Franco-Nevada Corp (FNV) 2017 Q4 法說會逐字稿

Good morning.

My name is Chris, and I will be your conference operator today.

At this time, I would 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, Chris.

Good morning, everyone.

Thank you for joining us today to discuss Franco-Nevada's 2017 results and company outlook.

Today's presentation will be a little longer than our typical quarterly conference call as we will be providing an update on many aspects of the Franco-Nevada portfolio.

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.

Our Asset Handbook, usually released in conjunction with our financial results, will be released at the beginning of April to allow us to gather additional disclosure from our partners regarding our assets.

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

Sandip Rana, CFO of Franco-Nevada, will provide a brief review of our results; followed by commentary by Paul Brink, SVP, Business Development; and David Harquail, President and CEO, discussing the company outlook.

This will be followed by a Q&A period.

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

Thank you, Stefan.

Good morning, everyone.

As you all have seen from the press release issued yesterday, the company delivered another strong financial year in 2017.

We achieved a number of financial records; revenue, adjusted EBITDA and adjusted net income, all benefiting from the record gold equivalent ounces earned by the company for the year.

2017 continued to showcase the strength of the Franco-Nevada business model, the quality and diversity of the assets within the portfolio and the strength of our balance sheet.

From an operational standpoint, our overall royalty and stream assets continue to perform well.

As you turn to Slide 5, you can see how the company performed against the guidance levels that were issued.

We were expecting a marginal increase in GEOs in 2017 compared to 2016 after a significant increase the year prior.

The initial guidance back in March 2017 was 470,000 to 500,000 GEOs, using pricing of $1,200 per ounce gold, $17.50 silver, $950 platinum and $750 palladium.

In addition, we were guiding Oil & Gas revenue of between $35 million to $45 million, using $50 per barrel oil.

I'm very pleased to report that the full year actuals did reach the higher end of the ranges with Oil & Gas exceeding the top range.

The company earned 497,745 GEOs from our mineral asset portfolio, a record for the company.

And with respect to the Oil & Gas division, the company surpassed the $45 million threshold for revenue, generating $47 million.

Overall, a very strong year across the board.

Turning to Slide 6 and looking back at the gold equivalent ounces received for each of the last 7 years, you can see that it has been a significant increase from 2011.

We've increased from approximately 230,000 GEOs in 2011 to almost 500,000 in 2017, an increase in excess of a 100% over this period.

Year-over-year, GEOs have increased approximately 7%.

And as you can see, actual gold ounces continue to increase with gold ounces for 2017 being approximately 9% higher than 2016.

Slide 7 illustrates the movement in GEOs from 2016 to 2017 and how the incremental 33,352 gold equivalent ounces were sourced.

As you can see from the chart, the largest negative was our gold NPI assets; Hemlo, Musselwhite and Goldstrike.

NPIs are impacted by capital spend by the operator and thus can be volatile quarter to quarter.

For Hemlo and Musselwhite, that was the case in 2017.

We do look forward to benefiting from the development spent in future periods.

With respect to Goldstrike, the lower NPI was due to timing and sequencing of mining.

The company did receive less silver ounces in 2017, which was expected with lower production coming from Antamina.

Although silver ounces sold from Antamina of 3.7 million was lower than 2016 when we sold 4.3 million ounces, the total is still higher than what was guided to at the time of the acquisition.

On the positive side, we've benefited from higher palladium prices, which has favorably impacted the number of PGM GEOs we received and our PGM revenues.

However, the largest source of growth for the company has been our gold assets.

The largest contributors were: Candelaria, which, despite a weaker fourth quarter, delivered 15% more GEOs in 2017 than 2016; Guadalupe, which had 52,000 GEOs sold during the quarter -- during the year; and Mine Waste Solutions, MWS, which had its strongest year for Franco-Nevada since being acquired in 2011.

The fact that our assets have performed well has been further enhanced with the partial recovery in commodity prices.

As you can see on Slide 8, 2017 saw a mild recovery for certain commodity prices.

Gold was slightly higher quarter-over-quarter and year-over-year, while both palladium and oil average prices were significantly higher.

Silver and platinum average prices were marginally lower over the same period.

Slide 9 highlights our precious metals revenue for the last 7 years, along with the average gold price over the same period.

