Franco-Nevada Corp (FNV) 2014 Q4 法說會逐字稿

Good morning. My name is Sharon, and I will be your conference operator today. At this time I would like to welcome everyone to the Franco-Nevada 2014 Results and Investor Day Conference Call. All lines have been placed on mute to prevent background noise.

(Operator Instructions)

Thank you. Mr. Stefan Axell, you may begin your conference.

Thank you operator. We are pleased that you have joined us today, either in person here in our Board room, or over the phone for the Franco Nevada 2014 Results and Investor Day Conference Call. Accompanying our call today is a presentation, which is available on our website at Franco-Nevada.com, where you'll also find our full financial results, as well as a copy of our updated asset handbook. We estimate today's presentation will be slightly longer than our regular conference call, as we will be providing an update on our various business segments. This will be followed by Q&A for those people here in the conference room, as well as those participating over the phone.

Before we begin the formal remarks, we would like to remind participants that some of today's commentary may contain forward-looking information, and do refer people to the cautionary note on Slide 2 of our presentation. For today's presentation our entire Executive Team is available, as well as our Management to answer any questions over the phone or here in person. I'll now turn it over to Sandip, CFO of Franco-Nevada, to review our 2014 results.

Thanks, Stefan. Technical difficulties two years in a row. Thank you everyone. Thank you for joining us this morning. As you will have seen from our press release yesterday, the Company did release our results for the fourth quarter as well as for the full year 2014. Again, strong results across all of our key financial metrics.

Before I do get into the specific details of performance in 2014, turning to Slide 6 you will see a chart where we highlight our revenue and our adjusted EBITDA for the last seven periods, seven years, which is 2008 to 2014 -- 2008 being the first year after our IPO. As you can see, significant growth over this period. Revenue's gone from $151 million to $442 million in 2014. Adjusted EBITDA $127 million in 2008, to $357 million in 2014. Significant growth over this period; the Company continues to deliver.

In 2014 in general, revenue was up 10%, despite a 10% decline in the average gold price for the year, which was $1,266 for the average price; and adjusted EBITDA also up 10.7% year over year. We put on this red line. The red line depicts the average gold price for each of those periods.

As we all know, in the fall of 2011 we hit $1,900 an ounce in gold, which was the highest; but that carried on into the early part of 2012. In 2012, the average price was actually $1,669, I believe. With $1,266 in 2014, that's a 24% decrease in average price over that time frame, yet our revenue has remained fairly stable with a significant increase in 2014. We've continued to grow our revenue and adjusted EBITDA, even during a low-commodity price environment.

Turning to Slide 7, in general in the mining industry 2014 was again another difficult year. From operating companies maintaining cash or maximizing cash, maximizing returns to the juniors and development companies trying to raise capital and stay afloat, Franco-Nevada was very busy.

I think for the last few years we've been saying the business development team has been very active, and I think 2014 showcased that. A number of significant transactions occurred during the year, the biggest of which was Candelaria, the $648-million stream that we purchased from Lundin Mining on their Chilean property. We committed in excess of $900 million of capital in 2014.

I think what's important to note here is a number of these transactions were immediately accretive -- GEOs revenue and adjusted EBITDA to the Company in 2014. With the outlay of capital we did do an equity raise in August for $500 million US to replenish the balance sheet. At the end of the year we still have in excess of $650 million of working capital to deploy.

In general 2014 performance, obviously a year ago this time we provide guidance for the year. We provided guidance of 245,000 to 265,000 GEOs. That was using prices of $1,300 gold, $1,400 platinum, and $725 palladium. I'd say the average prices for the year were somewhat close to those prices that we had estimated. Our actual production of GEOs excluding Candelaria was 273,000 GEOs, so we exceeded the guidance we did provide. When you add in Candelaria, additional 20,000 GEOs. 293,000 for the full year.

On the oil and gas side, we had given a range of $60 million to $70 million in revenue, using a $95 WTI per barrel price for the year; actual, $74 million. Again on the oil and gas revenue side, we also exceeded our guidance.

In terms of our GEOs, turning to slide number 9, has a side bar chart showing our GEO growth for 2010 through 2014. As you can see, significant growth here, as well. 156,000 GEOs in 2010 to 293,000 in 2014. That's an 88% increase over that time frame. If you just compare 2013 to 2014, it's a 21.5% increase year over year. More importantly, the actual gold GEOs related to our gold assets is up over 26% during this period.

How did we accomplish this? Obviously as I mentioned, the business development team has been busy on accretive transactions, Candelaria being the largest. Even though we closed that deal in November of 2014, it was effective July 1. From July 1 to the end of the year our attributable production from the property was actually 36,000 GEOs, which was within the range that we provided at the time of doing the transaction of 35,000 to 40,000.

However, due to timing towards the end of year and when shipments were made and payments received by Lundin, the actual amount of GEOs that Franco-Nevada received for the six months was 20,099 GEOs. That additional difference of 15,000 approximately carries over into 2015.

