Franco-Nevada Corporation (FNV) Q4 2013 Earnings Report, Transcript and Summary

Good morning. My name is Sally, and I will be your conference operator today. At this time, I would like to welcome everyone to the Franco-Nevada Corporation's 2013 Results and 2014 Outlook. [Operator Instructions] Thank you. Mr. Stefan Axell, Manager of Investor Relations, you may begin your conference.

Thank you, Sally. Good morning, everyone. We are pleased that you've joined us either in person or over the phone for the Franco-Nevada 2013 Results Investor Day Conference Call. Accompanying our call today is a presentation, which is available on our website, where you'll also find our updated 2014 Asset Handbook, as well as our 2013 MD&A and financial results. Before we begin formal remarks, we'd like to remind participants that some of today's commentary may contain forward-looking information and refer you to the detailed cautionary note on Slide 2 of our presentation. Participating on our call today is our entire executive team, but more specifically, we have Sandip Rana, who will discuss our 2013 results; Paul Brink will provide insight into our business model; Phil Wilson will discuss gold ounces associated with our assets and provide an REU update; and finally, David Harquail, our CEO, will detail our outlook moving forward. I will now turn the call over to Sandip to discuss our Q -- 2013 results.

Thank you, Stefan. As you will see from the press release we issued yesterday, the company did report lower revenue for fourth quarter of 2013 and for the full year 2013. In addition, we did record a net loss for the quarter and lower net income for the full year. But I think if you step back and you look at 2013 in general for the mining industry as a whole, it was a period of volatile commodity prices, a period of depressed share prices and just a general negative market sentiment towards the industry as a whole. But I think Franco-Nevada was not immune to this. But when you step back and you look at our company, it showed the strength of our business model, the quality of our assets and the diversity of our portfolio. And this is clearly evident in the number of gold equivalent ounces that we earned in 2013. If you turn to Slide 6, we provide a summary -- I'm sorry. If you'd look at Slide 6, we provide a summary of our gold equivalent ounces for 2013. Last year, we provided guidance to The Street of a range of 215,000 gold equivalent ounces to 235,000. This was done at gold price of $1,600 per ounce, platinum price of $1,600 an ounce and palladium at $725. We also guided oil and gas revenue of 60 -- of $55 million to $65 million. While I'm happy to say that we beat both of those guidance levels, we surpassed our 2012 -- our 2012 guidance actual results as well as the guidance that we did provide. We achieved 241,000 gold equivalent ounces -- sorry. We achieved 241,000 gold equivalent ounces for the year at lower commodity prices. On the oil and gas side, we achieved revenue of $67 million in revenue. Contributing to this excess -- exceeding guidance was a number of key assets. Palmarejo delivered 59,000 gold equivalent ounces to the company in 2013. Our Subika royalty had higher production, and accordingly, higher mining levels on our royalty lands, resulting in higher GEOs for the company. This was an asset that generated revenue and GEOs to us in 2012 for partial year versus full year 2013. Our Sudbury stream assets performed very well for us in 2013 as did our South African stream assets. With respect to new royalties, we started receiving production from Detour, and we look forward to a full year of production from Detour in 2014. In addition, we received GEOs from the Rosemont property at Duketon in Australia in 2013 and look forward to some additional production from there in 2014. With respect oil and gas for the year, as you will recall, we purchased an additional interest in the Weyburn assets in late 2012. That contributed a significant increase in oil and gas revenue for us in 2013. The higher volume, combined with higher oil prices, allowed us to exceed our guidance of 65 million -- $55 million to $65 million, with $67 million in revenue. So we did beat on our GEO guidance, but obviously, with lower commodity prices. And in particular, gold and platinum for Franco-Nevada did result in lower revenue. If you turn to Slide #7, you will see a table that separates out our IFRS measures versus non-IFRS for both the quarter and the year. And as you will see on a revenue basis, we -- for the quarter, we achieved $100 million in revenue versus $114.1 million last year. To put it in perspective, the average gold price in Q4 was lower by $447 per ounce versus 2012. And so obviously, that did have an impact across the board. On a full year basis, our revenue was $400.9 million versus $427 million a year ago. On a net income basis, as I mentioned, we did book a net loss for the quarter. This was due to some impairments that were recorded, which I will speak to shortly. But as we've said previously, we like to focus on non-IFRS measures as a performance metric. I've already spoken about gold equivalent ounces and how well we did in Q4 and in the full year 2013. However, when you factor in the lower commodity prices, it did have an effect on our adjusted EBITDA and our adjusted net income for the year. On an adjusted net income basis, we did 30.5 -- sorry, $30.5 