Franco-Nevada Q2 2024 Earnings Report

Franco-Nevada EPS Results

• Actual EPS: $0.75
• Consensus EPS: $0.78
• Beat/Miss: Missed by -$0.03
• One Year Ago EPS: $0.95

Franco-Nevada Revenue Results

• Actual Revenue: $260.10 million
• Expected Revenue: $277.44 million
• Beat/Miss: Missed by -$17.34 million
• YoY Revenue Growth: -21.20%

Franco-Nevada Announcement Details

• Quarter: Q2 2024
• Date: 8/13/2024
• Time: After Market Closes
• Conference Call Date: Wednesday, August 14, 2024
• Conference Call Time: 8:00AM ET

Franco-Nevada (NYSE:FNV) is a Toronto-based royalty and streaming company that specializes in securing and managing long-term interests in mining properties. The firm focuses primarily on precious metals, particularly gold, while also holding interests related to silver, copper, platinum-group metals and select base metals. Rather than operating mines directly, Franco-Nevada acquires royalty and streaming agreements that entitle it to a percentage of production or revenue from producing and developing assets in exchange for upfront or staged financing.

The company’s business model centers on providing capital to mining companies in return for a sustained share of production or metal revenue, which can reduce exposure to operating and capital cost risks typical of mine operators. Its portfolio typically includes a mix of life-of-mine royalties on producing operations, streams that deliver metal directly at agreed pricing or discounts, and contractual interests on projects at various stages of development and exploration. This structure aims to generate predictable cash flows and long-dated exposure to commodity prices for shareholders.

Franco-Nevada maintains a geographically diversified portfolio with interests across major mining jurisdictions, including operations and projects in the Americas, Africa, Australia and other regions. The company’s holdings span both established producing mines and earlier-stage projects, seeking a balance between near-term cash generation and exposure to future resource growth. Diversification by geography and commodity is a key component of its risk management approach.

The current Franco-Nevada organization traces its heritage to earlier royalty businesses that established the Franco-Nevada name in the mining finance sector, and the company is publicly listed in North America. It is managed by a team with industry experience in royalty and mining finance and positions itself as a specialist owner-operator of non-operating mineral and related royalty assets. Franco-Nevada’s model appeals to investors seeking exposure to commodity upside while avoiding the direct operational responsibilities of mining companies.

Franco-Nevada Q2 2024 Earnings Call Transcript

Key Takeaways

• Franco Nevada reported Q2 revenue of US$260.1 million, driven by record gold prices, and when excluding Cobre Panamá, revenue increased year-over-year.
• Quarterly production dipped due to short-term issues at Candelaria (pit/underground interface) and Antapacay (geotechnical event), but the company maintained 2024 GEO guidance and expects normalised output in H2.
• The business development team closed two high-quality, long-life assets: a gold stream on SolGold’s Cascabel project in Ecuador and a royalty on the Yanacocha operations in Peru, with contributions also rising from Salares Norte, Greenstone and Tocaimbozeno.
• Operating metrics remain robust, with a cash cost of US$264 per GEO (down from US$280) and a margin of about US$2,100 per ounce, resulting in adjusted EBITDA of US$221.9 million and adjusted EPS of US$0.75 for the quarter.
• Franco Nevada finished the quarter with approximately US$2.4 billion in available capital, extended its US$1 billion credit facility to 2029, and funded multiple transactions while preserving ample liquidity for future growth.

Presentation

[Operator]

Good morning, and welcome to Franco-Nevada Corporation's Q2 2024 results conference call and webcast. This call is being recorded on August 14, 2024. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a Q&A session where you may ask a question through the phone line or webcast. If you are joining by webcast, you may submit a written question for the Q&A session at any time during this call by typing your question in the Q&A section of the webcast platform. If you require immediate assistance during this call, please press star zero at any time for the operator. I would now like to turn the conference over to your host, Candida Hayden, Senior Analyst, Investor Relations. Please go ahead.

[Candida Hayden, Senior Analyst, Investor Relations at Franco-Nevada Corporation]

Thank you, Laura. Good morning, everyone. Thank you for joining us today to discuss Franco-Nevada's Q2 2024 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. The presentation is also available to view on the webcast. During our call this morning, Paul Brink, President and CEO of Franco-Nevada, will provide introductory remarks, followed by Sandy Rana, Chief Financial Officer, who will provide a brief review of our results, and Ian Gray, Senior Vice President, Business Development, who will discuss our recent transactions. This will be followed by a Q&A period. Our full executive team is available to answer any questions. Participants may submit questions by telephone or via the webcast.

