Franco-Nevada Corp (FNV) 2015 Q4 法說會逐字稿

Good morning. My name is Chris and I'll be your conference operator today. At this time I'd like to welcome everyone to the Franco-Nevada Corporation fourth-quarter results conference call.

(Operator Instructions)

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

Thank you, operator. Good morning, everyone.

Thank you for joining us this morning either in person or over the phone to discuss Franco-Nevada's 2015 results.

Today's call will be a little bit longer than usual as we have a number of other items to discuss. Accompanying our call today is a presentation, which is available on our website at franco-nevada.com, where you will also find our full financial results, as well as an updated edition of our asset handbook.

We would like to remind participants that some of today's commentary may contain forward-looking information and refer you to a detailed note on slide 2 of our presentation. We have our entire executive management team here participating during the call, as well as Jason O'Connell who will highlight our oil and gas interests, as well as Philip Wilson who will discuss some of the changes to our portfolio year over year.

I'll now turn our call over to Sandip Rana to discuss our 2015 results.

Thank you, Stefan. Good morning everyone.

Before I get into the numbers I just want to look back at 2015 as a whole for the mining and energy sector. And if you would look at the mining and energy sector for 2015, you would have seen continued volatility in commodity prices, liquidity issues with some companies, depressed share prices, and just an overall negative sentiment for the sectors as a whole. But I think what 2015 showcased for Franco-Nevada was the strength of our business model, the quality, the diversity of our asset base, the strength of our balance sheet.

And I think that is reflected in the number of GEOs that the Company earned during the fourth quarter, as well as for the full year 2015. If you turn to slide 6, you will see our performance compared to our guidance that was given a year ago.

We had guided the Street to 335,000 to 355,000 GEOs for the full year. This used pricing of $1,200 gold, $1,200 platinum, and $750 palladium per ounce. As you know, prices did average lower than this.

And if you exclude the Antamina acquisition, we did come in at the top half of the range; 347,000 GEOs to our account for the full year. When Antamina is included, we surpass 360,000 GEOs for the full year. So performance was very, very good.

On the oil and gas side, we had guided $20 million to $30 million in revenue for the full year. Again, we came in at the higher end of the range; $28 million to our account in revenue for the full year for oil and gas.

As you turn to slide 7, we highlight the GEOs that we've received over the last five years. And if you compare us to 2011, we had approximately 230,000 GEOs to Franco-Nevada. And if comparing that to the 360,000 that we received for the full year 2015, that's an excess of a 50% increase to our account.

What I would like to point out is that the number of gold ounces that we actually received in 2015 is higher than all of the precious metal ounces that we received in 2014. So significant growth with respect to our gold ounces; and as you can see from the chart on slide 7, the silver component has increased significantly as well, obviously due to Candelaria and Antamina and year-over-year 22.7% increase in GEOs.

In terms of where the movement was with respect to our GEOs, slide 8 highlights it through this waterfall chart. As you can see, GEOs did increase from 293,000 to just over 360,000 for the year.

On the negative side, you can see that our PGM assets did deliver less. It's a combination of two things; one being lower production, but more importantly the impact of the lower platinum and palladium prices. When converting that revenue to GEOs, the ratio of platinum/palladium to gold price did decrease resulting in less GEOs to our account.

But this was more than offset by the additional ounces we received from Antamina. Antamina delivered in excess of 1 million ounces of silver to Franco-Nevada in Q4.

This equated to just over 13,000 GEOs, and we received the full benefit -- the benefit of a full year of Candelaria, which in excess of 66,000 GEOs to our account in 2015. So our assets performed well. The new acquisitions performed well.

Our GEOs increased significantly. But the impact on our financial performance was not as strong, and this is due to the continued weak commodity prices.

Turning to slide 9, you can see we highlight the changes year over year for both the fourth quarter 2015, as well as the full year 2015, and you can see that they're all on the down side. The largest being obviously oil, which decreased significantly; 30% for the quarter and just under 40% for the full year.

I guess one positive is that the first quarter of 2016 has shown some positive momentum with respect to commodity prices, so we hope that does continue. Slide 10 breaks down our revenue between precious metals and oil and gas.

On the revenue side, 2015 was the first year that we surpassed $400 million in precious metals revenue despite the down tread in the gold price, which is highlighted by the black line on the charts. To put it in perspective, in 2011 if you were to take that average price of gold and apply it to the GEOs that we earned in 2015, we would have recorded a n excess of $550 million in precious metals revenue in 2015.

As mentioned, oil and gas, the oil price decreased significantly in the year which did impact our oil and gas revenue. And we had it drop from $73.9 million to $28 million in the year. Slide 11 highlights the key financial metrics for the Company.

I'm not going to get into the detail, but there's a few numbers I would like to highlight. Obviously, the gold equivalent ounces, which we put in the square boxes, both records for the Company for the fourth quarter as well as for the full year. Approximately a 15% increase for the quarter year over year, and approximately 23% year-over-year increase for the full year.

You will notice that we did record a net loss for the quarter of $31.4 million. This was due to some impairments that were recorded on some oil and gas assets, as well as one mineral royalty asset. I will talk to those impairments shortly.