million, or $0.21 per share, versus $47 million, or $0.32 per share, for the quarter. And on a full year basis, $138.3 million net income, or $0.94 per share, versus $171 million, $1.19 a year ago. So they were both lower year-over-year. But what is also lower for us is our corporate G&A and corporate admin cost. For the year, we're down approximately 10% year-over-year. And if you go back to 2008, at that time, we had approximately $15 million in G&A, $18 million last year, not a significant increase. And if you look at the revenue growth that this company has delivered going from $150 million in revenue to an excess of $400 million, I think it shows another strength of our business model, which is the scalability. We can grow this company without increasing our G&A significantly. You will notice that on the margin line, we are at 77.3% for the quarter, which is lower than historically achieving the 80% range. The reason for this is that in Q4, we did receive a higher number of stream ounces, in particular, Palmarejo, Sudbury assets and our South African assets. And with that, we had a higher cost of sales, which is associated with the ongoing fixed payment, the $400 an ounce that we pay. So it resulted in a lower margin percentage for the quarter. Slide #8 provides a breakdown further of our GEOs for 2013 versus 2012. And across the commodity categories, gold, PGM and other minerals, you can see that they're all up year-over-year for the reasons I've mentioned early in those specific properties. The one area that is affected by the lower commodity price in particular, gold, is our NPIs and gold strength to be specific. And that property was affected in 2013, not only by lower gold price, lower production, but also a thiosulfate project that they were doing there, resulting in some significant capital being spent, which did affect our NPI. But our NPIs are very leveraged to the gold price, but if you do adjust our GEO performance in 2013 for NPIs, you can actually see that our GEOs from our revenue royalties and our streams increased by over 13%. And then, rising from gold price environment, we look forward to the NPIs contributing more as the are highly leveraged to the gold price. Turning to Slide 9. We provide a breakdown of our revenue sources by commodity and by jurisdiction. And so by commodity, 80% precious metals, 17% oil and gas and 3% other minerals. In terms of geographic profile, 77% of our revenue is from North America, with Canada being the largest contributor at 36%. In total, we have 47 revenue-producing properties. And as we add new assets and we have organic growth, this number will grow. Turning to Slide 10. It's a chart that takes our adjusted net income from a year ago to adjusted net income for 2013. And the biggest movement is obviously revenue due to the lower commodity prices. In addition, we have lower finance income, which is a result of the composition of our cash. We're holding predominately U.S. dollars, which are earning less interest, and we've had lower finance income associated with that. We had an increase in the depletion. On the positive side, we had a lower income tax expense. So when you net everything through, we've gone from $171 million adjusted net income down to $138.3 million for the year. Slide 11, with respect to impairments. We did book some impairments in the quarter, resulting in a net loss. There were some small ones associated with some securities reported, but the 2 larger ones were McCreedy and Falcondo. Now with respect to McCreedy, this is an asset we purchased in 2011 when we did the Gold Wheaton transaction at that time. Quadra FNX, now KGHM, made a decision to start mining the nickel ore and putting on hold the mining of the PM zone. And earlier this year, I guess, Q1 2014, they came out and they said they were going to stop mining in the nickel zone and not resume the PM zone at this time. We took that from an accounting standpoint as a triggering event, and accordingly, we booked an impairment of $107.9 million. Falcondo, run by Glencore, an asset down in the Dominican Republic, has been in operation off and on for over 20 years. It's a nickel asset. We hold an interest there. Again, they've made a decision in Q4 to put that on care and maintenance. From an accounting standpoint, we've considered that a triggering event and have recorded a impairment accordingly. What I would like to point out, both these assets have reserves and resources. The infrastructure is still there, so in a rising commodity price environment, these assets should be -- these deposits should be mined as well. There is no impact in the 2013 results in terms of our revenue and EBITDA associated with these assets or for 2014. So yes, we booked some impairments, but there's no financial impact at this time. Turning to Slide 12. I'll give you an update on our credit facility. We have amended it. It was previously a 3-year facility. Now it is a 5-year facility, expires -- matures March 2019, remains unsecured. We've managed to get some lower pricing at a leveraged ratio of less than or equal to 1. Our pricing will be 30-day LIBOR plus 120 basis points. The accordion feature to take it up to $750 million is still there. So we think this facility, along with our strong balance sheet, still provides us with great financial flexibility to grow this company. And with that, I will turn it over to Paul Brink.