That's not to say that that's a catch-up payment that's particular to 2015. We would expect the same time lag to happen at the end of 2015. Some of the attributable production of 2015 will then move into 2016. I would not anticipate what our guidance is and then adding an additional 15,000 ounces for Candelaria.

One of the other transactions we did was Teranga with Sabodala -- six years of 22,500 gold ounces per year, with a stream on the back end. That deal was effective February of last year, so we received 11 months of fixed ounces, so 20,625. That added to our growth for 2014. Obviously per the late transaction we completed in 2013 added last year, as well as the Fire Creek/Midas transaction, which was just under 6,800 fixed ounces in 2014.

Within our existing portfolio, our Canadian NPIs, in particular Hemlo and Musselwhite, did very well for us in 2014. With the weakening Canadian dollar and increased production and cost containment, those NPIs delivered better than what was expected. I would expect the same in 2015.

On the downside, two properties in particular, Gold Quarry, where we do get a minimum. The minimum was lower in 2014, so we were expecting a decrease there year over year. Then Palmarejo. Palmarejo we always envision 50,000 ounces. They happened to do significantly better in 2013, not as well in 2014, so there was a down-turn on the Palmarejo asset, as well.

With respect to oil and gas, production levels were pretty constant throughout the year. Obviously the impact was on the price dropping in the second half of the year.

Slide 10 provides a lot of numbers it's our financial results across our key metrics. I won't get into the detail, but what I would like to point out is that we did achieve record on a number of our metrics -- GEOs, revenue, and adjusted EBITDA for both the quarter and for the full year -- again, during a lower-commodity price environment, so our assets continue to perform well. I think it showcases the strength of our business model, as well as the diversity of the portfolio.

Net income for the quarter was $1.2 million. We did book an impairment on one of our assets, which I will talk to shortly. But when you do back that out, adjusted net income for the quarter was $31.6 million, just slightly higher than prior year. Then on a full-year basis, basically flat -- $137.5 million versus $138.3 million a year ago.

In terms of revenue sources, we put up a fourth-quarter slide versus a full-year slide. We think fourth quarter represents going forward, with the addition of Candelaria and the down-turn in the oil and gas market, how we envision our commodity mix to be. For fourth quarter we were 88% precious metals, with 80% of our revenue coming from the Americas, with Latin America being the largest component there, due to the addition of Candelaria.

Slide 12 is a waterfall chart showing the movement in our adjusted net income. As you can see, revenue was up 41.5%, obviously due to the increased GEOs from the acquisition, as well as our existing portfolio; small changes in income tax and other. On the cost side, depletion has increased. Our depletion per ounce has increased mainly due to Candelaria and Sabodala, and we would expect depletion to continue to be increasing in 2015 due to those assets.

Then cost of sales -- cost of sales was up year over year. I actually look at cost of sales increases as a positive. Cost of sales, the largest component is the $400 per ounce that we pay on our stream ounces. If cost of sales is increasing, that means we're getting more stream ounces for which we're paying $400; then we're turning around and selling them for spot price, so it adds to our cash flow and EBITDA.

With respect to the impairment mentioned on Slide 13, we did book an impairment on our Mine Waste Solutions asset. It's our one significant asset that does have a cap. The cap is 312,500 ounces. This was an asset that we acquired as part of the Gold Wheaton transaction. At the time, First Uranium were the operators, a true asset company, stressed balance sheet. In 2012, Anglo Gold purchase the asset -- stronger operator, bigger company, better operator. As part of that transaction, we did agree to put a cap in place.

With the down-turn in the commodity market, in particular golds, as part of our year-end process with our auditors we did do a -- book an impairment on this asset of $26.6 million. We did also book some exploration asset write-downs of $4.5 million, which is just normal house cleaning as part of our year-end process. I just want to stress with the impairment in Mine Waste Solutions, there is no impact on our GEOs, our revenue, or our EBITDA for 2015. It's a non-cash accounting impairment.

Slide 14 shows our high margin and scalability. As you can see, 2010 through 2014 revenue has increased, yet our cost structure has remained fairly stable. Obviously the variable cost is the stream ounce cost that we incur, which I look at as a positive; but our fixed cost being our G&A, basically our head counts and running this Toronto office, as well as some of our satellite offices, has remained fairly constant. I think we can continue to grow this Company in terms of assets, cash flow, all metrics, without adding to our cost structure. With that, I will turn it over to Paul Brink, Senior Vice President Business Development.

Thanks, Sandip. Good morning. Our business is investing in deposits with good expansion potential. Our philosophy is pay a good price for what's there today, but be able to participate in the future exploration success. It's a very long-term investment model.

What's important over the long term obviously is minimizing any exposure to cost inflation, and also the potential for any encroachments on the deposits. We're trying spend as much of our management time as we can on new investments and growing our business, and we try to avoid getting involved in any operations.

The application of the royalty and streaming financing model is growing broader all the time. As you know, our business started off buying third-party royalties, and we continue to do that. In most years, we add a few royalties to our portfolio. The second stream of growth was in streaming. That started off as base metal streaming, buying precious metal streams coming out of mostly copper assets for ourselves.

