Franco-Nevada Corp (FNV) 2020 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Franco-Nevada Corporation Q2 2020 Results Conference Call.

(Operator Instructions)

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

Please go ahead.

Thank you, Colin.

Good morning, everyone.

Thank you for joining us today to discuss Franco-Nevada's Second Quarter 2020 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.

Sandip Rana, CFO of Franco-Nevada, will provide a brief review of our results; and Paul Brink, President and CEO of Franco-Nevada, will provide a business development update.

This will be followed by Q&A period.

Representatives from our executive team are present in our boardroom 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 Sandip Rana, CFO of Franco-Nevada.

Thanks, Candida.

Good morning, everyone.

As we all know, second quarter 2020 was not your typical quarter.

Franco-Nevada, like many companies, was impacted by the COVID-19 pandemic.

The company had ended 2019 with very strong performance from its royalty and stream assets, which continued into first quarter 2020.

However with COVID-19, we had a number of interest impacted in the second quarter.

Our 56 producing assets at the end of March, 15 were impacted in some way.

These assets were either mandated to shut down or to partially curtailed production.

As of today, we are pleased that almost all of the assets that were impacted have resumed normal operations.

Only the Golden Highway assets remained closed.

We look forward to our royalties and streams resuming normal operations and continuing to deliver the growth built into our portfolio.

On Slide 3, we have highlighted the gold and gold equivalent ounces for the 3 and 6 months ended June 30, 2020 and 2019.

Overall despite the portfolio not performing as planned due to the pandemic, GEOs sold were fairly stable for both periods shown.

For second quarter 2020, GEOs sold over 104,330 compared to 107,774 a year ago.

The company has benefited from GEOs delivered and sold from Cobre Panama as the company began receiving gold and silver ounces in third quarter last year.

However deliveries in Q2 2020 were hindered by the mine being placed on care and maintenance because of the COVID-19 pandemic.

We expect deliveries to ramp up over the next few months as the mine has resumed operations.

One other material asset that did deliver last GEOs in second quarter compared to a year ago was Antapaccay.

The mine did experience concentrate shipment delays in April and May as a result of the pandemic, but we are beginning to see catch up deliveries of those delayed shipments.

With respect to the rest of the portfolio, one asset which showcased its leverage to the rising gold prices was Hemlo.

Franco-Nevada has a 50% net profit interest on the Interlake deposit within Hemlo.

The company saw substantial increase in GEOs delivered and revenue recognized for the second quarter compared to a year ago.

We expect this asset to continue to do well as gold prices increase.

With respect to PGM, silver and other mining assets, the company did recognize last GEOs sold, which was in line with expectations.

Slide 4 highlights are gold and gold equivalent revenue for Q2 2020, Q1 2020 and Q2 2019.

The company's gold and gold equivalent revenue increased 26% compared to a year ago despite relatively flat GEOs sold.

The increase in revenue was due to the increase in gold prices with the average gold price for second quarter being $17.11 per ounce compared to $13.10 per ounce a year ago.

Energy revenue had a significant decrease year-over-year decreasing from $27.6 million in Q2 2019 to $14.6 million in Q2 2020.

Overall production at the assets did increase for the energy side, but this was negated by the lower oil and gas prices realized in the quarter.

As you are aware, oil prices reached historic lows in April 2020.

As you turn to Slide 5, you will see the key financial results for the company.

I won't get into the detailed numbers, but the company continues to deliver strong financial metrics being revenue, adjusted EBITDA and adjusted net income.

For Q2 2020 adjusted EBITDA was $158.1 million, a 14.6% increase over a year ago.

When adjusting for unusual items, adjusted net income was 43.4% higher in Q2 2020 compared to Q2 2019 at $91.8 million versus $64 million a year ago.

On Slide 6, we illustrate the diversification of our portfolio revenue generation.

As shown, 92% of our quarterly revenue was generated by gold and gold equivalents in second quarter with gold being 70%, silver 10%, PGMs 11% and other mining 1%.

