Franco-nevada Corporation · TSX:FNV
Franco-nevada — Investor Day (April 2009)
63 slides from Franco-nevada's investor day presentation, Apr 15, 2009
Slide 1: Analyst Working Session
Analyst Working Session April 15, 2009
Slide 2: Cautionary Statement on forward-looking statements
Cautionary Statement on 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, est
Slide 3: Management
Management Title Canada David Harquail President & CEO Sharon E. Dowdall Chief Legal Officer H. Geoff Waterman Chief Operating Officer Paul Brink S.V.P. Business Development Jason O’Connell Manager of IR & Business Development Debbie McEnaney Controller Cindy Smith Land Analyst Donna Andrejek Office
Slide 4: Franco-Nevada
Franco-Nevada Listing (1) TSX – FNV Issued Capital 100.3m shares Share Price Range(2) C$30.73-C$11.62 Market Capitalization(3) US$2.1B Working Capital(4) US$239m Available Credit Facilities US$150m Debt or Hedges(4) Nil 2008 Dividends US$21.8m (C$0.24/share) Management Ownership 6% (1) IPO Dec 20/07
Slide 5: Growing a High Margin Gold Business
Growing a High Margin Gold Business 2008 Revenue 2008 Free Cash Flow(1) by Quarter by Quarter Growing gold revenues… with high margins… (1) Free Cash Flow is defined by the Company as operating income plus depletion and 5 depreciation, non-cash charges, and any impairment of investments and royalty
Slide 6: From Secure & Profitable Assets
… From Secure & Profitable Assets By Region By Royalty Type Australia Other Other Working 1% 3% 1% Interests 7% Profit-based royalties 22% Canada 37% US 59% Revenue- based royalties 70% Percentages calculated on 2008 revenue Working Interest includes 1% of other royalties 6
Slide 7: Expectations for 2009
Expectations for 2009 Provided March 26, 2009 Positives: - higher gold price versus 2008 - Gold Quarry starting in Q1 - Palmarejo materially starting in Q3 Offsets: - Goldstrike lower grades and higher capital - lower contribution from Robinson copper royalty - lower contributions from other commodi
Slide 8: Agenda for April 15, 2009
Agenda for April 15, 2009 Operating Mineral Assets Highlights Steve Aaker • Goldstrike • Stillwater • Robinson • Gold Quarry Oil & Gas Assets Highlights Geoff Waterman • Oil & Gas Operations & Reserves Advanced Mineral Assets Highlights Paul Brink • Palmarejo • Other (Tasiast; Hollister; Hemlo; Deto
Slide 9: Operating Mineral Assets
Operating Mineral Assets Steve Aaker – Chief of U.S. Operations
Slide 10: Goldstrike Royalties
Goldstrike Royalties View looking West David Schumacher photo Goldstrike Royalties: • 4% NSR and 5% NPI on the Post and Goldstrike claims • 4% NSR and 5% NPI on the Extension and Gold Bug claims • 2% NSR over the Bazza claims and a 2% NSR and 2.4% NPI over the Bazza Strip area • 6% NPI on the SJ cla
Slide 11: Goldstrike Royalties
Goldstrike Royalties 2008 results, Barrick reported: • Goldstrike produced 1,706 K oz at cash costs of $452/oz – A major waste removal phase ended in 2Q-08, with access to higher grade ores in the Betze- Post pit 3Q & 4Q-08; net result was a +10% average grade increase for the year. 2009 guidance -
Slide 12: Goldstrike Royalties
Goldstrike Royalties 2009 Budgeted Production Areas 15-20% of FNV oz 35-40% of FNV oz <5% of FNV oz (SP) 35-40% of FNV oz 12
Slide 13: Stillwater Royalty
Stillwater Royalty Stillwater Royalty • a 5% NSR payable on production from 813 of the 995 claims covering the majority of the Stillwater mine and all of the East Boulder mine View looking south View looking south 13