Then as the gold markets have turned down, we've turned to looking to finance gold companies as well, both through royalties and through streams. There have been a number of those transactions that we have done over the last couple of years. But the latest iteration of the model has been in financing M&A -- again that's both through royalties and screens. Teranga was a good example of that. The most recent example last year was us financing Lundin, helping them to acquire the Candelaria mine.

Just this week Noront announced it's got an agreement with Cliffs to buy Cliffs' chromite assets. Those assets had been put into CCAA process, so it does require court approval for the transaction to close, and we expect that to happen some time in the next month.

We are financing that transaction. We are providing a loan to Noront. It's $22.5 million. It's a five-year loan. It accrues interest at 7%. Along with that we get a number of royalties. The principal royalty there is a 3% royalty on the Black Thor deposit, which is the largest of the chromite deposits.

We're also getting a 2% royalty that covers Noront's existing properties, other than the Eagle deposit. We also get a 2% royalty on some of the other properties that come along with the Cliffs acquisition. Actually in that, Cliffs itself had a number of smaller royalties in the region, so there are actually eight royalties that come along with that package that we will also be taking on.

If you turn to the map here -- it's on page 19 -- you can see that with this acquisition, Noront really becomes the majority land owner in the whole of the Ring of Fire. Once that loan is repaid to us, what it gives us is a very low cost entry to own a set of royalties that will cover the majority of that land position.

In total it covers roughly 1,000 square kilometers. In that, what you've already got are world-class chromite deposits. You've got high-grade nickel discoveries. You've also got BMS discoveries.

If all that happened there is the Black Thor deposits got developed along the lines of the Cliffs feasibility, the life-of-mine cash flows we could get from this is in the order of $0.5 billion to $0.75 billion. This is an investment that could play out to be something like the next (inaudible) for Franco-Nevada.

We understand fully the time frame that it's gong take to develop those deposits, both in terms of getting the first nation support, and also in terms of getting the government support to put the infrastructure in place. But we think that we are one of the very few investors that's got the ability and also the patience to wait out that time frame to reap what we think will be very big rewards over the long term.

Over and above that, and in the words of Kerry Sparkes -- he looked at this and he said great camps don't reveal all of their riches in the first round of exploration. That really is all that the Ring of Fire has seen. We expect this camp, as there is more exploration, is going to reveal a lot more. We're particularly excited about the potential for additional nickel discoveries; but also discoveries in other minerals.

We have a good amount of capital available for future acquisitions. The market remains very good for acquisitions. We're seeing a number of opportunities. We also have a couple of different types.

One is a company still looking to develop new mines. The second area is companies looking to de-leverage their balance sheets. The third is, as we've been speaking about, companies looking to do M&A. They need the financing to do that and they're looking to new streams for that financing.

We're seeing opportunities across all the commodities. There are good opportunities in precious metals. We're seeing opportunities in other minerals, and in particular, seeing good opportunities in oil and gas. With that, I'll turn it over to Geoff.

Thank you, Paul. Good morning. Turning to Slide 22, what we're showing here is how our oil and gas portfolio has performed relative to oil prices. You can also see the impact that our Weyburn NRI acquisition in late 2012 has had. As noted before, we've had a very good year in 2014 for the oil and gas portfolio.

Not unexpectedly, 2015 expectations aren't that high. We've averaged about $48 WTI through to date, and our forecast, our guidance for 2015 on oil and gas, is $20 million to $30 million. That's using a $50 WTI oil price, a $7 differential, and an CAD0.80 Canadian dollar. I've noted on the bottom of the slide the sensitivities, so a 10% increase in oil price expecting about a 25% change in revenues, and for a 10% change in the Canadian dollar about a 6% change in revenues.

Slide 23, we're showing what our expected revenue mix will be in 2015 based on a $50 oil price and a $1,200 per ounce gold price. As you can see, precious metals is making up 93% of that revenue mix. If we go by our 80/20 precious-non-precious metals revenue guideline, you can see we do have some opportunities to add to the oil and gas side. With that, I'd like to turn it over to Kerry Sparkes, Franco's Vice President of Geology.

Thank you, Geoff. Good morning, everyone. It's a pleasure to be speaking to you today.

For those of you that are in the room, this is our 2015 Asset Handbook, hot off the press. It's the fourth consecutive year that we have provided the handbook. It's designed to assist both investors and analysts in their understanding of the business and portfolio assets. The book provides details on individual assets, such as location of projects, status, associated resources and reserves, royalty equivalent units, oil and gas, and additional corporate information.

I encourage you to take a copy when you leave or download it from the website. It is a real resource, and has become a mainstay of our business.

Moving to Slide 26, this slide shows the year over year growth in our gold reserves on properties where we have royalties or streams. These are the operators' reserves, and are not our attributable share; but it does provide a good measure of the overall growth of the portfolio.

