Franco-Nevada Corporation (FNV) Q4 2014 Earnings Report, Transcript and Summary

Good morning. My name is Sharon and I will be your conference operator today. At this time, I would like to welcome everyone to the Franco-Nevada 2014 Results and Investor Day Conference Call. [Operator Instructions] Mr. Stefan Axell, you may begin your conference.

Thank you, operator. We are pleased that you have joined us today either in person here in our boardroom or over the phone for the Franco-Nevada 2014 results and investor day conference call. Accompanying our call today is a presentation which is available on our website at Franco-Nevada.com, where you’ll also find our full financial results as well as a copy of our updated asset handbook. We estimate today’s presentation will be slightly longer than our regular conference call as we will be providing an update on our various business segments. This will be followed by a Q&A for those people here in this conference room as well as those participating over the phone. Before we begin the formal remarks, we would like to remind participants that some of today’s commentary may contain forward-looking information and do refer people to the cautionary note on slide 2 of our presentation. For today’s presentation, our entire executive team is available as well as our management to answer any questions over the phone or here in person. I’ll now turn over to Sandip, CFO of Franco-Nevada, to review our 2014 results.

Thanks, Stefan. Thank you, everyone, thank you for joining us this morning. As you will have seen from our press release yesterday, the company released the results for the fourth quarter as well as for the full year 2014. Again, strong results across all our key financial metrics. Before I do get into the specific details of performance in 2014, turning to slide 6, you’ll see a chart where we highlight our revenue and our adjusted EBITDA for the last, I guess, seven periods, seven year, which is 2008 to 2014, 2008 being the first year after our IPO. And as you can see, significant growth over this period. Revenue has gone from $151 million to $442 million in 2014, adjusted EBITDA of $127 million in 2008 to $357 million in 2014. So significant growth over this period, the company continues to deliver. Just in 2014, in general, revenue was up 10%, despite a 10% decline in the average gold price for the year, which was $1,266 for the average price and adjusted EBITDA also up 10.7% year over year. We put on this red line, the red line depicts the average gold price for each of those periods. As we all know, in the fall of 2011, we hit $1,900 an ounce of gold, which was the highest, but that carried on into the early part of 2012. So in 2012, the average price was actually $1,669, I believe, with $1,266 in 2014. That’s a 24% decrease in average price over that time frame, yet our revenue has remained fairly stable with a significant increase in 2014. So we continue to grow our revenue and adjusted EBITDA even during a low commodity price environment. Turning to slide 7, just in general, in the mining industry, 2014 was again another difficult year from operating companies, maintaining cash or maximizing cash, maximizing returns to the juniors and evolving companies trying to raise capital and just stay afloat. Franco-Nevada was very, very busy. I think in the last few years we’ve been saying that the business development team has been very active and I think 2014 showcase that. A number of significant transactions occurred during the year, the biggest of which was Candelaria, the $648 million stream that we purchased from Lundin Mining on their Chilean property. We committed in excess of $900 million of capital in 2014. I think what’s important to note here is that a number of these transactions were immediately accretive, GEO’s revenue and adjusted EBITDA to the company in 2014. And with the outlay of capital we did do an equity raise in August for $500 million to replenish the balance sheet and at the end of the year we still have in excess of $650 million worth of capital to deploy. Just in general, 2014 performance, obviously a year ago at this time we provided guidance for the year. We provided guidance of 245,000 to 265,000 GEOs. That was using prices of $1,300 gold, for $1,400 platinum and $725 palladium. I’d say the average prices for the year were somewhat close to those prices that we had estimated. Our actual production, excluding Candelaria, was 273,000 GEOs. So we exceeded the guidance that we did provide. When you add in Candelaria, additional 20,000 GEOs, at 293,000 for the full year. On the oil and gas side, we had given a range of $60 million to $70 million in revenue, using a $95 WTI per barrel price for the year. Actual $74 million, so again on the oil and gas revenue side, we also exceeded our guidance. In terms of our GEOs, turning to slide number nine, has a slide bar chart showing our GEO growth for 2010 through to 2014. As you can see, significant growth here as well, 156,000 GEOs in 2010 to 293,000 in 2014, that’s 88% increase over that time frame. If you just compare 2013 to 2014, it’s a 21.5% increase year over year. But more importantly, the actual gold GEOs related to our gold assets is up over 26% during this period. So how did we accomplish this? Obviously, as I mentioned, the business development team has been busy on accretive transactions, Candelaria being the largest. Even though we closed that GEO in November 2014, it was effective July 1. From July 1 to the end of the year, our pivotal production from the property was actually 36,000 GEOs, which was within the range that we provided at the time of doing the transaction