Slide 14: Stillwater Royalty
Stillwater Royalty PGM metal price declines have led to a restructuring of operations at the Stillwater complex for 2009 • At East Boulder, the site workforce has been reduced by 50% and production guidance dropped to 125,000 ounces for 2009. • Overall stated objective is to operate the Stillwater c
Slide 15: Robinson Cu-Au Royalties
Robinson Cu-Au Royalties Robinson Royalties Patented Claims • 0.225% NSR royalty Unpatented Claims • 10% price participation royalty on 51% of the gold produced above 60,000 oz • A price participation royalty on 51% of each pound of copper produced in excess of 130 million Kimbley pounds multiplied
Slide 16: Robinson Cu-Au Royalties
Robinson Cu-Au Royalties 2006 2007 2008 2009 guidance Revenue ($000) $261 $13,420² Production (K oz Au) 75.1 108.1 137.6 100.0 P&P Reserves (K oz Au) 1,034 772 905 M&I Resources (K oz Au)¹ 1,517 1,352 1,901 Production (Mlbs Cu) 121.4 131.9 159.7 140.0 P&P Reserves (K t Cu) 845 709 728 M&I Resources
Slide 17: Gold Quarry Royalty
Gold Quarry Royalty Gold Quarry Royalty is the greater of: • 7.29% NSR based on production, or • a minimum annual royalty (“MAR”) payment tied to unpaid Gold Quarry Royalty Property : 1. reserves 2. Stockpiles David Schumacher photo 2008 Est. Royalty Revenue ($000) ¹ $9,810 Kitco avg Gold Price (US$
Slide 18: Gold Quarry – West Wall Layback
Gold Quarry – West Wall Layback Newmont’s GQ West Wall Layback Business Objectives Increase ounces and understand extent of Gold Quarry to extend Carlin life of mine Current NRM 77 million tonnes at 1.4 gpt Status Extensive drilling in 2009 (~31,000 meters) Targeting 2.5-3.5 million ounces reserve c
Slide 19: Gold Quarry Royalty
Gold Quarry Royalty Guidance Dec 23/08 guidance was for the GQ Royalty to generate “on average, greater than 11,200 gold royalty ounces per annum”. For 2009, the MAR payment based on the unpaid stockpile calculation is now expected to be ~14,400 ozs. GQ Pit GQ HL Pads, Stockpiles & Waste Dumps Mill
Slide 20: Oil and Gas
Oil and Gas Geoff Waterman – Chief Operating Officer
Slide 21: Oil and Gas
Oil and Gas Over 100 royalty and/or working interests in oil and natural gas properties covering >5,000 wells ~75% of revenues from Edson, Weyburn Unit and Midale Unit Long-life, low-decline proved plus probable reserves of 6.8 MMboe for these significant properties and 8.4 MMboe for all producing i
Slide 22: Reserves
Reserves P + P (mboe) 531 mboe added during 8,627 8,350 period – 326 mboe ORR (no cost) Net reserve depletion 277 mboe 11.7 year reserve life index 2008 GLJ Reserve report available on web site 531 -808 2007 Production Additions 2008 22
Slide 23: Reserves
Reserves P + P by Commodity (mboe) P + P by Area 6,000 Midale 5,000 12% Other 19% 4,000 3,000 Weyburn 42% 2,000 Edson 27% 1,000 0 Gas Oil NGL Edson Weyburn Midale Other 23
Slide 24: Reserves
Reserves P + P Reserves (mboe) P + P Reserves (mboe) 562 WI 2,278 37% 42 ORR 63% 3,082 2,386 ORR WI 24 Gas Oil NGL
Slide 25: Production History
Production History (Actual vs. Forecast) GLJ 2004 GLJ Updates 120% 30% 110% 28% 100% 25% 92% 80% 20% 69% 15% 60% 15% 13% 40% 10% 28% 20% 5% 0% 0% 2005 2006 2007 2008 2005 2007 2008 25
Slide 26: Production (boe/d)
Production (boe/d) 2009E versus Past Production 2500 +15%* 2000 1500 1000 GLJ 2008 Report 500 0 2006 2007 2008 2009E *Estimate based on historical trends 26
Slide 27: Advanced Mineral Assets
Advanced Mineral Assets Paul Brink – S.V.P. Business Development