[indiscernible] Thanks, Sandip, and good morning, everybody. I'm going to start with just some comments on our business principles. The royalty and the streaming business keeps changing over time, but our core principles really don't change. And when we're investing, the positive [ph] key thing that we're looking to do is share in any future exploration success over the long term in the deposit. So a key thing in doing that is, obviously, tenure. We need to make sure there's good tenure. We need to make sure we're going to be there over the long term. And what we're trying to minimize is obviously an exposure to cost inflation, also, any encroachments on the property. Mostly, that means trying to avoid increases in tax rates resource [indiscernible]. We don't operate any of the assets that we're involved in. And really, the key to that is that means we can spend all of our management time on trying to find new opportunities to grow the company. So turning to the latest of the new ones, the small acquisition. This is a 2% NSR that we're acquiring. It's on the Yamana's Cerro Moro property. It's in Sta. Cruz province in Argentina. The Yamana team, I mean, both the operating team and the asset development team in the region has done a terrific job over time, so we're very pleased to have an asset -- a piece of an asset that's in their hands. They're due to put out a feasibility later on this year. They're looking for first production in 2016 on this asset. We like the property position here. They have similarities to El Peñón. They're multiple-vein structures. They're shallow structures. We think there's a great potential to expand the production coming out of this asset and to add a lot more ounces over time. In terms of the way that our business has evolved, the old Franco, the principal business, was buying third-party royalties, which has been a good business. It's a steady business. But the model changed, and really, while we were part of new market, it was Silver Wheaton who invented the by-product streaming model. And it's been a great model for all of the players in the streaming business. It's been a second avenue for growth. It's allowed all of us to do very well. Some examples of that, Cobre Panama and Palmarejo for ourselves. Really, what's happened though over the last 24 months now, with the malaise in the gold market, is that there's been a new set of opportunities. And that's -- gold companies that have been looking to finance new projects that just aren't able to get decent terms in the debt over the equity markets. And so we've been challenging ourselves to say, "How can we adapt our model and take advantage of this additional opportunity?" We go back. We didn't mean to go forward there. So we started off with a couple of smaller deals with -- on Golden Meadows with Midas Gold, a small royalty on Kirkland Lake, both financing the operator there, and then, by the end of the year, 2 other transactions, 1 with Teranga in Sabodala, and another 1 with Klondex on their Fire Creek Mine. All those, we're now financing gold companies, helping them to develop their assets. So the key thing in terms of these financings is not that there's a particular structure that works. It's more that we're able to be flexible in terms of what we provide to the operator and come up with a structure that works for that particular requirements if they're looking to either replace debt or equity in the way they think about their capital structure. But in particular, the last 2 transactions that we've done has been a new structure for us that's worked well for the operators and that's being a fixed number of prepaid ounces at the front end, and then, a smaller royalty of stream on the back end. And that's being attractive to the gold players, particularly because they are trying to maximize their exposure to gold optionality on the back end. And so by reducing the stream, it allows them to do that, gives us more of a -- more certainty in our return on the front end, but we still get to participate in the piece of the longer-term exploration success. And in particular, the structure is more debt-like than a straight-royalty structure. But some of the advantages that the operators have been seeing in it is even though there are fixed payments, it doesn't come with all the bells and whistles that come with their debt package. There's no cash flow sweep. There are no covenants that are going to trip them up, which makes it a more attractive, more flexible form of financing for them. And we've also -- in the past, on the streams, we've all used the fixed $400 per ounce. We are happy to do that going forward. We also found another way to do those operating costs, it's just do them as a percentage of the gold price going forward. Really, what that does is it makes stream economics comparable to the economics on an NSR. But it also makes it easier for an operator, both for them to conceptualize, and also, speaking to the investors. They can take something that's a 5% stream if we get 80% of the economics that really is like the 4% NSR. It's easier for everybody to think about in putting the deal together. So 2 of the transactions that we've done, and the first was with Klondex Mines, where they were -- we were helping to finance the acquisition of the Midas mill, where they'll process the ore coming out of Fire Creek. Paul Huet is the CEO of the company. Paul, we know from our days at Newmont. There couldn't be a better guy to be putting these assets, consolidating assets in Nevada. Paul has operated the Midas mill. He's operated Hollister. So we think he's a -- he and his team are a tremendous group to be supporting in doing this. We couldn't be more comfortable with the Midas mill. It is the only mill that Franco has built in its history. And we still think the Midas property has got some good legs on it. But in particular, the draw on this transaction is the Fire Creek property. The resource there is an analogy to the Midas resource. It's very high-grade vein-type systems. To date, they've outlined a small resource, about 800,000 ounces. But to put it in perspective, that resource is about 1,000 foot of what's an 8,000 structure that really is part of an 8-mile long trend. And so we think that there's lots more room to add ounces on this property over time. The bigger -- the 2 transactions was with Teranga. Again, we have similarities here we're putting together what was their Sabodala property and existing mill together with the adjacent property -- the OJVG property adding good resources to existing infrastructure. The team, Richard Young and his group, we think did just a phenomenal job. There were a lot of pieces to pull together in getting this done, both with the various parties to the OJVG joint venture. The government at the time so were very impressed with what they were able to achieve in a very short amount of time on this property. I wanted to speak just a little bit about the property position. And this really is what caught our eye initially. When you look at the location of the Sabodala property, it's just over the border in Senegal from Mali. You've got the Mali in shear that runs right down that border. And right along that shear zone, you've got a number of large deposits. You've got Sadiola, which is 12 million ounces -- sorry, Lulu [ph], which is 12 million ounces. You've got [indiscernible], which is packing on resources, which is being discovered, both of those 4 million to 5 million ounces. So right along that shear zone, we've had continued success in finding new ounces. Sabodala is on a set of shear zones that are parallel to that just on the Senegal side, what we'd point out to the north of that and in the same volcanic host structure, you've got Sadiola, that 30 million ounces. You've got Yatela, which is another 4 million ounces. So you're sitting on the same shear structures. You're sitting on the same host rocks. And half [ph] over time, that structure is going to fill in just like the parallel structure with multiple deposits down it. Already on that property, the total resource is 8.8 million ounces that they have defined. It's a very large property. They cover it -- from end to end, it's about 70 kilometers of strike length that they've got covered. So a very prospective property and we think there's a good chance of adding a lot more ounces over time. The transaction was a win-win. We are very happy with it. It's been very well-received for ourselves. Also, for Teranga, the announcement of the transaction was very fortuitous and that the gold price was running at the time, the sector is up roughly 33% of that time. Teranga though was up 125%. I think the deal has been perceived very positively for them. And to finish off then, despite the money that we spent, we still have $1.2 billion in available capital. We see a lot of opportunities out there, and we're confident that there will be more acquisitions as we go down the line. Thanks. I'll hand it to David.