Despite a declining gold price environment, we continue to see growth. This is clearly a good measure of the quality of our asset base, and our ability to replace declining assets with new acquisitions -- the result being a 1.2% increase in gold reserves, whereas the majority of the industry is suffering from a decline of reserves.

Moving to Slide 27. This slide shows the total resources attributable to the Company's associated with FNV assets. On a year-over-year basis, we are now starting to see a decline in all categories, with roughly a 6% decline in M&I and a 10% decline in inferred resources, somewhat tempered by the positive impact of our new acquisitions. The reasons are mainly due to a number of factors, including conversion to reserves, cut-off grade changes due to the decline in gold price, and to an overall decline in exploration drilling to replace those resources.

Moving to Slide 28, with respect to the positive additions for Franco in 2014, we had new assets such as Candelaria making a significant impact on our resource and reserve growth. Other notable assets with solid resource and reserve growth included Fire Creek and Hard Rock. And we saw the conversion of M&I to P&P for the first time, as the result of the completion of a pre-feasibility by Midas Gold on their Stibnite gold project, formerly the Golden Meadows project. On the down side, we saw some reserves moving back into the resource category, and some assets in decline.

Moving to Slide 29, talk a little about our royalty equivalent units. Royalty equivalent units were introduced to provide a specific measure for Franco's interest in reserves and resources within the royalty portfolio, as not all of our assets cover the entire property associated with the operators' publicly stated reserves and resources.

The REU helps reflect the differing economics between NSRs, NPIs, and streams. They all get normalized to an NSR equivalent. It's a way to estimate the portion of ounces covered by our royalties, and having a common basis for that comparison. It does have its limitations though, and I would strongly refer you to the asset handbook for a clear understanding of the REU.

Let's move to my final slide, Slide 30. Despite the declining gold price environment, we are seeing stability and a moderate growth in the areas that count for us -- a 4% increase in REUs, the 10.6 million ounces in the M&I and P&P categories, which were principally driven by the new acquisition of quality projects like Candelaria, and an overall solid asset base, with important existing assets like Sabodala and Fire Creek.

Thank you, and with that I will hand the presentation over to David Harquail, President and CEO of Franco-Nevada, who will talk about our outlook for 2015.

Thank you, Kerry. It's a pleasure to be hosting Investor Day. We were just talking a little before this that everybody does an Investor Day. I think what's really different about us is this is more of an asset handbook roll-out day. We do a lot of work on it. I think we'll be calling it that in the future, because I think it reflects something naturally different about our Company.

Also, I think what stands out listening to the presentation today is two things in my mind. One, we continue to meet or exceed guidance. It gives me great pleasure we significantly exceeded guidance in 2014. I don't believe we've never met -- any year we've never met or been short on guidance. I think on average we are generally exceeding guidance. I'm pleased about that.

The second thing is what Kerry demonstrated. We have good stability in terms of the reserve ounces associated with our properties in REUs in our portfolio, despite a very tough gold market in the last three years. Those are giving me great pleasure.

I'm going to speak about the outlook for the Company. Of course one of the big drivers for the outlook is Cobre Panama. I was just at site a couple weeks ago, and I took some terrible photos on my cell phone. What I want to do is just show you a few things that are happening at site right now.

What you can see on the first pictures is the port facilities is fully functional now. They've actually been delivering equipment to the port through the wharf facilities. The jetty is not in yet for loading in concentrates and coal. That will come out here, but that's going to come in shortly.

In terms of construction at the port site itself, you can now see the foundations are going into place for the power plant, the first two trains of the power plant. If your eyes are really good, you can see the layout now for the concentrate storage building. Also the first turbines have arrived on the property. They're sitting there. Of course a little too early yet, they don't have the steel up. You can also see a lot of the piping and the steel has already arrived on the property awaiting for assembly. We expect to see steel going up in the next few weeks. It's looking very active at site. I'm very pleased about that.

On the bottom picture you can see the man camp for running the power plant in the construction. That's fully functional now. Below it you can see the road leading out. The road now is complete between the port and the mine site. Actually you see a lot of traffic going up and down on the roads there.

The final site is there's not a lot of mining happening yet; they just had a lot of quarries. But I thought this one was representative because it's the Botija Quarry, where they're getting rock. Actually, that's going to be part of the first big pit. Our first Quantum mine, that's the Botija pit. It's right next to the mill that's being constructed.

In terms of what I was mostly focused on was the mill itself, and seeing how that was progressing. In the center you see on Slide 33 is a 3-D screen grab of what First Quantum is developing in terms of the configuration for the mill. What you can see is the stockpile reclaim, with the reclaim tunnels going underneath. You see three feeding lines going into three separate SAG mills. Alongside you can see two ball mills that will be doing the secondary grinding after that. Then here is the expansion capacity for additional ball mills down the road.

What I want to do is okay, that's great in vision but is it happening in real life? What I did was I took a couple snapshots from different angles to show. What you see here is the foundations for the second SAG mill right here, looking across to where you can see the slots coming out for the reclaim mines.