From a geographic revenue profile, revenue was sourced 82% from the America, with Latin America being the largest.

The third chart highlights the asset diversification of the company.

Candelaria was our largest revenue generator at 14% for the quarter.

Our top 4 core assets, Cobre Panama, Candelaria, Antapaccay and Antamina, generated 36% of the revenue for the company.

One area that our Board and management is very proud of is our focus on cost management and being a high margin business.

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

The chart on Slide 7 illustrates that the margin for the company increases as gold prices increase.

Our cost structure, which we reflect in our cash cost per ounce, includes our cost of sales less cost associated with the energy business.

As you can see it does fluctuate quarterly but approximates $250 to $300 per ounce.

If gold prices continue to rise, we expect to benefit fully as the cost per ounce should not increase significantly.

This is truly a high margin business.

As you are aware, on April 7, 2020, the company did retract its GEOs sold guidance due to the uncertainty around the impact of COVID-19.

In addition, the energy revenue guidance was pulled due to the sharp decrease in energy prices and the related volatility.

Management is reinstating guidance for 2020, but its royalty and stream assets impacted by the pandemic begin to return to normal operations.

Based upon performance for the first 6 months of the year and our expectations for the second half, the GEOs sold guidance is 475,000 to 505,000.

This guidance is based on commodity prices of $1,800 gold, $20 silver, $900 platinum and $2,200 palladium.

With respect to the energy division, revenue is projected to be between $60 million to $75 million for the year.

This is assuming a $40 WTI oil price and $2 Mcf natural gas price.

Before I turn it over to Paul, I wanted to provide an update on the CRA audit with respect to the transfer pricing reassessments received for Mexico and Barbados, there are no material changes to what has been disclosed previously.

However, in July, the company did receive a proposal letter related to tax years 2012 and 2013 for foreign accrual property income.

CRA claims that the income for those tax years earned in Barbados should be taxed in Canada under FAPI.

The tax owed would be approximately $7 million fee for interest and penalties.

Franco-Nevada does not agree with the proposal nor the calculation prepared by CRA and has made this clear to CRA.

And now I will pass it over to Paul, who will provide an update on available capital and business development.

Thank you, Sandip.

I'll be talking about recent business development activity and our future growth drivers.

During Q2, we reached agreement on $100 million financing for SolGold, where we will receive a 1% NSR on oil production from a Cascabel property in Ecuador.

Cascabel is a large copper-gold porphyry system amenable to block caving and we believe one of the best copper-gold development projects globally.

M&I Resources are 2.7 billion tonnes at 0.53% copper equivalent, very interesting to us that includes more than 21 million ounces of gold.

The resource includes a high-grade core of more than 440 million tonnes at 1.4% copper equivalent.

SolGold has the option until January of next year to increase the deal by 50%.

That would be a 1.5% royalty and $150 million financing.

They also have the option to buy back half of the royalty for a period of time.

We've retained an option to convert the NSR in all metals to a gold only royalty on an NPV neutral basis.

As COVID travel restrictions were in place when we agreed the transaction on site due diligence was deferred.

We've provided interim funding to allow SolGold to continue its activities until we can complete our due diligence.

Credit for the transaction goes to Eaun Gray and our business development team, and they are available to take any questions later in the call.

I'll turn now to our growth outlook, we feel particularly well positioned as the gold price runs with a close to 20-years reserve life and built-in growth for the next number of years.

Business development remains active, short-term, we expect to be successful with some smaller transactions; medium term, we're active bidding on larger transactions although as always these are competitive processes.

We also expect some attractive energy assets will become available as the sector shakes out.

Organic growth is again becoming a big contributor as we move further end of the global market.

Slide 10 shows the expected drivers.

Expansions on Stillwater, Tasiast and Macassa and the construction of Salares Norte and Coroccohuayco are included in our 5-year guidance.

But we also have a very broad portfolio with 35 other mining development projects and greater than 200 exploration projects.