All right. Thank you, Paul. All right, good morning, everybody. So the next few slides, what I'm going to cover are the gold ounces that are associated with some of our assess. We'll examine the impacts of gold prices on these ounces, and then, finally, we'll take a look at the royalty equivalent units and see -- and make a comparison of those 2 to previous years. So if you could start off with turning to Slide #24, this chart is showing the total ounces on roughly 60 properties where we hold royalties or streams. I just want to emphasize a couple of points here. We're showing all the ounces on the property by category and it's based on the operator's public disclosures. And we're only showing the gold ounces here. There is no silver equivalents. There's no platinum group metal equivalents. Now obviously, you're looking at a slide like this, it has its limitations, and principally, that is -- not all these ounces are covered by our royalty position and so this is certainly not our attributable share. Nevertheless, it is somewhat indicative of the level of activity on these properties and it's somewhat directional, so we find a useful slide to show. Now as Stefan mentioned earlier that we -- this morning, we released our updated Asset Handbook. That's available on our website or hard copies here in the offices. And this contains all the supporting information behind this slide, as well as more discussion on the limitation of the slide such as this. So we do encourage you to pick up a copy of the handbook and study it. We'll move on to Slide #25. So we're just staying with the associated ounces for a while, but this time, we're looking at some of the key drivers behind the changes from a year ago, and in particular, the impact of gold price and of acquisitions. In the reserves category, we're seeing a reduction of a little over 9%, mainly due to the gold price effect. And that said, we also saw that acquisitions during the year were able to offset these reductions and show a net increase year-on-year. In the measured and indicated categories, we didn't see any negative effect from gold price during the year. And moreover, we actually added a substantial amount of ounces through acquisitions, and also, we're able to move a couple of assets from our exploration classification due to advanced classification and include them in accounts for the first time. Net result was a sizeable increase in the M&I associated ounces. And together, the gains on the reserves and the M&I associated ounces more than offset the reduction that we saw in the inferred category. If you can move to Slide #26, again, still with associated ounces, but now we're looking at the changes year-on-year on a per-share basis. And as you can see from the slide, both the reserves and the resource categories, which are shown in gold and blue, respectively, we're seeing a continuation of the upper trend of recent years. Moving on then to Slide #27. This one's all about the Royalty Equivalent Units, or the REUs. Now you'll probably recall that this is a concept that we introduced a couple of years ago, primarily to overcome some of the limitations at just looking at a simple count of associated ounces, and also, to try and give a better representation of value to a royalty and streaming company. And essentially, what we do is we look at the different types of royalty and we normalize them to that of an NSR equivalent, and then, we apply our best judgment to what portion of the associated ounces are actually covered by the royalty ground. And so the REU is certainly an improvement over a simple ounce count, but they've also got the limitations as well. And again, I'd encourage you to look at the Asset Handbook to see how we calculated them this year and to read the discussion on the royalty equivalent units. The final slide for me is #28. And this one is showing the changes in the REUs on a year-on-year basis. And as you can see, compared to last year, it's essentially stable, and certainly, somewhat higher than the count from 1 year or 2 ago. So with that, I'm going to pass it on to David who will talk about outlook and Q&A