[Candida Hayden, Senior Analyst, Investor Relations at Franco-Nevada Corporation]

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

[Paul Brink, President and CEO at Franco-Nevada Corporation]

Thanks, Candida, and good morning. Our Q2 results benefit, benefited from record gold prices. Revenues and cash flow from operations were up compared with Q1. Results were lower compared to Q2 last year, without the contribution from Cobre Panama and due to lower production at Candelaria and Antamina. Lower quarterly production at the two operating assets is a short-term bump, and we expect to return to normal operations at both for the balance of the year. These are two of our best-performing assets over the long term. We look forward to the potential underground expansion at Candelaria and the future development of the Coroccohuayco or Michiquillay project at Antamina.

[Paul Brink, President and CEO at Franco-Nevada Corporation]

Our business development team have had great success in recent months, and we're very pleased to have added two long-life assets to the portfolio: the Gold Stream on SolGold's Cascabel copper-gold development project in Ecuador, and a royalty on Newmont's Yanacocha operations in Peru. Ian will give more detail on the acquisitions later in the call. Initial contributions from Yanacocha and the growing contribution from the Salares Norte, Greenstone, and Tocantinzinho gold mines that all started production in recent months, will boost our results in the H1 of the year. With that, I'll hand it over to Sandy.

[Sandy Brenna, CFO at Franco-Nevada Corporation]

Thanks, Paul. Good morning, everyone. I'll turn to slide 4 to give an overview of the financial results for the quarter. Overall, GEOs sold were 110,264 for Q2 2024. This compares to 168,515 for the prior year quarter, and 131,865 for the prior year quarter, when Cobre Panama GEOs are excluded. As you are aware, Cobre Panama continues to be on preservation and safe management. In terms of operating assets and GEOs delivered and sold for the quarter, we did receive less ounces from Candelaria and Antamina compared to prior year. GEOs delivered were both less than our expectations.

[Sandy Brenna, CFO at Franco-Nevada Corporation]

At Candelaria, GEOs delivered and sold in Q2 2024 were lower than those sold in Q2 2023, as mining rates were impacted by the interface of the open pit and historic underground mining stopes. This required more stockpile ore to be processed, which reduced grades and recoveries. With access to higher-grade ore anticipated in the H1 of 2024, Lundin Mining anticipates stronger production and have maintained a production guidance for Candelaria. At Antamina, GEOs delivered and sold were also lower in Q2 compared to prior years. Mine scheduling was adjusted in part due to a geotechnical event, which temporarily limited pit access, resulting in the lower production. Glencore anticipates stronger production in the H1 of 2024, and Franco-Nevada expects its stream deliveries for the full year to be within its initial expectations of 50,000-60,000 GEOs.

[Sandy Brenna, CFO at Franco-Nevada Corporation]

Hemlo NPI was also weaker than expected in the Q2 of 2024. There was less mining on royalty land, along with higher costs, which resulted in a lower NPI paid to Franco. It continues to be difficult to estimate what the Hemlo NPI will be going forward. For the quarter, precious metal GEOs were 82,350. This compares to 95,383 in prior year, when Cobre Panama GEOs are excluded. Precious metal GEOs represented approximately 75% of total GEOs for the quarter. For diversified GEOs, total GEOs sold were 27,914, compared to just over 36,000 in Q2 2023. Iron ore GEOs sold were relatively flat year-over-year, while energy GEOs were lower at 22,100 for Q2, compared to 28,683 a year ago.

[Sandy Brenna, CFO at Franco-Nevada Corporation]

Decrease in GEOs is a combination of lower revenue due to weaker natural gas prices, as well as the impact of converting energy revenue to GEOs by higher gold prices. Also, in Q2 2023, revenue included a catch-up royalty payment related to new wells in the Permian Basin, which was not present in Q2 2024. As we look at total revenue, revenue was $260.1 million for the quarter, compared to $329.9 million a year ago. When you exclude Cobre Panama from prior year revenue, revenue was actually still up from $258.2 million. Q2 2024 saw continued volatility in average commodity prices. As you see on slide 5, gold and silver average prices were significantly higher for the quarter when compared to prior year.