Here you can see a different angle looking at the first SAG mill foundation. Here you can see looking down south along the whole set of foundations a lot of concrete is being poured right now. You can see it's on very good solid rock. There is no shortage of quarry rock right now and cement-making capabilities.

To me, what's most important is this aerial view. What you can see is just the pictures we're looking down here. You can see the slots coming into place here. They didn't put the linings in one of them yet, but there's all three of them that are being developed. Most important, look at here. You can see all the structural steel is now laid out for the mill construction. It's going to be going up very fast now at this stage, as well. Very pleased what we're seeing at site.

In terms of we're getting close with First Quantum. What it is, this is a big commitment for us $1 billion. There's been a lot of changes to the project. We've had very constructive discussions, a lot more have been happening the last few months with First Quantum. I believe we are very close in terms of making our first funding to the project. We fully expect to commit between $300 million to $350 million to this project this year. We think it's a very important asset for our growth profile going forward.

In terms of the expected changes on slide number 34. These are the major changes we are expecting. As you've gotten the message, Candelaria is going to be a big contributor for us in 2015; but of course, as a big offset with lower oil prices. For the rest of our portfolio I'm not going to belabor them. There's lots of smaller upsides and down sides; but generally overall the GEO upsides are a lot more positive than the down sides. It's how we arrived to our numbers.

When we take everything and add it all up, we've given these guidance numbers in our press release. We're expecting about an 18% increase in our GEO guidance in 2015, but an almost $50-million decrease in our oil and gas revenues. As I've already mentioned, we expect to be funding Cobre Panama for between $300 million and $350 million.

One thing you should note is the GEO range we are providing has a lot of down side protection. Over a quarter of this year's GEO ounces are coming from prescribed ounce-delivery projects. These includes Palmarejo, Sabadola, Gold Quarry, Fire Creek, Midas. I think easier for us to forecast our projections, I think, for a lot of companies.

You might also want to note our sensitivities. At these price levels, our sensitivity to a 1% change in the gold price is about 1.1% to our revenues, and about 1.4% to our EBITDA.

Finally, our oil and gas guidance reflects our expectation that the first-quarter NRI from Weyburn will be lower than usual. That's reflecting some carry-over capital spending that wasn't done in 2014 that's being done in the first quarter of this year. You will see the first-quarter number, but it's not going to be representative of what the rest of the year looks like. We expect subsequent quarters to be better.

On Slide 36, we've done the same exercise, just extrapolating for a five-year outlook. Essentially, we're taking a snapshot of the year 2019. We expect our GEOs to grow further. We've listed here the major assumptions behind this outlook. I think we've been conservative as to which projects should be part of our production profile in the next years, and we've not included any un-permitted projects, such as HudBay's project at Rosemont.

On oil and gas, we are assuming that oil prices will recover. We can all talk about it, but we're saying $5 per year of oil price increases over the next five years. Maybe we'll get back to $75 oil by 2019. That's how we've arrived at the $75 oil price at 2019. There we're projecting $50 million to $60 million of revenues from our oil and gas division.

By 2019, we expect we will have committed our full $1 billion to the Cobre Panama project. Under our projections we can continue to pay our dividend and finance our commitment to Cobre Panama, and not touch our revolver. I'm sorry to disappoint our bankers. We expect to remain debt free.

On Slide 37 there's some listed other portfolio potential that is not being included in any of our outlooks and projections. We're seeing a lot of positive developments in exploration results. We are also very hopeful on a number of our permitting situations.

We also think some of our existing projects is good leverage for expansion if gold prices come back up. But again, we'll let the upsides take care of themselves. What we want to do is have a very realistic outlook that you can hang your hat on.

All these assets are bought and paid for, and they are not costing us any money or time. We believe there are enough good things happening in our portfolio that we'll be able to add a good number of these projects to our future outlook projection.

On Slide 38, I take great pride of being part of a Company that can differentiate itself by continuing to grow dividends. In 2014 we paid a record $117 million in dividends including our drip. In 2015 we'll be increasing our dividend, our per-share dividend. This is our eighth consecutive year of dividend increases.

I always like to remind investors the power of our growing dividend. Some people say 1.7% dividend yield is not high enough. But anyone who bought Franco-Nevada at our IPO is now getting the benefit of a 7% yield on our cost base. I think that's pretty good for a gold investment.

On Slide 39, that's just our metrics over the last seven years. Despite a global financial crisis and now a bear market for the gold operating companies, we've been able to grow our business throughout. I believe these results are evidence that we have a very robust business model and portfolio.

Finally on Slide 70 -- 40, sorry. We're not going to do that many -- is what differentiates Franco-Nevada. I think there's four categories. I believe I've got a dream Board of some of the most knowledgeable resource investors. We've got over $200 million personally invested in this Company. We think like owners.

Also our Executive Team is I think one of the hardest-working and most focused of any as out there. We're operating a larger and more diversified portfolio, yet we're doing it with lower absolute G&As compared to a comparable companies. We've been the most active as well in 2014, doing the most transactions. I think we're probably the most active of anyone I can think of in the mining business.

