Franco-Nevada Corp (FNV) 2020 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Franco-Nevada Corporation Year-End 2020 Results Conference Call.

(Operator Instructions) This call is being recorded on March 11, 2021.

I would now like to turn the conference over to Candida Hayden.

Please go ahead.

Thank you, Joanna.

Good morning, everyone.

Thank you for joining us today to discuss Franco-Nevada's 2020 Year-End Results.

Accompanying this call is a presentation, which is available on our website at franco-nevada.com, where you will also find our full financial results.

Paul Brink, President and CEO of Franco-Nevada will provide introductory remarks.

Sandip Rana, our CFO, will provide an overview of our 2020 results; Eaun Gray, our Senior Vice President of Business Development, will provide an overview of the Condestable Transaction; and Jason O’Connell, our Senior Vice President of Energy, will provide an overview of the Haynesville Transaction.

This will be followed by a Q&A period.

Our executive team is available to answer any questions.

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

I will now turn over the call to Paul Brink, President and CEO of Franco-Nevada.

Thank you, Candida, and good morning.

Our tagline is Franco-Nevada is the gold investment that works, and we're committing -- committed to ensuring it does work for our shareholders, our operating partners, and our communities.

We're proud of the results achieved in 2020, but I would like to start by thanking our staff and supporters, and the employees and communities that are operating assets for all your efforts and particularly your resolve through the pandemic this year to make the results possible.

2020 was a strong year for Franco-Nevada.

We received top ESG ratings during the year from Sustainalytics, MSCI, and ISS.

We were active through the year contributing to help communities' weather the COVID-19 crisis.

We're committed to the World Gold Council's responsible gold mining principles.

And during the year, became a signatory of the UN Global Compact and the BlackNorth pledge.

We've also strengthened our commitment to increase diversity of Franco-Nevada by adopting a goal of at least 40% diverse representation at the Board and senior management levels by 2025.

Our diverse portfolio weathered the impacts of the pandemic better-than-expected.

Despite COVID interruptions at a number of our operations and a strike at Candelaria, we were able to match and even slightly beat 2019 GEO sales.

Our energy assets recovered well through the back half of the year, also exceeding our revised guidance.

Cobre Panama produced first ore in 2019, but it was really 2020 that it joined Candelaria, Antamina, and Antapaccay as one of our core long-term cash flow generators.

On the back of higher gold prices, the portfolio generated record financial results.

Our revenue exceeded $1 billion for the first time.

Our EBITDA margin increased to over 80%, and our fourth quarter was our most profitable quarter on record.

On the strength of these results, we are increasing the quarterly dividend to $0.30 a share, starting with our second quarter dividend payment in June.

This will mark our 14th successive annual dividend increase.

The greater than 15% increase is larger than typical.

But now that we're receiving full contribution from Cobre Panama, we feel it's well warranted.

Our business development team saw good success through the year.

Over the last 12 months, we acquired a royalty on the Alpala copper-gold development property in Ecuador, a portfolio of natural gas royalties in the Haynesville shale, and a precious metal stream on the Condestable copper operations in Peru.

The team were selective about the assets they chose, patiently waiting for the right window in the energy markets and added both to immediate cash flow and long-term growth potential.

Along with our results, we provided new guidance.

We expect strong growth in 2021, leading to another record year.

We're guiding to 10% to 15% growth in our business year-over-year.

In particular, we expect increased contributions from Cobre Panama, Candelaria, and Antamina.

And that the recovery in energy prices is sustained.

Our 5-year outlook anticipates 20% to 25% growth in our business.

We're expecting Cobre Panama ramping to 100 million tonne per annum, Musselwhite operating again.

Expansions at Detour, Stillwater and Tasiast, and new mines in production Salares Norte, Hardrock, Stibnite Gold, Valentine Lake.

Slides 9 and 10 of the deck provide an indication of the contribution of the core assets and the timing of the expansions and new mines.

There's exciting organic growth in the portfolio coming from the drill bit.

The year saw exploration success at many of our assets.

Detour, Duketon, Guadalupe, Macassa, Malartic, Valentine Lake, and many others.

Much of our long-term growth potential is in the form of new copper mines, including Rosemont, Alpala, Taca Taca, and NuevaUnión.

The recent Noront investment by Wyloo Metals and Andrew Forrest investment vehicle bodes well for our royalties covering much of Ontario's Ring of Fire.

To wrap up, our core assets are outperforming.

We have built-in growth and tremendous long-term optionality.