Two other items I would like to mention. One being our corporate G&A. Our corporate G&A for the year was $18 million, approximately. That compares to $15 million back in 2008. So not a significant increase. But our revenue over that time frame has gone from $150 million to $450 million, approximately. So it just shows you the scalability of our business and how we can grow this business without adding significant cost base.

Secondly, as you know, we did draw down on our credit facility in 2015. At the end of the year we did have $460 million in debt. We have paid off $230 million of that, so as of today we still have $230 million of debt drawn under the facility. It is our intention to pay this off prior to March 31. So as of March 31 we will have a debt-free balance sheet again.

Turning to slide 12, it's a waterfall chart which highlights the change in adjusted net income from 2014 through to 2015, the largest components being an increase in depletion. As we buy more streams, the larger dollar value transactions that we have been doing, our depletion will increase; and it did go up $47.8 million during the year.

Our cost of sales also did increase during the year. I look at an increasing cost of sales as a good thing. The largest component is the stream cost, where we pay the ongoing payment per ounce. There's two types; obviously there's the fixed, where we pay $400 per ounce for gold and $6 per ounce for silver. And there is the one where it's a percentage of spot price.

So if this number is increasing it means one of two things. Either commodity prices are rising or that we're being delivered more stream ounces. I actually consider it a good thing if cost of sales is increasing for the Company.

Those negatives were partially offset by lower income tax expense due to the lower taxable income. Slide 13 breaks out the revenue sources for the Company by commodity and geography.

For the quarter, 95% of our revenue was generated by precious metals with 84% coming from the Americas. If you recall, in mid-2014 we had less than 80% of our revenue coming from precious metals. As you can see we're over 90% now. Two components: one being obviously lower oil and gas revenue, which makes up 3% of our revenue for Q4. But more importantly is the addition of Antamina and Candelaria, additional precious metals assets.

Slide 14, quick just summarizes the impairments that we did record. On the oil and gas side, $51.4 million impairment taken, predominantly related to the Weyburn Unit and Midale Unit. We do have some small royalties there, but the largest components are working interest as well as an NRI royalty at Weyburn. The lower oil price does have a larger impact on the economics than a typical royalty does.

As a result, we did record the impairment. The assets themselves are still performing very, very well. We also recorded an impairment on our Phoenix royalty that is held by -- the property held by Rubicon Minerals for $11.4 million. As you know Rubicon did reduce its resources on the property by an excess of 90%. We hold a 2% royalty here, which we bought a few years ago.

Our royalty is on title, so whenever this deposit is mined, whether it's Rubicon Minerals or some other operator, our royalty will be paid and we will collect our royalty payments. So it's just a question of time. I would like to point out that there is no impact on 2016 revenue or adjusted EBITDA by recording these impairments.

And again, slide 15 I would just like to again stress the scalability of our business. Our fixed costs, which is our corporate G&A highlighted in the blue, continues to remain fairly stable. Stream costs are increasing, but as I mentioned it's not necessarily a negative. And our revenue has remained stable, despite the reducing gold price over this time frame. Margins still in excess of 75%. So we think we can add more assets and grow our business without adding significant headcount or cost to the Company.

And with that, I will turn it over to Paul Brink, Senior Vice President, Business Development.

Thanks, Sandip. Good morning, everybody.

We've been on a journey at Franco-Nevada, and none of us could have imagined how it was going to unfold, and certainly not how much it was going to grow. As you well know, in the old Franco the principal business was buying third party royalties and we keep doing that business.

Cerro Moro, Brucejack, Hardrock are some examples of assets we've invested in that are advancing towards production. We then got into the business of doing streams and financing new mines into production. That started off with byproduct financing, Cobre Panama's a good example. But then we added on to that being able to finance new gold mines and Karmas. That has been advanced by True Gold, is one of those.

Then we got involved in M&A. We helped in particular Lundin acquire Candelaria, and then most recently have helped Teck and also Glencore in recapitalizing their companies and have been able to get streams on assets like Antamina and Antapaccay.

In the last few years we've been able to invest in what we believe will be four of the world's top 20 copper mines. First of these was Cobre Panama; it's a development project. Once it's in production it's an asset that will generate streams for us over 30 to 40 years.

More recently, though, we've been able to invest in not only in top tier assets but in operating assets. It's an opportunity we never imagined that we would have. These are assets that have got proven operating parameters, low cost, and importantly in doing the transactions we were able to get cash flow immediately from them.

To add on top of that, when you look at these assets the long life of these assets gives us tremendous option on the gold price. And there is great exploration upside. Already on Candelaria, Lundin has had great success in exploring the underground there. And on Antapaccay and Antamina they both own huge property positions, extremely prolific trends, and on both of them you can already see they've got big targets that are on their properties.

To quantify the impact of these investments on our Company, if you take our base ounces prior to doing them, it's 273,000 ounces, or 273,000 GEOs. The added GEOs just from those four transactions is just over 260,000 GEOs. We're roughly able to double the amount of GEOs that we had with these transactions. The total cost for us in doing that is $2.76 billion.

Slide 20 has got a summary of some of the recent portfolio news. In this downturn there hasn't been a lot of exploration activity, but we've still seen good exploration success on a number of the properties that we got royalties on. I'll just touch on a couple. One of them that's been exciting has been Lake Shore's discovery of the 144 GAP zone.

