiding to revenues for your oil and gas business entirely as [$65 million to $75 million] by 2018.

I'm just wondering what's happened there. Are costs at the Weyburn unit going up? Or are we seeing lower rates of production at the other units? You are also using $90 last year and $95 this year, so I would've expected higher revenues.

It's mainly production is not as high as we anticipated. Synovis is the operator, has in the past tended to try to maximize production and speed up or push out that EOR program as quickly as they can.

Right now, they are taking the view on that property as a cash flowing property for them. They look at it as a cash flow machine. So they are concentrating more on just maintaining existing production, so a slower disposition of capital going forward.

So that will impact the production numbers in the future. It doesn't impact the recovery of reserves. We are just going to get them over a longer period of time.

Okay. Perfect. Thank you.

Hi, David. Can we just chat about Cobre Panama? You said that the commercial terms aren't changing, so what exactly are you working on?

Well, as we've stated, it's the reporting because what we had is our business development team -- because always a concern when we are with Inmet would they have enough money to finish off the project. And part of our deal was to say, okay, we will put in our money pro rata with you, but we want a constant test in terms of, what is the ultimate project capital going to be? And is there enough to cover it?

And as well as we wanted to see the progress -- how efficient was the money being spent? Was it being spent where we expect? So as a result we had be the ability to use an independent consultant to review the spending being put on the project. We had access to all of the joint venture monthly reports. And I think First Quantum, quite rightly, saying is we are a better credit.

Also they are not accustomed to really joint venture relationships. They want the flexibility to change the plans as they go along. So I think we are willing to be flexible on that. We hear their issue on that. They are a different company than Inmet was, so we can consider that.

And then the other aspect is that because we were providing a billion-dollar financial commitment to this project, and it was actually core for Inmet being able to proceed on the project, that we actually obtained a security -- essentially a good portion of the equity that Inmet had on the project. And they were restricted in terms of the boring capacity against that project.

Again, First Quantum is making the point is we are a better credit then Inmet. And we would like -- we think it's proper to be able to do project lending against the project, will you consider possibly going pari-passu with some guarantees from First Quantum? So we said we were willing to discuss that, and so we expect to be able to sort this out in the next few months.

What's happened is really First Quantum has been focused on a whole bunch of other issues. This has not been a huge priority. We expect it will be resolved sometime this summer.

So, the borrowing is really the big change in terms of being able to borrow against the project?

Yes, in terms of they think we have too much security relative to our position in the project, and as again, we are just going to make a judgment call. Okay, what will the new security package look like? And we have to negotiate that.

So it's just too early to say what the final outcome will be, but we are having constructive dialogue with First Quantum and we hope to resolve -- have the specific detail to you this summer. It's just First Quantum has a lot of things to do right now.

Okay. And maybe just on your acquisition strategy, I think we had talked about maybe acquisitions in the $100 million to $300 million range for you in 2014. Has that changed versus doing the billion-dollar type acquisitions?

You know, it's our sweet spot. As you saw, Teranga worked I think very well. It's a nice accretive deal for us. I think most of the things that we have on the pipeline right now are both-sided type of dimension deals.

We are working primarily precious gold deals right now, and I think the sweet spot is deals and the few hundred million dollars for us. We can build a very nice diversified portfolio that way.

Thanks. If I can quickly follow up on the First Quantum, should we expect negotiations to include conclude before you would begin making the payments that you have guided for this year of $200 million?

I think so. That's part of our handshake right now is they said because -- the handshake is essentially we don't want to do all of this extensive reporting on the project, so we are not going to cash call you right now. So, but once we can sort out what do you really need, at that point we will cash call you. So that's why we kind of judge that sometimes this year we will get a deal done and people catch up on our contribution, and that's how we have estimated that $200 million.

Okay. Thanks. And then just a couple of questions on potential deals with oil production -- oil and gas production a bit lower than you had previously expected; differentials a bit higher. It's now a slightly lower part of their revenue mix. Does that free up room to do some potential oil deals?

It does. And then there's a number of things out there, especially on the royalty side in Western Canada. It's just -- we can't do another $400 million Weyburn acquisition as we did in 2012.

But is there room for us to do another $100 million or $150 million? Yes. We could squeeze that in now, especially now that we have been adding other gold assets. So pro rata, there is room to do some smaller oil and gas asset acquisitions.