Slide 28: Palmarejo Gold Royalty Stream
Palmarejo Gold Royalty Stream Gold Royalty Stream on Coeur’s Ag-Au project in Mexico – $75 million acquisition – 50% of gold produced from the 29,000 acre Palmarejo Property (uncapped) – Minimum of 50,000 ozs per annum beginning July 1, 2009 until 400,000 ozs have been paid – less $400 per oz (incre
Slide 29: Palmarejo
Palmarejo On Schedule (1) Operating and construction activities all on‐schedule – 5.3 million ozs of silver & 72,000 oz of gold production expected this year Expanded 11‐year mine plan – Capacity to produce an average of 9 million silver ounces and 120,000 gold ounces annually Project remains on bud
Slide 30: Palmarejo Commissioning Progress
Palmarejo Commissioning Progress Coeur Reports: – OP and UG mine development on schedule – Good grade reconciliation to reserve model – Major components, mill, crusher, etc operational – Diesel power plant fully functional with grid power expected by second half 2009 – High grade concentrate floated
Slide 31: Palmarejo
Palmarejo Open Pit and UG with Resources Shown Source: Coeur Site Visit Presentation March 23, 2009 31
Slide 32: Palmarejo Exploration – Property
Palmarejo Exploration – Property 29,000 Acre Property 32 Source: Coeur Site Visit Presentation March 23, 2009
Slide 33: Palmarejo Exploration - Focus
Palmarejo Exploration - Focus Conversion of resources to reserves at Palmarejo Drilling at Guadalupe to explore down dip extensions and to upgrade resources Drilling to-date indicates gold grades increase with depth Source: Coeur Site Visit Presentation March 23, 2009 33
Slide 34: Recent Development Project News
Recent Development Project News Property Royalty Update Tasiast 2% NSR Reserves and resources have been rapidly expanded with resources now >4 Moz*, indicating a mine life of 15yrs plus. Current resources are on 5km of a 60km prospective trend. Hollister 3-5% NSR Recent high grade Hatter Graben disc
Slide 35: Financial Highlights
Financial Highlights Alex Morrison – Chief Financial Officer
Slide 36: Financial Highlights Agenda
Financial Highlights Agenda Revenue Composition Free Cash Flow Purchase Price Allocation and Net Book Values Stillwater Reserve Sensitivity Palmarejo Gold Stream Accounting Sensitivities and Revenue Matrices Financial Appendices 36
Slide 37: Revenue by Commodity 2008
Revenue by Commodity 2008 45 40 35 30 Oil & Gas Millions US$ 25 Base Metals & Other (including dividends) 20 PGMs 15 Gold 10 5 0 Q1 Q2 Q3 Q4 37
Slide 38: Revenue by Commodity
Revenue by Commodity For the Quarter ended December 31, 2008 Oil & Gas 21% Gold Base Metals 52% 23% PGM 4% 38
Slide 39: Revenue by Major Royalty
Revenue by Major Royalty For Quarter ended December 31, 2008 Weyburn 4% Midale 2% Edson 7% Goldstrike NSR 15% Other ( Including Other O&G dividends) 7% 1% Goldstrike NPI 25% Base Metals 23% Other Gold 12% Gold Oil & Gas PGMs 39 Base Metals Stillwater 4%
Slide 40: Revenue & Free Cash Flow (FCF)
Revenue & Free Cash Flow (“FCF”) $42.5 Revenue $41.0 89% $40.0 Free Cash Flow (1) 86% 88% $37.7 $35.4 $35.3 $27.5 FCF/Revenue % 85% $23.4 Q1 - 2008 Q2 - 2008 Q3 - 2008 Q4 - 2008 (1) Free Cash Flow is defined by the Company as operating income plus depletion and depreciation, non-cash charges, and an
Slide 41: Free Cash Flow
Free Cash Flow Free Cash Flow is defined by the Company as operating income plus depletion and depreciation, non- cash charges, and any impairment of investments and royalty interests. (Millions) Operating income $ 31.6 Depletion and depreciation 87.5 Write downs 8.5 Stock-based compensation expense