The pace of development at many of these assets has picked up, assets like Valentine Lake, Hardrock, Stibnite Gold and Monument Bay are not in our 2024 guidance and their development is more and more likely.

Slide 11 highlights positive portfolio updates from the quarter.

I'll point to one in particular, Duketon in Australia, that's undergoing a change.

Historically mines as a number of open pit deposits they've discovered major underground extensions and are currently developing the first of a number of underground mines.

One development not on the slide, it now appears there's good potential for life extensions at our Sudbury PGM streams.

We've also seen great exploration success at a number of our assets, particularly in Canada, the Saddle zone at Detour, East Gouldie at Malartic and extensions at Macassa and Hemlo.

Eskay Creek is also increasingly looking like it will have a second life has an open pit operation.

All this organic growth would come at no cost.

The final topic to cover is our available capital showed on Slide 12, our cash balance is building rapidly.

We have working capital of $478 million and we have no debt, including our available credit facilities of $1.1 billion.

We have a total of $1.7 billion of available capital to deploy on new opportunities to grow the company.

With that, I'll hand it to the operator and we welcome any questions.

(Operator Instructions) Your first question comes from Puneet Singh of Industrial Alliance.

I guess my first question is as Cobre Panama ramps up, do you expect any kind of a lag in deliveries however that works in terms of recognizing the GEOs for your reporting in Q3?

Yes.

So the First Quantum states that there'll be a fully ramped up by mid-August and then from there, it can take anywhere from 4 to 6 weeks for us to be paid, so we should see some deliveries in August.

But I would say towards the second half of September is when we will get back on track.

And then on the energy side.

I see Weyburn was one of the hardest hit and WTI has recovered since -- I just want to get a sense of in your guidance for energy revenue, how much of that is allocated to Weyburn and how do you think that asset performs in relation to the others in the second half of the year?

Weyburn should improve dramatically in the second half of the year.

As you know when the prices collapsed in April and May, the realized price for Weyburn dropped significantly with around $20 a barrel, or so which was less than the cost of capital and operating.

And so there was actually a negative -- a small negative balance there on the NRI that will turn around to the back half of the year as prices improved.

So there should be significant increase in revenue from particularly the Weyburn and NRI.

And second part of the year and that is factored into our guidance for energy.

Your next question comes from Josh Wolfson of RBC Capital Markets.

Looking at the ATM, which has been running at around $50 to $70 million per quarter, we haven't seen much in terms of use of that cash.

So it's -- I guess added to the balance sheet beyond free cash flow.

How should we look at the ATM going forward, is this is kind of a constant revenue stream for the company or is this expected to be used for a deal or is there some implication on valuation, we should be looking into for the use of that ATM program.

Sure.

So it's a tool for us and we've been opportunistic.

Initially, the goal was to pay off our debt, which we've done.

And then part of that is what's in front of us in terms of deal flow.

But if the cash does sit on the balance sheet, I think we've shown over time that we can deploy it and it's a very cyclical business whoever has cash usually benefits at the end of the day.

Will it be ongoing.

I think it's a tool for us to continue to look at using, but as we've always said we will be opportunistic.

And then with regards to the change in guidance for 2020, there is a bunch of moving parts, I guess factoring in COVID related items some changes at the underlying operations and then the change in the commodity price assumptions.

Is there any read through on the guidance change with respect to -- if you could provide in terms of the underlying operating asset changes, specifically I guess that result of that I guess Candelaria is one larger change, but is there anything else we should be aware of, maybe for our forecast going forward?

No, I think the main source of the change is just COVID impact for the various assets and then in addition to what you mentioned Candelaria were Lundin came out last week with updated guidance, so it's reflecting the update there.

But otherwise, we assumed the operations will return to normal in the second half of the year.

Your next question comes from Jackie Przybylowski, BMO Capital Markets.

I'm just going to follow up with Josh's capital allocation questions.

I noticed the dividend went up by a penny in the quarter in Q2.