It's a zone that's going to add to the mine life of that asset very meaningfully. We think it's one of many of those type of deposits that Lake Shore will be able to find on what they have, a very big property position in the Timmins camp. And we think Tahoe probably has a very similar view to us.

The second that will be particularly meaningful to us has been the discovery of West Detour by Detour Gold. With that they've recently been able to put our their revised mine plan that extends the mining there out 23 years. It's been a great catalyst for their share price, and we hope to see a bit of that trickle through to ours.

Fewer new mines are being built in this environment, but we have seen a good amount of brownfield activity on assets. We're looking forward this year to a couple events. Newmont should be making a decision on Subika, and that's both the mill expansion plus potentially the Subika underground. Also Kinross has been studying the expansion of Tasiast to phased expansion, the first part smaller, but possibly a second expansion that would take it up to 38,000 tons per day. If that happens, Tasiast will be a very meaningful contributor to our portfolio.

With time, royalty and streaming financing has proven out to be a very effective financing tool. This is a chart I saw recently. It actually came out of a Scotiabank equity research -- thank you, Tanya. It covers the -- and what it is, it's a chart of the intermediate and the junior goals, and really was just saying who were the top performers over 2015.

I was really thrilled in seeing the list in that if you look at the top five there, four of those are companies that we have over time financed through royalties and streams: Detour Gold, Klondex, Kirkland Lake, and Lakeshore Gold. The fifth one there, Premier Gold, we didn't actually finance them, we bought a third party royalty on their property.

On a slightly different note, with the bump up in the gold price we've seen the first round of M&A financing. And again, companies that we've done royalties and streams on have proven to be attractive targets. So we've seen St. Andrews being acquired by Kirkland Lake, Lakeshore has been acquired by Tahoe, and now just recently True Gold has agreed with Endeavor in a transaction with them.

So royalties is a financing model. They're more flexible than debt, they're less dilutive than equity. It is a financing model that is working for our partners, and that really is what's driving the growth of our Company.

Turning to available capital on slide 22, we've always managed our balance sheet conservatively, but we want to make sure that at any point in time we've got multiple avenues for raising capital for doing transactions. In financing, the Antamina transaction, we used our debt facilities to do that.

And then we're shortly after that on the back of the Antapaccay transaction able to raise equity, repay that debt, and bring our debt back down to balance. Dave would like us to say rather than using debt we were just using the credit card. With that done and having raised that additional capital, we've been able to -- we'll be able to reduce the debt, pay it off, and it leaves us with $1.2 billion of available capital for new transactions.

We're seeing a good amount of opportunities across the board, and that really is the full gambit. There are transactions out there that are refinancing transactions in the mold of an Antamina or an Antapaccay. There's some potential M&A transactions. There are new mine financings, both gold and non-gold. There are third party royalties out there, and also in doing these recent precious metals financings, we've now taken the precious metal component of our revenues close to record levels. So if we do see a run up in the gold price here, and we see attractive opportunities in the non-gold sector, we've got lots of room to be able to do those transactions, as well.

With that, I'll hand it over to Geoff to speak about oil and gas.

Thank you, Paul.

Before we proceed with the oil and gas presentation, I just want to take a moment here to let everybody know that after 24 years starting with the old Franco through the Newmont years and the last eight wonderful years here in the current version of Franco, I've decided to move on and retire, and I'll be stepping down at the end of April. At that time Jason O'Connell will come in and take over responsibility for the management of Franco's oil and gas assets.

Jason's been with us since 2008. He joined our business development team then. In October of 2014 his focus became 100% on oil and gas. And when I step down at the end of April, he will assume the title of Vice President of Oil and Gas for Franco.

So at this time I'd like to bring up Jason and have him proceed with our oil and gas presentation. Thank you.

Thanks, Geoff.

Interesting time to be starting out in the oil and gas business with commodity prices where they are. So we carried out an exercise this past year to re-evaluate and recategorize how we count our oil and gas assets, really just to bring it in line with how we look at our mineral assets.

Formerly we simply counted the number of royalty contracts that we had in oil and gas; it was a straight count for those contracts. However, as we started to look at those contracts, many of them had multiple royalties covering the same land area. For example, you may have a 5% royalty on oil, 10% royalty on gas, and maybe a working interest, but they would all pertain to the same land area. And in addition to that, you sometimes had different royalties covering different geologic horizons at depth.

So you might have seven or eight different contracts all with respect to the same land area. And so what we did was we grouped all of those together into really geographic areas. We thought it made more sense to look at it that way. The results of that exercise resulted in a change and a reduction in how we count our assets.

So we now have 59 producing assets, six of those are considered significant revenue generating assets. Those would be Weyburn, Midale, Edson. Then we have 53 other producing assets, which are smaller assets generating smaller amounts of revenue for the portfolio. They're located across the Western Canadian sedimentary basin. And then we have 19 exploration assets, 17 of those are in Western Canada and then we have some leases up in the Canadian arctic, as well as in Quebec with some exposure to the Utica Shale.

The map on slide 24 shows the location of all of those assets that we've now highlighted. You can see the oil assets depicted in green, gas assets are depicted in red.

