Franco-nevada Corporation · TSX:FNV
Franco-nevada — Investor Day (May 2008)
53 slides from Franco-nevada's investor day presentation, May 15, 2008
Slide 1: Analyst Day May 15
» ¢ ~~ Analyst Day May 15
Slide 2: Cautionary Statement
Cautionary Statement Certain information contained in this Presentation, including any information as to our strategy, plans or future financial or operating performance and other statements that express management's expectations or estimates of future performance, constitute "forward-looking statem
Slide 3: Management
Management Title Canada David Harquail President & CEO Sharon Dowdall Chief Legal Officer H. Geoff Waterman Chief Operating Officer Paul Brink S.V.P. Business Development Jason O’Connell Associate, Investor Relations & Business Development Debbie McEnaney Controller Cindy Smith Land Analyst Donna An
Slide 4: Agenda
Agenda Key Points – David Harquail – Steve Aaker Q1 Results – Alex Morrison Oil & Gas Segment – Geoff Waterman 4
Slide 5: Franco-Nevada – The First 5 Months
Franco-Nevada – The First 5 Months Dec 20, 2007 - C$1.2B IPO - Acquisition of assets - TSX listing “A Star is Born” Dec 30, 2007 - Repayment of bank credit facility January 2008 - Bedding down of new company Feb 22, 2008 - Signed bought deal to raise net C$256m March 28, 2008 - Annual filings May 12
Slide 6: Dividend Declaration
Dividend Declaration Start of semi-annual dividends with initial Cdn$0.12 per share to be paid on June 23rd. 6
Slide 7: Vision and Business Model
Vision and Business Model Vision • Franco-Nevada is a resource royalty and investment company dedicated to the sustainable maximization of per share values Business Model • Royalty and investment focus – not operating • Gold focus but opportunistic for all resources • Grow and manage a diversified,
Slide 8: Our Business Model Strengths
Our Business Model Strengths Simple non-operating business No material operating or capex challenges Leading operators Barrick, Goldcorp, EnCana, Xstrata, etc. Geopolitically secure Mostly US, Canada, Australia Gold focus with diversification Gold, PGM, O&G, Base Metals Balanced profile Producing as
Slide 9: The Benefits of a Royalty Structure
The Benefits of a Royalty Structure Franco-Nevada Operators Explorers ETF Bullion Exposure to: Discovery potential 9 9 9 X X Production 9 9 X X X Expansion potential 9 9 X X X Acquisition potential 9 9 X X X Metal price appreciation 9 9 9 9 9 Reduced exposure to: Capital costs 9 X X 9 9 Operating co
Slide 10: Royalty Types & Advantages
Royalty Types & Advantages • Revenue-based Royalty (NSR/ORR) – Limited exposure to operating or capital costs • Profit-based Royalty (NPI) – Exposure to, but no funding of, operating or capital costs • Advantages: – Your first dollar is your last – Easy to administer and grow – Management can focus
Slide 11: Pipeline of Future Royalties
Pipeline of Future Royalties • ~145 mineral exploration properties • ~100,000 acres of W. Canada mineral lands • ~1.1 Tcf Arctic Gas resource • ~15 mineral projects under development or advanced exploration • Growing royalties and new projects • Operators continue to invest in exploration and develo
Slide 12: Recent Pipeline News
Recent Pipeline News Hemlo - 3% NSR + 50% NPI - Teck-Cominco publicly reporting (Interlake) mining of Interlake property could begin in 2009 subject to ongoing in-fill drilling Rosemont - 1.5% NSR - Potential $165m investment by Silver Wheaton to fund construction Perama Hill - 2% NSR - Takeover bid