Can you talk a little bit about what your thoughts are around the dividend if you see room for maybe further dividend increases or how you guys are thinking about that in the context of the rest of your capital allocation decisions?

Sure.

So one of the core objectives of the company is to have a sustainable and progressive dividend and how that track record where we've increased it every year, unfortunately, we've been able to do so for the last 13 years.

Yes, we increased it by $0.01 per quarter recently, and we'll look to increase it is going forward, but there is no metric that we tie it to.

And depending on where we are in the cycle, it could lead to higher than traditional increases.

But again, it will just depend what's in front of us at the time.

But we are committed to raising our dividend each year.

Your next question comes from Carey MacRury of Canaccord Genuity.

Maybe just another question on the updated GEO guidance.

I'm just given the timing of concentrate sales.

Is there any sort of split we should think about in terms of Q3 versus Q4, if we just sort of take the rest of your guidance?

Yes.

So you will see higher GEOs sold in Q4 versus Q3.

As for the split, it's probably going to be 60-40 in terms of the incremental GEOs sold for the second half of the year.

Okay.

And then maybe just on the SolGold transaction, just wondering what the schedule looks like on the due diligence completion.

Carey, Eaun Gray here.

Due diligence is ongoing.

We hope to complete something in the near term, as we've previously messaged.

Obviously with COVID, these things are bit challenging but it's ongoing.

Maybe one more question on, Paul, you mentioned some of the bigger opportunities are considered medium term.

I'm just wondering if you could put some color on the medium term.

As discussed before, they offer some attractive transactions out there that the business development team is very active on them.

They are competitive though and we expect to be competitive enough.

But as always, the objective is to generate returns for shareholders, rather than just to grow the size of the company.

Maybe one last one, with Copper prices sort of back towards $3, so that some of extension transactions were more base metal transactions.

Does that change the outlook for some of these to get done?

Sure, it's Eaun again here.

That takes the pressure off some balance sheets.

So on balance, yes, I would say, it takes some things off of oil.

However, I would also point to the copper-gold ratio is still being quite favorable for base metals producers to do precious metal streams.

Your next question comes from Cosmos Chiu of CIBC.

Cosmos.

All things considered, maybe my first question again is on the corporate development side.

Paul, as you mentioned the opportunities out there.

Could you maybe in the past, you talked about one opportunity as you talked about as precious metal streams of base metal mines, the other one is of course potentially helping some of these producers transact in M&A transactions -- are those still 2 of the key sort of sources of opportunities coming up?

Cosmos, thanks for the question.

I'm going to hand it over to Eaun.

So I would say M&A, Cosmos, has probably slowed down a little bit in terms of funding acquisitions, probably more.

What you're seeing is base metals producers.

And another theme I would point to is that existing precious metals, royalties are increasingly on the market.

So we're seeing a bit more of that as well.

And then as a follow-up, and Eaun, I'm not sure how much you can share with us here.

But as we've all seen precious metal, gold prices have increased, record high silver prices have increased.

Has it made it more difficult for you to price some of these deals in that -- as Paul mentioned, these are competitive situations, our producers asking for some of these deals to be priced at spot and would you pay spot?

So Cosmos, we're looking to do good deals for our shareholders.

So certainly we have to take a measured approach to evaluating the valuation and that's something that we look to do.

I can't share obviously too much there.

These are competitive processes.

But we're looking to do good deals, not just deals for a deal sake.

Maybe a question on the NPIs.

Sandip, as you mentioned, Hemlo was one where it had a good leverage in the quarter, certainly benefiting from higher gold prices.

How about your other NPIs, the one at Kirkland Lake and the one Goldstrike?

Do we expect again the same type of leverage on a go-forward basis in some of those NPIs as well?

And are there any other NPIs I might have missed?

Sure.

So at Macassa and with Kirkland Lake, it's a question of when they mine on that land.

So the NPI doesn't apply to the whole property.

So I think for the foreseeable future that will be minimal.

Goldstrike, just again, it's only applied to certain claims.

It will depend upon what flows through.