As of last quarter, 94% of the revenue came from oil assets, so it's very heavily oil weighted. The Company lands are shown on the map in blue.

We have over 1 million acres of land again in Western Canada. And lastly, it's a long life portfolio. The GLJ, our reserves evaluator, has a reserve life index for our assets of 18 years on the proved and probable basis.

On slide 25 there's just a chart of revenue going back to 2010, along with the WTI price for oil. You can see that in 2013 there was a significant increase in revenue due to the acquisition of the Weyburn NRI followed in 2015 by a significant decline in revenue as a result of the drop in commodity prices.

We provided guidance for 2016 of $15 million to $25 million, and that's assuming $35 a barrel of WTI, a $3.50 price differential for Canadian oil and a [$]0.70 dollar. The majority of our revenue is top line revenue, with the exception of the Weyburn NRI which we report net of capital and operating costs.

And that introduces significant leverage into the portfolio. We've provided some sensitivities for you for our 2016 guidance. A 10% increase in the price of oil would result in about a 23% increase in revenue.

A 10% increase in the Canadian dollar would result in about a 15% decrease in revenue. As Sandip mentioned earlier, on slide 26 we have taken some impairments in oil and gas. Those were with respect to Weyburn and Midale. The total amount of that impairment was $51.4 million, most of which is attributable to Weyburn. The impairment really was due to the sharp fall off in commodity prices, and we arrived at that impairment by comparing the net asset values provided by GLJ and the reserve reports with the carrying values that we had on the books.

Despite the impairment, these are very high quality assets. They've produced at very steady rates over many years, and we expect they'll continue to do that in the coming years.

They're very low decline rates on the order of 2% or 3% versus what we see in Western Canada or in the US of anywhere from 15% to 20% or even 30%. These will produce steadily for a long period of time. They have strong economics.

They're low cost. Weyburn is a -- well both Weyburn and Midale in fact are injecting CO2 into their reservoirs to help recover the oil, and that contributes to that low cost profile. Weyburn has an operating cost right now of about $15 a barrel. Even if you lump in sustaining costs, sustaining capital and CO2 purchases, the all-in costs are still at a level where these assets are generating positive cash flow even at the low oil prices that we saw earlier on in the year.

And lastly again, they're long life assets, as I mentioned earlier. Weyburn has a reserve life index of 20 years, which basically means that at current production rates it will continue to produce for 20 years. In reality it will produce for more much longer than that, given that those volumes will decline over time and that will expose the asset to hopefully several commodity cycles in the future.

Lastly, on slide 27 it's just a snapshot of the market for oil and gas right now. It is a very active market, particularly with respect to oil and gas royalty packages. In 2015 we did add a small piece of Weyburn into the portfolio. It was a 0.29% working interest that we added by exercising a [rofur] for $6.4 million. That brings our total working interest up to 2.259%.

There are also several other packages that have come onto the market in the last year and been sold, and in addition to that there continues to be sets that are in the market with Penn West and Husky looking to sell their royalty portfolios. There are a lot of opportunities out there. We continue to assess these opportunities as they come by. As Paul mentioned, with the decline in oil prices there is room to add non-gold assets into the portfolio, and we may do that in the form of small tuck-in transactions if they arise.

With that, I'll turn it over to Phil Wilson to talk about gold ounces and REUs.

Thank you, Jason, and good morning, everyone.

The next few slides, what we're going to look at is reserves and resources associated with some of our key assets and the royalty equivalent units. But before that, we just want to take a brief moment to roll out our new 2016 asset handbook. It's published this morning, I believe it's the fifth year that we've published this book.

It really is the go-to guide for our business, and includes updates on our key mining assets, oil and gas, royalty equivalent units, and a host of other corporate information. We do encourage you to take a look at this. It's available in hard copy through our offices or you can download it from our website.

Slide number 30: this shows the total reserve ounces on key properties in which we have an interest.

But for the first time we're actually showing silver expressed as a gold equivalent in order to capture primarily Antamina, but also contributions from Cobre Panama, Candelaria, Antapaccay, Midas, and a bunch of smaller mines, as well. Now the advantage of showing a simple count of this nature is that the information is based entirely from public data, and it gives you an indication of the level of activity in our portfolio.

The disadvantage, however, is that it doesn't tell you Franco's attributable share of these reserve ounces. But from the chart, if there's one takeaway, it has to be that despite the difficult price environment of the last few years, the total reserves to which we're exposed has remained stable.

If you turn now to slide number 31, we're looking at some of the more significant changes in the underlying reserve base from the earlier slide, and notable gains have been through acquisitions, principally Antamina and Antapaccay, in the last 12 months. We've also seen reserve growth on some of the other mines; Detour and Candelaria are great examples. Nevertheless, these gains have been offset a little by decreases on various properties, but also for the first time we've carved out the Subika property from the rest of the Ahafo South reserves, which had quite a substantial impact on the total count.

Slide number 32 is the equivalent of the earlier ounce count slide, but this time we're looking only at mineral resources. You'll immediately see there's far more year-on-year volatility than in the reserves, and this is particularly so in the inferred category, whilst the measured and indicated resources generally are more robust. This volatility is primarily a function of metal prices.