[Sandy Brenna, CFO at Franco-Nevada Corporation]

However, platinum, and in particular, palladium average prices were lower year-over-year, which did negatively impact conversion of PGM revenues to GEOs. Oil prices were higher as well, while natural gas average prices were essentially flat. Slide six highlights the financial results for the quarter and year to date, 2024. As mentioned, GEOs sold and revenue were lower year-over-year. Adjusted EBITDA was $221.9 million, while adjusted net income was $144.9 million. On a per share basis, adjusted net income was $0.75 for the quarter. On the cost side, we did have a decrease in cost of sales compared to prior year, as we did not incur the ongoing fixed cost for ounces delivered for Cobre Panama and had lower GEOs delivered and sold from Antamina and Candelaria.

[Sandy Brenna, CFO at Franco-Nevada Corporation]

With respect to the arbitration cost for Cobre Panama, the company incurred costs of $800,000 in Q2 2024, and have incurred $2.3 million year to date. We expect approximately $3 million to be incurred for the rest of the year. Decreased to $52.9 million versus $75.1 million a year ago. Again, the decrease was due to no depletion recorded for Cobre Panama, as well as lower depletion recorded for Antamina because of the lower deliveries in the quarter. One additional item to note in Q2 2024 is the tax adjustment recorded. In May 2024, the government of Barbados enacted legislation to implement tax measures also in response to the OECD's Pillar Two global minimum tax initiative.

[Sandy Brenna, CFO at Franco-Nevada Corporation]

Measures include an increase of the Barbados corporate tax rate to 9%, and the introduction of a qualified domestic minimum top-up tax, which together aim to ensure that the Barbados effective tax rate payable, subject to Pillar Two, is at least 15% going forward. What's important to note is that of the $122.8 million total tax expense recorded for the six months ended June 30, 2024, $49.1 million relates to an adjustment for prior years, and the actual incremental tax expense related to 2024 is about $21 million because of these changes. Going forward, we estimate that our effective tax rate will be about 19%-20%, depending upon where taxable income is generated. Slide seven highlights the continued diversification of the portfolio.

[Sandy Brenna, CFO at Franco-Nevada Corporation]

From the charts, you can see that 75% of our Q2 2024 revenue was generated by precious metals, with revenue being sourced 82% from the Americas. Slide 8 illustrates the strength of our business model to generate high margins. For Q2 2024, the cash cost per GEO, which is essentially cost of sales divided by gold equivalent ounces sold, was $264 per GEO. This compares to $280 per GEO in Q2 2023. This amount will fluctuate depending upon the mix of royalty versus stream GEOs, including mining and energy. But as you can see, at current average gold prices, the company generates significant margins. Margin is approximately $2,100 per ounce in Q2 2024. A rising commodity pricing environment, we expect to benefit fully as the cost per GEO sold should not increase significantly.

[Sandy Brenna, CFO at Franco-Nevada Corporation]

As we turn to available capital, the company has $2.4 billion as at June 30, 2024, as highlighted on slide 9. Please note that subsequent to June 30, 2024, the company has funded a number of transactions. The acquisition of a royalty in Newmont's Yanacocha property for $210 million, which Ian will speak to shortly. $23.3 million advanced to SolGold as part of the $525 million stream commitment agreed to in July. Purchase of shares in G Mining Ventures as part of the Reunion Gold business combination for $25 million, and the funding of a 5-year, $35 million loan to EMX Royalty. Even after funding of the above, the company still has a strong balance sheet to complete additional transactions.

[Sandy Brenna, CFO at Franco-Nevada Corporation]

Also, during the quarter, the company amended its $1 billion unsecured revolving term credit facility to extend its term to June 3, 2029. Finally, with respect to the GEO sold guidance for 2024, 480,000-540,000 total GEOs sold, and 360,000-400,000 precious metal GEOs sold, we reiterate those guidance ranges, but we expect to be at the lower end of both ranges. We anticipate stronger deliveries from Candelaria in the H1 of the year, and continued contributions from Tocantinzinho, Greenstone, and Salares Norte. And with that, I will now pass it over to Ian, who will speak to the recent business development transactions completed.