Slide 42: Net Book Values: $1.2 Billion
Net Book Values: $1.2 Billion At December 31, 2008 Producing Exploration & Development O&G 28% O&G 38% Gold Gold 45% 44% Base PGM Base Metals 23% Metals 5% PGM 9% 6% Other 2% Total $918.4 million Total $273.6 million 42 Additional details in Appendices
Slide 43: Stillwater Reserve Sensitivity
Stillwater Reserve Sensitivity Reserve to Market Price Sensitivity 25.0 PGM (Pd + Pt) Reserve Ounces (Millions) 20.0 15.0 10.0 5.0 0.0 $200 $300 $350 $400 $500 $517 $550 $650 Weighted Average Palladium and Platinum Market Prices 43 Source: Stillwater Mining – 2008 10k
Slide 44: Palmarejo Gold Stream Accounting
Palmarejo Gold Stream Accounting Accounting Treatments for $75 million Acquisition – Minimum Royalty (“MR”) • Fair value accounting required to be used • MR will be marked to fair value at each balance sheet date • Adjustments in fair value recognized in income as a separate income statement caption
Slide 45: Palmarejo Gold Stream Accounting
Palmarejo Gold Stream Accounting Fair Value of Palmarejo MR is sensitive to changes in key assumptions (discount rate, gold prices, project parameters) Will likely generate significant non-cash variations to earnings, which will be recognized quarter by quarter Further reinforces our belief that Rev
Slide 46: Revenue Sensitivity
Revenue Sensitivity Revenue Sensitivity (2009 & 2010) Total Revenue Change with a 10% Change in Price 14% 12% 10% 8% 2009 2010 6% 4% 2% 0% All Au Cu Pt/Pd O&G Change in total revenue for 2009 & 2010 resulting from a 10% increase in commodity prices from recent spot prices 46
Slide 47: Revenue Sensitivity
Revenue Sensitivity 2009 & 2010 140% 130% 120% 110% 100% O&G Sensitivity ('09) Gold Sensitivity ('09) 90% Gold Sensitivity ('10) O&G Sensitivity ('10) 80% 70% 60% 50% -25% -10% Spot 10% 25% Change in total revenue for 2009 & 2010 resulting from changes in the price of gold and oil & gas 47
Slide 48: Precious Metal Contribution
Precious Metal Contribution to Revenue in 2009 Gold Price $800/oz $900/oz $1000/oz $1200/oz $1500/oz $40/bbl 79% 81% 83% 86% 89% $3.00 $50/bbl 75% 78% 80% 83% 87% $3.75 Oil & $60/bbl 71% 74% 77% 80% 84% Gas $4.50 $80/bbl 65% 68% 71% 75% 80% $6.00 $100/bbl 60% 63% 66% 71% 76% $7.50 Precious metals in
Slide 49: Appendices - Table of Contents
Appendices - Table of Contents Net Book Values at December 31, 2008 Income Taxes – Tax Depletion and Tax Balances – Applicable Statutory Tax Rates Costs and Expenses & Interest Expense Capital Structure Liquidity & Capital Resources Security of Investments Oil & Gas Assets 49
Slide 50: Highlights
Highlights Precious metals to contribute >80% of revenue by Q3 2009, reflecting; – Palmarejo contribution – higher expectation on Gold Quarry contribution – higher gold price for 2009 to-date versus 2008 Solid FCF generation in any likely go-forward scenario – gold revenues higher in 2H of 2009 and
Slide 51: Thank You
Thank You Cerro San Pedro - New Gold Bald Mountain - Barrick East Boulder - Stillwater Tasiast - Red Back Goldstrike - Barrick Mesquite - Western Goldfields Falcondo - Xstrata Robinson - Quadra Marigold - Goldcorp 51
Slide 52: Appendix - Net Book Values
Appendix - Net Book Values At December 31, 2008 Exploration Producing & Development Gold Barrick Goldstrike $ 205 $ - Bald Mountain 18 - Gold Quarry 104 - Marigold 32 - Other 46 125 $ 405 $ 125 PGMs Stillwater $ 212 $ - Pandora - 16 $ 212 $ 16 Base Metals Robinson $ 9 - Falcondo 25 - Other 9 29 $ 43