Thank you. Thank you, Phil, and thank you for being here on Franco-Nevada investor day. I can't think of a better way to start spring. You just had some very high-level summaries from Phil on our associated ounces and our REUs. And I take great comfort that we actually have slightly higher numbers in total in terms from our assets. I think one of the things we get asked by investors is always to stress test our portfolio, what's going to be challenged. And the way I look at our portfolio is -- what I particularly focus on is the M&I REUs from our portfolio, because in my mind, that's essentially what we're going to gross from our assets that we can measure today. And so we're still looking at slightly higher M&I REUs of just north of 10 million ounces. So with -- in my mind, I expect a growth over the life of mine about $13 billion in today's gold price. And so to me, I think it's a measure of -- a personal measure to me of the strength of the portfolio and how well it's doing. In Slide #30, it's a plug for the Asset Handbook. It came out hot off the press just this morning, just posted it on our website. It's a lot of work that's been put in by the management team here to put it together. I think this is something that's much more relevant than any annual report that's put out by any company. And I think, what we've done is we've gone the extra mile in terms of trying to -- try to provide disclosure on our over 370 assets that we have in this company. We just can't do them justice in a presentation like this. And besides having an update at least on our advanced and producing properties, there's about 60 of those in the book, plus there's a listing of all the exploration assets, we also have our oil and gas reserve information in the book, as well as the NPVs put out by an independent consultant. Those details are there. Last year, we had a very lengthy discussion on our oil and gas assets. Really, nothing has changed. It's mostly dominated by Weyburn. The reserve and resource numbers have been very stable, and so you'll find those details on the book. Geoff Waterman is here though if there's any questions, so we can talk about oil and gas. You'll also find information in our land position. We're up to now 44,000 square kilometers of lands that are covered by our royalties and streaming interests and some other corporate information. So please, take this. This is the bible in our company. And as I say, I think we've gone the extra mile in terms of trying to provide you the best disclosure in the resource business. For any of those that want to get a hard copy, you can e-mail Stefan at info@franco-nevada.com. On Slide #31, I just like to take great pride, is that I'm the CEO of a company that can differentiate itself, and despite declining gold prices, we are again increasing the dividend for the seventh consecutive year since we've come back into business. And so I think it's a great demonstration of the strength of our business model, the strength of our portfolio. I also get challenged all the time. I get various investors that say, "What? Your yield is only 1.7%? We want more." I keep reminding them that it's because our share price has been going up over time, that anyone who's bought our shares at our IPO 6 years ago is now getting almost a 6% yield on their cost base from our IPO. So I think that's a much more important aspect is in terms of how is that dividend growing over time and what is the yield in any specific time? So anyways, it's a track record. It's driven totally by the eagle of the board, management here. We hope to continue to increase our dividend going forward. On the next slide, we have -- we'll move on to our outlook and how the things look going forward. And what you can see is that for 2014, we are projecting some modest growth from our existing portfolio. And what this shows you is the various components of what we expect to be higher or lower 2014 compared to '13. We have a number of new assets, of course, those are accretive. And some other assets are ramping up. Offsetting growth is we are again assuming Palmarejo at its minimum. Now if you'll recall, we have a minimum 50,000-ounce commitment from Coeur d'Alene. We always use that in our assumptions in Palmarejo, always seems to surprise us by doing a bit better than that. But since we don't know any better, we continue to assume the 50,000-ounce minimum, and we'll probably continue to doing that. And I think the other changes are self explanatory. So that's the sum-up for 2014. Now if you go into the next slide, we actually pulled together, the range that we're expecting for 2014. And that's again, as I said, modest growth up to 245,000 to 265,000 ounces of GEOs. This compares to the 241,000 that we produced in 2013 and 230,000 that we did in 2012. Oil and gas revenues are projected between $60 million to $70 million, roughly where we are right now. But what we are assuming now is $95 WTI oil, with a higher differential than we had last year, because that's what we're experiencing right now, so that's the best projection we can make. We're also expecting to begin funding of our Cobre Panama asset this year. As you know, we are discussing with First Quantum some changes to the reporting and security arrangements under the existing contract. We do not expect the commercial terms of our contract to change. Based on First Quantum's publicly announced capital spending plans, we expect Franco-Nevada to contribute in the area of $200 million to Cobre Panama this year. On Slide 34 is our 5-year outlook. And what we've done is we've netted out the pluses and minuses for a lot of operations and projects, and overall, we are seeing positive growth. And for those of you that have really good memories, last year, we projected exactly the same number out 5 years, 300,000 to 325,000 ounces. But the big difference last year is that we expect that Inmet would actually have the Cobre Panama project fully in production by 2017. They're aiming to get an early 2016 start, and so we were factoring that into our forecast. Now we're only factoring First Quantum because they're working on a longer time line to be only at half of their new capacity numbers by 2018. So we're reflecting only half that number in our 5-year projection. So actually, next year, I'm hoping when we bring all Cobre Panama in, we'll be able to show you even more growth, but this is the best expectation we can get right now. And again our projections for oil and gas revenues, somewhat higher, and that's assisted by some expectation that we'll get some normalizing in the Canadian oil price differentials going forward. So with Slide 35, I'm going to try to wrap this up, at least the formal part of the presentation. And what I'm showing you is our 6-year performance chart. What I'm proud of is that this management team has been able to create real value for shareholders since our IPO. And we just calculated this morning, our total return compounded annual growth rate for shareholders as of the close yesterday is 23.8%. That's something that is going to be tough to keep up at that level, but it's a great 6-year performance number for us. I believe that we have a business model that can continue to provide investors with a gold investment that can provide -- that can also provide yield and alpha to gold. We want Franco-Nevada to continue to be the gold investment that works. And with that, I think the management team is ready to take questions. We have people on the conference line. What I like to do is we also have some visitors in our board room here in Toronto. Yes, what we'll do is we'll queue up some questions on the phone, but before we start, I'd like to take any questions there might be in the room from any analysts here. And there's a microphone here, so -- are there any questions in our room? Please, Cosmos.