I think at $2,000 goal, you will start to see the leverage come through at the Goldstrike NPI.

But the one we are looking forward to is Musselwhite.

We do have a 5% NPI.

Obviously, Musselwhite was impacted by the fire last year but it is up and running, and that NPI hopefully starting next year will start to kick in revenue again.

So that will probably have the most meaningful impact versus Hemlo.

For sure, and talking about the different zones, the royalties here, one I want to move to is Canadian Malartic underground, as we kind of start hearing Agnico Eagle and Yamana has really started talking up the underground potential here at Candida Malartic.

As you've mentioned earlier today, you talked about East Gouldie zone and potentially some of the other underground zones as well.

Could you maybe remind us, this is likely on your website, but could you remind us in terms of, for example, our East Gouldie to 2.7 million ounces and underground resources.

How much do you have -- how much of that is on your royalty ground, in terms of the other deposits, Odyssey, East Malartic, what do you have in terms of total resources that could be attributable back to Franco-Nevada.

Cosmos, it's Paul.

The -- probably the best place to look is in our asset handbook, where we do have a schematic that shows the position as we understand it of East Gouldie relative to our royalty claims, the recall at Malartic, we have a couple of individual claims we don't call, cover all of the property, but you will see there our best estimate of the portion of East Gouldie that we cover and we do potentially touch on some of the other areas, but East Gouldie is probably the likely area where we'll get more answers.

We don't have a detailed break out of the actual resource to give an accurate percent.

For sure.

And then maybe, one last question if I may, likely to Jason here.

Good to see that you've re-established your revenue guidance for the year in terms of the energy portfolio.

Right now, you're looking at, I believe, $40 per barrel and $2 per Mcf in terms of -- I believe that's Henry Hub.

Clearly those numbers, those assumptions are pretty good at this point in time, but Jason, could you remind us in terms of the sensitivity to commodity prices and who knows, it might actually go up from where it is today, if we have more of a V-shape recovery.

So I just want to get understanding in terms of your sensitivity to the oil and also natural gas prices.

Thanks, Cosmos.

It's Jason here.

And you're right, there is some leverage to revenue from a rising commodity prices, we have leverage in our Canadian operations, mostly through our Weyburn NRI and also some through the Orion royalty.

And then in our U.S. assets, we have leverage that comes from really from increase in drilling and activity as operators on our lands in the US ramp up their development pace.

It's very hard to give you an exact number ratio for leverage right now, we're waiting to see as the prices come back what response the operators have in terms of increasing their capital budgets and increasing their development pace.

So I think as the prices settle out here and become more consistent, we'll probably get a better idea over the next couple of quarters as to what a rise in commodity price would be for activity risks in the U.S. and then we'll be able to give you a better leverage number to work offloads.

But certainly, you should see as the commodity price goes up at a minimum, you'll see leverage at our Canadian operations just because of the financial leverage associated with those royalties.

It sounds good.

So Jason, I guess it sounds like there's so much commodity sort of leverage, it might be on top of that, some kind of operational leverage when some of the operators might start pulling --putting more drills back into the ground.

Yes, that's exactly right.

I think what you saw when the oil price sort of crashed in April, there was a real pullback from E&P companies in terms of the amount of dollars they we're putting into the ground in drilling and development.

As the price rebounds here, there will be a point where operators start to recommit that capital.

But we just have to follow it.

We obviously don't have the visibility into operators’ plans and we'll have to wait for them to start to be committing that capital before we have a better idea of how that impacts production going forward.

Yes.

And Jason, I guess the follow-up here is that, right now it's back up to about $40 per barrel WTI, based on your experience, do you think that's enough for operators to put drills back into the ground or do we need a higher price or do we just need more stability.

It's a bit of both.

I think what you're seeing right now is a rebalancing in the whole energy market.

You obviously had a huge disruptive event that happened where operators cut capital significantly.

If they curtailed production, they really trimmed their development plans.

We've just recently come back up to $40.

And I think E&P companies are still a little bit reluctant to really increase their capital budgets.