We have no debt, $1.9 billion in available capital and are generating upwards of $800 million per year in cash from operations.

We have a good pipeline of opportunities and are looking forward to putting the capital to work as the industry returns to building new mines.

Last, some advanced advertising.

We're planning to host an Analyst Day this year with a more in-depth review of our assets, likely the second week of April, and we'll publish our annual asset handbook and our ESG report at the same time.

I'll now hand it over to Sandip for his review of the results.

Thank you, Paul.

Good morning, everyone.

As we know, 2020 was not a typical year.

As Paul mentioned, a number of our assets were impacted in the first half of the year because of the pandemic.

But with the steps that our operators and partners took and as the year progressed, we saw our royalty and stream interests return to normal operations.

As a result, Franco-Nevada ended 2020 with a strong fourth quarter, resulting in record financial results for the quarter and full year.

As you turn to Slide 13, you can see how the company performed against the guidance levels that were issued in 2020.

The initial guidance provided by the company was 550,000 to 580,000 GEOs sold.

Due to the impact on operations of the pandemic, initial GEO sold guidance was retracted in the spring.

Once operations stabilized, the revised guidance was 475,000 to 505,000 GEOs.

As the year progressed, our royalties and stream portfolio has performed better than planned, with the GEOs sold for 2020 being 521,564, easily exceeding the high end of the revised guidance range.

With respect to our energy assets, the company had guided to revenue of $80 million to $95 million for the year using a $45 WTI oil price.

Again, due to the unforeseen circumstances, the guidance was retracted in the spring.

The revised revenue range provided was $60 million to $75 million in revenue.

Based on the recovery in energy prices, revenue for our energy assets for 2020 was $91.7 million, which also exceeded the top end of our revised range.

I will note that revenue for fourth quarter does include $4.2 million in revenue related to the Mesa transaction, which Jason will talk to shortly.

Turning to Slide 14 and looking at the gold equivalent ounces sold for the last 5 quarters as well as the previous 5 years, you can see that the portfolio continues to perform well.

The company sold 147,476 GEOs in the fourth quarter 2020 compared to 153,396 in Q4 2019.

Although it was lower GEOs than prior year, it was the best quarter of 2020.

This strong fourth quarter closed out the year with just over 521,000 GEOs sold for 2020, a new record for Franco-Nevada.

Gold ounces represented 75% of GEOs sold for the quarter and 78% for the year.

For the quarter, we had strong performance from a number of key assets, 3 key contributors being Cobre Panama, Antapaccay, and Guadalupe, who all delivered higher GEOs than expected.

Candelaria was impacted by the work stoppage during the quarter, which did reduce the amount of gold and silver delivered.

We expect a stronger year from Candelaria in 2021.

Our NSR and NPI royalties at Hemlo had another strong quarter, generating $21.6 million in revenue.

We did have a carryover of third quarter revenue into fourth quarter of approximately $8 million.

For the year, Hemlo generated $70 million in revenue for Franco-Nevada.

With the increase in the gold price in 2020, it highlighted the leverage that our net profit interest royalties do have to higher commodity prices.

Also on gold quarry, the company received 6,123 GEOs compared to the expected 11,250 ounce minimum.

For 2021, we expect to receive approximately 6,000 GEOs again.

2020 saw continued positive momentum in precious metal prices.

Gold, silver, platinum, and palladium prices were higher for the quarter and full year compared to prior year.

Fourth quarter especially saw a rebound in silver prices.

Energy prices were not as fortunate as both the WTI oil price and natural gas prices were lower year-over-year.

However, natural gas prices did recover in fourth quarter 2020.

Slide 16 highlights total revenue for the last 5 years, along with the average gold price over the same period.

The company's total revenue has increased significantly over the period shown.

When combining the slightly higher GEOs sold in 2020 with the higher average precious metal prices, total revenue surpassed $1 billion for the first time.

Total revenue increased 21% year-over-year.

As you turn to Slide 17, you will see the key financial results for the company.

There are a lot of financial records for the company for the quarter and full year, which are highlighted in gold.

As mentioned, with the increase in commodity prices, the company had strong revenue growth for the quarter and year.

And with the margin generation of our business model, there was a significant increase in adjusted EBITDA and adjusted net income.

For the full year 2020, adjusted EBITDA was $839.6 million, a 24.6% increase over 2019.

Adjusted net income was $516.3 million, a 51.2% increase over 2019, while adjusted net income per share was $2.71, a 49% increase over full year 2019.