Cosmos, we're going to just give you a mic here just so others can hear.

I guess my first question is, given what we've seen in the past week or so in terms of base metal prices, especially copper price coming under pressure, there's been some concern in terms of gold companies exposure to copper prices. Maybe you talked about that as well in terms of stress testing your model. But could you give us a sense in terms of your exposure to copper? I guess, what will be Cobre Panama, but beyond that as well.

Yes, just off the top of my head, Cobre Panama, by far -- but the nice thing about it is I think we're somewhat hedged, is that if they slow down the project while we slow down putting money into that project. Because there's a formula there that basically, we put in $1 for every 5 other dollars that go into that project. And in terms of First Quantum spending, they have to put $3. For every $1 we put in, the Koreans put another dollar. So what it might turn out is you might have a longer-term option on a very good gold deposit that will take longer to come. I'm looking at it in the very long term. I'm not particularly concerned if it starts in 2017 or 2020, is that we have the rights to that gold forever and that's something that I'm confident we'll get produced at some point. In terms of other projects, most of our gold projects are established primary gold producers. I can think of Robinson which has been material in Nevada, which is a by-product operation; our Sadbury operations, which are really mostly platinum palladium-driven rather than gold and depend a bit on some nickel production and nickel offtake and copper offtake. But beyond that, I think we're much less exposed to base metal retrenchment than almost any other company out there.

That's great. So maybe another question here. For those of us in Toronto and also certainly in other parts in Canada, it's actually been quite cold. Happy that, as you've said, it's the first day of spring today. Maybe this is a question for Geoff here. You talked about oil and gas being 17% of your portfolio in terms of revenue. How much of that is kind of direct exposure to, a, coal gas prices and how should we look at that in terms of what you've kind of factored in, in terms of your 2014 guidance?

Thanks, Cosmos. With respect to 2014 guidance, it's based on 12% of our volumes are going to come from gas, okay? And that's going to generate, what, 6% of our forecast revenues in 2014, just directly from gas.

It's a safe -- it's a pretty safe assumption that, that's sort of have a positive impact at least on Q1 2014.

Yes.

Maybe just one last question for me. I don't want to be hogging the mic here. In terms of the write-down, this is in the first write-down that we've seen. I guess, the last one was also related to the Gold Wheaton assets, which, Sandip, you mentioned that it was acquired back in 2011. What's the current carrying value now for those former Gold Wheaton assets?

Okay. So there's a slide in the appendices that does give our net book value of our assets. But in total, the Gold Wheaton asset, so including the 2 South African streams, is both $450 million remaining in book value. A large portion is obviously Mine Waste Solutions, and then, the Morrison Levack deposit.

I just have a question on your oil and gas division. Last year, you had guided to -- excuse me, revenues from Weyburn by 2017, around $67 million. This year, currently your guidance to your revenues for your oil and gas business is entirely $65 million to $75 million by 2018. I'm just wondering what happened there? Are costs at the Weyburn unit going up or are we seeing lower rates production at the other units? You were also using $90 last year and $95 this year, so would we expect higher revenues?

It's mainly productions not as high as we anticipated. Cenovus is the operator. It's -- in the past tended to try to maximize production and then speed up or push out that EOR program as quickly as it can. Right now, they're taking a view on that property as a cash flow in property form. They look at it as a cash flow machine. So they're concentrating more on just maintaining existing production, so slower disposition of capital going forward. So that will impact the production numbers in the future. It doesn't impact the recovery of reserves. We're just going to get them over a longer period of time.

David, can we just chat about the Cobre Panama? You said that the commercial terms aren't changing, so what exactly are you working on?

Well, It's, as we've stated it, it's the reporting, because what we had is our business development team. It's always the concern with Inmet, will they have enough money to finish off the project. And part of our deal said, "Okay. We'll put on our money pro rata with you, but we want a constant test in terms of is there enough -- what's the ultimate project capital going to be, and is there enough to cover it. And as well is we want to see the progress, how efficient was the money being spent, was it being spent where we expected." So as a result, we have the ability to use an independent consultant to review the spending being put on the project. We had access to all the joint venture monthly reports. And I think, First Quantum, quite rightly is saying "We're better at credit." And also, they're not accustomed to really joint venture relationships. They want the flexibility to change the plans as they go along. So I think we're willing to be flexible on that. We hear their issue on that. They are different company than Inmet was, so we can consider that. And then the other aspect is that because we were providing $1 billion financial commitment to this project and we've actually core for Inmet being able to proceed on the project that we actually obtained the security, essentially the -- a good portion of the equity that Inmet had in the project. And they were restricted in terms of the boring capacity against that project. Again, First Quantum is making the point is we're in a better credit than Inmet. And we would like -- we think it's proper to be able to do project lending against the project. And will you consider possibly going pari-passu with some guarantees from First Quantum. And so we've said we're willing to discuss that, and so we expect to be able to sort this out in the next few months. What's happened is really First Quantum is in focus on the whole bunch of other issues. This has not been a huge priority, and we expect it'll be resolved some time this summer.

So the borrowing is really the big change in terms of being able to borrow the project.

Yes, in terms of they don't -- they think we have too much security relative to our position in the project and is again -- we're just going to make a judgment call. Okay, what will the new security package look like and we have to negotiate that. So it's just too early to say what the final outcome will be. But we are having constructive dialogue with First Quantum and we hope to resolve how the specific details to you this summer. It's just First Quantum has a lot of things to do right now.

Okay. And maybe just on your acquisition strategy. I think we had talked about maybe acquisitions in the $100 million to $300 million range for you in 2014. Has that changed versus doing the billion-type acquisitions?

