Gold - Boom over or best yet to come? presented by David Harquail, Franco-Nevada
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Transcript of Gold - Boom over or best yet to come? presented by David Harquail, Franco-Nevada
Mines & MoneySydney, Australia
October 17 2012
2FNV
1. Adjusted EBITDA is defined by the Company as net income (loss) excluding income tax expense, finance income and costs, foreign exchange gains/losses, gains/losses on the sale of investments,income/losses from equity investees, depletion and depreciation and impairment charges related to royalties, streams, working interests and investments. See Non-IFRS Measures at the end of thispresentation.
2. Adjusted Net Income is defined by the Company as net income (loss) excluding foreign exchange gains/losses, gains/losses on the sale of investments, impairment charges related to royalties,streams, working interests and investments, unusual non-recurring items, and the impact of taxes on all these items. See Non-IFRS Measures at the end of this presentation.
Forward-Looking StatementsThis presentation may contain certain information that may constitute “forward looking information” and “forward-looking statements” within the meaning of applicable Canadian securities laws and UnitedStates Private Securities Litigation Reform Act 1995, respectively. Forward-looking statements 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, estimated future revenues, requirements for additional capital, future demand for and prices of commodities, expectedmining sequences, business prospects and opportunities. Such forward looking statements reflect management’s current beliefs and are based on information currently available to management. Often, butnot always, forward looking statements can be identified by the use of words such as “plans”, “expects”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “predicts”, “projects”, “intends”, “targets”,“aims”, “anticipates” or “believes” or variations (including negative variations) of such words and phrases or may be identified by statements to the effect that certain actions “may”, “could”, “should”, “would”,“might” or “will” be taken, occur or be achieved. Forward looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance orachievements of Franco-Nevada to be materially different from any future results, performance or achievements expressed or implied by the forward looking statements. A number of factors could causeactual events or results to differ materially from any forward looking statement, including, without limitation: fluctuations in the prices of the primary commodities that drive Franco-Nevada’s royalty and streamrevenue (gold, platinum group metals, copper, nickel, uranium, silver and oil and gas); fluctuations in the value of the Canadian and Australian dollar, Mexican peso, and any other currency in which Franco-Nevada generates revenue, relative to the U.S. dollar; changes in national and local government legislation, including permitting and licensing regimes and taxation policies; regulations and political oreconomic developments in any of the countries where properties in which Franco-Nevada holds a royalty, stream or other interest are located; influence of macro-economic developments; businessopportunities that become available to, or are pursued by Franco-Nevada; reduced access to debt and equity capital; litigation; title, permit or license disputes related to Franco-Nevada’s interests or any ofthe properties in which Franco-Nevada holds a royalty, stream or other interest; excessive cost escalation as well as development, permitting, infrastructure, operating or technical difficulties on any of theproperties in which Franco-Nevada holds a royalty, stream or other interest; rate and timing of production differences from resource estimates; risks and hazards associated with the business of developmentand mining on any of the properties in which Franco-Nevada holds a royalty, stream or other interest, including, but not limited to unusual or unexpected geological and metallurgical conditions, slope failuresor cave-ins, flooding and other natural disasters or civil unrest; and the integration of acquired assets. The forward looking statements contained in this presentation are based upon assumptionsmanagement believes to be reasonable, including, without limitation assumptions relating to: the ongoing operation of the properties in which Franco-Nevada holds a royalty, stream or other interest by theowners or operators of such properties in a manner consistent with past practice; the accuracy of public statements and disclosures made by the owners or operators of such underlying properties; nomaterial adverse change in the market price of the commodities that underlie the asset portfolio; no adverse development in respect of any significant property in which Franco-Nevada holds a royalty, streamor other interest; the accuracy of publicly disclosed expectations for the development of the underlying properties that are not yet in production; integration of acquired assets; and the absence of any otherfactors that could cause actions, events or results to differ from those anticipated, estimated or intended. However, there can be no assurance that forward looking statements will prove to be accurate, asactual results and future events could differ materially from those anticipated in such statements. Readers are cautioned that forward-looking statements are not guarantees of future performance. Franco-Nevada cannot assure readers that actual results will be consistent with these forward looking statements. Accordingly, readers should not place undue reliance on forward looking statements due to theinherent uncertainty therein. For additional information with respect to risks, uncertainties and assumptions, please also refer to the “Risk Factors” section of our most recent Annual Information Form filedwith the Canadian securities regulatory authorities on SEDAR at www.sedar.com, our most recent Form 40-F filed with the Securities and Exchange Commission on EDGAR at www.sec.gov, as well as ourmost recent annual and interim MD&As. The forward looking statements herein are made as of the date of this presentation only and Franco-Nevada does not assume any obligation to update or revise themto reflect new information, estimates or opinions, future events or results or otherwise, except as required by applicable law.