As 2 of our key contributors for the year were Guadalupe and Hemlo, both of which have minimal book value, this did result in lower overall depletion for the company.

Slide 18 highlights the diversification of the portfolio, which we consider one of the strengths and differentiators of Franco-Nevada.

As shown, 91% of our 2020 revenue was generated by gold and gold equivalents.

The geographic revenue profile has revenue being sourced at 86% from the Americas, with Latin America being the largest.

With respect to asset diversification, Cobre Panama was a largest revenue generator at 13% of total revenue for the year, followed by Antapaccay at 12% and Candelaria at 10%.

No one asset in our portfolio generates more than 13% of our revenue.

The last chart highlights our operator diversity.

Our largest exposure to revenue being generated by any one operator is 13%, which is first quantum, who operates Cobre Panama.

We are fortunate to have royalties and streams on many properties mined by some of the most reputable mining companies in the world.

Slide 19 illustrates the strength of our business model to generate high margins.

For 2020, the cash cost per GEO, which is basically cost of sales less cost associated with the energy business, divided by gold equivalent ounces sold, is $292 per GEO.

This compares to $266 per GEO in 2019.

This amount will fluctuate each quarter depending on the mix of royalty versus stream ounces.

But as you can see, at current average gold prices, the company generates significant margins.

For 2020, Franco earned a GEO margin of approximately $1,480 per GEO.

With our business model, the company sees an immediate financial benefit to a rising commodity prices.

The other cost component for the company besides cost of sales is our corporate administration costs.

Our Board and management are very proud of our focus on cost management.

We like to stress, the strength of our business model and the scalability.

The chart on Slide 20 clearly illustrates our focus on being cost-efficient as possible in managing this business.

Here, we have highlighted our quarterly revenues and our quarterly corporate administration expenses since our IPO.

Since 2008, our revenues have grown from approximately $25 million to an excess of $300 million this quarter.

That is a 12-fold increase.

This, while our G&A has remained fairly stable over this time period.

General and administrative costs have averaged $5 million to $8 million per quarter for the last 13 years.

For Q4 2020, G&A was less than 2% of revenue.

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

2020 was a strong year for Franco-Nevada as it built on the momentum from 2019.

We look to 2021 to continue to build on this momentum.

For 2021, we are guiding to 555,000 to 585,000 GEOs sold.

This is a 10% increase over the level reached in 2020.

The main drivers of the growth are Cobre Panama, where we have the mine ramping up and producing at 85 million tonnes per year.

Increased GEOs from Candelaria as it is running back at normal operations and from Antamina, where we expect an increase in silver deliveries.

We will be receiving our first gold and silver deliveries from the recent Condestable stream to which Eaun will speak to shortly.

These increases will be slightly offset by lower expected ounces from Hemlo, with a lower gold price and lower production on the Interlake claim will reduce profitability.

Sudbury will be in production for the full year, but at a reduced rate.

We expect to receive approximately half the GEOs we were delivered in 2020.

Also, our stream on Karma steps away from the fixed ounces and becomes variable.

Guidance has been calculated using $1,750 gold, $25 silver, $1,100 platinum, and $2,200 palladium per ounce.

On the energy side, we expect revenue of $115 million to $135 million using a $55 per barrel WTI price and $2.50 mcf natural gas price, both of which are higher than what was realized in 2020.

This revenue guidance does include a full year of revenue from the recent Haynesville acquisition.

As we look forward to 2025, we are proud of the built-in growth that the company already has in place.

Our outlook for 2025 is 600,000 to 630,000 GEOs sold.

Major contributors will be Cobre Panama as it ramps up to 100 million tonnes per year.

We are expecting a number of new mines to be in production, as Paul mentioned, Hardrock, Salares Norte, Valentine Lake, and Stibnite Gold.

We do expect McCreedy West and Sudbury to remain in production at 2021 levels until 2026.

Also, it should be noted that our cap on mine waste solutions reached in 2024.

On the energy side, the revenue outlook is $150 million to $175 million for 2025.

This assumes the full capital commitment for Continental has been funded, and it also assumes there is a rebound in U.S. drilling levels but not to what they were in 2019.

Again, similar commodity prices are used as for 2021.

Overall, when you look at the outlook for GEOs sold and energy revenue growth to 2025, at current commodity prices, the company has greater than 20% revenue growth over the next 5 years.

Obviously, this assumes no additional acquisitions added to the portfolio.