The company's precious metals revenue has increased significantly over the last 2 years.

2017 was the first year that precious metals revenue exceeded $600 million, reaching $610 million.

This increase is due both to performance from our assets and stronger gold and palladium prices as mentioned.

As you turn to Slide 10, you'll see the key financial results for the company.

I won't get into the detailed numbers, but I would like to highlight that although the number of GEOs earned in fourth quarter 2017 was lower than fourth quarter 2016, revenue and adjusted EBITDA were higher year-over-year.

This was due to the higher commodity prices during the quarter compared to 2016 as well as benefiting from the recent Oil & Gas additions.

Adjusted net income was higher than fourth quarter 2016 due to higher revenues, but also due to lower depletion recorded and a lower tax expense.

Depletion is impacted by the source of the GEOs recorded in revenue.

For example, in Q4 2017, Guadalupe was a large contributor, but has a low per ounce depletion rate compared to other mineral assets.

With respect to tax, I would like to mention that the company did record a $7.1 million deferred income tax expense during the quarter related to the U.S. tax reform.

The company does have a deferred tax asset on its balance sheet related to the U.S. assets.

With the reduction in corporate tax rates at the end of 2017, the deferred tax asset was adjusted accordingly.

Going forward, the company will benefit from the reduced tax rate, which is a big positive, especially as our U.S. Oil & Gas assets begin to ramp up.

On Slide 11, we provide a breakdown of our revenue by commodity and geographic location.

You can see that 90% of our full year revenue was generated by precious metals in 2017.

The geographic revenue profile has revenue being sourced 82% from the Americas.

Slide 12 highlights the diversification of our portfolio.

The first chart highlights that only 3 assets contribute more than 10% of our adjusted EBITDA individually.

Those 3 assets in total generate 30% of adjusted EBITDA.

And the second chart highlights how adjusted EBITDA is distributed from a legal ownership perspective with no legal entity accounting for greater than 45% of adjusted EBITDA.

I would like to again stress the strength of our business model and scalability.

As you can see on Slide 13, the company's fixed cost, highlighted in the light blue, has remained fairly constant as we continue to grow this business.

Management believes we can continue to add to our portfolio and grow our business without adding significant overhead to the company.

Slide 14 summarizes the financial resources available to the company.

We currently have $1.4 billion of available capital when including our credit facilities.

We recently funded the $90 million for the Delaware oil transaction and expect to fund the Cobre Panama addition shortly.

Also we recently extended our Barbados credit facility for another year to March 2019 and also extended our $1 billion corporate revolver to March 2023.

And with that, I will now turn it over to Paul.

Thank you, Sandip.

We've often spoken of the different avenues of growth for our business, and we've seen many different waves over the last 10 years.

The current wave has been diversification in the form of Oil & Gas.

I expect the next wave of growth on the mineral side will be project financing as the industry gets back to building mines again.

Asset fund management is limiting the amount of new equity available to the sector and bank capital requirements is limiting the amount of project debt.

So I believe streaming will play a meaningful role in the coming round of mine financings.

A list of our recent investments is shown on Slide 17.

In the last 18 months, we've invested $356 million in Cobre Panama and roughly $430 million in 5 Oil & Gas transactions, 4 of those in West Texas and Oklahoma, and 1 in Alberta.

Technology advances in horizontal drilling and fracking have been the game-changer in global Oil & Gas and opened up many basins in the U.S. The oil price downturn reveal the 2 basins, the Permian in West Texas and the SCOOP/STACK in Oklahoma, could keep attracting drilling capital even when oil prices were less than $40 a barrel.

These are the basis -- these are the basins that have been the focus of our investments.

Based on the recoverable Oil & Gas in just the productive horizons in these assets, we expect to make 5 to 7x our money over these investments.

Turning to Page 18.

We recently increased our exposure to Cobre Panama.

First Quantum recently purchased LS-Nikko's 10% interest in the project, and we acquired a stream to help fund that acquisition.

KORES, the remaining 10% partner in the project, has also liked it to participate in the stream.

So the stream now relates to 100% of the project.

Shortly after these investments, First Quantum announced plans to increase the size of the project.

When we initially invested in Cobre, the plan was 58 million tonnes per annum of initial throughput.