of 35,000 to 40,000. However, due to timing towards the end of the year and when shipments were made and payments received by Lundin, the actual amount of GEOs that Franco-Nevada received for the six months was 20,099 GEOs. So that additional difference of 15,000 approximately carries over into 2015. That’s not to say that’s a catch-up payment that is – just particular to 2015, we would expect the same time lag to happen at the end of 2015, so some of the attributable production in 2015 will then move on to 2016. So I would not anticipate what our guidance is and then adding additional 15,000 ounces for Candelaria. One of the other transaction that we did was Teranga with Sabodala, six years of 22,500 gold ounces per year, with the stream on the back end. That deal was effective February of last year, so we received 11 months of fixed ounces, or 20,625. So that added to our growth for 2014. Obviously, Kirkland Lake transaction we completed in 2013 added last year as well as the Fire Creek/Midas transaction, which was just under 6,800 fixed ounces in 2014. Within our existing portfolio, our Canadian NPIs, in particular Hemlo and Musselwhite, did very well for us in 2014 with the weakening Canadian dollar and increased production and cost containment, those NPIs delivered better than what was expected. I would expect the same in 2015. On the downside, two properties in particular, Gold Foray where we do get a minimum, the minimum was lower in 2014, so we were expecting a decrease there year over year and then Palmarejo. Palmarejo we always envision 50,000 ounces, they happen to do significantly better in 2013, not as well in 2014. So there was a downturn on the Palmarejo asset as well. With respect to oil and gas, production levels were pretty constant throughout the year, obviously the impact was on the price drop in the second half of the year. Slide 10 provides a lot of numbers; it’s our financial results across our key metrics. I won’t get into the detail, but what I would like to point out is that we did achieve record on a number of our metrics. GEOs, revenue and adjusted EBITDA for both the quarter and for the full year, again during a lower commodity price environment. So our assets continue to perform well, it showcases the strength of our business model as well as the diversity of the portfolio. Net income for the quarter was $1.2 million. We did book an impairment on one of our assets which I will talk to shortly, but when you do back that out, adjusted net income for the quarter was $31.6 million, just slightly higher than prior year and then on a full year basis basically flat, $137.5 million versus $138.3 million a year ago. In terms of revenue sources, we put up a fourth quarter slide versus a full year slide. We think fourth quarter represents going forward with the addition of Candelaria and the downturn in the oil and gas market, how we envision our commodity mix to be. So for the fourth quarter we were 88% precious metals, with 80% of our revenue coming from the Americas, with Latin America being the largest component there due to the addition of Candelaria. Slide 12 is a waterfall chart showing the movement in our adjusted net income. So as you can see, revenue was up $41.5 million, obviously due to the increased GEOs from the acquisition as well as our existing portfolio, small changes in income tax and other. And then on the cost side, depletion has increased. Our depletion per ounce has increased mainly due to Candelaria and Sabodala and we would expect depletion to continue to be increasing in 2015 due to those assets. And then cost of sales, cost of sales was up year over year. I actually look at cost of sales increase as a positive, cost of sales’ largest component is the $400 per ounce that we pay on our stream ounces. So cost of sales is increasing, that means we’re getting more stream ounces for which we’re paying $400 and then we’re turning around and selling them for a spot price, so it adds to our cash flow and EBITDA. With respect to the impairment mentioned on slide 13, we did book an impairment on our Mine Waste Solutions asset. It’s our one significant asset that does have a cap, the cap is 312,500 ounces. This was an asset that we acquired as part of the Gold Wheaton transaction at the time First Uranium were the operators, two asset company, stressed balance sheet. And so in 2012, AngloGold purchased the asset, stronger operator, bigger company, better operator. And so as part of that transaction, we did agree to put a cap in place with the downturn in the commodity market, in particular gold, as part of our year end process with our auditors. We did do a – booked an impairment on this asset of $26.6 million. We did also book some exploration asset write-downs of $4.5 million, which is just normal house-cleaning as part of our year end process. But I just want to stress, with the impairment in Mine Waste Solutions, there is no impact on our GEOs, our revenue or on EBITDA for 2015. So it’s just a non-cash accounting impairment. Slide 14 shows our high margin and scalability. As you can see, 2010 through to 2014, revenue has increased, yet our cost structure has remained fairly stable. Obviously the variable cost is the stream ounce cost that we incur, which I looked at as a positive, but our fixed costs being our G&A, basically our headcount and running this Toronto office as well as some of our satellite offices remain fairly constant. So I think we can continue to grow this company in terms of assets, cash flow, all metrics, without adding to our cost structure. And with that, I will turn it over to Paul Brink, Senior Vice President, Business Development.

