Franco-Nevada Corp (FNV) 2016 Q1 法說會逐字稿

Good morning. My name is Candice and I will be your conference operator today. At this time, I would like to welcome everyone to the Franco-Nevada Corporation first-quarter results conference call. (Operator Instructions)

Mr. Stefan Axell, you may begin your conference.

Thank you, Candice. Good morning, everyone. I want to thank you for joining us today to discuss the Franco-Nevada Q1 2016 results, which we anticipate will be a relatively brief 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.

Sandip Rana, CFO of Franco-Nevada will provide a brief review of our results, which will be followed by a Q&A period.

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

I'll now turn the call over to Sandip Rana, CFO of Franco-Nevada.

Thank you, Stefan. Good morning, everyone. Thank you for joining us this morning.

As Stefan mentioned, I will be providing further detail on the financial results for the quarter.

As you all have seen from the press release issued yesterday, the company had another strong quarter. This is a testament to the quality and strength of our portfolio and overall success of our business model. It continues to deliver growth and generate significant cash flow.

As a result, we are increasing our quarterly divided by approximately 5% to $0.22 per share, effective with our second quarter dividend payment. This is the ninth dividend increase since our IPO, and, on an annualized basis, Franco-Nevada will be paying in excess of $150 million in dividends, making it one of the highest dividend payers within the gold sector.

With respect to our financial results, first quarter of 2016 was a quarter of records. The company recorded its highest amounts in GEOs, revenue and adjusted EBITDA this quarter, this despite the continued lower commodity price environment.

I would like to speak to a few highlights for the quarter. The company received our first gold and silver ounces from our most recent acquisition, the precious metals stream at Antapaccay. The deliveries for the quarter were approximately 8,900 GEOs. We look forward to benefitting from a full quarter of deliveries from this asset in second quarter as we only received two months of deliveries in the first quarter.

Also during the quarter, the company received our second delivery of silver ounces from Antamina, a deal we completed in fourth quarter 2015. Antamina deliveries were approximately 1.4 million silver ounces to the company.

And, lastly, we received the first delivery in March from our Karma stream. This is a stream on the Karma Project in Burkina Faso, which is now owned and operated by Endeavour Mining, previously True Gold. We will be delivered 1,250 gold ounces per month going forward.

Turning to Slide 3, the chart illustrates the GEO breakdown by commodity for the last five quarters. You can see that GEOs in total have increased over 25% compared to first quarter 2015.

The gold component has remained fairly stable with silver increasing during the quarter due to the Antamina and Antapaccay deliveries.

Slide 4 provides a breakdown of where the GEO growth arose when compared to first quarter 2015. Our core gold assets did produce less GEOs during the quarter, which was mainly due to the timing of production and recognition of revenue by the company.

The PGM assets delivered less GEOs, but this is due more to the impact of pricing when converting platinum and palladium ounces to GEOs. The actual production at the mines for platinum and palladium was fairly stable year over year.

Our gold NPI delivered more ounces due to lower costs with foreign exchange benefitting our Canadian interests. And, as you can see, the largest component of growth has been the acquisitions. This significant growth represents Antapaccay, Antamina and Karma, to which I spoke to previously.

As you turn to Slide 5, you will see two charts on the page. The first chart highlights the average gold price and precious metals revenue for each of the last five quarters. The first quarter of 2016, the gold price averaged $1,181 per ounce, which was lower than the Q1 2015 average price of $1,219 per ounce.

Gold was not alone when it came to volatility. Platinum, palladium also pulled back significantly versus prior year.

However, despite the continued depressed commodity prices, the company did generate a significant increase in precious-metals revenue during the quarter.

On the bottom chart, we have highlighted our oil and gas net revenue, and, as you can see, that as the oil prices declined, so, too, has our revenue. Production at our royalty and working interest assets has remained stable with the decrease in revenue being largely due to the lower oil price. With respect to our revenues, 95% is driven by oil with 5% coming from natural gas.

As you turn to Slide 6, you will see the key financial results for the company for the three months ended March 31, 2016. I will not get into the specifics, but what I would like to point out is that we have year-over-year increases for all the financial metrics across the board with the new records highlighted by the boxes.

Slide 7 provides a waterfall chart illustrating the increase in adjusted net income from Q1 2015 to Q1 2016. The key movements year over year are on the cost side. With the addition of Antamina and Antapaccay, we had an increase in depletion expense during the quarter.

It is important to note that as mineral reserves and resources are added at these assets or any one of our other properties, the depletion cost per ounce will decrease.

Also on the cost side, cost of sales did increase as the company received more stream ounces resulting in higher stream-ounce purchase costs. We pay a per-ounce purchase price when stream ounces are delivered to us, which is recorded in cost of sales. These cost increases were more than offset by the increase in revenue of $22.8 million.

