Franco-Nevada’s (TSX:FNV) (NYSE:FNV) diversified portfolio performed well despite the impact of COVID-19 during the quarter. “We recognise the efforts of our operators and their related communities during this difficult period”, stated Paul Brink, CEO. “Of our original 56 cash generating mining assets, 15 experienced some form of temporary curtailment in Q2. All except Golden Highway have since resumed operations. The return to normal operations and higher gold prices makes us optimistic about the second half. In addition, we see the potential for longer-term organic growth from our over 240 exploration and development royalties due to increased capital available to the gold sector. Our energy assets should benefit now that oil & gas prices have stabilized since the lows experienced in Q2. Franco-Nevada is debt free, has a growing cash balance and expects good growth in our gold equivalent ounces over the next few years.”
Q2/2020 Financial Highlights
- 104,330 Gold Equivalent Ounces1 sold
- $195.4 million in revenue
- $94.4 million of Net Income, or $0.50 per share
- $91.8 million of Adjusted Net Income2, or $0.48 per share
- $27.0 million in Cash Costs3, or $259 per GEO sold
- $158.1 million of Adjusted EBITDA4, or $0.83 per share
| Revenue and GEO Sales by Asset Categories
|Other Mining Assets
For Q2/2020, revenue was sourced 92.5% from gold and gold equivalents (69.9% gold, 10.3% silver, 11.0% PGM and 1.3% other mining assets) and 7.5% from energy (oil, gas and NGLs). The focus of the portfolio is on precious metals (gold, silver and PGM) with a target of no more than 20% in revenue from energy. Geographically, revenue was sourced 82.3% from the Americas (41.1% Latin America, 22.9% U.S. and 18.3% Canada).
- Alpala Royalty Interest: On May 11, 2020, Franco-Nevada agreed, subject to due diligence, to acquire a 1% NSR with reference to all minerals produced from the Alpala copper-gold-silver project in northern Ecuador for $100 million.
- At-the-Market Equity Program: In Q2/2020, the Company issued 474,900 shares under its ATM Program for net proceeds of $66.8 million. The ATM Program was established on May 11, 2020 permitting the Company to issue up to an aggregate of $300 million worth of common shares.
After withdrawing guidance for the year on April 7, 2020 due to uncertainties related to the COVID-19 pandemic, the Company is now issuing new guidance. Franco-Nevada expects attributable royalty and stream sales to total 475,000 to 505,000 GEOs from its mining assets and revenue of $60 to $75 million from its energy assets in 2020. For this guidance, silver, platinum and palladium metals have been converted to GEOs using assumed commodity prices of $1,800/oz Au, $20.00/oz Ag, $900/oz Pt and $2,200/oz Pd. The WTI oil price and Henry Hub natural gas price are assumed to average $40 per barrel and $2.00 per mcf, respectively. The 2020 guidance is based on public forecasts and other disclosure by the third-party owners and operators of our assets or our assessment thereof.
Franco-Nevada supports measures to address the COVID-19 pandemic. All of our employees continue to work remotely and there are no known cases in the Company. The Company is closely monitoring the impact of the COVID-19 pandemic on its portfolio of assets.
- Gold and Gold Equivalent Mining Assets: Franco-Nevada has a diversified portfolio that originally included 56 producing assets consisting of four larger cash-flowing assets, Antamina, Antapaccay, Candelaria and Cobre Panama and 52 smaller cash-flowing assets. Operations at Cobre Panama and Antamina were temporarily suspended in Q1/2020 but have since restarted. 15 of the cash-flowing assets experienced temporarily reduced or curtailed production. All except Golden Highway have since resumed operations. With the assets from Golden Highway currently in temporary suspension, our total producing mining assets have reduced from the original 56 at the beginning of Q2/2020 to 53 at the end Q2/2020.
- Energy Assets: Recent geopolitical and market factors impacting global energy markets (including those related to the COVID-19 pandemic) have contributed to a significant decrease in the price of oil and gas. Reduced demand and a lack of available storage contributed to oil prices and future contracts reaching historical lows in April 2020. Prices have since rebounded from the lows.
Q2/2020 Portfolio Updates
Gold Equivalent Ounces Sold: GEOs sold for the quarter were 104,330, a decrease of 3.2% from the 107,774 sold in Q2/2019. Lower contributions from Antapaccay, Goldstrike and Sabodala were partly offset by higher contributions from Cobre Panama and Hemlo.
- Cobre Panama (gold and silver stream) – On April 7, 2020, First Quantum announced that Cobre Panama was placed on care and maintenance as the Ministry of Health of the Republic of Panama ordered the temporary suspension of labor activities at the mine due to COVID-19. On July 7, 2020, First Quantum announced that it had received notice from MINSA lifting the temporary suspension and it is implementing a reopening plan. The operation is expected to ramp up to full production by mid-August, depending on successful implementation of the reopening plan. Franco-Nevada sold 10,344 GEOs from the asset in Q2/2020.