On taking over the project, First Quantum increased the planned throughput to 74 million tonnes, and the recent announcement is for 85 million tonnes of initial throughput with plans to expand 100 million tonnes post 2022.

Phased commissioning will start late in 2018 with ramp up in 2019.

The stream economics are protected to ensure a minimum 5% rate of return on our funds if the project hasn't achieved 58 million tonnes of throughput by the start of 2019.

Our team visited site a couple of weeks ago and were very impressed with the progress.

The following slides have some recent pictures from the site.

Page 19 shows the first coal shipment arriving.

The power plant shown on Page 20 is nearing completion.

Page 21 has an overview of the plant site and in particular, you can see the dual conveyor from the in-pit crushers leading to the mill stockpile.

And the last slide, on Page 22, shows the extent of the pre strip.

We're delighted to being able to increase our exposure to the only large-scale couple of projects under construction today that will be a big driver of our growth over the next 3 to 4 years.

Turning to our most recent Oil & Gas additions.

Effective September last year, we've acquired an interest in Osum's Orion SAGD operation in the Cold Lake area of Alberta.

The operation's currently producing at roughly 9,000 barrel per day.

Expansions of plan to increase production to 18,000 barrel per day by the end of 2019.

And the company has expansion objectives beyond that.

The life of mine of the assets will be 3 to 4 decades at these expanded production rates.

Osum, the operator, is a private company and well funded to execute its growth plans.

We've acquired for $101 million of package of royalties on the Delaware Basin and the package is almost entirely mineral title.

The Delaware Basin is the western portion of the Permian Basin.

You'll recall that last year, we acquired a similar size package on the Midland Basin that makes up the eastern side of the Permian.

We believe that these basins in West Texas and the SCOOP/STACK in Oklahoma are very attractive areas to acquire royalties.

They have tremendous reservoirs of Oil & Gas.

They've proven to attract drilling capital through the cycle.

They are immediately adjacent to the Gulf Coast refining capacity.

We can get the best mineral title available on private land in the U.S. And lastly, they've multiple packages of royalties available, so we are able to be selective in our acquisitions.

Slide 27 outlines the assets that will drive our growth over the next 3 to 4 years.

This year, you'll see the initial benefit of the Tasiast and Ahafo expansions, and from Brucejack, Cerro Moro and Sissingue that are new builds.

Cobre Panama will be the big growth driver in 2019 and 2020.

And the expansion of Stillwater from roughly 500,000 ounces per annum up to 800,000 ounces per annum will be completed in 2021.

There is also a stable of projects we expect to move into development.

Of the list shown, Rosemont and Hardrock could have the largest impact.

And as Hudbay has stated recently that they believe that the permit on Rosemont is imminent.

Lastly, exploration growth shown in the bottom right-hand of the slide.

We're currently compiling our U.S. smiths as our operators update the reserves reflecting their 2017 drilling success.

I won't go through it, but we've listed for you the assets where we're seeing exciting brownfield success.

And that's the lead-in for David to speak to our outlook.

David?

Thank you, Paul.

And I'll take you to Slide 27, showing Franco-Nevada's growth over the past 10 years.

And as you can see, the trendlines for our key metrics have shown strong growth.

2016 and 2017 were exceptionally strong.

We've been blessed that our recent cornerstone investments have all performed better than our acquisition guidances.

On Slide 28 is a summary of our 2018 guidance.

We tend to be conservative in our assumptions.

We're assuming nothing from Cobre Panama, and that Antamina and Guadalupe-Palmarejo will revert back to our longer-term production assumptions.

We see lower production at Candelaria and South Arturo in 2018 is temporary, and that these will be strong assets for us in future years.

The rest is per our press release.

If you do the math, including our Oil & Gas business, you'll note that even with a lower GEO projection for 2018, Franco should be able to match or increase revenues this year.

Even better in 2018, we're going to have a higher percentage of our GEOs coming from higher-margin royalties rather than streams.

That means we expect to do even better with our EBITDA in 2018.

On Slide 29, we provide some longer-term guidance.

Our tradition is not to do yearly guidance, but rather a directional guidance with a target that we expect 5 years out.

That way, we avoid having to speculate about ramp-up schedules for individual mines.

Our 5 years -- out 5 years, it all tends to average out.

You can see that even if we do no investments over the next 5 years, we expect continued good growth from Franco-Nevada's portfolio.

