Franco-nevada Corporation · TSX:FNV
Franco-nevada — Investor Presentation (October 2009)
30 slides from Franco-nevada's investor presentation, October 2009
Slide 1: Growing a High Margin Gold Business
Growing a High Margin Gold Business October 2009
Slide 2: Cautionary Statement
Cautionary Statement Forward-Looking Statements This Presentation contains "forward-looking statements", which may include but are not limited to, statements with respect to future events or future performance, management's expectations regarding Franco-Nevada’s growth, results of operations, estima
Slide 3: Franco-Nevada (TSX: FNV)
Franco-Nevada (TSX- FNV) Leading gold royalty company by: - gold revenues Goldstrike - number of gold royalties - free cash flow margins - delivered gold revenue growth Future gold royalty growth: - existing secure and profitable assets - paid for pipeline of near term projects Gold Quarry - recent
Slide 4: Royalties are a High Margin Business
Royalties are a High Margin Business with commodity and exploration exposure Best returns through full commodity cycle 4
Slide 5: Quality Portfolio
Quality Portfolio Diversified & geopolitically secure assets % of Royalty Revenue (1) 66% 20% >300 royalties with 86% of Royalty Revenue from US & Canada (1) Royalty Revenue is defined by the Company as cash received or receivable from operating royalty assets 5 earned during the period. Percentages
Slide 6: Royalty Revenues ($ millions)
Quality Portfolio Growing gold and precious metals contribution 45 40 35 Royalty Revenues ($ millions) 30 Oil & Gas Base Metals & Other 25 PGM Gold 20 15 80% 55% 56% 77% 55% 10 61% 5 0 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Gold revenues rising mostly on organic growth and operating results
Slide 7: Quality Portfolio
Quality Portfolio Built in and paid for organic growth Current producers New in 2010-11 Near term 2012+ Longer term Goldstrike Holloway-Hislop Detour Pinson Palmarejo* Hollister Hemlo NPI Arturo Gold Quarry* Hemlo NSR Falcondo nickel Kirkland Lake Stillwater Tasiast Pandora platinum Arctic Gas Marig
Slide 8: Gold Royalty Growth - Palmarejo
Gold Royalty Growth - Palmarejo • 50% gold stream above $400/oz • New open-pit and underground silver-gold mine in Mexico • Coeur d’Alene is operator • Minimum annual royalty feature of 50,000 oz began July 1 • Operator guidance is for gold capacity of 60,000 oz/yr • 2010 is first full year for Palm
Slide 9: Gold Royalty Growth - Near Term
Gold Royalty Growth - Near Term Annual Incremental Royalty Potential c Project Operator Royaltyd @ $1000 gold Palmarejo Coeur d’Alene 50% gold stream $15-18m eg Holloway–Hislop St Andrew Gold 4-5% NSR 3-4m e 2010 Hollister Great Basin Gold 3-5% NSR 3-5m e Hemlo NSR Barrick Gold 3% NSR 1-2m f $22-29m
Slide 10: Gold Royalty Growth - Near Term
Gold Royalty Growth - Near Term Existing Gold-Only New Incremental Gold- Royalty Revenue Only Royalty Revenue(2) Not Shown • Any contribution from $90m >130 other longer term gold royalties $52-74m $71m • PGM revenues • Co-product base metal revenues $20-33m $22-29m $10-12m • All royalties have been
Slide 11: Added Commodity Opportunity
Added Commodity Opportunity 30 Not Shown • >20 non-producing 25 other royalties • Stand-by assets such as Falcondo 20 • Undeveloped O&G ($ millions) properties 15 • Arctic Gas 10 Oil & Gas 5 Base Metals & Other PGM 0 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Potential for an additional $20 to
Slide 12: Added Growth Potential
Added Growth Potential Capital Resources @ June 30, 2009 US$ Millions Working Capital $513 Marketable Securities $54 Available Credit Facility $150 Total Available Capital $717 No debt or hedges and limited capital obligations Future acquisitions prefunded without risk of share dilution 12
Slide 13: Comparables
Comparables Royal Gold Silver Wheaton Commodity mix Mostly gold Mostly gold Mostly silver USA 66% USA 56% Mexico 57% (1) Revenues by geography Canada 20% Africa 21% Peru 17% Mexico 6% Mexico 15% Sweden 16% Number of mineral royalties 194 118 14 Market cap at Oct 28, 2009 $2,802m $1,857m $4,408m Prof
Slide 14: Comparables
Comparables Assumes Franco-Nevada does not invest its >$700m in current available capital Valuations are competitive reflecting premium for royalties, gold and US & Canada assets Source: RBC Equity Research: October 12, 2009 CF estimates & prices at October 12, 2009 – SLW estimates 14 as of August 2
Slide 15: Franco-Nevada Attributes
Franco-Nevada Attributes Leading gold royalty company – Highest margins in business – Can generate free cash flow in all likely scenarios – Strongest asset base in U.S. and Canada – Growing and increasingly diversified gold revenue Financial position is strong – $550m+ in working capital & marketabl
Slide 16: Thank You
Thank You Goldstrike - Barrick Weyburn Bald - Encana Mountain - Barrick East Boulder - Stillwater Palmarejo - Coeur Cerro San Pedro - New Gold Mesquite – New Gold Marigold - Goldcorp Robinson - Quadra Tasiast - Red Back 16
Slide 17: Why Royalties? Why Franco-Nevada?