Non-IFRS MeasuresAdjusted Net Income and Adjusted EBITDA are intended to provide additional information only and do not have any standardized meaning under International Financial Reporting Standards (“IFRS”) andshould not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures are not necessarily indicative of operating profit or cash flow fromoperations as determined under IFRS. Other companies may calculate these measures differently. For a reconciliation of these measures to various IFRS measures, please see the end of this presentationor the Company’s current MD&A disclosure found on the Company’s website and filed with Canadian securities regulatory authorities on SEDAR at www.sedar.com and with the Securities and ExchangeCommission on EDGAR at www.sec.gov.
Cautionary Statement
3FNV
Franco-Nevada (FNV)
A gold focused royalty & stream
company. Listed on the TSX & NYSE with
a market capitalization of > $8 billion.*
Palm
arejo
Tasiast
Goldstrike
Growth � > 80% revenue growth in 2011
� World class discoveries
Yield � >1.0% yield
� Growing dividends
Low Risk � Royalty and stream model
� ~$1B cash and no debt
Detour
*As of October 5, 2012
4FNV
Business Model Benefits
Gold ETF FNV Operators
Dividend Yield -0.4% >1% 0-2%
Leverage to Gold Price 1 >1 >1
Exploration & Expansion upside 0% 100% 100%
Reduced Exposure to:
Capital Costs 0% 0%* 100%
Operating Costs 0% 0%* 100%
Environmental Costs 0% 0%* 100%
FNV provides yield and more upside than a gold ETFwith less risk than an operator
*Revenue royalties & streams
5FNV
FNV’s Close Correlation to Gold
Business model protects against rising operating and capital costs
R² = 0.92
$0
$500
$1,000
$1,500
$2,000
$0 $10 $20 $30 $40 $50 $60
Go
ld P
rice
(U
SD
)
Franco-Nevada Share Price (USD)
Chart to Oct 5, 2012
6FNV
0%
40%
80%
120%
160%
200%
240%
280%
320%
360%
400%
2007 2008 2008 2008 2009 2009 2009 2010 2010 2010 2011 2011 2011 2012 2012
FNV
GOLD
FNV IPO: Dec 2007
S&P/TSX Global Gold Index
Outperforming other Gold Investments
>30% compounded annual rate of returnincluding dividends
FNV and S&P/TSX Global Gold Index converted to USD. Chart to Oct 5, 2012
7FNV
FNV Assets
Revenue Royalties
Net Smelter Royalties (NSR)
Gross Overriding Royalties (GOR)
Streams
Contract to purchase physical metal with ongoing fixed cost (~$400/oz)
Profit Royalties
Net Profit Royalties (NPI)
All agreements share common components:• No cash calls beyond fixed stream payments
• Exposure to commodity prices and exploration upside
• No management involvement in operations
8FNV
Over 340 Assets*
209 mineral royalties and streams
135 producing Oil & Gas interests1
344 assets
ProducingAssets
Advanced Assets
ExplorationAssets
Oil & Gas Assets1
44 26 139 135Gold -US
-Canada-Australia-International
PGMs
Other Minerals
● Both organic and
acquisition near-term growth
● Exploration optionality at no cost to FNV
● Does not include 158 undeveloped oil & gas interests
* As at October 4, 20121 Does not include 158 undeveloped oil & gas interests
9FNV
Key Producing Assets*
GOLD ASSETS PGMs
U.S. Australia Stillwater
Goldstrike Duketon Sudbury (3 mines)
Gold Quarry Henty Pandora
Marigold South Kalgoorlie
Mesquite Bronzewing Other
Hollister International Weyburn – oil
Canada Tasiast Midale – oil
Sudbury (3 mines) Palmarejo Edson – gas / ngl’s
Golden Highway (3 mines)
MWS Mt. Keith - nickel
Musselwhite Ezulwini
Timmins West Cerro San Pedro CASH
Hemlo Edikan ~$1 Billion
A diversified global gold portfolio
* See 2012 Annual Information Form for further detail
10FNV