Slide 13: Strategic Growth Options
Strategic Growth Options Acquire Existing Royalties Create New Royalties Precious Metals Streams Non-Operating JV Interests Owning and Converting Properties / Resources 13
Slide 14: Presentation on Q1 Results
Presentation on Q1 Results Alex Morrison
Slide 15: Commodity Prices
Commodity Prices $1,877 $444 $7.54 ↑23% ↑20% ↑20% $930 ↑11% ↑5% $98.18 ↑5% ↑7% $837 $6.30 $370 $1,529 $93.92 ↑22% $353 $5.90 ↑26% ↑38% $1,256 $666 $68.19 Gold / oz Platinum / oz Palladium / oz Oil / bbl Gas / mcf (London PM fix) (London PM fix) (London PM fix) (Edmonton Light) (AECO-C) Average Spot
Slide 16: Q1 Revenues - $27.5m
Q1 Revenues - $27.5m By Royalty Type By Commodity By Region Working Other interest 1% 10% Profit based 17% Revenue based 72% Mostly revenue based royalties with precious metals focus that are geopolitically secure 16
Slide 17: Portfolio Highlights
Portfolio Highlights • Commodity prices – higher across the board • Contribution from Stillwater - South Africa power shortage drove up Pt/Pd prices sharply • Ramp up in production at Cerro San Pedro • First gold pour at Mesquite • Increased production from royalty ground at Marigold • North Lanut e
Slide 18: Quarterly Variance
Quarterly Variance • Q1 revenues do not include contributions from: – Falcondo dividends – no set schedule for payments – Robinson payments – expected to exceed production thresholds – Pandora payments – made annually in Q4 – Kasese – no set schedule for payments • Goldstrike waste stripping in Q1 –
Slide 19: Revenue – by Royalty
Revenue – by Royalty Other Goldstrike - NSR Weyburn Goldstrike - NPI Edson Marigold Midale Other Stillwater Gold PGMs Oil & Gas Base Metals & Other 19
Slide 20: Revenue – by Royalty
Revenue – by Royalty Revenue - Quarter Ended March 31, 2008 (US$ thousands) Property Interest Operator Revenue Gold Goldstrike - NSR NSR 2% to 4% Barrick Gold $ 3,588 Goldstrike - NPI NPI 2.4% to 6% Barrick Gold 4,642 Marigold NSR 1.75% to 5% Barrick Gold/Goldcorp 1,438 Bald Mountain NSR 1 to 4% Bar
Slide 21: Free Cash Flow
Free Cash Flow Cost of Operations $1,800 6% G&A $2,105 8% Business Development Free Cash $270 Flow* 1% $23,373 85% * Non-GAAP financial measure. See our definition in our MD&A available at www.franco-nevada.com Percentages refer to percent of revenue 21 Amounts in US$000s
Slide 22: Free Cash Flow
Free Cash Flow Operating income $ 6,783 Depletion and depreciation 15,537 Stock-based compensation expense 1,053 Free Cash Flow* $ 23,373 * Non-GAAP financial measure. See our definition in our MD&A available at www.franco-nevada.com Amounts in US$000s 22
Slide 23: Costs of Operations
Costs of Operations Total Cost of Operations- $1,800 Amounts in US$000s 23
Slide 24: EBITDA and FCF
EBITDA and FCF • Results – Q1 FCF* $23,373 or 85% of revenue – Q1 EBITDA* $23,280 or 85% of revenue • Available leverage of existing personnel levels and G&A * Non-GAAP financial measure. See our definition in our MD&A available at www.franco-nevada.com Amounts in US$000s 24
Slide 25: Depletion and Depreciation
Depletion and Depreciation • Units of production method used for oil and gas and minerals • Purchase price allocation to be completed in Q3 25
Slide 26: Income Taxes
Income Taxes • Cash taxes – Q1 current taxes 19% of pre-tax income • Effective tax rate – Q1 - 33% • Three distinct country components – Canada – some assets have nominal tax values • For all producing assets book value = tax value – US – initial book value = tax value – Australia – no depletion for