[Ian Gray, Senior Vice President, Business Development at Franco-Nevada Corporation]

Thank you, Sandy, and good morning. As Paul mentioned, we were happy to announce gold stream financing on SolGold's Alpala project in July. We view this as a world-class comparable porphyry. Stream is tailored to SolGold's needs, allowing for de-risking with initial preconstruction tranches and funding construction once key stage needs are met. Syndicated 70-30 with Osisko Gold Royalties, and we believe represents a prudent capital allocation and risk-adjusted return. The Alpala deposit stands out among copper gold projects globally based on its size and grade. To summarize the recent pre-feasibility study, which demonstrates a robust project and look forward to management steps to advance and de-risk the project. Our team sees great upside at Alpala and on the broader Cascabel concession, which the stream covers. Projects like Tandayama increase the value of the stream, in our view.

[Ian Gray, Senior Vice President, Business Development at Franco-Nevada Corporation]

Our experience is that these types of deposits also tend to cluster, and we see great potential in the drill bit over time on the property. The transaction includes a number of risk mitigants to determine when funding takes place, and various protections for streamers should there be delays or rescoping of the project. An acquirer would benefit also from the ability to reduce the stream, but to do so would have to provide a payment to both Franco-Nevada and Osisko. We, along with Osisko, look forward to the steps management has taken to advance the project, and believe that Cascabel will be a meaningful contributor to Franco-Nevada for years to come. We'd also point investors to SolGold's recent update, released this morning, providing, you know, information on their steps to add value to the project.

[Ian Gray, Senior Vice President, Business Development at Franco-Nevada Corporation]

Moving to the Yanacocha royalty acquisition from Buenaventura, which was announced yesterday. We're happy to add this asset to the portfolio. Royalty will contribute immediately, given significant oxide production, and we expect would step up significantly with the sulfides project. We are very positive on the sulfides and see great potential from the existing footprint to extend the life for many years beyond what is currently envisaged. The royalty also covers the Conga and Quilish projects, providing excellent upside. We're able to visit the site as part of our review and have good institutional knowledge of the asset dating back to Newmont and maintain an excellent relationship with Buenaventura, providing comfort in the long-term potential. We view this as another world-class geological setting, as evidenced by past production and extensive resource.

[Ian Gray, Senior Vice President, Business Development at Franco-Nevada Corporation]

We see great potential to contribute significant production for decades to come, and further potential in the ROFR that we maintain on the additional royalties. With that, I'll hand it back to the operator and Candida for any questions.

[Operator]

Of course. During this Q&A session, if you would like to ask a question, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star two. If you're joining us on the webcast, please submit your questions through the Q&A section of the webcast platform. Our first question comes from the line of Josh Wolfson from RBC Capital Markets. Go ahead, please.

[Josh Wolfson, Head of Global Metals and Mining Research at RBC Capital Markets]

Yeah, thanks very much. First question on the Yanacocha transaction. You know, the returns that we calculate would be comparable to some of the, I guess, mega type of returns we saw maybe 2015, 2016, which I would now, you know, ultimately worked out fairly well for the company. You know, if we're looking at these deals today, like Yanacocha and maybe others that could be on the horizon, you know, what's, what's the sort of appeal here? And, and I would note from our perspective, like, the, the main bulk of the economics are not really... the project hasn't really been developed versus some of the historical low return deals, you know, were large, producing known assets. Just a bit more insight on, on what the company sees versus what we know in the market today.

[Ian Gray, Senior Vice President, Business Development at Franco-Nevada Corporation]

Thanks, Josh. Ian speaking. We see great potential in the asset. It's been a huge producer over the years. It's a brownfield site with a very large resource endowment. We do get the benefit of existing oxide production and expect, you know, in the short term, there should be a decision on the sulfides. We were able to do an on-site diligence as part of the transaction, which provided additional comfort, especially in the sulfides. We see that as a great project that Newmont, we expect, will advance. I think they've put off a decision until 2025. But then on top of that, you have fantastic projects on the site, which really incentivizes maintaining production, in our view.