With respect to the CRA audit that is ongoing, I'd like to highlight a few items.

As normal course, CRA has begun auditing years 2016 and 2017 for Franco.

No proposals or reassessments have been received.

We did receive reassessments in fourth quarter related to penalties and interests for the 2013 to 2015, previously issued reassessments.

These were approximately $10 million.

In our view, these are all normal course.

Also the recent court decisions involving Canadian transfer pricing disputes, including that of chemicals are encouraging.

We believe CRA's reassessments are not supported by Canadian tax law, and we are vigorously defending our tax filing positions and we'll continue to do so.

Slide 23 summarizes the financial resources available to the company.

When including our working capital of $610.5 million, marketable securities of $191.8 million, and our credit facility is at $1.1 billion.

Total available capital at December 31, 2020, is $1.9 billion.

The company did fund the $165 million Condestable transactions subsequent to year-end.

Before I turn it over to Eaun, I'd like to mention that we have added an interactive analyst center to our website, making it easier to download financial data.

Historic financial information has been added, and the website is live.

And now I will pass it over to Eaun.

Thank you.

Thank you, Sandip, and good morning.

We're very happy to announce the closing of gold and Silver stream for $165 million over the Condestable Mine located in Peru.

Mine is owned by Southern Peaks Mining, which is a GNRI portfolio company.

We're very excited about this opportunity as we see excellent geological potential in the asset, which I'll speak to further in a moment.

Condestable has a very long history and has recently grown its institute global resources to over 90 million tonnes of M&I on the back of significant drilling and very good geological work.

We believe the potential for near-mine and depth extensions of these ore bodies is excellent and quiet -- and are quite excited to partner with Southern Peaks on the asset, where we see very good potential for output growth and mine life extension.

The mine is currently in the process of expanding to 8,400 tonnes per day this year and is advancing sites to move to 10,000 tonnes per day.

This further expansion does require some permitting, but we see 10,000 tonnes per day or more is very likely with time.

It's worth noting also that the stream benefits from 5 years of fixed deliveries, which helps derisk any ramp up.

While the mine is privately owned and does not have publicly reported reserves, our team is confident the current resources should support a 15-year plus mine plan.

Moving to Slide 26.

We've shown Condestable location in the Andes Cu Belt and the overall concession.

As you'll see, the mine benefits from a location 90 kilometers south of Lima.

This provides easy access to labor and infrastructure, which underpins very low operating costs and puts the mine in the bottom half of the cost curve.

It's worth highlighting that our technical team sees great parallels here between the deposit's geology and the underground at Candelaria, where we saw reserves grow tenfold since the acquisition.

The underground mantle and vein mineralization is similar between them, and both benefit from excellent geotechnical conditions, which really helps in terms of cost and safety.

As part of the deal, we're also partnering with the operator on community development initiatives around the mine, we're very excited to have a positive impact here.

Mine has enjoyed good relationships with communities for many years.

The stream also covers 45,000 hectares, which is a very large land package.

Location of the concession is shown on the right-hand side of the page.

Our team sees this is highly prospective land and believe there's good potential for more discoveries over time.

Moving to Slide 27.

We've shown a cross-section of the deposits that make up Condestable.

The stream applies to the Condestable Raul and Vinchos mines, which are highlighted on this slide.

Key takeaway here is the potential to add more, both at depth and along strike.

We see good drill indicated upside to improving the large size of the system.

This makes us believe the asset should be a good contributor across multiple cycles.

Moving on to the next slide, we've highlighted the deal terms.

The stream is effective for January 1 and will start contributing immediately.

The deliveries are fixed for the first 5 years, as I mentioned, and they provide roughly 13,000 GEOs annually through that period.

We like the fixed feature given the certainty in the medium-term, but we believe that the variable deliveries give us great exposure to the geological upside that we expect to see here.

The delivery switched to 63% of gold and silver contained in concentrate after year 5, which we expect to last for roughly another 5 years before it steps down to 25% of the gold and silver for the entire life of mine.

We have offered the operator the ability to buy the stream down with an advanced delivery for the first 4 years.

If this were to occur, it would, however, boost our returns and still give us immediate exposure with the 25% variable stream, which would commence there upon.

It's worth noting that the buy down in year 1 is only possible under certain circumstances.

Overall, we see this as a very good fit with our model as it maximizes geological optionality on the exciting deposit and a large land package, while mitigating our risk with the initial fixed deliveries.

We expect this asset to be a long-term contributor.

Thank you very much.