Thanks, Sandip. Good morning. Our business is investing in deposits with good expansion potential. Our philosophy is pay a good price [indiscernible] but be able to participate in the future exploration success. It’s a very long term investment model. What’s important over the long term obviously is minimizing any exposure to cost inflation and also the potential for any encroachments on the deposits. We try and spend as much of our management time as we can on new investments in growing our business and we try to avoid getting involved in any operations. The application of the royalty and streaming financing model is growing broad over time. As you know, our business is buying third party royalties and we continue to do that. And in most years, we add few royalties to our portfolio. The second stream of growth was in streaming and that’s over the base metals streaming, buying precious metal streams coming out of mostly copper assets for ourselves. But then as the gold markets have turned down, we’ve turned to looking to finance gold companies as well, both through royalties and through streams. And there’s been a number of transactions that we’ve done over the last couple of years. But the latest iteration of the model has been in financing M&A, again that’s both through royalties and streams. Triangle is a good example of that, most recent example last year was us financing Lundin, helping them to acquire the Candelaria mine. Just this week Noront announced it’s got an agreement with Cliffs to buy Cliffs’ chromite assets. Those assets have been put a CCAA process, so it does require court approval for the transaction to close and we expect that to happen sometime in the next month. We are financing that transaction, we’re providing a loan to Noront, its $22.5 million, it’s a five-year loan, it accrues interest of 7%. But along with that, we get a number of royalties, the principal royalty there is a 3% royalty on the Black Thor deposit, which is the largest of the chromite deposits. We’re also getting a 2% royalty that covers Noront’s existing properties other than the Eagle deposit. We also get a 2% royalty on some of the other properties that come along with the Cliffs’ acquisition. And actually in that, Cliffs itself had a number of smaller royalties in the region so that actually eight royalties come along with that package that we’ll also be taking on. If you turn to the map here, it’s on page 19, you can see that with this acquisition, Noront really becomes the majority landowner in the whole of the Ring of Fire. And once that loan is repaid to us, what it gives us is a very low cost entry to own a set of royalties that cover the majority of that land position. In total, it covers roughly 1,000 square kilometers and in that what we’ve already got a world-class chromite deposit, the high grade nickel discoveries, we’ve also got VMS discoveries. If all that happen there is the Black Thor deposit got developed along the lines of the Cliffs’ feasibility, the line of mining cash flows that we can get from this is in the order of $0.5 billion to $0.75 billion. So this is an investment that could play out to be something like the next Detour Lake for Franco-Nevada. We understand fully the timeframe that it’s going to take to develop those deposits, both in terms of getting the first nation support and also in terms of getting the government support, the infrastructure in place, but we think that we are one of the very few investors that has got the ability and also the patience to wait out that timeframe to reap what we think will be very big rewards of the long term. Over and above that, and in the words of Kerry Sparkes, he looked at this and he said, great count, don’t reveal all of their riches in the first round of exploration and that really is all that the Ring of Fire have seen. And so we expect that this count, as is more exploration is going to reveal a lot more, we’re particularly excited about the potential for additional nickel discoveries, but also discoveries in other minerals. We have a good amount of capital available for future acquisitions. The market remains very good for acquisitions. We are seeing a number of opportunities, those have a couple of different types. One is companies still looking to develop new mines. The second area is companies looking to deleverage the balance sheets and the third is, as we’ve been speaking about, companies looking to do M&A, but need the financing to do that and are looking to use streams for that financing. We are seeing opportunities across all the commodities and good opportunities in precious metals. We are seeing opportunities in other minerals, and in particular seeing good opportunities in oil and gas. So with that, I’ll turn it over to Geoff.