Slide 27: Interest Expense
Interest Expense • Expense components – Standby fee for Credit Facility ~ $130,000 per quarter @ current leverage ratio – Amortization of credit facility expenses - $2.1m being amortized over 3 years on a straight line basis 27
Slide 28: Capital Structure
Capital Structure At March 31, 2008: • 100.3 million common shares outstanding • 2.775 million stock options outstanding at exercise prices between C$15.20 and C$19.22 • 5.75 million warrants exercisable @ C$32 until 3/13/2012 28
Slide 29: Liquidity and Capital Resources
Liquidity and Capital Resources $468.4 million at March 31, 2008 Credit facility Cash & cash $150m equivalents $202m Short-term Publicly investments quoted $75m marketable securities $42m 29
Slide 30: Investment Policy
Investment Policy • Currently 100% government backed securities • Managed by Beutel Goodman • Key Parameters – 70%:30% US$:C$ investment split – 100% maturity < 1 year – Currently hold no corporate issuers 30
Slide 31: Capital Resources
Capital Resources • Full Credit facility of US$150 million available • Current costs of advances – [US fl – 6.125% (BMO Base rate + 0.125%) – Cana – 5.125% (BMO Prime rate +0.125%) • Subject to 0.3% standby fee on undrawn balances 31
Slide 32: Presentation on Oil & Gas Segment
Presentation on Oil & Gas Segment Geoff Waterman
Slide 33: Oil and Gas
Oil and Gas • Diversified asset portfolio with long reserve lives • ORR drilling at no cost to Franco-Nevada • Reserves and production have increased over time • High prices drive technology that increase recoveries • Large land base available for farm out • Arctic Gas is a ‘gold nugget’ waiting to
Slide 34: Oil and Gas - Producing
Oil and Gas - Producing • Over 100 royalty and/or working interests in oil and natural gas properties covering >5,000 wells • ~87% of revenues from the oil and gas royalties from Edson Property, Weyburn Unit, Midale Unit, Medicine Hat Consolidated Unit No.1 and Tidewater Interests • Long-life, low-d
Slide 35: Oil and Gas - Reserves
Oil and Gas - Reserves • Total assessments conducted in 1999 and 2007 • Interim assessments do not cover all producing assets • GLJ Petroleum Consultants (12/31/2007, 12 yr. RLI) – 5,996 mboe proved – 2,631 mboe probable – 8,627 mboe of P+P reserves • McDaniel & Associates (10/01/1999, 11 yr. RLI) –
Slide 36: Oil and Gas - Reserves
Oil and Gas - Reserves • 1999 (McDaniel’s) – 6,123 mboe, (P + P) • 2007 (GLJ) – 8,627 mboe, (P + P) • 5,808 mboe produced during period • 8,312 mboe added during period – 6,569 mboe at no cost (ORR) • Predicted declines not occurring 36
Slide 37: Oil and Gas – 2007 Reserves
d Gas — 2007 Reserves a> Car P + P by Commodity (mboe) P + P by Area (mboe) 6.000 - Medicine 6% Tidewater 5,000 - i“ Midale 4,000 - uw 3,000 - 2,000 4 arial 1,000 - ; = Gas Oil NGL OEdeon @Weyburn OMidale OMedicine Hat OTidewater @ Other - x Franco-Nevada
Slide 38: Oil and Gas – 2007 Reserves
Oil and Gas – 2007 Reserves P + P Reserves (mboe) 3,022 2,560 2,312 690 1 42 ORR WI Gas Oil NGL 38
Slide 39: Significant 5: Reserves and Production
Significant 5: Reserves and Production Reserves (mboe) 9,104 8,362 7,683 7,827 7,116 5,3655,216 5,494 5,330 5,284 5,207 2,827 1999 2000 2002 2004 2006 2007 Proved Probable P+P 39
Slide 40: Edson