And with that, I'll hand it over to Jason.

Thanks, Eaun, and good morning, everyone.

In December, we closed the transaction with a private company, Mesa Minerals Partners, to acquire their portfolio of royalties in East Texas for $135 million.

The assets consist of about 2,640 net mineral acres, which provides for perpetual ownership interest in the land and which is shown on the map on the right-hand side of Slide 29.

The acreage is situated in the western portion of the Haynesville shale play in Harrison and Panola counties where the producing formation is at its thickest.

The Haynesville, along with the Marcellus shale in the Northeastern U.S., are the 2 most significant natural gas plays in the United States.

The Haynesville benefits from its close proximity to the U.S. Gulf Coast, where low transportation costs provide strong underlying economics for operators.

Throughout the commodity price downturn in 2020, the Haynesville remains one of the most robust basins in North America and saw only limited drawdown in drilling rates relative to other shale plays.

The portfolio of royalties we are acquiring was originally assembled by Mesa in partnership with Rockcliff Energy.

Both companies are sponsored by the private equity group, Quantum Energy Partners, and that relationship allowed for Mesa to leverage Rockcliff's geologic knowledge of the basin and to prioritize acreage buying ahead of Rockcliff's drilling program.

Rockcliff is the operator on approximately 75% of the acreage positioned, and they are the leading operator in the East Texas part of the Haynesville.

Turning to Slide 30.

One of the key attributes for the royalties is that they are generating strong current cash flow.

The transaction had an effective date of October 1, 2020.

And in Q4, the assets generated $4.2 million of revenue from the production of 2 bcfe of natural gas.

We expect the assets will contribute at a similar level of $4 million to $5 million per quarter in the coming year.

Looking longer term, the acreage hosts approximately 700 undeveloped well locations.

And for context, last year, there were about -- about 60 wells drilled on our lands.

That level of activity will provide for more than a decade of drilling activity, followed by a long tail as the wells decline.

Along with excellent mineral tenure and strong current cash flow, the transaction is attractive and that it adds to our natural gas weighting, bringing the balance of the gas in our portfolio to about 35% in the current environment.

In addition, it adds increased portfolio diversity from acreage positioned within a core of a new high-quality basin.

That concludes our prepared remarks for this morning.

So with that, we'll turn it back to Joanna for any questions from those on the call.

(Operator Instructions) First question comes from Tyler Langton at JPMorgan.

I guess, just to start on the energy side.

I know that the guidance for this year is the $115 million to $135 million, growing to the $150 million to $170 million in 2025.

Should that be somewhat, I guess, of a linear increase over the next 5 years?

And then can you just remind us how dependent that revenue guidance is on sort of oil and gas prices?

Yes, Tyler, the ramp-up in revenue over the course of the next 5 years is not exactly linear.

For many assets, there will be sort of a reasonably steady increase in production.

For example, from our portfolio assets in the U.S. For those assets, we're expecting a continued ramp-up in drilling activity.

So you should see good -- relatively stable year-on-year growth on those assets.

For our Canadian assets, there's not a lot of growth out of those assets other than increased revenue through better commodity prices.

And the other U.S. asset that has a bit of a step up, call it, at some point in the next 2 years will be Continental.

We have a structure there within that agreement that allows us to take additional distributions from that partnership should the company fall short of certain volume targets.

We expect that that could occur depending on where drilling rigs are within the next 2 or 3 years.

So there will be a bit of a step-up around 2023 or so.

And then in terms of the -- just the sensitivity to oil and gas prices?

I don't have an exact number to give you the sensitivity on our Canadian assets.

It's related to mostly the Weyburn NRI, where we have -- we're responsible for our operating and capital cost of that operation.

So there is a fair bit of sort of financial leverage there.

With the U.S. assets, there is leverage in the form of drilling rates.

And so as prices increase, typically, operators will increase the capital that they spend and increase the drilling rates on the acreage.

So it's more than a 1:1 relationship with price, but I don't have an exact ratio for you at this point.

Got you.

And then just on the acquisition front, I guess, could you talk a little bit about what you're seeing more recently, I don't know with base metal prices having increased?

Are you seeing more companies based on all producers looking for streams on the precious metal side if they have it or just more precious metal deals?

Just kind of any color around that and sort of deal size and sort of items like that?

It's in here.

Yes, I would say the 3 legs of the stool at the moment in terms of deal flow or probably acquisition finance as people start to look at M&A again, seriously, development, finance and existing royalties.