Most of them, if you look at what they've been saying publicly is that they plan over the next year or so at these types of price $40 or so to try to keep their production reasonably flat or may be introduce a very low rate of growth on the order of not to 5%.

Nobody out there right now is talking about growth of 20% or 25% like they were at higher prices.

I think that's going to take time, you're going to see you're going to see more sustained higher prices before you would expect those kind of growth rates to come back.

So at $40 I think right now in the market that's a recipe for operators to kind of maintain production profiles at a reasonably flat level.

Your next question comes from Tanya Jakusconek of Scotiabank.

I'm sorry, I jumped on the call just a little bit late.

And I think, Sandip, maybe you had given some guidance on the COVID Panama.

What I understood is that by September, we are going to be back on track on those shipments and is that fair to assume that that's when we can get back to that 25,000 ounces per quarter rate sort of in September.

Yes.

Yes, towards the end of September.

That should be the going rate going forward.

And sorry, did I miss on Antamina and I know it was about 8,000 ounces to 10,000 ounces of gold equivalent to quarter did you provide when we got back on track there?

No, not at this time.

Okay.

And just on in Q1, you gave us guidance that you still expect the oil and gas front, we have a lag in terms of revenue impact and we were going to feel it in the second half of 2020.

Is that still the case?

Yes.

That's factored into the guidance that we provided.

We do think there will be a lag as we see lower commodity prices impact production levels.

But that is factored into the guidance that we provided.

Okay.

Okay.

So that's just on the guidance.

And maybe just coming back on the M&A, and I did hear Paul and Eaun talk a little bit about that.

And when you mentioned the small to moderate size among Q1 you had mentioned that was under $500 million, is that still that sort of side that you're seeing in the short to medium term?

Yes.

We're seeing some smaller transactions that are most actionable under the $100 million mark I would say, but it really runs the whole gamut 10 in terms of size at the moment within the pipeline from quite large to relatively small.

Okay.

And you also mentioned that with the higher base metal prices the balance sheet is a bit better on the base metal side, but you had mentioned on Q1 that you were also looking at transactions in the nonprecious metals space, base metals and bulk.

Is that still something you're seeing now?

Or has your focus shifted to the energy sector?

No.

I think right across the spectrum there as well, both precious, other mining, so base and bulk and energy.

So we're looking at all of those things, looking for the best deposits.

Okay.

And then just on the technical due diligence that you mentioned, that you're still doing the technical due diligence.

How are you finding it now?

Are things opening up?

There is -- to a certain respect, we're also getting better at more creative ways to get comfort on assets and leveraging contacts and so forth where we have them focus that we know and trust.

Okay.

But things are still pretty much on getting access to places are still have that the travel restrictions.

Yes, there are -- there are certainly some places, but other places, it's just more challenging in terms of logistics.

Your next question comes from Greg Barnes of TD Securities.

Sandip, on the CRA situation, is there an avenue to open up settlement discussions with CRA and come to some kind of conclusion along the same lines that we did?

That is one of the options we will evaluate as time goes on and the discussions.

I think we waited for the Cameco decision and that was favorable, they won the appeal.

So it is one of the options, but will explore all our avenues at the end of the day, we think -- we've done everything in compliance with the laws.

And so we think -- we shouldn't have to pay anything else, but we will continue to explore our options.

But you have not open discussions with them on that front yet.

Not yet.

Okay.

And then on the M&A front, you've mentioned the word competitive a number of times, the biggest deal done recently, the site price it out rightly we've done it about a 3% IRR.

Is that the kind of metrics we should be looking at the deals going forward now?

Greg, it's hard to comment on specific transactions that have occurred within the marketplace.

And there's obviously a lot of assumptions that go into your calculation there, but I would say that we're looking to do deals with reasonable levels of return vis-a-vis deals that we've done in the past and using similar methodologies to -- to look at metals prices.

So we're not breaking them old.

Okay.

Okay.