[Ian Gray, Senior Vice President, Business Development at Franco-Nevada Corporation]

You have the Conga project, which not that long ago was advancing, and in the fullness of time, there is potential there, and the Quilish project, both, you know, very, very large. And so you get the benefit both of immediate cash flow and fantastic optionality longer term. So that is why we find it attractive, and it's a, it's a great partner. Newmont, as I'm sure you know, has a great track record of both advancing projects and operating successfully. So we're happy to be involved there.

[Josh Wolfson, Head of Global Metals and Mining Research at RBC Capital Markets]

Great. And then just, you know, in terms of the opportunity for maybe more of this style transaction that skews towards the optionalities, are these the type of opportunities you're seeing out there? Or, you know, there's been a focus, at least from commentary from other companies about, you know, project financing type of deals.

[Ian Gray, Senior Vice President, Business Development at Franco-Nevada Corporation]

We see both. In short, I think there is certainly opportunity for project financing type transactions, operating assets. You know, there's a pretty rich deal environment at the moment, so we'll continue to advance on all fronts.

[Josh Wolfson, Head of Global Metals and Mining Research at RBC Capital Markets]

Thank you. And one last question, just on one of the deals that was done early this year, on the energy side of things for Haynesville. I'm not sure if this is, you know, an anomaly for the quarter. But, yeah, Haynesville production or revenues hasn't really improved that much, and there was a large investment made in the Q1. You know, when should we start to see the increased, you know, royalty revenues from this asset?

[Jason O'Connell, Senior Vice President, Diversified at Franco-Nevada Corporation]

Hi, Josh, it's Jason speaking. You're right, we did add incrementally to Haynesville at the end of last year, and despite that, revenues were more sort of flat. A lot of that is timing and commodity price. So gas prices, which, as you probably know, have fallen off fairly dramatically in the period we're speaking about. That impacts the royalty, both in terms of straight royalty economics, but it also impacts the way the operators are managing their production. So low gas prices in Haynesville have resulted in softer drilling rates and at times, operators dialing back their production levels to try to rebalance the market. So there's a bit of a, there's a large commodity price, I guess, impact there, in two ways.

[Jason O'Connell, Senior Vice President, Diversified at Franco-Nevada Corporation]

We're also onboarding, continuing to onboard the assets that we acquired at the end of last year. It does take some time for all the ownership interests to transfer over. So I think as you'll see commodity prices rebound here, in the coming quarters, I think you'll see volumes and revenues normalize a bit.

[Josh Wolfson, Head of Global Metals and Mining Research at RBC Capital Markets]

Those were all my questions. Thank you.

[Operator]

Thank you. Our next question comes from the line of Lawson Winder from Bank of America. Go ahead, please.

[Lawson Winder, Senior Equity Research Analyst at Bank of America Securities]

Yeah, thanks, operator. And good morning, Franco team. Thanks for taking the question here. I wanted to ask, first of all, about the deal on Yanacocha. Congratulations on getting another big deal done. What was the assumption in terms of the startup of the sulfides when you got to an IRR that you were comfortable with for this?

[Ian Gray, Senior Vice President, Business Development at Franco-Nevada Corporation]

Thanks, Lawson. Ian, again, here. In terms of the sulfides, I think what Newmont has said is 2025, you know, that's possible that they'll adjust it. It's worth noting that the oxides are currently in production, and I think that our diligence would indicate there's potential there to continue to do leaching if there is delay. But I think we are expecting something around the 2029 timeline for production.

[Lawson Winder, Senior Equity Research Analyst at Bank of America Securities]

Okay, great. Very helpful. And then, just thinking about the deal pipeline and the relative metal mix, I mean, that's improved. But I shouldn't use the word improve, but that's swung back in the favor of gold and silver and the precious metals quite significantly in Q2 versus Q1, where it dipped to quite a low level. So you're now back to 70% of revenue from gold and silver. In that context, how do you think about adding new streams in terms of metal mix? Is gold and silver still a continued priority here, or does the rebound in gold and silver prices and the move to the metal mix as a result, perhaps shift your focus now going forward more to non-precious deals?

[Paul Brink, President and CEO at Franco-Nevada Corporation]

Lawson, it's Paul. Thanks for the question. Focus is always precious metals, and it starts as always with asset quality. Anytime we're looking at stuff, it's what are the great assets? That is the biggest driver and what generates the best returns over time. You know, and then we get on to commodity mix. So first is, do we like the asset? And second, you know, can we get it done, you know, within the guidelines of what we do with the commodity mix? So as always, gold and precious metal is number one on our list in terms of what we'd like to do, but always open-minded.