And in terms of development finance, certainly, byproducts lend themselves well to that.

So we're hopeful we'll see some deal flow there.

But that's what I would point you to in terms of new transactions.

The next question comes from Cosmos Chiu from CIBC.

Great to see a very strong Q4 and also great to see the dividend increase here.

Maybe my first question is on energy as well.

It's kind of funny.

Sometimes you don't want to talk about it, and now everyone wants to talk about it.

Jason, I don't know if you have this handy in front of you, but could you maybe remind me what percentage of your revenues sensitive to the different commodities?

I know you're -- you have some exposure to WTI, exposure to AECO, exposure to WCS exposure to Henry Hub?

Like what percentage are we talking about based on your revenue?

Yes, sure, Cosmos, and I always love to talk about energy.

So thanks for the question.

In terms of where we have exposure, our portfolio as of Q4 was about 35% gas, most of that is referenced to Henry Hub.

So call it, 35% of our revenue would have Henry Hub exposure.

We do have a bunch of exposure to natural gas liquids.

So that would be propane, ethane, those various commodities.

So they're exposed to a different benchmark.

And then within the oil side, call it, 55% of our revenue as of last quarter.

I don't have the exact split, but I'd say it's probably 1/3 exposed to Canadian light oil.

So that's an Alberta benchmark, probably another 10% exposed to WCS, which is a heavy benchmark in Canada, and then the remainder would be WTI exposure.

So the broad buckets are a 35% gas, 10% NGLs, and 55% or so oil.

Great.

Maybe digging a little bit deeper here.

Certainly, back in 2020 with a rising gold price, the NPI at Hemlo did really well, just given that there's more leverage to it.

On the energy side, Jason, given the recent increase in WTI, oil, gas prices, is there anything similar to it?

Because I know, for example, you talked about Weyburn.

Weyburn has a NRI, which is kind of like an NPI, there's also a working interest.

Can we expect the same thing happen here in terms of more -- I don't want to say parabolic, but giving greater leverage either at Weyburn or somewhere else?

Yes.

As mentioned, the biggest sort of form of financial leverage is from the Weyburn asset, which is a good portion of our Canadian revenue.

And there, we do have direct leverage to increases in commodity prices.

That leverage obviously changes depending on what the price is.

For example, in the spring, when commodity prices were $30 a barrel, we were earning next to nothing from that royalty.

And so every $5 incremental increase in the oil price generated a big lift in revenue.

We'll continue to see good leverage there as oil prices are moving to $65 a barrel or so in today's environment.

The other form of leverage, which I sort of touched on a little bit is from the level of activity that's associated with drilling on our U.S. assets.

As commodity prices increase, operators are earning more money, they're putting more capital to work, they're drilling more wells.

And all that benefits our royalties.

It's just very difficult to give you an exact ratio of how that unfolds.

I think in this environment, we saw drilling rates really get reduced in 2020 across North America.

I think as prices rebound, we're going to get not only the benefit of higher revenue, but we're going to get the benefit of higher volumes associated with that increase in drilling.

Of course.

Maybe more of an accounting question here based on the energy front.

Early last year, WTI was -- went negative.

And as a result, I think Franco-Nevada did about a $200 million write-down on the energy portfolio.

Maybe a bit premature at this point in time.

But when would you start considering taking a look at that the, I guess, value of your energy portfolio and potentially kind of writing it back up?

Cosmos, Sandip here.

We look at it every quarter as we require to under accounting rules.

The big trigger for us will be that sustained capital spend, as Jason alluded to, the spending by operators on the well drilling, especially in the United States.

If that really comes back at significant levels, we'll take a look at it then.

But I wouldn't expect a reversal in the near-term.

Okay.

Got it.

Maybe switching gears a little bit on Condestable.

I just want to get a better understanding of the buyback or buy down right here.

My understanding is that if it were to get exercise, say, tomorrow, which I know, Eaun, you said it's very restricted into first year.

So -- but just as an example, if it gets exercised tomorrow, then really, what happens is that I would have to figure out the value of 25% of what that's worth.

And then, say, over 15 years because in your presentation, it says 15-plus years.

And if I were to come to a value and I did yesterday in my note of, say, $90 million based on spot.

We essentially have to add that $90 million to $119 million that they have to pay you.

So over $200 million for something whereby you paid $165 million worth.

I guess my question is, is my understanding correct?

Or is my concept here correct?

And number two, if that's the case, then it's the conclusion that it would be fairly expensive for the operator to buy it back, is that correct as well?