And Sandip, final question, just returning to you with your balance sheet, where is that?

And the free cash flow, you're going to be generating.

Does it make sense to have a more efficient capital structure and carry some debt going forward and then that would enable you to do a big deal, but also continue to pay a large dividend or a larger dividend?

It's a fair comment.

Greg, but I think what we've seen in the history of the company is that this is a cyclical business and the best time to put on debt is when there's a downturn and we did that in 2014, 2015 when we added Candelaria, Antapaccay and Antamina, we went into that downturn with no leverage and it was the perfect time to add leverage.

So that's the way we view the capital structure, if there is a time to put debt on the balance sheet, but now it's not the time.

Your next question comes from Fahad Tariq of Credit Suisse.

Just one from me, on the energy side of the business, can you talk about this year?

Obviously, energy revenue is going to be maybe less than 10% of the overall mix.

What is the look like in a more normalized year next year?

Is this still back to that 15% to 20% maybe even higher?

And are there opportunities to lower the capital commitment with Continental next year as well?

So I'll take the first part of that question, Sandip here.

With respect to next year going forward with the significant increase in precious metals prices energy revenue will likely be below the 10% if commodity prices stay where they are currently it will definitely be less than 10% of revenue and with respect to Continental pass it over to Jason.

Yes.

There is potential to decrease that commitment or spread it out over a longer time period.

The objective of that partnership is to try to buy acreage on the ground in front of Continental drilling program.

And so it depends a little bit on how aggressive Continental is in their development efforts and their drilling efforts.

If drilling and development continue at a slower pace, there is less acreage available to buy on the ground in favorable places and if that's the case, we may slow our commitment there, but that's a question we haven't really addressed of Continental yet will have to wait to later in the year before we determine what the appropriate level of spending next year should be.

Your next question comes from Brian MacArthur of Raymond James.

Just following up, first of all, on Tanya's question about the delays for oil and gas royalties coming in.

Should we expect Q3 to be hit relatively hard versus Q4 just because of the timing of the oil price in the lag effect of when the drilling goes on?

Will Q3 again be quite a bit lower than Q4 if I look at weighting by quarter?

Yes, it's Jason.

Brian, I think that's correct.

I think you will see some carryover of the low price impacting in Q3 more so than Q4.

So if you're looking at dividing out that revenue over the balance of the year, you'd want to weight it a little bit more towards the fourth quarter than the third quarter.

And my second question is kind of philosophical.

You've been pretty good historically about doing counter cyclical investing.

If I ask you know I mean oil and gas, we've sort of got into but I could argue gold high, base metals are high, oil low relatively speaking right now.

And yes, you've got your deal with Continental, which regulates how you do things, but philosophically, should we -- would we be surprised we saw enter at oil deal with someone else going forward.

I'm just trying to philosophically see back to where you'd be allocating capital, and I realize it depends on what deals come available, but you've talked about doing energy, base metal, precious metals that on a counter-cyclical basis maybe oil is the right thing to do right now.

Brian, it's Paul.

You're absolutely right, as you well know, the focus is on gold.

But in the other commodities, we try and be opportunistic, the general criteria there for the other commodities are, is it a good deposits.

That's the #1 driver.

But if we're doing deals outside of gold.

We also say, how do we justify that that is a better deal than we could do in the gold space and some ingredients go into that is I think of jurisdictions, current cash flow and also for those other commodities are we'd be an opportunistic -- do we never going to get the timing absolutely right, but for those other commodities, we want to believe that we are in the lower half of the commodity price cycle when we do that.

So as any deal comes forward, those are the criteria that we look at and you're absolutely right.

The -- there are assets in the energy sector that will fall into that and that's why we say as the sector settles down and sellers find a price level that they are willing to sell assets that there may be some good opportunities.

(Operator Instructions) Okay.

So it appears there are no further questions at this time.

Please proceed.

Thank you, Colin.

We expect to release our third quarter 2020 results after market close on November 4, with a 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 ask -- thank you for attending and please disconnect your lines.