Slide 53: Appendix - Income Taxes
Appendix - Income Taxes Tax Depletion and Balances at December 31, 2008 Canada – Canadian oil & gas – 10% declining balance - C$141m – Canadian Mining – 30% declining balance - C$11m – Foreign – min 10%, max 30% to income - C$49m US – Generally uses cost depletion on a units-of-production basis - US
Slide 54: Appendix - Income Taxes
Appendix - Income Taxes Applicable Statutory Tax Rates Canadian combined (1) income tax rates declining – 2009 – 29.76% – 2010 – 28.75% – 2011 – 27.25% – 2012 – 25.75% US combined (1) income tax rate is 36.88% (2) Australian income tax rate is 30% Mexican income tax rate is 28% (1) Combined is feder
Slide 55: Appendix - Costs and Expenses
Appendix - Costs and Expenses Total $8.2 million (For the year ended December 31, 2008) Nevada Net Proceeds Taxes 44% Oil & Gas Production Taxes 27% Oil & Gas Operating Costs on WI 19% Montana Net Proceeds Taxes 10% Expense components – Standby fee for Credit Facility ~ $130,000 per quarter @ curren
Slide 56: Appendix - Capital Structure
Appendix - Capital Structure At April 15, 2009 100.3 million common shares outstanding 2.885 million stock options outstanding at exercise prices between C$15.20 and C$20.55 5.75 million warrants exercisable @ C$32 until March 13, 2012 56
Slide 57: Appendix - Liquidity & Capital Resources
Appendix - Liquidity & Capital Resources Total Liquidity of $283.5 million Full Credit facility of $150 million at December 31, 2008 available Current cost of advances – – 3.375% (BMO Prime Cash & Cash Equivalents Rate plus 0.125%) 26% Short-Term Investments – – 3.125% (BMO Base 50% Available for Ra
Slide 58: Appendix - Security of Investments
Appendix - Security of Investments As at Dec 31, 2008 Government Backed or Segregated Account Government Securities 31% 69% 96% Yes Currently 100% US and Canadian government backed securities Managed by Beutel Goodman Key Parameters – US$ emphasis – 100% maturity < 1 year – Avoid corporate issues 58
Slide 59: Appendix - Edson (Alberta)
Appendix - Edson (Alberta) Liquids-rich gas play 209 km. west of Edmonton 15% ORR over 25,920 gross acres AECO-C spot prices less processing cost of C$20/103m3 Wells drilled at no cost to Franco-Nevada RLI: 7 years Operator: 59
Slide 60: Appendix - Weyburn/Midale Units (Saskatchewan)
Appendix - Weyburn/Midale Units (Saskatchewan) Weyburn Midale Unit Unit 60
Slide 61: Appendix - Weyburn Unit (Saskatchewan)
Appendix - Weyburn Unit (Saskatchewan) Unitized oil play 129 km. southeast of Regina Medium sour crude (28 to 31 degree API, 2% sulphur) 1.11% non-operated working interest, 0.44% royalty C$10 to C$15/bbl differential to Edmonton Light price CO2 miscible flood started in 2000 (>13 million tonnes seq
Slide 62: Appendix - Midale Unit (Saskatchewan)
Appendix - Midale Unit (Saskatchewan) Unitized oil play 40 km southeast of Weyburn Medium sour crude (28 to 31 degree API, 2% sulphur) 1.59% non-operated working interest, 0.97% royalty C$10 to C$15/bbl differential to Edmonton Light price CO2 injection began in 2005, over 10 patterns operating, 41
Slide 63: Exploration
Exploration Non-producing land – 12,000 net acres of unproved non producing land under lease – Interests in 181 non producing agreements which include ~100,000 gross acres of undeveloped mineral title, available for farm out Arctic Gas – Discovered by Panarctic Oils between 1969 and 1986 – > 130 wel