[Paul Brink, President and CEO at Franco-Nevada Corporation]

If they're great assets and other commodities that we think will get long-term returns, we're happy to add those, too.

[Lawson Winder, Senior Equity Research Analyst at Bank of America Securities]

Okay, that's great context. Thanks very much, Paul. Thanks, Ian.

[Operator]

Thank you. Our next question comes from the line of Tanya Jakusconek, from Scotiabank. Go ahead, please.

[Tanya Jakusconek, Managing Director and Senior Equity Analyst at Scotiabank]

Hi, good morning. Thank you so much for taking my questions. I'm just gonna start off on just some of the guidance. And thanks, Sandip, for that. Hemlo is always difficult to forecast, but just as we look at the H1 of the year, and we do have, you know, the Candelaria, I think, was the one that you had mentioned, and Tocantinzinho, Salares Norte, those ones ramping up. Am I to think that, like, it's a H1, it's H1-weighted, but is it more weighted to Q4, or is it more of an even distribution? Plus, I have the Valley top-up in Q3. So I'm just trying to understand, you know, Q3 versus Q4.

[Josh Wolfson, Head of Global Metals and Mining Research at RBC Capital Markets]

Sure, Tanya. As of right now, from the visibility that we have, I would say it's probably gonna be pretty even between the two. Maybe, you know, Q4 might be a little bit higher, as you know, Greenstone and Salares Norte ramp up. But I don't expect too much of a difference. Obviously, part of it is all dependent on commodity prices with respect to the NPIs. But for simplicity, I would say those they should be pretty close.

[Tanya Jakusconek, Managing Director and Senior Equity Analyst at Scotiabank]

Okay, that's helpful. Thank you for that. And then if I can move on to just the you know the transactions and just the environment itself. And Ian, for you, you know thank you for you know your you know forecast of 2029 for the startup of on the sulfides. We modeled it into the next decade ourselves. But when you look at the internal rate of return, and again, it's making that decision-

[Tanya Jakusconek, Managing Director and Senior Equity Analyst at Scotiabank]

... You know, whatever gold price you want to use for both of your transactions that you recently did, what are you getting? Are you getting the, the middle, you know, single digit internal rate of return? Just a benchmark for us to see on that. And same with Cascabel, like, when did you, you know, figure start up on, on that asset as well?

[Ian Gray, Senior Vice President, Business Development at Franco-Nevada Corporation]

Thanks, Tanya, for the question. There, there's a lot there to unpack. I would say, you know, first of all, it's, you know, risk-adjusted returns is what we think about, and optionality is important in the investments. You know, we wanna see that there's a lot there that can go right over time, and we can earn an outsized return. Even if it does take time, it might not show up in an IRR, but certainly enhances the profile of the company providing gold, you know, for years to come. So with Yanacocha, yes, I would say it's a pretty reasonable return we see with the oxides and the sulfides. And beyond that, you have fantastic projects which stand to provide you many multiples on your investment as those move forward.

[Ian Gray, Senior Vice President, Business Development at Franco-Nevada Corporation]

Now, Conga, you know, Quilish could take a lot of time, you know, if they, if they get developed, but certainly that's skewed towards outsized cash flows from the investment, what's attractive to us. So maybe that provides a bit of, bit of context. On Sol-

[Tanya Jakusconek, Managing Director and Senior Equity Analyst at Scotiabank]

Is reasonable for you, single mid, single digit, middle single digit, like 5%? I don't know what reasonable is for you.

[Ian Gray, Senior Vice President, Business Development at Franco-Nevada Corporation]

Yeah, for an asset that has a great degree of optionality, that would be a reasonable return. Again, all things equal, it's risk adjusted. You know, in other-

[Tanya Jakusconek, Managing Director and Senior Equity Analyst at Scotiabank]

Agreed.

[Ian Gray, Senior Vice President, Business Development at Franco-Nevada Corporation]

In other cases, like SolGold, the return was meaningfully higher, and it just represents, as again I mentioned, a risk-adjusted rate of return.