Thank you, Paul, and good morning. Turning to slide 22, what we are showing here is how our oil and gas portfolio has performed relative to oil prices. You also see the impact at our Weyburn NRI acquisition in late 2012 has had. And as noted before, we’ve had a very good year in 2014 for the oil and gas portfolio. Not unexpectedly, 2015, expectations aren’t that high. We’ve averaged above $48 WTI through to date and our forecast, our guidance for 2015 on oil and gas is $20 million to $30 million, that’s using a $50 WTI oil price, $7 differential and an $0.80 Canadian dollar. I’ve noted on the bottom of the slide the sensitivities, so a 10% increase in oil price, expecting about 25% change in revenues and for a 10% change in the Canadian dollar, about 6% change in revenues. Slide 23, we’re showing what our expected revenue mix will be in 2015 based on $50 oil price and a $1,200 per ounce gold price. As you can see, precious metals is making up 93% of that revenue mix. And if we go by our 80-20 precious-non precious metals revenue guideline, you can see we do have some opportunities to the oil and gas side. With that I would like to turn it over to Kerry Sparkes, Franco’s Vice President of Geology.

Thank you, Geoff. Good morning everyone. It’s a pleasure to be speaking to you today. For those of you that are in the room, this is our 2015 handbook, hot off the press. It is the fourth consecutive year that we’ve provided the handbook and it’s designed to assist both investors and analysts in their understanding of the business and portfolio assets. The book provides details on individual assets, such as location of projects, associated resources and reserves, royalty equivalent units, oil and gas, and additional corporate information. I encourage you to take a copy when you leave or download it from the website, it is a real resource and has become a mainstay of our business. Moving to slide 26, this slide shows the year over year growth in our gold reserves on properties where we have royalties or streams. These are the operators’ reserves and are not our attributable share, but it does provide a good measure of the overall growth of the portfolio. Despite, I quote, declining gold price environment, we continue to see growth and this is clearly a good measure of the quality of our asset base and our ability to replace declining assets with new acquisitions. The result being a 1.2% increase in gold reserves whereas the majority of the industry is suffering from a decline in reserves. Moving to slide 27, this slide shows the total resources attributable to the companies associated with FNV assets. On a year over year basis, we are now starting to see a decline in all categories. There’s roughly a 6% decline in M&I and a 10% decline in inferred resources and somewhat tempered by the positive impact of our new acquisitions. The reasons are mainly due to a number of factors, including conversion to reserves, cut off rate changes due to the declining gold price and to an overall decline in exploration drilling to replace those resources. Moving to slide 28, with respect to the positive additions for Franco in 2014, we had new assets such as Candelaria making a significant impact on our resources and reserve growth. Other notable assets with solid resource and reserve growth included Fire Creek and Hardrock. And we saw the conversion of M&I to P&P for the first time as a result of the completion of the pre-feasibility by Midas Gold on their Stibnite Gold project, formerly the Gold of Midas project. On the downside, we saw some reserves moving back into the resource category and some assets in decline. Moving to slide 29, talk a little bit about our royalty equivalent units, royalty equivalent units were introduced to provide a specific measure of Franco’s interest in reserves and resources within the royalty portfolio as not all of our assets cover the entire property associated with operators publicly stated reserves and resources. The REU helps reflect the differing economics between NSRs, NPIs and streams and they all get normalized to an NSR equivalent. It’s a way to estimate the portion of ounces covered by our royalties and having a common basis for that comparison. It does have its limitations though and I would strongly refer you to the asset handbook for a clear understanding of the REU. Let’s move to my final slide, slide 30, despite declining gold price environment, we are seeing stability and a moderate growth in the areas that count for us. The 4% increase in REUs, the 10.6 million ounces in the M&I and P&P categories, which were principally driven by the new acquisitions of quality projects like Candelaria and overall solid asset base with important existing assets like Sabodala and Fire Creek. Thank you. And with that, I’ll hand the presentation over to David Harquail, President and CEO of Franco-Nevada, who will talk about our outlook for 2015.