It's our sweet spot. I think if you saw Teranga, we're betting well. It's a nice accretive deal for us. I think most of the things, Paula [ph], we have on the pipeline right now are those set of type of dimension deals. We're working -- primarily pressures are on gold deals right now. And I think the sweet spot is deals in the few hundred million dollars for us. That can build a very nice diversified portfolio that way.

And just if I can quickly follow up on the First Quantum. Should we expect negotiations to conclude before you would begin making the payments that you've guided for this year in $200 million or...

I think so. That's part of our handshake right now as we've said. Because the handshake is essentially is -- we don't want to do all this extensive reporting on a project, so we're not going to cash call you right now. So we don't -- and so but once we can sort out what you really need, at that point, we'll cash call you. So that's why we kind of said that some time this year we'll get a deal done and then we'll catch up on our contribution, and that's how we've estimated that $200 million.

Okay. And then, just a couple of questions on potential deals with oil production. Oil and gas production, a bit lower than you had previously expected. Differentials have been higher. It's now slightly lower part of the revenue mix. Does that free up room to do some potential oil deals or...

It does. And then, there's a number of things out there, specially on the royalty side in Western Canada. It's just there's nothing that we -- we can't do another $400 million Weyburn acquisition as we did in 2012. But is there room for us to do another hundred or $150 million? We could squeeze that in now, especially now that we've been adding other gold assets. So pro rata, there is room to do some smaller oil and gas asset acquisitions.

Okay. And just lastly on the slide you gave us here with the third avenue deal flow in gold royalty stream financings, can you comment a bit -- or are they -- does this just open up the field to more deal potential or are these deals more attractive inherently because of [indiscernible].

I think what Paul was trying to get across is just open up the universe, because before, we really couldn't do royalty streaming deals in gold companies because that was our primary optionality. And then, I think what's happened now is because of the way the markets have turned. All of a sudden, gold, royalty and streaming financing actually is very competitive relative to debt and equity markets. So it's something actually we never actually expected. We actually expected streaming will always be a byproduct-type business and the arbitrage was on by-product mines. Now we're saying, "Geez, we're competitive right across the board and we're competitive against project lending from commercial banks, because we can make it more of a one-stop shop rather than having a syndicate." For a couple of hundred million dollars right now, you have a very large syndicate of banks. You have all kinds of cash sweep accounts, all kinds of fees and consultants, and we're so much simpler to deal with. And we're actually partnering with the companies in taking production risks. We'll take the commodity risk. We won't require hedging. And so I think companies are now seeing us a much better alternative. So what I'm impressed with is since we've come public with the IPO, our universe of possibilities just continues to expand and that's why I think there's a lot more running room to grow this company.

Question on the dividend. Had an increasing dividend for 7 years now. How do you think about that going forward?

Upward and onwards. So I think one of the things, as we've said, our policy is to be sustainable. We like to set it at a level that we think we'll never have to cut it and progressive. And so we -- I think we've been able to achieve the progressive part. I wasn't sure in terms of whether we get enough deals done to justify it, but happily, we booked enough deals late in year, early this year, so the board felt comfortable. Okay, those are accretive enough. We can add a bit more of the dividend. I'd say the future dividend increases are going to be dependent on us booking more and more assets to be able to justify those dividend increases. So I can't guarantee it, but I think it expresses that we're confident right now that we have a dividend and it's absolutely sustainable at the levels we're doing it. We've been able to increase our estimate each year. So our ambition is to continue to increase each year.

Is there a set formula in the way that you think...

No, there isn't. We don't want to tie it to earnings or cash flow or set pay out ratio, because we think that's a mistake. The last thing you should be doing is cutting your dividend when gold prices go down, because that's when investors need even more support for your share price. So we think actually having a dividend that is sustainable, irrespective of the gold price, is -- makes our stock even more defensive and lower risk. And that's what we want to do, it's to continue to differentiate ourselves. Just one right here.

David, just a sort of avenue to open up more potential for that to be counted as debt by any of these rating agencies?

Maybe, Paul, you'll talk about it. I look at it as almost a gold loan from our part. But Paul, do you want to talk about being rated as debt?

I think the most important point is the folks that we're dealing with in most of these structures are more junior intermediate-type players. So ratings for them is not at top of their list of considerations. So I don't think that's anything that's going to affect the amount of deals that you can do in this space or not. I think if you were dealing with senior companies, yes. I think our interpretation of the S&P when they put out their report or their view on streaming was they said, "There are elements of stream transactions that if you have them, we would treat them as debt. The -- it's our view and what we're trying to put out on business model is we're not banks that are set with a particular structure. We can be flexible on how we do our deals, and if somebody's concern is rating, we can structure a deal where that's not going to be an issue in that particular deal. So we don't think too much about the rating agencies.

And would you consider a big silver stream transaction?