- Candelaria (gold and silver stream) – Franco-Nevada sold 15,463 GEOs from the mine in Q2/2020. On July 29, 2020, Lundin Mining reported that copper production at the Candelaria mine was higher quarter-over-quarter due to higher copper head grades and recoveries as more higher grade open-pit and underground ore was mined. However, throughput was lower than planned due to ore hardness, operational issues and an unplanned maintenance stop. In addition, COVID-19 has further delayed the Candelaria Mill Optimization Project and installation of the final ball mill motor is now planned for January 2021. In Lundin Mining’s revised guidance, Candelaria is expecting annual production of 145,000 – 155,000 tonnes of copper and 80,000 – 90,000 ounces of gold, compared to original guidance of 160,000 – 175,000 tonnes of copper and 90,000 – 100,000 ounces of gold.
- Antapaccay (gold and silver stream) – Antapaccay production was lower quarter-over-quarter due to anticipated lower grades based on the life of mine plan. GEOs delivered and sold were lower due to concentrate shipment delays in April and May as a result of the COVID-19 pandemic.
- Antamina (22.5% silver stream) – GEOs sold from Antamina were lower quarter-over-quarter due to COVID-19 related temporary suspension of mine operations that was announced on April 13, 2020. On May 27, 2020, Teck announced that Antamina had resumed operations with plans to start operating at 80% capacity with a gradual ramp up to full production expected in the third quarter of 2020.
- Guadalupe-Palmarejo (50% gold stream) – Sales from Guadalupe-Palmarejo were slightly lower quarter-over-quarter. As a result of COVID-19, operations at the mine were suspended on April 7, 2020. On May 13, 2020, Coeur Mining announced that it had taken steps to restart active mining, processing and exploration activities at the Palmarejo gold-silver complex.
- Cerro Moro (2% royalty) – Due to COVID-19, operations at Cerro Moro were temporarily suspended on March 20, 2020 but restarted on April 3, 2020 following the Argentine Government declaring mining an essential service; however, ongoing provincial restrictions over interprovincial travel have temporarily extended the length of the operational ramp-up. Following the ramp-up, Cerro Moro’s plant is expected to return to its optimized 1,110 tpd throughput.
- Stillwater (5% royalty) – Stillwater benefited from strong palladium prices during the quarter. On March 23, 2020, Sibanye-Stillwater announced the deferral of non-essential growth capital expenditures at the mine in response to COVID-19, which may impact the development schedule of the Blitz project.
- South Arturo (4-9% royalty) – El Nino mine production exceeded the operator’s expectations during the second quarter despite a planned shutdown of the Goldstrike roaster which resulted in minimal ore processing during the month of June. 4,764 ounces of gold were produced at South Arturo during the quarter prior to the shutdown.
- Castle Mountain (2.65% royalty) – Phase 1 operation targeted by Equinox to start in Q3/2020 anticipates production of 45,000 ounces per year for three years. Phase 1 construction was more than 75% complete by May 2020. Feasibility and permitting for Phase 2 is underway and is expected to be completed by late 2020. Annual average production of 200,000 ounces is expected for Phase 2.
- Detour Lake (2% royalty) – Production from the Detour Lake mine totaled 131,992 ounces in Q2/2020 despite disruptions caused by COVID-19. Kirkland Lake Gold re-issued guidance on June 30, 2020, with annual production of 520,000 – 540,000 ounces of gold in 2020 expected from Detour, unchanged from its original guidance in February 2020.
- Kirkland Lake (1.5-5.5% royalty & 20% NPI) – Kirkland Lake Gold reported that workers at Macassa began to be recalled starting in early May after the mine transitioned to reduced operations due to COVID-19 around the end of March. Exploration drilling and work on key projects resumed early in Q2/2020. Kirkland Lake reported that exploration results at Macassa were encouraging including the identification of a new, large corridor of high-grade mineralization in close proximity to the #4 shaft, currently under development, and also the continued expansion of the South Mine Complex. In Kirkland Lake’s re-issued guidance on June 30, 2020, Macassa is expecting annual production of 210,000 – 220,000 ounces of gold in 2020, compared to original guidance of 240,000 – 250,000 ounces in its original guidance in February 2020.
- Hemlo (3% royalty & 50% NPI) – Royalties from Hemlo increased quarter-over-quarter. The 50% NPI at Hemlo increased significantly year-over-year as a result of an increase in the gold price. Barrick Gold reported that Q2/2020 production from Hemlo totaled 54,000 ounces.
- Golden Highway (Holt, Holloway and Taylor mines) – Kirkland Lake Gold announced that Golden Highway operations were placed on temporary suspension as part of its COVID-19 protocols effective April 2, 2020 with production for Q2/2020 totaling 807 ounces. Golden Highway will remain on temporary suspension while Kirkland Lake continues to assess options for the future of the assets. Kirkland Lake’s June 30, 2020 re-issued guidance assumes no production from Golden Highway in the second half of the year.
- Canadian Malartic (1.5% royalty) – Canadian Malartic production in Q2/2020 exceeded its production plan despite the government-mandated temporary suspension of operations between March 24, 2020 to April 15, 2020 due to COVID-19.
Rest of World:
- MWS (gold stream) – Due to COVID-19, operations at MWS were suspended on March 26, 2020. On April 15, 2020, AngloGold Ashanti announced it had been granted permission for a limited restart, with a third of its usual workforce.