Thank you, Kerry. It’s a pleasure to be hosting investor day and we’re just talking a little before that everybody does an investor day and I think what’s really different about us is this is more of an asset handbook rollout date, we do a lot of work on it and I think we’ll be calling that in the future as it reflects something naturally different about our company. Also, I think what stands out in the presentation today is two things in my mind, one we continue to meet or exceed guidance, great pleasure that we significantly exceeded guidance in 2014. I don’t believe we’ve never met – any year we’ve never met or been short of our guidance. I think on average, we generally exceeded guidance. I am pleased about that. And the second thing is what just Kerry demonstrated, we have good stability in terms of the reserve, ounces associated with our properties and the REUs in our portfolio, despite a very tough gold market in the last three years. So those give me great pleasure. So I’m going to speak about the outlook for the company and of course one of the big drivers for outlook is Cobre Panama. And I was just at site couple of weeks ago and I took my some terrible photos on my cell phone and so what I wanted to do is just show you a few things that are happening at site right now. And what you can see is actually on the first picture is the port, the facility is fully functional now, they’re actually delivering equipment to the port through the ore facilities. They jetty is not in yet for loading concentrates and coal outcome out here, but that’s going to come in shortly. And in terms of construction at the port site itself, you can now see the foundations are going into place for the power plant, first two trains of power plant and if your eyes are really good, you can see the layout now for the concentrate storage building and also the first turbine on the property. They are seen there, of course, little too early as you don’t have the scale up, but you can also see a lot of the piping and steel is already rise in the property waiting for assembly. So we expect to see steel going up in the next few weeks. Looking very active at site, I’m very pleased about that. On the bottom picture, you can see the man camp for running the power plant and the construction. That’s fully functional now. And below you can see the road leading out. The road now is complete between the port and the mine site and you see a lot of traffic going up and down on the road there. And the final site is there’s not a lot of mining happening yet, they just got a lot of quarries. And I thought this one was representative because of the Botija quarry [indiscernible] and actually that’s going to be part of the first big pit First Quantum mine and that’s the Botija pit and it’s right next to the mill that’s been constructed. So in terms of what I was mostly focused on was the mill itself and seeing how that was progressing. And in the center you see on slide is a 3D screen graph of what First Quantum is developing in terms of the configuration for the mill. And what you can see is the stockpile reclaim with the reclaim tunnels going underneath and you see three feeding lines going into three separate sag mills. And alongside, you can see two bar mills that will be doing the secondary grinding after that. And then here is the expansion capacity for additional bar mills down the road. And what I want to do is, okay, that’s great envision, but is that happening in real life. And what I did, I took a couple of snapshots from different angles to show. And what you see here is the foundations for the second sag mill right here looking across where you can see the slots coming out of the reclaim lines. And here you can just see a different angle looking at the first sag mill foundation and then here you can see looking down south along the whole set of foundations, a lot of concrete is being poured right now. And you can see it’s on very good solid rock, looks – there’s no shortage of quality rock right now and cement making capabilities. But to me most important is the aerial view. And what you can see is just the pictures we are looking down here and you can see the slots coming into place here, we didn’t have put the linings in one of them yet, but there’s all three of them that are being developed. Most important, look at here, you can see all the structural steels now laid out for the mill construction and so it’s going to be going up very fast now at the stage as well. So very pleased with what we’re seeing at site. So in terms of – we’re getting close the First Quantum, where it is a big commitment for us, it’s $1 billion, there’s been a lot of changes to the project. We’ve had very constructive discussions a lot more than happened in the last few months with First Quantum and I believe we are very close in terms of making our first funding to the project, we fully expect to commit between $300 million to $350 million to this project this year. So we think it’s a very important asset for our growth profile going forward. In terms of the expected changes on slide number 34, these are the sort of the major changes that were expecting. And as you have gotten the message, Candelaria is going to be a big contributor for us in 2015, but of course is a big offset with lower oil prices. And for the rest of our portfolio, I’m not going to belabor them, there’s lot of smaller upsides and downsides, but generally overall the GEO upside are a lot more positive than the downside. So it’s how we arrive to our numbers. And when we take everything and add it all up, we’ve given these guidance numbers in our press release, but were expecting about an 18% increase in our GEO guidance in 2015, about almost $50 million decrease in our oil and gas revenues. As I’ve already mentioned, we expect to be funding Cobre Panama between $300 million and $350 million. Now, one thing you should note is that the GEO range we’re providing has a lot of downside protection. Over a quarter of this year’s GEO ounces are coming from prescribed ounce delivery project. And these include Palmarejo, Sabodala, Gold Quarry, Fire Creek mines. I think it’s easier for us to forecast our projections for a lot of our companies. You might also want to note our sensitivity. At these price levels, our sensitivity total 1% change in the gold price, it’s about 1.1% to our revenues and about 1.4% to our EBITDA. Finally, our oil and gas guidance reflects our expectation