Okay. Thanks. And just lastly on the slide you give us here, the third avenue of deal flow in gold royalty stream financings, can you comment a bit? Are they -- does this just open the field to more deal potential or are these deals any more attractive inherently because of the counterparty or --?

I think what Paul was trying to get across is this opened up the universe, because before, we really couldn't do royalty and streaming deals with gold companies because that was the primary optionality.

And I think what has happened now is because of the way the markets have turned, all of a sudden gold royalty and screaming financing is actually very competitive relative to debt and equity markets. So that's something actually we never actually expected. We actually expected streaming would always be a byproduct type business and the arbitrage was on byproduct mines.

Now we are saying, geez, we are competitive right across the board. And we are competitive against project lending from commercial banks because we can make it more of a one-stop shop rather than having a syndicate.

For a couple of hundred million dollars right now, you have a very large syndicate of banks. You have all kinds of cash sweep accounts, all kinds of fees and consultants. And we are so much simpler to deal with.

And we are actually partnering with the companies and taking production risk. We will take the commodity risk, we won't require hedging and so I think companies are now seeing us as a much better alternative.

So what I'm impressed with is since we've come public with the IPO, our universe of possibilities just continues to expand. And that's why I think there's a lot more running room to grow in this Company.

Thanks.

A question on the dividend -- you had an increasing dividend for seven years now. How do you think about that going forward?

Upward and onwards. So I think one of the things, as we set our policy, is to be sustainable. We like to set at a level that we think we will never have to cut it, and progressive. So I think we had been able to achieve the progressive part.

I wasn't sure in terms of whether we would get enough deals done to justify it, but happily, we booked enough deals late in the year or early this year that the board felt comfortable. Okay, those are accretive enough. We can add a bit more dividend.

I say the future dividend increases are going to be dependent on us booking more and more assets to be able to justify those dividend increases. So I can't guarantee it, but I think it expresses that we are confident right now that we have a dividend that is absolutely sustainable at the levels we are doing it.

We have been able to increase our estimate each year. So, our ambition is to continue to increase each year.

Is there a set formula in the way that you think about it now?

No, there isn't. We don't want to tie it to earnings or cash flow or a set payout ratio, because we think that's a mistake. The last thing you should be doing is cutting your dividend with gold prices go down, because that's when investors need even more support for your share price. So we think actually having a dividend that is sustainable irrespective of the gold price makes our stock even more defensive and lower risk. And that's what we want to do is continue to differentiate ourselves.

David, does the avenue open up more potential for that to be counted as debt by any of the ratings agencies?

Maybe, Paul, you talk about it. I look at it is almost a gold loan from our part. But Paul do you want to talk about being rated as debt?

I think the most important point is the folks that we are dealing with in most of these structures are more junior-intermediate type players, so ratings for them is not at the top of their list of considerations. So I don't think that's anything that is going to affect the amount of deals that you can do in this space or not. I think if you were dealing with senior companies, yes.

I think our interpretation of the S&P when they put out their report -- or their view on streaming was they said there are elements of stream transactions that, if you have them, we would treat them as debt. So, our view and what we are trying to put out on our business model is, we are not banks that are set with a particular structure. We can be flexible on how we do our deals.

And if somebody's concern is rating, we can structure a deal where that's not going to be an issue in the particular deal. So we don't think too much about the ratings agencies.

And would you consider a big silver stream transaction?

We would consider a silver stream transaction. We don't have -- see it as a precious metal and there's obviously a good correlation with gold, so we have looked at the deals that have been silver stream transactions.

Obviously our principal commodity is gold and I think the focus of the Company will always be principally as a gold company. But if there was a good transaction that came along, we are driven in all our deals -- whether it's gold, whether it's oil or gas or other minerals, we don't start with the commodity. We start with the resource.

Our business is investing resources that we think over time have a great potential to expand. That's really where our business is successful. You know, what the commodity is, is the second consideration that goes into that.

I think the big advantage, too, of doing these going forward, loans and having the trailing royalties, is it opened up actionable deals. So for instance, you look at both Teranga and Klondex, they essentially needed a set amount of money. But if we actually made it all royalty or screaming deal it would've been too oppressive for the company -- we would be taking too much of the margin.