2% NSR on Duketon – Regis Resources
Garden Well Processing Plant
Moolart Well Pit
~270,000hectares
An Australian success story
11FNV
Our Key Transaction Principles
Maximizes long term optionality and scale
Long-term secure tenure
Minimize potential for encroachments
Our first dollar is our last
Operators manage, not FNV
Exploration upside
Free our focus for future investments
12FNV
Big Wins
Goldstrike• Initial purchase price < $3 million• Expected royalties > $1 billion*
Detour• Initial purchase price ~ $2 million loan• Expected royalties > $1 billion*
Tasiast• Book value at IPO ~ $2.7 million• Expected royalties > $600 million*
Goldstrike
Detour
Tasiast Africa
* Please refer to cautionary statements and supportive information in FNV’s 2012 Annual Information Form. Expected royalties based on $1700/oz gold price
13FNV
Existing Royalties
Mine FinancingExploration Financing
Purchase of Existing Royalties
Exploration or Land Financing
Mine Financing
Typically 1-3% NSR Equity placement with royalty option
% of gold production (“stream”)
Recent Examples Recent Examples Recent Examples
Cdn Malartic - $10 M Timmins 81- $4.0 M Cobre Panama- $1,000 M
Edikan - $35 M Dorato - $2.6 M Sudbury FNX - $400 M
Phoenix - $24 M Creso - $1.5 M Prosperity - $365 M
Lumina Royalty - $66 M MWS - $125 M
Palmarejo - $80 M
Transaction Categories
14FNV
Royalty Gold Stream
Smaller % of production Larger % of gold (as by-product)
Potential tax gain on sale Potential tax efficiency
Registered on title Mortgage on property
No inter-creditor issues Greater lending value for bankers
Pal
mar
ejo
Tasi
ast
Royalty vs. Gold Stream
15FNV
Financing Instrument
Cash Burden Dilution of Shareholder’s
interest
EquityNone (other than dividends)
Dilution in all current and future assets plus discounts, fees, warrants
Royalty / Stream
Burden proportional to production and gold price
Asset specific
DebtInterest, principal,covenants, hedging, fees
Full upside potential of assets is retained
LOW
HIGH
Re
turn
Ris
k
Royalty/Stream Alternative
An alternative between equity and debt
16FNV* Including Gold Wheaton transactions acquired by Franco-Nevada
Over $4B of Stream Transactions
0
200
400
600
800
1,000
1,200
US
$ M
illi
on
s
Franco-Nevada*
Other
17FNV
Why Operators use Royalty/Stream Financing
Royalty/Steam financing now used in combination with equity and debt
Versus Equity Versus Debt
Alternative when equity markets weak
One stop financing vs. large bank syndication
Less dilutive as asset specific Avoid commitment, advisor, standby, syndication fees and cash sweep accounts
No commissions, discounts, or warrants
No restrictive covenants or hedging
Used in advance reduces equity overhang and discount
Less downside risk to operator
18FNV
Franco-Nevada has >$1 B capital to invest
Available Capital
Kevin McElligott
Managing Director – Australia
Phone: +61 8 6263 4425
Mobile: +61 417 964 926
19FNV
The New Gold Equity Space
One in three investors have chosen new gold investment options
20FNV
1
2
4
8
16
32
64
DO
W/G
old
(Lo
garit
hmic
Sca
le)
Dow vs. Gold
Gold price and gold equities have much more upside
Homestake
Gold Fields
Do
me
Min
es
An
glo
Am
erica
n
Ne
wm
on
t
Pla
cer D
ev
elo
pm
en
t
Ke
rr-Ad
diso
n
Ca
mp
be
ll Re
d La
ke
Ha
rmo
ny
Ag
nico
-Ea
gle
He
mlo
Go
ldstrik
e
Pla
cer-D
om
eY
an
aco
cha
Kin
ross
Ya
ma
na
Source: Franco-Nevada and Exploration Insights
Equity market
? ?
Gold bull
market
Gold bull
market
Gold bull
market
Equity market Equity market Equity market
21FNV
Thank You for Your Interest