that the first quarter NRI from Weyburn will be lower than usual and that’s reflecting some carryover capital spending that wasn’t done in 2014, that’s being done in the first quarter this year. So you will see the first quarter number, but it’s not going to be representative of what the rest of year looks like. So we expect subsequent quarters to be better. On slide 36, we’ve done the same exercise just extrapolating for five-year outlook, so essentially we are taking a snapshot of the year 2019. We expect our GEOs to grow further, we’ve listed here the major behind this outlook. I think we’ve been conservative as to which projects should be part of our production profile in the next year, so we’ve not included any unpermitted projects such as Rosemont. On oil and gas, we’re assuming that oil prices will recover and we cannot talk about it, but we’re seeing $5 per year of oil price increases over the next five years, maybe we’ll get back to $75 oil by 2019 and that’s how we’ve arrived at the $75 oil price in 2019 and there we’re projecting $50 million to $60 million of revenues from our oil and gas division. And then by 2019, we expect we’ll committed $1 billion for the Cobre Panama project. And under our projections, we can continue to pay our dividends and financial commitment to Cobre Panama and not touch our revolvers. Sorry to disappoint our bankers. We expect to remain debt free. On slide 37, there’s some list of other portfolio potential that is not being included in any of our outlook projections. We’re seeing a lot of positive developments and exploration results. We are also very hopeful in a number of our permitting situations. We also think some of our existing products has good leverage for expansion if oil prices come back up. But again, we’ll let the upside to take care of themselves and I think what we want to do is have a very realistic outlook that you can hang your hat on. All these assets are bought and paid for and they’re not costing us any money or time. We believe there are enough good things happening on our portfolio that will be able to add a good number of these projects to our future outlook projections. And then on slide 38, I take great pride being part of a company that can differentiate itself by continuing to grow dividends. 2014, we paid a record $117 million in dividends, including our DRIP. In 2015, we’ll be increasing our per share dividend and this is our eighth consecutive year of dividend increases. I would like to remind investors the power of our growing dividends, sometimes some people say 1.7% dividend yield is not high enough. But anyone who bought Franco-Nevada at our IPO is now getting the benefit of 7% yield on cost base is. I think that’s pretty good for a gold investment. And then on slide 39, it’s just our metrics over the last seven years and despite a global financial crisis now with their markets for gold operating companies, we’ve been able to grow our business throughout. I believe these results are evident that we have a very robust business model and portfolio. And then finally on slide 40, what differentiates Franco-Nevada, and I think there’s four categories. I believe I’ve got a dream board of some of the most knowledgeable resource investors and we’ve got over $200 million personally invested in this company, so we think like owners. Also, our executive team is one of the hardest working and most focused as any out there. We’re operating a larger and more diversified portfolio, yet we are doing with lower absolute G&A compared to comparable companies. We’ve been the most active as well in 2014 doing the most transactions and I think we’re probably the most active as anyone I could think of in the mining business. And three is our business model, differentiated, we have focused on the exploration potential on properties we think that’s where the most wealth is created. We’re not financial engineers, we have – also we operate with no debt and we believe there is enough leverage in this business just from the commodity cycle rather than the leverage in the balance sheet. And we also believe, as we’ve shown, sustainable and progressive dividends and delivering on that front. And finally our portfolio, as I mentioned, is the most diversified by number, type, commodity with the largest acquisition. In terms of board, I mentioned we are adding a new member to our board, Catharine Farrow has actually joined us today and should be hopefully the shareholders will vote for her nomination in our May meeting. So we’ll find out shortly. We got to know Catharine because she impressed when we were doing due diligence on a gold week in February and I think we talked about trying to hire her as our technical VP. She wouldn’t go for it. Now, she is ended up as CEO of TMAC Resources, doing very well there. But we’ve also involved her in a number of due diligence projects, because we were impressed by her capabilities and so we thought this is a wonderful way to have her talents without paying her and Catharine welcome on board. We have very hard working directors, we have the same thing with Louis Gignac on our board and Graham Farquharson, they got the best advice and we actually don’t have to pay consulting fees. So looking forward to that. And on slide 41, I’ll just finish with our standard marketing slide and just showing you our performance since our IPO relative to gold and gold equities. I’m proud of our management team and that we’ve been able to create real value for shareholders. From our IPO to date, we’ve now delivered a compounded annual growth rate to investors over 19%. I believe we have a business model that can continue to provide investors with good returns with yield and an alpha to gold and we want Franco-Nevada to continue to be the gold investment that works. And with that, I think the management team is going to be very happy to take your questions. I think we have done investor day in a record amount of time compared to other companies. So we want to really give a lot of space for the Q&A. Very little G&A, lots of Q&A. And what we would do we got actually a number of visitors in our boardroom, so what we’re going to do is take any questions in our boardroom from our visitors and then operator will move to Q&A on the outside. So I think right now if there is – Stefan has a microphone, if you can just say who you are and we’ll take your question, but we’ll broadcast it for our listeners as well on the conference line.