[Tanya Jakusconek, Managing Director and Senior Equity Analyst at Scotiabank]

Okay. And for SolGold, when did you assume start up of that one? And when you say significantly higher, are you implying double digit?

[Ian Gray, Senior Vice President, Business Development at Franco-Nevada Corporation]

Yeah, in terms of, I don't wanna get too much into deal specifics. I don't think it's appropriate, but roughly, you know, if we look at scenarios for start up there in the early 2030s, and rate of return, certainly above the mid-single digits. But you know, beyond that, I don't think it's appropriate to comment.

[Tanya Jakusconek, Managing Director and Senior Equity Analyst at Scotiabank]

Okay, no, thank you for that color, Ian. Maybe just turning to the M&A environment. Just, I wanted to, you know, on the last conference call, we talked about you seeing bigger sized deals, you know, plus $500 million. I guess the Cascabel one was over $500 million. What sort of opportunity size are we still looking at now? Is it still over that $500, or are we back to that $100 million-$300 million on the gold side? That's my first question on the M&A, on the transaction side.

[Ian Gray, Senior Vice President, Business Development at Franco-Nevada Corporation]

Thanks, Tanya, for the question. It's a good, good question. I would say, you know, expect more of the same, in terms of what you've seen recently, for deal size. You know, $1-$300 is a pretty good kind of average size, within the pipeline. You know, the overall comments, I think, is that it remains extremely busy. So there's lots to look at, which is great, and plenty on the precious metal side. So, the team remains very focused. Thank you.

[Tanya Jakusconek, Managing Director and Senior Equity Analyst at Scotiabank]

Okay. And then in terms of royalties, I mean, Buenaventura has been talking about the selling of this royalty on Yanacocha since last year, so congrats on finally getting this done. Are you seeing other opportunities on the royalty side in you know in the environment separate from streams?

[Ian Gray, Senior Vice President, Business Development at Franco-Nevada Corporation]

Certainly, you know, we like royalties. I think they're great within the portfolio, so we see them both in terms of streams and royalties.

[Tanya Jakusconek, Managing Director and Senior Equity Analyst at Scotiabank]

Okay, and then maybe just for Paul, I think the last conference call, we talked about transactions in a non-gold space. We had specifically talked about lithium in the $50 million-$400 million range. And, you know, just, you know, looking at opportunities in the part of the market where commodities are not as strong as we see in the gold market. So I'm just wondering what your thoughts, have they changed? Is the, are the opportunities for lithium still there, and is that something you still wanna pursue?

[Paul Brink, President and CEO at Franco-Nevada Corporation]

We're still busy on that front. As Ian mentioned, most of our assets on the precious metal side, but we are looking at some diversified. Some of that is lithium, some in other commodities. So I think there's still good potential to get some deals done in those areas.

[Tanya Jakusconek, Managing Director and Senior Equity Analyst at Scotiabank]

That $50 million-$400 million range is still the range that those would fit into?

[Paul Brink, President and CEO at Franco-Nevada Corporation]

Yep, that's a good range.

[Tanya Jakusconek, Managing Director and Senior Equity Analyst at Scotiabank]

Okay, looks like you're very busy. Congratulations on both of those deals.

[Paul Brink, President and CEO at Franco-Nevada Corporation]

Thank you, Tanya.

[Operator]

Thank you. Our next question comes from the line of Martin Pradier from Veritas Investment Research. Go ahead, please.

[Martin Pradier, Investment Analyst at Veritas Investment Research]

Thank you. It looks like you need the sulfide project to go ahead to make your money back on Yanacocha. Is that the correct assumption?

[Ian Gray, Senior Vice President, Business Development at Franco-Nevada Corporation]

... That is correct. Ian speaking here.

[Martin Pradier, Investment Analyst at Veritas Investment Research]

Okay. Did I hear that there was a $49 million tax adjustment from previous year? Is that correct, or it's just previous quarter?

[Ian Gray, Senior Vice President, Business Development at Franco-Nevada Corporation]

Yes. So, because Barbados increased its tax rate to 9%, its corporate tax rate, our deferred tax liability on our balance sheet was set up at the old rate, so we had to adjust that, and that was $49.1 million, one-time adjustment.

[Martin Pradier, Investment Analyst at Veritas Investment Research]

Okay, perfect. Thank you. That's all. Thank you very much.