In a good price environment exploration increases, resources increase. In a poor price environment, exploration reduces, and resources reduce. Slide number 30 (sic - see slide deck, slide number 33) is the royalty equivalent units. You may recall this is a concept that we introduced three or four years ago partly to overcome some of the limitations of a simple ounce count, but mainly to allow better representation of the value of royalty and streaming companies. Essentially what we do is apply our best judgment to estimate the ounces on the various properties that are covered by our royalties, and then we normalize the various royalty rates tied to the streams to become the equivalent of an NSR.

It's definitely an improvement over a simple ounce count, however, it does require a thorough working knowledge of the properties, and you will need to rely on Management's judgment in these estimations. Slide number 34 just summarizes the changes in the royalty equivalent units year on year. And again, from the slide you can see that despite the difficult price environment, we've been able to record a modest increase in the two most important categories of REUs, which are proven and probable reserves and measured and indicated resources, but that the inferred hasn't fared too well. Really what this slide is telling us is that if there's not one single ounce more discovered on any of these properties, Franco's attributable share of these reserves and resources is close to 11 million ounces of gold equivalent and our cost of production is effectively zero.

That's it from me. So our next speaker is David; David Harquail, President and CEO of Franco.

I think they're all excellent presentations, and Geoff's been a great partner for decades. We've worked together. I think thanks to him oil and gas has always been the least of my concerns.

He's been really -- managed that division; it really has had no major involvement on my part. It's been a totally problem-free division for us. We're not going to lose Geoff. We've tied him up with a contract for the next couple years, just in case Jason screws up, so we'll have some overlap. (laughter) So we're good. So Jason can't be too comfortable yet.

I think you've heard from the team that we're very satisfied with how our royalty portfolio is performing, and I think you've heard from Paul that we're also very pleased in terms of where we're positioned in the marketplace right now for transactions going forward. So I'm here to talk about what the next year and the next five years look like.

And on slide 36, this is a summary of the main factors that are impacting Franco-Nevada's outlook in 2016. And as usually is the case in a broad portfolio, there's positives and there's he negatives, but for us it always seems the positives outweigh the negatives.

In 2016 we expect to benefit from the start of contribution of Antapaccay, a full year of Antamina, and the start of payments from Karma. Our NPIs are also benefiting from some of the tailwinds in the industry.

Offsetting that, you'll see that -- you'll recall that we amended our deal with Couer Mining on the Palmarejo transaction assets, so they could transition the mine from Palmarejo to Guadalupe. That means that we've been up to now getting a minimum of 12,500 ounces per quarter.

That's going to end sometime this summer. But Guadalupe is now up and running, it's performing well, and so the step down in GEOs is going to be something that's going to be manageable for us this year. The other offsets on the negatives are self explanatory.

On slide 37, it summarizes our guidance for 2016. We're expecting very good growth in GEOs and stable oil and gas revenues.

On Cobre Panama, we made our first contributions last year. I think at last year's presentation I showed you a whole bunch of my BlackBerry pictures from a site visit to convince you the project was going very well.

I know a number of you were on site last week. They had both of the -- First Quantum had both investor and analyst tours to site, and all the reports I've read confirm our view that the project is progressing very, very well.

Construction is being stretched out. It's coming later than originally we anticipated. But as a result, also our contributions are being stretched out.

The economics for our investment here haven't changed materially. On slide 38 it's our outlook and assumptions of and expectations of what we expect from the portfolio five years out.

I'm pleased to note that we've got substantial growth coming from the Company over the next five years, even if Franco-Nevada Management does not buy another asset. I think this is why I feel very comfortable with our position.

We're not pressured to chase investments or new projects, but anything we might add is actually incremental growth to the growth that we already believe is already locked into our portfolio. And I think that's the right way to run any resource company in the resource sector. Finally, I'm going to show you on slide 39 I take great pride as a CEO of a company that has been able to deliver a great eight-year track record.

As you can see, our GEOs have now more than quadrupled, if you look at our latest quarter, from where we started in 2008. Our revenues again from our latest quarter have more than tripled, despite the downturn in commodity prices. And yet as Sandip was showing, despite the growth our G&A stayed absolutely flat over the last eight years. And I think that what stands out is that I think it demonstrates that Sandip said the scalability of our business, and I'd like to do a little side calculation.

I think one of the main competitors for us as a gold investment is the gold ETF. Right now the GLD charges 40 basis points to manage gold in a vault, and if you look at our overhead, say a little under $20 million and a market cap of $10 billion, we're running at about 20 basis points. I'd like to think that Franco-Nevada's twice as efficient as the GLD.

But most importantly on this chart is the last one on the bottom right, and that's our dividends per share. We've been able to grow our dividends each year for the past eight years. Anyone who bought Franco-Nevada at its IPO, if you bought it in US dollar terms you're now getting a 6% yield on your cost base. If you bought it in Canadian dollar terms you're now getting a 7.4% yield. That's not bad for a gold investment.

I'm also pleased to note that at our current dividend Franco-Nevada's projected to declare dividends of almost $150 million this year. I believe this now positions Franco-Nevada as the largest absolute dividend payer in the global mining industry, or global gold industry.

We will make a dividend announcement at our 2016 AGM, which is on May 4. Our policy has been to ensure our dividend is first sustainable and then progressive.