On Slide 30, you'll see the longer-term perspective for both our GEOs and Oil & Gas business.

You can see that we're projecting a significant rebound coming in our Oil & Gas division.

Even with this projected growth, we still have more room to do -- more investments in Oil & Gas.

I believe, this projection makes Franco-Nevada one of the higher growth royalty companies in the business.

On Slide 31, is what I'm most proud of, and that's our dividend track record.

In 2017, Franco-Nevada paid more in dividends than any other gold company in the world, USD 168 million.

We've been able to increase our per share dividend each year for the past 10 years.

Traditionally, we announced our dividend at our May AGM.

I'm highly confident that Franco-Nevada will maintain its tradition of increasing dividends.

On Slide 32, we show what's upcoming.

As Stefan mentioned, we're releasing our Asset Handbook after our year-end reporting this year because we're reporting somewhat earlier than usual, and we'd like to accommodate at least all the latest reserve numbers that are coming from our operators.

Expect our new Asset Handbook out in early April.

And on May 9, we'll be reporting our Q1 results and hosting our AGM.

We'll have our global management team here in Toronto, and we'll take some time to celebrate our first 10 years.

We're very well positioned for the next 10 years.

And with that, the management team here would be happy to take your questions.

Chris, I'll turn it back to you to tee up the questions.

(Operator Instructions) Your first question comes from Cosmos Chiu of CIBC.

A few questions from me here.

Maybe first off on your increased exposure to Latin America.

We always see there is ongoing labor sort of contract renegotiations in Latin America.

Given your increased exposure, is there anything that we should be aware of in terms of the assets within your portfolio?

Cosmos, it's Paul.

Nothing that we're aware of.

I think your point is a good one.

But in terms of the operations that we're exposed to, again, not aware of any issues on the labor side.

And I can add to it, Cosmos, is that our big assets in Peru and Chile, they're well-established operations, and they have a long-term franchise there.

So I think -- we expect just business as usual for those operations.

And the key one, of course, is Cobre Panama, and we're watching that very slowly.

And right now, Panama is proving to be a very receptive country for investment.

We see no pushback from the government.

We see them very commercially minded.

There we haven't seen any NGO issues.

It's been very receptive, so that's what's giving us the confidence to put more money in that country.

Of course.

Maybe switching gears a little bit here.

As we saw today, there was actually a royalty deal in the market.

Osisko royalties buying or making an acquisition of a royalty NSR on the Eagle property in the Yukon from Victoria Gold.

I'm just wondering, is that something that Franco-Nevada would have been interested in, in terms of size, in terms of working with the PE?

Or was it something that was too small?

So Cosmos, we were delighted to see the project getting financed and taking forward to production and that is because a couple of years ago, we did acquire royalty on the property.

So we're delighted to share in their success.

Great.

Cosmos, David here, again.

Thanks to Osisko because we have royalties as well at Barkerville, at Windfall and now at Victoria.

So I'm glad they're financing these properties for us.

For sure.

Maybe talking on another existing royalty here, Kirkland Lake Gold at Macassa, certainly the fact that they are sinking a new shaft.

That's going to be beneficial to Franco-Nevada long term as well, that speaks to the optionality of the royalty model here.

But could you remind us, because I think a part of your royalty is actually an NPI, a 20% NPI.

Would this impact what you get as royalty from Kirkland Lake?

I don't believe so because I was reading over your Asset Handbook, it looks like the NPI is on a currently nonproducing portion that's in the southwest or just southwest of the SMC.

Cosmos, David here.

And you're absolutely right.

It's a bit of a patchwork of our royalty coverage.

And so the majority of the new reserves are coming up on towards the east, back to the traditional old mines.

And we essentially have 1.5% NSR on that ground.

Our NPI ground, we just have been having fractional production from that over the years, and that's more to the southwest.

And I don't think in the last quarter, there was any production.

We do get a small annual minimum royalty from it, but has not been significant to us in the past.

Great.

And then maybe one last question here, maybe for Sandip.

Depreciation, Sandip, you have given us the range of $250 million to about $280 million for 2018.

How -- like what -- which assets are more depreciable -- which assets would have a higher depreciation rate?

And what should we be sort of expecting in 2018?

Because, I believe, in 2017, you record about $270 million, that will put it on the higher end, if I were to compare to 2018 guidance.