[Operator]

Thank you. There are no further questions on the phone line. I will now turn the Q&A session over to Candida Hayden, who will take questions from the webcast.

[Candida Hayden, Senior Analyst, Investor Relations at Franco-Nevada Corporation]

Thank you, Laura. Our first question comes from Bernie Puchi from Palisade Capital. Given the recent social and political turmoil in Ecuador, I'm a bit surprised by your commitment to the Cascabel project, especially after Panama experience. What extent have you balanced your attention to the project geology versus your view of the political environment there?

[Ian Gray, Senior Vice President, Business Development at Franco-Nevada Corporation]

Thank you for the question. Cascabel transaction was very carefully structured to take advantage of the geology, but also mitigate the risks. First point, in terms of the funding structure, it's broken down in tranches based on stage gates, and this allows certain items to be dealt with before additional capital is funded. And then when it comes to the final construction funding, that is contingent upon the rest of the funding being secured and a robust investment agreement being signed with the government of Ecuador, with criteria included as conditions of funding. So we take a lot of comfort from that. But I would probably say, bigger picture, Ecuador has a very fair split of fiscal flows versus other countries, so we draw a lot of comfort from that as well.

[Ian Gray, Senior Vice President, Business Development at Franco-Nevada Corporation]

With mines like Fruta del Norte, the government derives 50% of the economic benefit of the projects, so that provides what I believe is a good backdrop towards stability going forward, social acceptability of mining projects. The government is also quite supportive of the project, which gave us a lot of comfort. As part of our diligence, we met with a number of government officials in Quito, along with our partners at SolGold and also Canadian and US embassy staff.

[Candida Hayden, Senior Analyst, Investor Relations at Franco-Nevada Corporation]

Next question is also from Bernie Pucci at Palisade Capital. An update on Panama, especially given the new government?

[Paul Brink, President and CEO at Franco-Nevada Corporation]

So, Bernie, it's Paul. Since the Mulino administration has come in, I think all the indications have been positive. They've indicated a willingness to look at a reopening of the mine, enter into negotiations, that is, with some conditions. And I'd say most positive is the steps that they're taking. The first item is that they want to do a comprehensive environmental review, and so they're putting together a panel of experts so that they can do that. I'm very hopeful that that will help demonstrate that the company, that the asset has been very well operated and that some of the misgivings that had been promoted in the population, that there was environmental damage will be dispelled.

[Paul Brink, President and CEO at Franco-Nevada Corporation]

So I think taking very positive steps to set the table so that they can, one, have a discussion with the company and two, position this project better with the public in Panama.

[Candida Hayden, Senior Analyst, Investor Relations at Franco-Nevada Corporation]

The last question comes from Bjorn Wiklander. Current cash portfolio is $1.4 billion. Is there deals out there, such as royalty or streams, that are coming that can match this cash, cash position? Or are there other opportunities that this cash position can be used for? And if so, what could that be?

[Ian Gray, Senior Vice President, Business Development at Franco-Nevada Corporation]

Thank you for the question. It's Ian speaking. As I mentioned, we see a very robust pipeline at the moment. There's good potential to deploy that capital with what we have in the pipeline. Going forward, I think you will see us continue to transact on, you know, a number of opportunities. So I don't see it as a surplus. It's quite beneficial for us in terms of bidding competitively.

[Candida Hayden, Senior Analyst, Investor Relations at Franco-Nevada Corporation]

Thank you, Ian. There are no further questions from the webcast. This concludes our Q2 results conference call and webcast. We expect to release our Q3 2024 results after market close on November eighth, with a conference call held the following morning. Thank you for your interest in Franco-Nevada. Goodbye.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your line.

Participants

Executives

• Candida Hayden, Senior Analyst, Investor Relations
• Ian Gray, Senior Vice President, Business Development
• Jason O'Connell, Senior Vice President, Diversified
• Paul Brink, President and CEO
• Sandy Brenna, CFO

Analysts

• Josh Wolfson, Head of Global Metals and Mining Research at RBC Capital Markets
• Lawson Winder, Senior Equity Research Analyst at Bank of America Securities
• Martin Pradier, Investment Analyst at Veritas Investment Research
• Tanya Jakusconek, Managing Director and Senior Equity Analyst at Scotiabank