Edson • Liquids rich gas play 209 km. west of Edmonton, AB • 15% ORR over 26,560 gross acres • Prices received based on AECO-C spot prices less processing cost of $20/103m3 • Wells drilled at no cost to Franco-Nevada • Increasing reserves and production • RLI: 8 years • Operator: 40
Slide 41: Edson: Reserves and Production
Edson: Reserves and Production Reserves (mboe) Production (mboe) 3,806 365 354 271 267 2,432 2,395 2,525 2,361 234 2,148 202 1,953 1,842 1,815 1,734 179 171 763 581 1999 2000 2002 2004 2006 2007 2000 2001 2002 2003 2004 2005 2006 2007 Proved Probable P+P 41
Slide 42: Weyburn Unit
Weyburn Unit • Unitized oil play 129 km. southeast of Regina, SK • Oil is medium sour (28 to 31 degree API, approximately 2% sulphur) • 1.11% non-operated working interest and 0.44% royalty interest • $10 to $15/bbl differential to Edmonton Light posted price • 2000 began operating on CO2 miscible f
Slide 43: Weyburn: Reserves and Production
Weyburn: Reserves and Production 43
Slide 44: Midale Unit
Midale Unit • Unitized oil play 40 km southeast of Weyburn, SK • Oil is medium sour (28 to 31 degree API, approximately 2% sulphur) • 1.59% non-operated working interest and 0.97% royalty interest • $10 to $15/bbl differential to Edmonton Light posted price • CO2 injection began in 2005, over 10 pat
Slide 45: Midale: Reserves and Production
Midale: Reserves and Production Reserves (mboe) does not include additional recovery of 1.2-1.5 mmbbl 1,522 CO2 1,427 1,045 936 975 749 725 670 618 634 630 418 1999 2000 2002 2004 2006 2007 Proved Probable P+P 45
Slide 46: Medicine Hat
Medicine Hat • Dry sweet gas play 257 km. southeast of Calgary, AB • 2.3% ORR in Medicine Hat Consolidated Unit No. 1 • Prices received based on AECO-C spot prices less minor processing cost • RLI: 10 years • Operator: 46
Slide 47: Medicine Hat: Reserves and Production
Medicine Hat: Reserves and Production Reserves (mboe) 775 675 590 553 523 527 509 430 446 425 401 363 1999 2000 2002 2004 2006 2007 Proved Probable P+ P 47
Slide 48: Tidewater
Tidewater • FNV holds a 56.13% interest in Saskatchewan Gulf Securities Tidewater Royalty • 2.5% ORR over 28,900 gross acres across southern Saskatchewan • Royalty administrated by Computershare • Net ORR: 1.4% • Medium sour oil and some solution gas from unit and non- unit production • RLI: 12 Year
Slide 49: Tidewater: Reserves and Production
Tidewater: Reserves and Production Reserves (mboe) 426 418 374 351 352 341 342 321 311 303 292 272 1999 2000 2002 2004 2006 2007 Proved Probable P+P 49
Slide 50: Oil and Gas – Non Producing
Oil and Gas – Non Producing Non Producing • 11,000 net acres of unproved non producing land under lease • Own petroleum and natural gas rights on ~100,000 acres which are available for farm out 50
Slide 51: Oil & Gas – Non Producing: Arctic Gas
Oil & Gas – Non Producing Arctic Gas • ~9% working interest in certain gas fields in the Canadian Arctic • Discovered by Panarctic Oils Hecla Field Drake Field between 1969 and 1986 • > 130 wells drilled at cost of ~CDN$254 million • Resources: 1,140 BCF (net to FNV) • Economic models based on produ
Slide 52: Oil and Gas - Conclusion
Oil and Gas - Conclusion • Diversified asset portfolio with long reserve lives • ORR drilling at no cost to Franco-Nevada • Reserves and production have increased over time • High prices drive technology that increase recoveries • Large land base available for farm out • Arctic Gas is a ‘gold nugget
Slide 53: Analyst Day Q&A
Analyst Day Q&A ‘ ¢ r~