Why Royalties? Why Franco-Nevada?
Slide 18: Royalty Business vs. Operating
Royalty Business vs. Operating Higher margin business Higher free cash flow(1) business No material capex, overhead or environmental obligations Flexible on acquisition size and numbers Can build a more diversified, lower risk asset portfolio Benefit rather than squeezed by commodity inflation Manag
Slide 19: Royalties are High Margin
Royalties are High Margin Royalty Owner Owner/Operator Economics Economics Excluding Capital Including Capital One oz sold at $900 $900 $900 Applicable cost per oz(1) - ~$440 ~$700 Margin per oz $900 $460 $200 Assume 4% 4% 4% 4% royalty/interest Cash Generated per oz $36 $18 $8 Royalty interest gene
Slide 20: Free Cash Flow in All Likely Scenarios
Royalties are High Margin Free Cash Flow in All Likely Scenarios Free Cash Flow(1) By Quarter $35.0 $30.0 85% 85% $25.0 $20.0 Millions Royalty Revenue (1) Free Cash Flow (2) $15.0 $10.0 $5.0 $0.0 Q1/09 Q2/09 (1) Royalty Revenue is cash received or receivable from operating royalty assets earned duri
Slide 21: Operating Margins - FNV vs. Gold Producers
Royalties are High Margin Operating Margins(1) – FNV vs. Gold Producers Gold at $950/oz Gold at $433/oz 100% 100% 90% 85% 90% 78% 80% 80% 70% 70% 60% 60% 50% 45% 50% FNV Producers 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% 0% FNV maintains strong margins through the commodity cycle (1) Operating Margin c
Slide 22: Gross Operating Margin (2009)
Royalties are High Margin Gross Operating Margin (2009) 100% 93% 90% 81% 80% 70% 70% 61% 62% 60% 57% 57% 57% 52% 53% 50% 40% 34% 35% 30% 22% 20% 10% 0% Source: RBC Weekly Valuation Tables (October 12, 2009 – earlier for SLW) 22 RBC calculates Gross operating margin excluding G&A costs
Slide 23: Free Cash Flow Per $1,000 Invested
High Margin Business cash generating without the capex risk $60 Free Cash Flow per $1,000 Investment (1) FNV Free Cash Flow Per $1,000 Invested RGLD $40 KGC $20 EGO $0 ABX NEM GG -$20 AUY -$40 IAG -$60 AEM Assumes Franco’s >$550m not invested (1) Source: CIBC Equity Research. Calculations based on 1
Slide 24: Royalties Provide Real FCF
Royalties Provide Real FCF(1) Original Plant & Infrastructure Operator Royalty Holder Initial Property Investment Initial Investment for Initial Royalty Processing Plant Investment Incremental Investment Plant Expansion for Plant Expansion Initial Investment for Open Pit ` Incremental Investment for
Slide 25: Royalties are Lower Risk
Royalties are Lower Risk Cumulative Cash Flow – Royalty vs. Operator Royalty Closure & Costs subject Construction Operation Mill expansions or laybacks Reclamation to inflation Our royalty acquisition cost is our only cash exposure Note: Cost and revenue figures are indicative only. Royalty economic
Slide 26: Capital Spending Advantage
Capital Spending Advantage Oil and gas – Actual production versus forecast 900 800 Reflects 700 operator 600 spending on new wells and 500 secondary Mboe recovery with no 400 cash call to royalty interests 300 200 100 - 2000 2001 2002 2003 2004 2005 2006 2007 2008 1999 Production Forecast Actual Pro
Slide 27: Historic Valuations
Historic Valuations P/CF Multiple 60 50 40 30 20 10 90 91 92 93 94 95 96 97 98 99 00 01 0 Seniors Mid-Caps Royalty Cos Royalty companies traded at > 2X premium to producers 27 Source: Merrill Lynch Equity Research.
Slide 28: Franco-Nevada (TSX:FNV)
Franco-Nevada (TSX:FNV) Capital Structure: Common 112.0m shares outstanding (FNV) Warrants 5.75m @ C$32/sh Mar. 2012 (FNV.WT) Warrants 5.75m @ C$75/sh June 2017 (FNV.WT.A) Warrants 0.32m Special Warrants Share Price Range(1) C$31.49 - C$11.62 Market Capitalization(2) $3.1B Working Capital + Investme
Slide 29: Appendix - Management
Appendix - Management Title Canada David Harquail President & CEO Sharon E. Dowdall Chief Legal Officer & Corporate Secretary H. Geoffrey Waterman Chief Operating Officer Paul Brink S.V.P. Business Development Petra Decher VP, Finance & Assistant Secretary Jason O’Connell Manager, IR & Business Deve
Slide 30: Appendix - Board of Directors
Appendix - Board of Directors Position with Franco-Nevada Current or Past Major Experience Pierre Lassonde Director, Chairman Chairman, World Gold Council Vice Chairman, Director and President, Newmont Mining Co-CEO and Co-Founder, Old Franco-Nevada David Harquail Director, President & CEO Executive