Growing our business allows us to increase our dividend, so I'm very confident we'll be increasing our dividend once again this year. You just have to come to our May 4 meeting to hear that.

I'm going to leave you with slide 40; it's our standard parting slide showing our performance since our IPO relative to both gold and gold equities. I'm proud that this Management team has been able to create real value for our shareholders. From our IPO to date, the total return compounded annual growth rate for our shareholders is almost 20% in US dollars, or over 23% in Canadian dollars. I believe we have a business model that will continue to deliver investors both yield and alpha at a reasonable risk.

We want Franco-Nevada to continue to be the gold investment that works. So with that, Management is here; is happy to take questions. We have both visitors in our board room and we have participants on the phone. What we thought we'd do is start first with the participants that we have here in the board room. We have a microphone, so any questions if you could just take -- we have two microphones. Take one of those, state who you are so that people on the phone can hear what the question is. And we'll go from there.

Steve, we'd love to start off with you.

Stephen Walker, RBC. On Goldstrike, if someone could speak to what your expectations are for Goldstrike into 2016 and 2017, particularly with the stockpiles that are going to be processed here over the next 24 months and the implications of when the NPI royalties in particular are going to be kicking in.

Sure, Steve. So you would have seen in 2015 we had a strong NPI in Q4, so we do expect that to continue. As the TCM process ramps up for 2016, I would expect the NPI to be stronger in the second half of the year than in the first half of the year, then continue on to 2017.

Obviously our guidance was done at $1,200 gold, with it being approximately $1,270 now that will also impact the NPI. But it won't be equal per quarter during the year, I would expect the second half to be stronger than the first half.

Thanks, David and team, and congrats, Geoff. Well deserved. Cosmos from CIBC here.

Maybe first off, in the past six months, David, you've made two pretty substantial acquisitions, royalty acquisitions, Antamina and Antapaccay. How would you compare and contrast those two?

Clearly one's silver, one's -- the other's silver and gold. One has a higher upfront IRR.

But it also seems like the other might have a bit more upside to it longer term. Again, how would you compare and contrast those two?

Appreciate that, Cosmos. It's interesting because I think the market reaction to Antapaccay was so strong because everyone is focused very much on IRRs today. I keep trying to remind people, especially in the resource business, if I wanted a high IRR back in November or December I could have just bought Teck's debt and get an 18% yield.

I have absolutely every confidence when it matures next year it's going to get paid off. But the trouble is the reinvestment risk.

So I'm much better having something that's going to give me a return that's going to be over a long period of time, hopefully multiple decades, and then you get the optionality of that investment through multiple resource cycles. The advantage of Antamina is that we have a much longer term investment there.

If you notice that there's a very small step down on our royalty at Antamina. There's tremendous larger pit potential at Antamina and expansion potential.

There's underground mining potential and there's other development potential. We believe that asset will go for 50 years.

Antapaccay, it is a great asset, lots of potential as well, but the structure of that deal is we have a much larger step down, it's a two-thirds step down about 15 years out in the future when they deliver us a certain number of ounces. I hate to have that happen.

I'm giving up my optionality, two-thirds of my optionality on that exploration property. I'm going to have a stream that I'm going to have to worry about 15 years from now to build up again.

And so I'm going to miss some of those other cycles beyond year 15. I look at it saying that was part of the tradeoff. We're getting the quicker payback, but I have a bigger reinvestment risk on Antapaccay than I do with Antamina.

I think you build great resource companies when you get into multi-decade type investments where you don't have to worry about those step downs. And that what you need to have is the ability to not buy things when there's a big bull market for resources, and then be able to buy them when you get those dips.

Every once in a while you're going to miss a dip or two because you're too conservative. But if you say okay, if I miss this particular street car I'll catch the next one down the road.

I think if we can have the luxury of not having to buy things for as much as five years when the market is just too aggressive and not worry about the growth of our Company and then catch the next downturn, I think this is actually a very easy business to make money, continue to grow the Company, and deliver great value to the shareholders. And that's what we're trying to position this company is to be Canada's -- my hope is we can make Canada's BHP a Rio Tinto by having such a long duration portfolio and always be counter cyclical in the marketplace.

And you only do that with long duration assets. That's why I see Antamina as equivalent to Antapaccay in terms of what we've added to our portfolio, but I'm not as focused on the IRRs.

And I'm trying to guide the Street as well. Don't expect those super high IRRs in our next deal because we're still looking for more long duration assets in our portfolio, and that's what we're going to build a great Company with.

Great. My other question is, I don't know if you want to make a comment on First Quantum, but certainly they monetized Kevitsa. Is there a positive read-through here to Franco-Nevada's Cobre Panama royalty?

I think there's a number of positives. I think the site visits that went recently -- you can see basically half the project's been committed to already. It's going along well.

First Quantum management's proud of it. They've also made it clear that's their number one priority, is to get that project built by 2018. They see that as the best way to get themselves back onto the right financial covenants is make that into a cash generator for the company.

They also see it as a way of derisking themselves from Zambian risks that they have in that company. All the public indications and even the private indications to us, absolutely committed going forward.

We could appreciate the market's concern about their financial capacity, but right now the way we've structured our deal is we only put in our money for every $3 they put into the project. We're not going to be fully committed until close to $6 billion has been invested in that project.