Yes, Cosmos.

Yes.

So the exact buyback amount is $118.75.

And yes, they would have to deliver that value of gold to us.

It would be subject to the same 20% transfer price or delivery costs for those ounces.

So you would net that off.

And yes, the 25% stream would then commence immediately.

And so you'd have to value that.

So I think you're looking at it the right way.

But perhaps we just need to count the 20% transfer price on what gets covered as part of the buyback.

For sure.

And then maybe as a follow-up here.

Buy downs, I think Franco-Nevada never really like to dabble in buy downs in the past.

And I'm sure that's not ideal at this point in time as well.

But given the current dynamics of the environment, is this now sort of like a ticket to entry?

Should we look at it that way?

Or is it just on a case-by-case basis?

No, I don't think so Cosmos.

There are certain circumstances here, which made it particularly important in terms of having a sense of feature that was salient.

And so for us, optionality is key.

We have the full land package, which is really important the stream.

And its residual amount, 25% is actually a meaningful equivalent to net smelter returns.

So it's such that our optionality is right over time, and we're not giving up too much of that.

So we have to balance that out versus what the operator is looking for.

But you have seen more of these things, but certainly not something we strive to do.

The next question comes from Greg Barnes at TD Securities.

Sandip, just trying to understand what we should be thinking about Hemlo now.

You said we should expect lower revenues in 2021.

Is there any way to give us some kind of framework we should think about going forward?

So I will give you a range, Greg.

I think -- and it will be a wide range, but I think between 20,000 and 30,000 GEOs for 2021 based on current commodity prices and what we know -- what the mine plan at Hemlo for Interlake, that it will be in that range.

I know it's a wide range, but that's what I can tell you at this stage.

And do you have enough visibility to guess, I suppose, that what happened post-2021?

We do.

We do.

It will tail off over time.

And I think 2021, 2022 will be similar in terms of production on our claims.

And then starting 2023, it will start to tail off and carry on every year at a lower rate.

Okay.

And how big will be the tail off?

At these prices, I would estimate about 10,000 GEOs a year.

The next question comes from Carey MacRury at Canaccord Genuity.

Maybe in a similar vein Sandip, you mentioned McCreedy West production going through 2026.

I know your guidance for 2021 is lower than 2020.

But just on that particular stream, what we should expect maybe over the -- is there a number we can use over the 5-year period?

Sure.

So I think for 2020, we did about 21,000 GEOs.

We'll do half of that for 2021.

That's our estimate.

And we see that just being carried through to 2026 at this stage.

Okay.

Great.

And then maybe 2 more questions.

So I guess on gold quarry, it's transitioned from the minimum.

I'm just wondering, is that something that was planned?

Or sort of what -- how that came about?

And then secondly on Antapaccay, obviously, a record quarter.

Was some of that sort of carry through from Q2, Q3?

Or is that relating to Q4 production?

Sure.

So on gold quarry, yes, the annual minimum is 11,250.

We did expect that to drop off starting in 2022.

So it's a year ahead of schedule.

So we did about 6,000 GEOs.

We'll do about 6,000 for 2021.

And then post-2021, right now, our estimate is 1,350 going forward.

However, the caveat with that is how the reserves change at gold quarry.

So there's certain laybacks that if they get included.

The reserves will increase when our minimum will go back up.

So those are the numbers at this stage.

But as we get more information from the operator, the minimum could change.

And then with respect to -- sorry, in Antapaccay, yes, it's had some carryover of deliveries from Q3 -- or production from Q3 into Q4.

Okay.

Great.

And then maybe just one question on the new stream, I'm not going to try to pronounce in Peru.

But just thinking about the mine life that you guys talked about a sort of 15-year sort of planning mine life.

But based on the resource base, it looks like there's more than 40 years there.

And obviously, it looks like it's still open from exploration.

So I'm just trying to understand the context around 15 years in terms of mine life potential?

Eaun here.

Yes, there is a very large resource base there.

It's one of the things that we really like about the asset.

In terms of the immediate mine life, obviously, you have to look at what is the highest level of confidence around it in terms of that resource, which we've provided.

And so that's how we [that's where we] -- that we think there will be very long and fruitful mine life.

The asset has been operating now in some capacity for over 50 years and continued good drill results.

So how we look at it, we do see the potential for life well beyond that.

The next question comes from Brian MacArthur at Raymond James.

A lot of my questions have been answered, but maybe going to another stream here.