- Sabodala (gold stream) – Teranga Gold announced on May 26, 2020 that Sabodala mine operations continued uninterrupted during the COVID-19 pandemic. Gold shipment logistics were a challenge in mid-March, however regular shipments to refineries in Europe have since resumed in early April.
- Tasiast (2% royalty) – Kinross Gold reported on July 29, 2020 that the Tasiast 24k project continues to advance and remains on schedule to increase throughput capacity to 21,000 tonnes per day by the end of 2021, and to 24,000 tonnes per day by mid-2023. The project team continues to explore measures to mitigate potential impacts on the global movement of people and supplies caused by COVID-19. However, by late June, the company reinstated more regular rotations of expatriate staff in Mauritania, which has improved the situation. Kinross also reached an agreement with the Government of Mauritania to resolve outstanding matters between the parties. The agreement will provide Kinross with a 30 year license for Tasiast Sud with expedited permitting.
Energy: Revenue from the energy assets decreased to $14.6 million in Q2/2020 compared to $27.6 million in Q2/2019. Revenues were negatively impacted by lower realized commodity prices and lower volumes associated with a reduction in drilling by operators in the SCOOP/STACK, and negative revenue from Weyburn as operating and capital costs exceeded revenue. The overall decrease for the energy assets was partially offset by revenue from new investments in the Marcellus.
- Marcellus (1% royalty) – The royalty, acquired in Q3/2019 from Range Resources, contributed $4.9 million to revenue in Q2/2020. The asset will benefit from its first full year of revenue in 2020.
- SCOOP/STACK (various royalty rates) – Royalties from SCOOP/STACK decreased quarter-over-quarter due to lower realized commodity prices and lower volumes through reduced drilling by the operators on royalty lands. In Q2/2020, Franco-Nevada recorded capital contributions of $2.5 million to the Royalty Acquisition Venture. Franco-Nevada has a remaining commitment of $124.5 million to be funded in future periods. The pace of acquisition in the Royalty Acquisition Venture has been slowed with a focus on acquiring acreage at lower prices. The anticipated range of capital contributions for H2/2020 is expected to be between $10 million to $20 million.
- Permian Basin (various royalty rates) – Revenue from Franco-Nevada’s interests in the Permian Basin decreased quarter-over-quarter due to lower drilling activity on royalty lands and lower realized prices.
- Weyburn (NRI, ORR, WI) – Revenue from Weyburn was negative for the quarter due to accounting treatment for the NRI. While our ORR and WI royalties are accounted for on a gross basis, our NRI is recorded on net basis, after deduction of costs. Operating and capital costs in the quarter exceeded sales due to lower realized prices and higher capital spending.
- Orion (4% GORR) – Revenue from Orion decreased quarter-over-quarter due to lower production and lower realized prices. Production volumes have since returned to more normal levels.
Franco-Nevada is pleased to announce that its Board of Directors has declared a quarterly dividend of $0.26 per share. The dividend will be paid on September 24, 2020 to shareholders of record on September 10, 2020 (the “Record Date”). The Canadian dollar equivalent is to be determined based on the daily average rate posted by the Bank of Canada on the Record Date. Under Canadian tax legislation, Canadian resident individuals who receive “eligible dividends” are entitled to an enhanced gross-up and dividend tax credit on such dividends.
The Company has a Dividend Reinvestment Plan (the “DRIP”). Participation in the DRIP is optional. The Company will issue additional common shares through treasury at a 3% discount to the Average Market Price, as defined in the DRIP. However, the Company may, from time to time, in its discretion, change or eliminate the discount applicable to treasury acquisitions or direct that such common shares be purchased in market acquisitions at the prevailing market price, any of which would be publicly announced. The DRIP and enrollment forms are available on the Company’s website at www.franco-nevada.com. Canadian and U.S. registered shareholders may also enroll in the DRIP online through the plan agent’s self-service web portal at www.investorcentre.com/franco-nevada. Canadian and U.S. beneficial shareholders should contact their financial intermediary to arrange enrollment. Non-Canadian and non-U.S. shareholders may potentially participate in the DRIP, subject to the satisfaction of certain conditions. Non-Canadian and non-U.S. shareholders should contact the Company to determine whether they satisfy the necessary conditions to participate in the DRIP.
This press release is not an offer to sell or a solicitation of an offer of securities. A registration statement relating to the DRIP has been filed with the U.S. Securities and Exchange Commission and may be obtained under the Company’s profile on the U.S. Securities and Exchange Commission’s website at www.sec.gov.
The complete Consolidated Interim Financial Statements and Management’s Discussion and Analysis can be found today on Franco–Nevada’s website at www.franco-nevada.com, on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.
Franco-Nevada Corporation is the leading gold-focused royalty and streaming company with the largest and most diversified portfolio of cash-flow producing assets. Its business model provides investors with gold price and exploration optionality while limiting exposure to many of the risks of operating companies. Franco-Nevada is debt free and uses its free cash flow to expand its portfolio and pay dividends. Franco-Nevada is the gold investment that works.