We'd consider a silver stream transaction where -- don't have -- we see it as a precious metal and is obviously a good correlation with gold. So we have looked at deals that have been silver stream transactions. Obviously, our principal commodity is gold, and I think, the focus for the company will always be principally as a gold company. But if there was a good transaction that came along, we are driven -- in all our deals, whether it's gold, whether it's oil or gas or other minerals, we don't start with the commodity. We start with the resource. Our businesses is invest in resources that we think over time have got a great potential to expand. That's really where our business is successful. What the commodity is, is the second consideration that goes into that.

I think the big advantage, too, of doing these go-forward rate loans and having the trailing royalties is it open up the actionable deals. So for instance, you look at both Teranga and Klondex, they essentially needed a set amount of money, but if we actually made it all royalty or streaming deal, it would have been too oppressive for the company. We'd be taking too much of the margin. So by doing it alone with the tailing -- trailing royalty or stream, I think it's much more palatable, because often these folks would be looking at borrowing money from some other loan shark out there. And we can give them a much better rate, because what we're looking for is that longer-term participation in the project. And by packaging that way, we're not ruining the economics longer term for these projects.

We see it as a positive for both sides.

So perhaps, operator, we have -- if there's anyone on the line that has questions, if you could just poll that?

[Operator Instructions]

Our objective was to be just under 1 hour. [indiscernible].

[Operator Instructions]

I think everybody's here.

There are no questions from the phone at this time.

Thank you, operator. Are there any more questions in the room? Please, Annie?

Just thinking about the future deals and the opportunities out there, obviously, everybody is looking exactly for the long life assets, the good assets, where there's a lot of...

We have a question from the phone.

We'll come back. So go ahead, please, operator. Operator, we done there? Okay. Annie, why don't you go ahead?

So back to my thought. Now with the competition also being what it is today for good assets and the rise in yields and the cost of capital going up, how do you think about the returns that you should expect with the future deals coming up? Is the profitability going to be squeezed and you really need to think about the optionality as the cream of the crop in getting your returns that way?

I think you just have to look at our more recent deals. Our returns are getting higher and the more certainty in terms of the return and timing of those deals with faster paybacks. So I think what's been happening is that we're a reflection of the overall, I guess, competition for capital in the market that is very scarce. And as a result, we've actually been able to improve the returns in our transactions. So I think what we're doing, we have less -- our -- always our biggest competitor has always been the equity markets and the bought deals. And you can actually imagine just about every bought deal that's been announced in the last 3 months. We had a term sheet of -- but we were knocked out by the bought deals instead. And I think that's fair enough. But there will be opportunities for us to be able to exercise our business. And what I'm pleased about is we're getting better deals now than we did in the old days, albeit those are not the long-term assets you're talking about, but again, we have that fantastic exploration optionality, either in Senegal or Nevada that we really love. So we actually do think they're going to be long term it's just we can't measure them today. So are we seeing a lot of head-to-head competition with other royalty companies? Not really. Two years ago, we had almost a dozen little royalty companies being financed in the market. Just about all of them are orphans today. They are being asked. They're being acquired. So I see, if anything, my hope is that actually the royalty companies as a group actually start acting like commercial bankers and would begin actually starting to syndicate deals between each other, but none of us is taking a disproportionate risk and yet we can make even more material deals and financings for operating companies. And so I see that as another avenue. That will be the fourth avenue of growth for our business. And so what I like is we are finding new ways to continue to grow our company even though we're a $7 billion market cap company today. [indiscernible] other question?

What's your total capital or cash commitments for 2014 and 2015 right now?

We have -- we're estimating $200 million for Cobre Panama, and oil and gas will be at $4 million in terms of capital requirement. And beyond that, there's nothing else, except the $400 we'd pay on some of our streaming ounces. So we'll pay our streaming requirements. And then, I have to pay salaries, I guess, for management, but we're going to be down 10% this year. So we're very proud of it. So cash-wise, we're down to about $15 million all-in to run this company, and we got actually a great lease on these new offices here. So it doesn't -- it's not as expensive as it looks. 2015 is $280 million, I think. Yes, we're guessing about $280 million the year after, I think, based on the First Quantum schedule. I suspect we'll get more refined as First Quantum refines their spending plans as well. And so it will change, but it's the best estimate we can give you right now. So nice thing about it is at least this year, we're funding Cobre Panama just on a cash flow. And next year, it might be a bit more than our free cash flow dividends, but it's really a future investment for us. What I'd like to do is if there's no other questions, I'd just like to thank everybody. I think there's been a new arrangement. We've invited people to participate essentially in our conference call in our board room to take advantage of our -- the large rental space that we have here. So I think it's worked very well, and we'll consider doing it again in the future. As well, we don't do a really extended analyst day or investor day dissertation because we think everything's in the book that's come out today. So I encourage everybody. It's much more valuable than the annual report. Please take one of those. It'll answer most of your questions. Management's available after this call. We have a few refreshments out here for the people that are in our board room. And then, we're inviting everybody for our next quarterly results. Our first quarter results will be released after the market close on May 7. And on the same day, we're having our annual general meeting, which will be at the TMX Broadcast Centre here in Toronto. So all of you are invited for that. And we'll have some refreshments after that as well. So thank you very much, and we look forward to the next call. Bye-bye

This concludes today's conference call. You may now disconnect.