Three is our business model. We differentiate it. We are focused on the exploration potential in properties. We think that's where the most wealth is created. We are not financial engineers. Also, we operate with no debt. We believe there's enough leverage in this business just from the commodity cycle, rather than leveraging the balance sheet.

We also believe, as we've shown you, it's sustainable and progressive dividends, and delivering on that front. Finally, our portfolio as I mentioned is the most diversified by number type commodity with the largest position.

In terms of Board, I mentioned we are adding a new member to our Board. Catharine Farrow has actually joined us today. She will be -- hopefully the shareholders will vote for her nomination at our May meeting. We'll find out shortly Catharine. We got to know Catharine because she impressed when we were doing due diligence on the Gold Wheaton assets in Sudbury. I think we talked about trying to hire her as our technical VP, and she wouldn't go for it.

Now she's ended up as CEO of Tmac Resources and doing very well there. We've also involved her in a number of due diligence projects, because we were impressed by her capabilities. We thought this was a wonderful way to have her talents without paying her. Catharine, welcome on board.

We have very hard-working directors. We have the same thing with Louis Gignac on our Board and Graham Farquharson. We get the best advice, and we actually don't have to pay consulting fees. Looking forward to that.

On Slide 41 I will finish with our standard marketing slide, showing you our performance relative since our IPO relative to gold and gold equities. I'm proud of our Management team, and that we've been able to create real value for shareholders. From our IPO to date, we've now delivered a compounded annual growth rate to investors of over 19%.

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

With that, I think the Management team is going to be very happy to take your questions. I think we've done Investor Day in a record amount of time compared to other companies, so we want to really give a lot of space for it the G&A -- not G&A, but the Q&A. Very little G&A, lots of Q&A.

What we'll do is we've got actually a number of visitors in our Board Room. What we're going to do is take any questions in our Board Room from our visitors, and then operator, we will move to Q&A on the outside. I think right now if Stefan has a microphone if you can say who you are, and we will take your question, but we'll broadcast it for our listeners as well, on the conference line.

Thank you very much, David and team. David Haughton from BMO here. Geoff had mentioned in his presentation the scope for additional oil and gas to keep at the 80/20 ratio. What are you seeing the market like at the moment for opportunities for you in that space?

It's a very interesting market, because if you recall, our problem if you recall early last year is our oil and gas was getting too big. I know we talked to the market a bit, saying we might take some of our non-core assets because we were very impressed with the success of PrairieSky and the valuations they get.

We had a number of non-core, shorter-duration assets that we thought well if the market is willing to pay that, maybe we should just re-optimize our portfolio and get our precious metals percentage back up. Of course the oil price has now corrected those imbalances, but we never managed to sell during that declining oil price those non-core assets. We still believe oil and gas is a nice complement to our portfolio.

One of the things we think about is our oil and gas division historically has actually been there to pay our overhead, to pay our cash taxes; so all those REUs for gold essentially our investors could get for free. We think it's a wonderful time. I think what happened is the PrairieSky success story, that IPO actually got everybody else to dust off their royalty portfolios. They were all thinking of doing IPOs. But I think now what's happened is they're saying it's not realistic, but those are the first assets they want to sell right now.

There's actually been a number of packages that have come to the market recently. Of course we're the first call, because we seem to have the biggest checkbook. We are looking at these assets.

We want to stay disciplined and stay within the 20 to 80 rule. But magically we have some capacity to do some transactions right now. We are communicating. We are interested. But we are still going to be 80% precious metals longer term. That's all I can say there, Dave.

Any other questions in the room here? All right, well think about it. What we could do -- operator, if you could open it up to anyone on the line there that has questions on the conference call?

(Operator Instructions)

We have no questions at this time. I turn the call over to the presenters.

Thank you very much operator. We will take a question right here.

Hi, it's Robert Reynolds from Credit Suisse. On these $300 million to $350 million for Cobre Panama, would that include any catch-up payment for spending over $1 billion by First Quantum in 2014?

Yes, it would. We would expect $200 million roughly for catch-up payments from once they did reach that threshold above and beyond. They've guided $600 million this year as their spend, of which we're one of five; so $120 million for this year's spending. Between the two it's between $300 million and $350 million.

Stephen Walker with RBC Capital. A question on Candelaria. Are there any further updates after the press release of last night on the condition of the pit at Candelaria?

Stephen, we haven't had an update since then. We just got notice to say they obviously again have suspended things temporarily. As soon as they can address the issue, they will have the operation up and running again.

I have to say it's a bit ironic. The Atacama desert is the driest place on earth. Now the problem is too much water. At Cobre Panama, that's their nemesis, too, is way too much rain. If only could average out these two projects it would be wonderful. It's a bit ironic.

Hi David, it's Farooq Hamed from Barclays. Wanted to get maybe some more insight into the transition at Palmarejo and into Guadalupe into mid-2016 and beyond. What are the ounces that your early expectation there, of what you would see on an annualized basis?