Just on the restructuring of Sabodala.

It talks about 105,750 cumulative, is that from September 21?

Or is that like day 1 -- exactly how that one works now going forward over the next number of years?

And then what's the 6% true-up based on the time period now or what you would have seen before?

Yes.

So what happens with Sabodala is there's a fixed delivery profile, which continues as outlined.

And there's quite a bit of detail in the MD&A.

So they continue to deliver through to that total ounce threshold.

And at the end of that threshold, you have a look and say, okay, how much actually take Sabodala versus if you would assume the 6%, which is what the stream went to anyway versus what came from elsewhere, [deep Mesquite].

And then effectively, what would happen is if there was a lot of displacement for Maslow, which is likely, indeed we will go on high 80s.

And the 6% won't start again until it caught up that cumulative amount with production from Sabodala.

So I mean...

We can talk about it in more detail off-line as well.

It would be helpful.

(Operator Instructions) Next question comes from Tanya Jakusconek at Scotiabank.

Just a couple of questions.

I'm going to start on Antapaccay, if I could.

And just turning on to the Coroccohuayco project, the scope and the timing.

I just wanted to ask, number one, what's changed there?

And number two, is it still included in your 5-year guidance?

I think it was last year.

Tanya, it's Paul.

The -- so, Coroccohuayco, the -- at Antapaccay, it is an additional deposit.

It's a skarn deposit.

It's about 3/4 the size of Antapaccay itself.

Glencore have been planning to develop it.

They plan their work on was a combination of open pit to underground, mostly underground to limit the footprint.

They have had some success with the community there.

I believe now they can build a mine with a bigger footprint.

And so we can make it largely an open pit mine.

So they are back to the drawing board on the asset, looking at that bigger mine plan.

So there's good and bad news there.

It means, over time, more metal.

But they have moved it back in terms of the timing expect it's more likely to contribute at the back end of the timeline plan.

Okay.

So it's not in your 5-year guidance?

It doesn't impact our 5-year guidance.

They expect that all that production is from Antapaccay.

Okay.

And then maybe just turning over back to Condestable guidance that you provided this morning.

Does the higher end of the production guidance range assume expansion to just 8,400 tonnes a day or 10,000 tonnes a day?

Tanya, it's Eaun.

Yes, so the bottom end of the range is closer to the 8,400 tonnes per day.

And the 10,000, I believe, would be more towards the middle end of the range.

As I said, we see good potential there to increase further with time given the size of the overall resource.

Okay.

Perfect.

And then just turning on to the energy portion.

I'm just trying to understand a little bit your guidance for 2021.

We have seen significant -- you're showing significant growth on existing assets despite the big CapEx cuts that we've seen, and most operators seem to be aiming for flat rather than growing production.

So what are you assuming in terms of operator CapEx increases relative to your 2021 budgets?

Yes, Tanya, for 2021, we're assuming a modest improvement over what we saw this year.

There was a lag in 2020.

If you recall, at the beginning of the year, oil prices were still reasonably strong.

And operators were still carrying out a fairly robust level of drilling.

And so what happened is 2020 had kind of, call it, half of a normal year and then half of a very depressed year.

For 2021, we're assuming a continued rebound.

Still not to the levels that we saw, though, in sort of pre-COVID pre-OPEC shock levels.

Okay.

And then maybe just on your -- just transaction wise, you talked about what you're seeing out there in terms of acquisition finance, development and existing royalties.

Maybe just sort of the size of the transactions, number one?

And number two, can we see you do more in the oil and gas space?

So Tanya, the -- in terms of the pipeline, it's a good pipeline.

As Eaun mentioned, the combination there of new mines and acquisitions.

I'd say those are most of the themes.

On the energy side, very happy to have the hands full here.

We continue to look although I'd say, in terms of what's active at the moment, most likely precious metal and also other metals is the high likelihood through this year.

And are we looking still in the range of a couple hundred to $500 million, by range?

Yes, I'd say everything in the pipeline is meaningful to move the needle, but that also not so big that it would -- has that also -- all the assets that increase our diversification.

Thank you.

There are no further questions.

I will now turn the call back over to Candida Hayden for closing remarks.

Thank you, Joanna.

We expect to release our first quarter 2021 results after market close on May 5, with the conference call held the following morning.

Thank you for your interest in Franco-Nevada.

Goodbye.

Ladies and gentlemen, this concludes your conference call for today.

We thank you for participating, and we ask that you please disconnect your lines.