The net result was an increase in adjusted net income from $22.9 million or $0.15 per share in Q1 2015 to $28 million or $0.17 per share in Q1 2016.

As you turn to Slide 8, the geographic revenue profile continues to be lower risk with 82% of revenue being from the Americas, with Latin America being the largest contributor.

One of our core goals that we highlight is for precious metals revenue to be greater than 80% of total revenue. For first quarter 2016, 95% of revenue was generated from precious metals. The company remains diverse with 43 revenue-generating mineral assets currently.

We've continued to stress the scalability of our business model and believe Slide 9 highlights this. Our overall costs have increased over the last few years, the increase being due to the addition of streams to our business, but these are variable costs. Stream costs will continue to increase as the company is delivered more stream ounces which we consider a positive. This has been the case in the first quarter with the addition of Antapaccay.

What I believe is important to highlight on this slide is the fixed costs. These are the company's corporate administration costs, and, as you can see, they have remained fairly constant each year regardless of revenue increasing.

Corporate administration costs can continue to be less than 5% of revenue, and for first quarter 2016, we're slightly below 5% of adjusted EBITDA.

As illustrated on the chart, the company continues to (inaudible) a very strong margin, which is greater than 78% for Q1 2016.

Unlike operators, our mineral business is not directly affected by operating and capital cost escalation.

Slide 10 highlights the capital available to the company. With a working capital, marketable securities and undrawn credit facility, the company has in excess of $1.3 billion in available capital.

You will recall that we did draw down on our credit facility in fourth quarter 2015 to partially fund the Antamina transaction and our first funding for Cobre Panama.

At December 31, 2015, we did have debt of $460 million. This has been repaid and the company carries no debt at this time.

In terms of commitments, the company expects to fund $130 million to $150 million for Cobre Panama for the year, with $30 million to $35 million expected in second quarter.

And with that, we would be happy to take questions. Our entire management team from our various offices around the world, the United States, Australia, Barbados, are here in Toronto for management meetings. We are all available to answer questions.

And, with that, I would like to turn it back over to Candice.

(Operator Instructions)

And your first question comes from Josh Wolfson from Dundee Capital Markets. You line is now open.

Josh Wolfson: Good morning. Just two quick questions. For Cobre, could you disclose what was paid in the first quarter for CapEx?

There was no payment paid from Franco-Nevada in first quarter. Our first payment this year will be done shortly with $30 million to $35 million expected for second quarter.

Okay. And then in terms of the balance is it going to be, I guess, pretty heavily weighted for third and fourth quarter or is there going to be sort of a catch-up style payment at the end of the year like we saw last year, which I guess was a different item?

Yes, we would expect higher payments in third and fourth quarter this year.

Okay. And then on the table that disclosed, I guess, all the streams, there was a comment about the terms of those largely being about 40 years and, I guess, subject to successive extension. Would you be able to provide more details on what that really means, if these are finite or perpetual stream agreements?

The typical stream agreements are 40 years fixed term, and then there's extensions which there's conditions for and they're usually 10- to 20-year extensions at a time.

Okay. And those extensions, are they -- is it -- what are the conditions generally associated with them or is it asset specific?

It's Paul Brink here. So most of those are at the option of the streamer. So if the asset is still operating, we have the option to extend the stream.

Okay. Okay. That's it for me. Thank you very much.

(Operator Instructions)

And we have no further questions at this time. I'll turn the call -- Oh, I'm sorry. We do have one more question from Chris Terry with Deutsche Bank. Your line is now open.

Hi, guys. A couple of questions from me, just on Antapaccay is -- the second quarter, can we expect three, four months of sales or is there still some type of catch-up there?

No, the way that transaction worked, just because of the timing of when we did it, the first -- we really only get paid for January in February and then -- so there's that one month delay. So we've had that initial month delay, and, now, you know, for every quarter, we'll get three months' worth of payments.

Okay. All makes sense.

And then just big picture on the overall environment for looking at investments, obviously, you're reiterating the 80% exposure to precious, but any views on oil and gas versus PGMs versus gold versus silver?

Right now -- David Harquail here -- it's an opportunity-rich environment. Our focus has been on gold transactions because we find there's been the most motivated parties with gold assets for us to transact on.

But, at the same time, we've had a separate team very active in bidding oil and gas assets. We have put in bids already in a number of assets in Western Canada. We've just been unsuccessful. I think other people have been more optimistic in terms of the oil price [dex] than ourselves.

We continue to and can do and continue to bid on gas assets, but there's nothing, I would say, that large in the immediate future right now for Franco on the oil and gas side or other commodities. I think most of our opportunities are still in precious metals.

Okay. Thanks very much for the update.

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

Thank you, Candice. I want to remind people that we expect to release our Q2 results on August 8th with a conference call held the following morning, and want to thank you for your interest in Franco-Nevada.

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