I'm going to ask Kerry Sparkes, who has just visited the property -- but so you remember, our transaction had a minimum 50,000 ounces per year until they paid us 400,000 ounces. We think that's going to go until about mid-2016. At that point we'll hit the 400,000 cap.

Then it switches over to the Guadalupe operation. Actually, I think Kerry can talk about it. We've been actually very impressed in terms of the additional resources and drilling that's been happening at Guadalupe. When we first did our transaction, we estimated what was our return for our incremental $22 million. We think it's going to be a better return than we first estimated.

In terms of the volumes, we're expecting the second half of 2016 I think it's on average about 20,000 ounces or GEOs net to us on average for about five years afterward. It is quite a step down, but we've incorporated it in our outlook. We actually see from 50,000 to about 20,000 on average is what's going to happen at Palmarejo.

It's going to become an average asset for us going forward. I think before some investors felt have Palmarejo as our biggest cash-flow generator was risky. Well, we fixed that problem. There's a question with Don at the back.

Don MacLean with Paradigm. Maybe Dave and Paul, can you talk big picture about the strategy of these very large transactions you've done? How satisfied are you at this point. Judging from the numbers of pictures you took, Dave, you must be pretty happy so far.

Maybe talk about as you look at what you have accomplished and where it's going, how is that strategy working out, how frequently do you expect to follow that, or do you expect to? You can buy an awful lot of small royalties for that kind of price.

Thanks, Don. Overall I'd say for our strategy is -- and as you'll see, we're involved both in very large streaming transactions, as well as smaller royalty transactions. We like it that way. In a way, it's a bit of a barbell approach.

The bigger transactions tend to give us exposure to larger operations -- in the case of Cobre Panama, something that will have a lifespan that will be 35 to 50 years. In the case of Candelaria, a very well-proven mine, where we get a very stable stream of cash flow that will be in the order of 15, hopefully 20, 25 years.

On the other hand, we invest in smaller properties that at the outset don't have that sort of certainty of production or life, but at the end of the day those are the ones that can have more torque. As you well know, in the Franco story it's been the gold strikes. It's been the detours. Hopefully it will be at Tasiast, where we have made investments -- very little money down, that ultimately end up being in the order of $0.5 billion or $1 billion worth of revenue.

We found we can get up often a lot more torque from the smaller investments, but also want to make sure that we deliver to our shareholders a very stable and predictable portfolio. We can bring some of that with the bigger investments.

As we look forward, we're open to doing both. In an ideal world if we're able to do some of each, we would be very happy.

I'll add to it. We have the discussion. Some nights you sit down there -- I got -- Pierre called me a geek I think a month ago because we bought a royalty for $50,000. But my nightmare is we have this debate all the time. Have we gotten so big now that we wouldn't buy the next Goldstrike royalty, or recognize that opportunity?

That's something that at our heart, our souls are still explorationists at heart. We think we have a business model we can make money out of exploration the way we are doing it.

We've got -- I think we've built up our capacity so we can execute in parallel multiple deals. We have a fellow in Australia that's good at executing transactions. In Toronto we have an oil and gas team.

We have Paul leading essentially the big transactions team, and I'm the geek doing all the little small stuff. What I want to do is I've got a picture of Ed Horn when he was prospecting for the Horn Ore Body in [Aranda]. He's got his eyes out there looking for the outcrops along the side of the river and paddling away. What I want to do is make sure we don't miss that next big one, because we're so distracted just trying to buy cash flow.

We're adding royalties. I don't know if you've noticed on the Ring of Fire, not only do we get a royalty on the Ring of Fire, you've got eight other royalties. They came from Mac Watson's Freewest Resources. I was just talking to Mac and Clarence Stream and these other ones. We've all followed these stories, and I've got a piece of each of those now. You will see our accounts now have just gone up by another nine royalties once we close on it. We'll be up to 168 royalties.

Remember, total mining assets will be up into the 265 mining assets. Remember, when we came public in 2007, we only had 176 mining assets. I think we're progressively adding assets.

We don't put out a lot of commentary on the really small stuff; but I think what we're doing is we're always increasing our potential for up sides in the future. I tell you we get our biggest scores out of the small stuff.

David Haughton again. David, if it's okay I've two questions on the outlook for 2015 -- 1% (inaudible). Sandip, good guidance there on what to expect on the revenue side of things from you in gold. Can you give us some idea what to expect for depreciation and tax rate into 2015?

Tax rate I would expect it to decline just because of Candelaria, and we've structured that through Barbados. I would model 25% to 26% as an effective tax rate. As for depletion, obviously there will be an increase, just because of the Candelaria per ounce.

At this stage I don't want to give a range, but we did $163 million in 2014. I would see it in excess of $200 million for 2015.

The other one for Geoff, if that's okay. Guiding down on the oil revenue, obviously part of that is going to be the oil price. But is there any shutting off production you are seeing, or is it a combination of shutting off production and also some more weighting of costs coming through for lower contribution from the MPIs?