So, by doing it alone with a trailing royalty or stream I think is much more palatable, because often these folks would be looking at borrowing money from some other loan shark out there. And we can give them a much better rate because what we are looking for is that longer-term participation in the project. And by packaging that way, we are not running the economics longer-term for these projects. We think it's a positive for both sides.

Perhaps, operator, if there is anyone on the line that has any questions, if you could just poll that.

(Operator Instructions). There are no questions from the phones at this time.

Thank you, operator. Are there any more questions in the room?

Just thinking about the future deals and the opportunities out there, obviously everybody is looking exactly for the long life assets; the good assets so there is a lot of -- (multiple speakers)

We have a question from the phone.

Go ahead please, operator. Operator? Are we done there? Okay. Annie, why don't you go ahead there, please?

So, back to my thought -- now with the competition also being what it is today for a good asset and the rise in yields and the cost of capital going up, how do you think about the returns that you should expect for the future deals coming up? Is the profitability going to be squeezed and you really need to think about the optionality as the cream of the crop and getting your returns that way?

I think you just have to look at our more recent deals. Our returns are getting higher. And the more certainty in terms of the return and timing on those deals, the faster paybacks. I think what's been happening is that we are a reflection of the overall, I guess, competition for capital in the market that it's very scarce. And as a result we have actually been able to improve the returns on our transactions.

So I think what we are doing is we have -- always our biggest competitor has always been the equity markets and the bought deals. And you can actually imagine just about every bought deal that has been announced the last three months, we had a term sheet for. But we were knocked out by the bought deals instead.

And I think that's fair enough, but there will be opportunities for us to be able to exercise our business. And what I'm pleased about is we are getting better deals now than we did in the old days, albeit not the long-term assets you are talking about. But again, they have that fantastic exploration optionality, either in Senegal or in Nevada, that we really love. So we actually do think there are going to be longer terms, it's just we can't measure them today.

So are we seeing a lot of head-to-head competition with other royalty companies? Not really. Two years ago we had almost a dozen little royalty companies being financed in the market. Just about all of them are orphans today and they are being asked to be acquired.

So I see, if anything, my hope is that actually the royalty companies as a group will actually start acting like commercial bankers and would begin to actually starting to syndicate deals between each other. But none of us is taking a disproportionate risk, and yet we can make even more material deals and financings for operating companies.

And so I see that as another avenue -- that will be the fourth avenue of growth for our business. And so what I like is we are finding new ways to continue to grow our Company, even though we are a $7 billion market cap Company today.

What is your total capital or cash commitments for 2014 and 2015 right now?

We are estimated $200 million for Cobre Panama, and oil and gas will be $4 million in terms of capital required. Beyond that, there's nothing else except the [$400] we pay on some of our streaming assets. So we will pay our streaming requirements. And then I have to pay salaries I guess for management, but we are going to be down 10% this year -- so very proud of it. So cash-wise we are down to about $15 million all-in to run this Company. And we got actually a great lease on these new offices here, so it's not as expensive as it looks.

(inaudible - microphone inaccessible)

2015 is [280], I think. We are guessing, and about [280] the year after, I think, based on the First Quantum schedule. I suspect we will get more refined as First Quantum refines their spending plans as well, and so it will change but it's the best estimate we can give you right now.

So the nice thing about it is at least this year, we are funding Cobre Panama just out of cash flow. And next year it might be a bit more than our free cash flow on the dividends, but it's really a future investment for us.

What I would like to do is, if there is no other questions I would just like to thank everybody. I think this has been a new arrangement. We have invited people to participate essentially in our conference call in our board room to take advantage of the large rental space we have here. So I think it has worked very well. We will consider doing it again in the future.

As well, as we don't do a really extended analyst day or investor day dissertation, because we think everything is in the book that has come out today. So I encourage everybody, it's much more valuable than any Annual Report. Please take one of those; it will answer most of your questions.

Management is available after this call. We have a few refreshments out here for the people that are in our boardroom.

And then we are inviting everybody for our next quarterly results. Our first quarter results will be released after the market closes on May 7. And on the same day we are having our annual general meeting, which will be at the TMX Broadcast Center here in Toronto. So, all of you are invited for that and we will have some refreshments after that, as well.

So, thank you very much and we look forward to the next call. Bye-bye.

This concludes today's conference call. You may now disconnect.