Yes.

So Cosmos.

It's -- obviously, it's based upon what's the source behind the GEOs.

So we're expecting a down year from Candelaria temporarily in 2018.

That's a higher depletion per ounce asset because it was a larger acquisition that was purchased just a couple of years ago.

And as David mentioned, a lot of -- we're not expecting a decrease in our adjusted EBITDA because we're expecting revenue from more royalty versus streams.

And the royalties are just lower depletable assets because they were acquired some time ago.

In terms of specifics, Candelaria is the big one that will have an impact on depletion.

Your next question comes from Steven Butler of GMP Securities.

I guess I'll have one over to you Sandip or Paul, et cetera.

In terms of the commercial production timing, of course, that First Quantum would have ultimately declare for Cobre, would you guys be receiving any revenues or GEO equivalent precommercial production?

Or how would that work, Sandip?

So Steve, the -- as soon as they sell a concentrate, we get paid on the -- on that concentrate.

So they don't need to achieve commercial production before our revenue starts.

Okay, sounds good.

So as -- I think you alluded to, there is a level of conservatism in your 2018 to exclude any and all Cobre contribution this year.

Well, I guess, time will tell.

Is it -- the project seems well on this path, but you have deliberately left it out conservatively from your guidance.

Yes, the point is really just in terms of anything meaningful, we expect it in next year.

Your next question comes from Tanya Jakusconek of Scotiabank.

I'm going to continue with Paul, if I could.

And Paul, it's got to do with the 2022 guidance.

We were a little light on the guidance, and we're just trying to figure out exactly where.

We do see that it's 50,000 ounces gold equivalent higher than your 2021 guidance that you gave last year.

And I just wanted to go through a couple of the assets.

Maybe on the Palmarejo-Guadalupe.

Given that we have seen increase in reserves, can you give us an idea when you say a majority is under your agreement, what exactly is a majority?

And sort of what's the annual production profile there?

What would it be in about 2022?

Off the top of my head, Tanya, I have to check.

But it's in Asset Handbook, there should be some...

Given REU calculation in the Asset Handbook, so you can see the percentages of the reserves, inclusive resources as well as the inferred.

And so you can see the percentages there and it's in the neighborhood of 85% to 90%, I believe.

Okay, all right.

So...

Tanya, also it's guidance.

If you look at the presentation materials that Coeur has, they do give a good breakout of -- you can see the existing Palmarejo concession and then the ground that they acquired in the Paramount acquisition.

Obviously, our answers are quite everything that was on the original property.

And so you can see the multiple veins that fall -- that's on the western side of the property.

You'll see that most of the veins do fall on the original property.

Okay, all right.

So I'll take a peek there.

And then can I ask about Gold Quarry.

Looking at your asset book, it looked like that minimum ended in 2021, that 11,000 ounces or thereabout.

Is that correct?

Or do we have anything in 2022 for Gold Quarry?

We haven't received an update, but we do expect it to be reduced by that time.

So, i.e.

no contribution in 2022?

No.

There will be a contribution, but it will be lower than the 11,250 that we currently receive.

Okay.

And then, I mean, we don't have the expansion in place at Cobre Panama because that's beyond 2022.

Are there any other assets that you're expecting to have higher than -- obviously, Stillwater, we know that one.

Anything else that can help us on that 50,000 ounces?

We understand part of it is the addition that you bought the Cobre Panama recently, but anything else within that, that could give us a bit of guidance?

Lots of small stuff, I guess.

So it's -- we got Sissingue ramping up, Cerro Moro, Ity, Musselwhite, we're expecting more of.

We got the expansion at Subika.

Tasiast.

So there's lots of little things coming up.

So I think it's just a cumulative impact.

Right now, we're counting 49, I think, operating royalties, and we've got an advanced in the 40s as well.

So we have to sort of break it out.

But that's the blessing we have, Tanya, there are just so many small things that they actually add up and actually become material on our overall projections.

Okay.

Okay, that's helpful, thank you.

And maybe, just on Antapaccay, if I could.

And I'm not going to pronounce that deposit, the Coroccohuayco deposit, that's the high grade.

Can you talk a little bit about what's the mine plan in terms of incorporating that into your -- into the Antapaccay life of mine plan?

Sure.