That's a protection for us. We're also very well protected on that project. We have in our safe right here the securities for their 80% interest in the project.

We've now allowed them to do some project borrowing on that project. I think they've started that process now, so hopefully by later this year or early next year they can borrow some monies, subject to an inter-creditor with Franco-Nevada.

So we believe we'll be protected in all circumstances. And if this project gets further delayed, part of our new agreement with First Quantum, because they have every confidence they have this per using at a set rate by 2018, if there's any delay we'll get a discounted price on our gold beyond that. That will give us an extra 5% return on this project for any delay.

Because one of our worries was could First Quantum be taken over. And if it was a BHP or Rio Tinto, they would likely want to put that project in care and maintenance because it's such a major copper project. They don't want more copper supply.

And so this is why we felt we needed to have that protection, is just in case there was a change there and someone else might have a different perspective of when it should come into the copper market. I'm actually very proud of our business development team.

I think we've covered all the bases on this project. We're absolutely committed to making our ongoing contributions to the project, because this is a 50-year project, 8 billion tons of reserves.

Panama's been a great country to work in. Totally business-like mentality relative to South American countries or some of them that you might work in. And so we think it's a cornerstone asset for us and we want to be there.

Maybe one more question, David. Maybe more of a question for Jason and Geoff here. What's your breakeven price for oil and gas, your oil and gas royalties these days?

If we talked about a year ago it would have been I think $35 a barrel. I think you mentioned that at $35 it would have been minimal royalty back to Franco-Nevada, certainly that cost structure has now changed.

The bulk of our royalties are just top line revenue royalties. There's no issue of breakeven costs there. The issues is on Weyburn in particular.

The breakeven cost there, it's really difficult to pinpoint, to be honest with you. Last year it would have been higher.

What happens is when the oil price starts to fall [Sinova] says the operator, and this is probably true for many operators, they start to dial back the capital spending that they're putting into the asset, and they really start to tighten the cost structure. So costs have come down in the last year.

Capital spending has come down significantly in the last year. And so as I say, the breakeven cost is difficult to pinpoint, but it was cash flow positive earlier this year when oil was under $30 a barrel.

At that point you're getting down to very minimal cash flow from the assets. It's in or about that neighborhood.

Maybe just following up on the oil and gas --

Name and --

Oh sorry, Josh Wolfson at Dundee. Following up with the oil and gas comment, you pointed out a number of transactions that happened in the space recently.

You have been pretty active on deals, but not on that side. What are you seeing that's different, and what are your expectations when you're pricing deals in terms of long-term assumptions with the oil price?

We were active in most of the deals last year, at least being involved in them. I'd say thank God we didn't buy them.

I think our experience right now -- and I have to remind myself, whenever you have a big drop in commodity price, you usually have a lot of potential buyers that are expecting a V-type recovery on commodity price. So ones we participated in we didn't win.

We did three processes last year. The only thing we won was that right of first refusal on another transaction. In terms of what we're seeing right now, I think none of them is that exciting.

What we were really interested in was the large free whole packages, which goes back to our philosophy of owning the land and then you don't worry about how the operators might change over time. Some of the ones that are in the market right now, they tend to be like our non-core assets, a lot of disjointed lands.

There's not the larger packages. But if you could buy them cheap enough, for sure we could tag them on. Some of them actually tie onto our properties.

Maybe we can create something more material over time. We're always asked are we looking at something bigger or small in the oil and gas sector. Last year we were telegraphing we were really looking at some bigger things.

Now we're telegraphing that, as Jason said, mostly just tuck-in transactions at this stage. Our focus right now on is larger gold deals in the marketplace.

So if we look like we're going to do something more material in the oil and gas space we'll let you know, but right now we don't see anything in the pipeline. And the price deck, we can't tell you that specifically.

Obviously ours is more conservative than the ones that bought last year. And I think Trout -- thing is about oil and gas is it's more tricky than mining. Once they build a mill you know what that throughput is going to be forever and what that production profile.

The trouble with oil and gas is that you're making an assumption on the price deck, but if your price deck is wrong you also get a different amount of capital based on the properties, which means there's fewer wells, less enhanced oil recovery on projects. Then you start getting that production decline occurring very quickly. So that's why I think we have to be conservative on the oil and gas deck, because we have a double whammy there if we get it wrong.

One other question on the financial side. There was big working capital consumption this quarter.

That's been the case for the last five quarters. Are we expecting a reversal and really what's that attributed to?

I'll let Sandip speak to that.

You're referring to the cash flow?

Yes.

It's just accounting, because we do hold gold from our royalties and then we sell them. When we sell them there's a re-class that comes out of working capital that goes down to investing.

So you'll see proceeds on the sale of gold; and so it's coming out of working capital going down below. So it's a re-class on the cash flow. And so as we continue to receive physical gold from Detour, Tasiast, and we sell it ourselves, you'll see that re-class occurring.

Is there any other working capital uses for the business on a general basis, or is it --

It's pretty consistent, there should be nothing else.

David, you've done Antamina, Antapaccay. Are the easy ones done now? Is there a field, more difficult jurisdictions?