You've got that right, David. The production we don't see any shut-in so far. It is that on the MPI or the NRI. It's those costs coming through.

Hi, this is Leily from BMO Asset Management. Given that you seem to be obviously very excited about opportunities in oil and gas, I was wondering if you would comment on your views about oil and gas prices, where you see the commodity going versus other commodities?

We can't -- I guess the hardest part is how you value the assets going longer term. I think you've seen what we are putting out for five years from now, the $75, we're thinking is a reasonable longer-term projection, if we're going to have to assess assets. I think everyone is in accepting mode now. The next few years is going to be no major catalyst for the oil prices, so that's -- we're reflecting in our guidance for this year.

I can't offer you any more wisdom. I don't think Geoff can either, in terms of the market. We have Derek Evans on our Board and also Tom Albanese with Vedanta. They're both going through the same issue of their own planning, and how do they value assets, and they have to look at impairments, too.

What do you tell your auditors you're going to say is the longer-term oil and gas price assumption, using what's the right valuation for your assets in the longer term? We had a very good discussion, I think, during our audit committee meeting two days ago.

I think they're no closer to any clairvoyance on that subject. We're just guessing right now.

Hi, Robert Reynolds again with Credit Suisse. To follow up on the tax question, Sandip, did you say 25% to 26%?

Yes 25% to 26% I think our effective tax rate normalized. If you back out the impairment for 2014 it was 28%. With Candelaria within the Barbados structure it should come down a little bit.

Would that tax rate approximate the cash tax?

No, cash tax will be much lower. 2014 our cash taxes were $22 million, about $45 million the year before. We had some refunds last year. I would expect $40 million to $45 million for cash tax for 2015.

A question -- this might be for Lloyd on the Karma project. Could you talk about the type of securities you have in that agreement again, just a refresher?

We have a very fulsome security package for that transaction. From the subs all the way down to the asset level we've got share pledges, and then actual asset-level security.

The asset-level security will be in Burkina-Faso; so it would be local law governing there. Up the chain you're going to be with the subs in the various jurisdictions they're in.

I'm delighted with that question, because Lloyd was the most shy of my executives. He didn't want to participate today, so at least we got him on the speaker phone today.

Dave, it's Stephen Walker here again. On the write-down, the adjustment impairment at Mine Waste Solutions, can you talk a little bit about was that a RAN -- driven by the stronger RAN, driven by operating issues? What was the driver there?

Yes. Under Italian rules you have to have a trigger. You've seen operators take write-downs based upon the decrease in the gold price over the last two to three years.

We don't take that view, because we do have optionality in that the additional ounces found on properties we're not paying for. We can always put a multiplier on our NAVs and our book values, the NAVs are higher.

With Mine Waste Solutions, because there is a cap of 312,500, that optionality does not exist there. With this depressed gold-price environment, that was the trigger for us that we did have to go through an exercise.

It's steady-state, 25,000 roughly per year production for GEOs to us. When you run that out, it just worked out to a $26.6-million impairment that we recorded. But operationally it's working fine. Anglo's committed to it. It's no issues.

If you remember, originally that was a Gold Wheaton asset. It was only dependent on the First Uranium dumps there. I think what we've had now is a much more steady operation, because Anglo is now producing also from their dumps. Some of them has actually been better quality than the first Uranium Ones.

We had a much more dependable through-puts. We've actually pleased, as Paul was just visiting there. But I think it was the right call for us. The only way we can actually apply our royalty on Anglo's dumps was to put that cap in. I think it's been the right call for the Company.

Question probably for Sandip. This is Anita Soni from Credit Suisse. On Candelaria, the time lag. How -- is it a specific amount? Would you expect to close with the issues of the rain that are happening now?

Basically, for the six months, our share of production was as I said 36,000 GEOs. We received a portion of that, so anything from say mid-November onward fell into January, in terms of ounces. We've received those ounces, but then I would expect the same thing at the end of this year, say from mid-November any concentrates shipped, we're not going to get paid until 2016. As for the rain, as Paul said, we don't have any insight into how long it's going to be shut down, what's going to happen there.

So a permanent six-week lag then?

Yes, the time frame in terms from when Lendin records sales and ships to when we get paid is anywhere from 45 to 60 days.

Thank you.

Any other questions? I think one more operator if you could check again if there is anyone on the line. Otherwise, we will wrap up our Investor Day, and we will have done it in just under an hour.

(Operator Instructions)

We have no questions over the phone line at this time.

Thank you, operator. Last call. Any questions in this room? Otherwise what I would like to do is don't forget your asset handbooks. Poor Stephan. He's lost a lot of sleep in the last two weeks to try to put this out on a timely basis for you. If anyone is on the line, please email us at info@franco-nevada.com, and we will send you -- be happy to post a copy to you.

We'll be releasing our first-quarter results after the market close on May 6, as well as hosting our Annual General Meeting, so come out and vote for Catharine as the new Director. We look forward to seeing you there. Thank you, and please come and join us for some refreshments.

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