And the deposit is Coroccohuayco -- that's the -- with a South African accent.

So it's an additional deposit on the property.

It's a bit smaller in terms of tonnage than Antapaccay, but higher in grade.

Glencore is looking to go ahead and develop that.

They haven't made a construction decision yet, but they have allocated substantial amount of funds in their budget this year to keep advancing that project.

So we are hopeful that soon they will make full construction decision.

The impact of that is -- they're still limited by the capacity.

They run both the Antapaccay mill and the old Tintaya mill at the property.

So we don't expect total throughput to increase.

But once that ore starts moving through the mill, it will be higher grade and so we should see higher metal production and obviously then -- because you are processing both deposits at the same time, that will extend the mine life for the stream on those assets.

Okay.

Thank you for that.

And then my last one for Sandip, if I may.

Sandip, with the tax changes in the U.S., can you give us some sort of guidance for your tax rate?

I mean, you didn't mention that it's going to have a positive impact especially on your Oil & Gas revenues.

And can you just give us a bit of guidance what we should be looking at?

Sure.

Our projection for effective tax rate for 2018 is about 17%.

Okay.

And is that something that we should just keep going forward within that range?

Obviously...

Once Cobre Panama starts production, it will decrease.

I would say, once Cobre Panama is fully ramped up in 3 years' time, the effective tax rate, assuming no additional acquisitions, is probably closer to 13%.

Your next question comes from Greg Barnes of TD Securities.

Paul or whoever else, do you see opportunity in the Permian or wherever else these oil basins in the U.S. do a similar amount of transactions that you've done over the past year in terms of -- you done $420 million of acquisitions, is that what you're looking at going forward?

We'll have Jason O'Connell.

He is heading up our Oil & Gas division.

So I have him speak to that.

Thanks, Greg.

I think in terms of the number of opportunities in the Permian, there certainly is opportunity to spend that amount of capital.

The nature of the landholdings in U.S. is such that most of the mineral title is held by individuals and so there is a tremendous inventory of mineral title and hence royalties that we can buy and there are a lot of private equity-backed companies in the U.S. that are looking to sell packages of those royalties.

And so there certainly is a lot of opportunity.

It's a matter of picking the right opportunities and also just balancing off how much Oil & Gas exposure we want versus gold and other precious metals.

Is it fair to say, this is your focus for the next 12 months?

No.

I think, Greg, I'll answer that.

We really have 2 separate groups here.

So we've got a mineral team that's absolutely focused on further metals type royalties, and we've got an Oil & Gas team that all they do is look at Oil & Gas transactions.

So I really see them as sort of 2 parallel businesses.

And we really, at the board level, are just trying to choose what are the best assets to add to our portfolio at any one time.

So we're blessed right now as we have opportunities on both sets of asset classes.

That opens up and just curious about the coke and coal royalty in Australia.

How did that come about?

And how -- what are you looking at there?

So -- yes, it's a smaller transaction, and it just popped up on the screen.

Kevin McElligott, who runs our operations down in Australia, he was responsible for sourcing it.

We keep looking at opportunities in Australia.

And this one just popped up.

It was the original prospector who had found those lands and put them into Macassa coal, he has written those royalties, and he was looking to exit his position.

So we thought it was at a cheap option on what is an extremely large resource there when we look at the total in-situ resource.

The value of the royalty could be upwards of AUD 600 million.

Don't expect that all those assets get developed, but think it is very nice option.

And the revenue stream, right now, I'm guessing is around $200,000 to $300,000 a year?

It's fairly limited because the only current operation is [Mooredale].

The most likely operation there to go into production is Olive Downs, which is a semi-hot coke and coal operation.

Your next question comes from Chris Terry of Deutsche Bank.

I just had a question.

It's probably for Paul.

Slide 16 of the presentation where you're going through the current phases, and I guess, I'm leaning off Greg's previous questions.

But when we're in the project financing stage that you said now, can you just talk a little bit about that in terms of the pulse and the -- of what you're saying, you're in a unique position to be able to engage with companies?

Do you think that still 1 to 2 years away?

We're seeing some green shoots on that.

But do you think the activity will accelerate?

Or how do you think about the time line?

And how long that project financing phase will last?

Yes, I think there are a couple of things there.

And the first is how our investors are thinking about these things and how that translates through to management teams.