Paul, you're the one who did all the work on these, so --

There are a good amount of transactions out there, Greg. So as I say, there are transactions that I think people would consider as equivalent to those transactions that are potentially doable.

There are streams in the market which are definitely further afield, and given that we got the option of investing in safer jurisdictions, that's where we'd like to spend our money at this stage. While I'm here I'll also clarify one thing David had mentioned on the Antapaccay.

Our stream there is on about 60% of the gold, and then once we have the reduction over time it reduces down to about 30% of the gold. So it's about one-third of the gold, but the reduction is about a 50% reduction.

With that maybe we should turn it, operator, to anyone on the line that might have a question, and if the operator could poll that.

Certainly.

(Operator Instructions)

The first question is from John Bridges with JPMorgan. Your line is open.

Hi, David, everybody. Congratulations on the results.

I think Cosmos got my question on coverage at Panama, so I'm out and I'll pass to the next guy. Well done on the results.

Thanks, John.

The next question is from Chris Terry with Deutsche Bank. Your line is open.

Hi. Got a question just on the overall strategy I guess, and trying to see how you're positioning the business. You obviously talked about it in a number of the questions already.

But if we look at slide 17, might be the best starting point. How do you see your ability to pick the cycles as they go forward? And I guess when you look at the recapitalization cycle today you could argue that the base metals, oil and gas are still very much in that equation.

But the next cycle probably for gold will be back to the 2011 primary product funding arguably. So how do you get the balance right going forward of investing in gold as opposed to the recapitalizations?

That's a good question, and I think that's one of the things that we always have to address with our investors, because they always expect us to be buying things all the time. And this is a feast or famine business.

You've got to make hay when the sun's shining and then stop when it's raining. So we expect there's actually a very limited window here.

In the next year either these major companies are going bankrupt or they've solved [with] their financial equations. So they'll be done in terms of their financial situation.

And then all the portfolio cleaning that's being done by the gold companies, I think that's roughly going to run its course over the next year. So we see this as the feast period. We're going to help on transactions, help on the recapitalization.

We can't let any of our business development team go on holiday. We want to do those assets because we expect when the industry's back into a bull market and the equity market, we won't be able to buy anything. How do we judge this?

It's really when the opportunities come over to us. When people are saying they're willing to start negotiating with us on very interesting properties that have good geological potential and a long duration and upside. We're always in the market for those.

And it's just the opportunities come back when they really need us. They generally don't need us when their other financing options are open. We're very relaxed about that.

When those bull markets come back again, we have a great pipeline of development properties and exploration properties that we then get organic growth from those properties as other people are spending money on those properties. In terms of the commodity mix as well, it's driven a bit by what seems to be so underweighted by our portfolio.

Oil is sending a signal right now, we should be buying more oil, but right now our big strategic opportunity is in the gold space. We can never have too much gold.

And we'll be 95% precious metals this year. That's not a problem. If you remember two years ago there was a problem when we were over 20% oil, and we were actually looking to see how could we right size the portfolio and keep to our precious metals commitment to stay always at least 80% precious metals in the Company.

But I'd say this is actually a very easy business. You buy when people are selling and you don't buy when there's a bull market.

It's as simple as that. I think our luxury is we have a very long-term time frame and we have permanent capital in our business that gives us a big strategic advantage over about just everybody else.

Okay. Thanks. Thanks, David.

So is it fair to say that for recapitalization deals you're still going to be aiming at more chunky type deals, whereas setting the business up for the future and the next cycle, those might be bite-size or tuck-in type deals?

I think that's fair enough. I think to be material enough for the companies that need recapitalization it needs to be substantial some. So those will be the chunky deals.

We're still doing -- we just don't talk about little royalty deals. Some of my directors call me anal retentive, but I buy royalties for as little at $50,000 up in Red Lake.

They're going to make some future CEO look good. And so we'll always add it, and you can see from our numbers we're up to 262 different royalties and streams. When we first started this business in 2008 it was 176.

We just don't put press releases on anything that's less than tens of millions of dollars now. But we'll always be adding on the exploration front. It's just the materiality is not there.

Thanks very much, David.

And currently showing no further questions by phone.

Any other questions in the room here? Okay. I can see everyone's anxious; for the visitors that we have today we have some refreshments outside.

All the Management, you'll recognize them by the tags, would love to spend time and address any questions you have. We even tidied up our desks if you want to have a tour of our office and see our set-up.

We're happy to show you how we're doing. Just an aside, we're running our Company -- we are increasing the number of employees. We're up to 29 employees.

So it's getting up there. But I think about 18 or 19 of them are in this office here. So you're seeing the bulk of the entire Franco-Nevada operations, and you can maybe get an appreciation of why we're running as efficiently as we are.

The other thing for people on the line is don't forget if you send us an email at info@franco-nevada.com we'll send you a hard copy. I think the best investors are the ones that are rich and have poor eye sight and they need these bigger print copies to be able to see what's going on and the tabs.

I think it's hard to do when you're looking on a website. And our annual meeting is going to be on May 4. We'll come out with our first quarter results on that day.

We'll give you an update on our dividend decision for 2016, and you're welcome to attend our annual general meeting. It's at the Broadcast Centre at the Toronto Stock Exchange at 4:30 on May 4. Please join us. Thank you very much for your interest.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.