So there are management teams that have large projects to build that are many billion dollars in capital that are starting to think, is it the right time to go to their shareholders about moving those projects forwards; that they're nervous about taking on the full amount of capital themselves.

So we do see people starting to think about how do they share the capital on large projects.

The second question then is, where does all that capital come from, and I made some comments earlier about you do see any broker that you speaks to will tell you that they can't raise the same amount of new equity in issues these days just because the amount of passive capital.

So if anything is particularly constrained, it's the availability of equity capital to move these projects forward.

The other side of it has been and it's been the theme that's played out over a number of years now, it's just debt capital is constrained because of the capital allocation.

So I think the first nut that needs to be cracked is that investor sentiment.

I suspect that we're 6 to 12 months away from people -- from shareholders being willing to support these projects.

But once they do -- as we all know, there's been a lack of capital going into the sector and everything is cyclical.

So we're sowing the seeds here for the next capital building cycle.

Okay, thanks for the color.

The last one for me is just, I guess, relating to going into coke and coal and other commodities.

Are there any opportunities in the EV space around cobalt or some of the other mine and metals that you might be interested in?

There may be, but by far the larger opportunities for us on the gold and the base metal side, while the EV space is very exciting and a lot of market participants chatting about it, there are just not that many deposits that are as attractive.

So there may be some deals, but I don't think we're going to be building a division out of it.

Your next question comes from John (sic) [Joshua] Wolfson of Desjardins.

It's Josh here.

Just quick questions first on Cobre.

In terms of understanding how that asset is going to ramp up and accrue to you, I think the comment earlier was that, as soon as the concentrate is sold, you get paid.

Is there any -- is that concentrate sold at the port?

Or is that refined where you get paid?

And I'm just trying to understand the delay between concentrate production and when you receive revenues.

So it'll be much like other deals, Josh.

So we do -- as soon as the operator gets provisional payment, we'll get payment following that.

And then once there is a final payment that comes from the refiner, that's often 3 to 6 months down the line, then that provisional payment gets adjusted.

But the timing should be fairly immediate from the time that, that concentrate goes on a ship.

Okay.

And then, in terms of how the, I guess, catch-up payment works.

It would seem to be that based on First Quantum's guidance that likely is going to be triggered in 2019.

How or when do you sort of get that catch-up payment?

Or when would it be accruing as part of your revenues?

So the way that will work Josh is, it's a reduction on the ongoing price that we would pay per ounce.

So if there is a delay, we don't get revenue sooner.

But once the ounces do start flowing, the ongoing amount that we pay per ounces is adjusted to make it up.

Okay.

And that would start from, they -- I guess when that clause is triggered?

Or is there a delay between clause being triggered and when that discounts starts to be received?

So you'd see -- as soon as we start getting ounces delivered to us, we're paying less for those ounces as an ongoing price.

Okay.

And then one other question.

In terms of, I guess, balance sheet sort of management.

Given that the assets have transitioned to much longer-life assets and looking at 2022 guidance and obviously, even before then free cash flows can be well in excess of, I guess, what dividend or capital requirements are.

Is there any point at which the company starts to utilize its debt more significantly in terms of managing opportunities in the market?

Or is this a high conservatism, sort of low-debt strategy likely to be maintained longer term?

Josh, it's David here.

We still want to be the risk off gold investment.

We want to be the sort of safest place for institutions, and they want to be exposed to gold.

So we always look at our credit facility as a temporary credit card.

And it's possible we'll use some of it this year because we see other opportunities in front of us this year.

But we're comfortable with that because we know, as you pointed out, we have the cash flow to repay it quickly next year.

So our philosophy is, if we're generating surplus cash, we don't mind having surplus cash on our balance sheet because we like to -- we know it's always going to be cyclical business, and we like to be positioned so that we have the check -- ability to write a check when no one else can.

So we think that countercyclical philosophy is going to serve us very well over the next few decades.

(Operator Instructions) There are no further questions at this time.

I will now return the call to our presenters.

Thank you, Chris.

Just to remind everybody, we'll have an Asset Handbook coming out in early April.

And then our next quarterly will be coming out with our aftermarket on May 9, same day that we have our Annual Meeting.

You're all invited.

Thank you for attending.

This concludes today's conference call.

You may now disconnect.