Geoff had mentioned in his presentation the scope for additional oil and gas to keep at the 80-20 ratio. What are you seeing the market like at the moment for opportunities for you in that space?

It’s a very interesting market, because if you recall, our problem, if you recall early last year as our oil and gas was getting too big and I know we talked to the market we might take some of our non-core assets as we’re very impressed with the success of PrairieSky and the valuations I get. We had a number of non-core shorter duration assets that we thought once the market is willing to pay that, maybe we will – we should just re-optimize our portfolio and get our precious metals percentage back up. Of course, the oil price has now corrected those balances, but we never managed to sell during the declining oil price with non-core assets. But we still believe oil and gas is actually a nice compliment to our portfolio. One of the things we think about is oil and gas division historically has actually been there to pay our overhead, pay our cash taxes. So all of those REUs for gold is essentially our investors get for free. And so we think it’s a wonderful time and I think what happen is the PrairieSky success story, that IPO actually got everybody else to dust off their royalty portfolios, they were all thinking of doing IPO, but I think now what’s happened is not realistic, but those are the first assets they want to sell right now. And so there is actually been a number of practices that have come to market recently, of course that were the first call because it seem to have the biggest check book and we are looking at these assets, we want to stay disciplined and stay within the 20-80 rule, but magically we have some capacity to do some transactions right now. So we are communicating we are interested, but we are still going to be 80% precious metals. Any other questions in the room here? Think about it, what we could do, operator, if you could open it up to anyone on the line there that has questions on the conference call?

[Operator Instructions] And we have no questions at this time. I turn the call over to the presenters.

Thank you very much, operator. So we will take questions right here.

On the $300 million to $350 million for Cobre Panama, will that include any catch up payment for spending over $1 billion by First Quantum in 2014?

Yes, it would. So we would expect $200 million roughly for catch up payments from once they did reach that threshold above and beyond and we’ve guided $600 million is their spend [indiscernible]. So $120 million for this year’s spending. So between the two, it’s between $300 million to $350 million.

Just a question on Candelaria, are there any further updates after the press release of last night on the condition of the pit at Candelaria?

Stephen, we have had nothing since then, so we just got notice to say they are in a suspended state temporarily and as soon as they can address the issues, they will have the operation.

I have to say it’s a bit ironic, the Atacama Desert is the driest place on earth, now the problem is too much water and that Cobre Panama has way too much rain. So we could average out these two projects, it would be wonderful, so a bit ironic.

Just wanted to get maybe some more insight into the transition at Palmarejo into Guadalupe I guess into mid 2016 and beyond. What are the ounces – early expectation there, what you see on an annualized basis?

I’m going to ask Kerry Sparkes with this property, but just so you remember, our transaction had a minimum 50,000 ounces per year until they paid us 400,000 ounces. We think that’s going to go to about mid 2016 and at that point we’ll hit the 400,000 cap and then it switches over to the Guadalupe operation. And actually I think Kerry can talk about it, we’ve been actually very impressed in terms of the additional resources and drilling that’s been happening at Guadalupe. When we first did our transaction, we estimated what was our return for incremental $22 million, we think it’s going to be a better return than we first estimated. And in terms of the volumes, we’re expecting the second half of 2016, I think it’s on average about 20,000 ounces or GEOs net to us on average for about five years afterwards. So it is quite a step down, but we’ve incorporated it in our outlook. We actually see from 50,000 to about 20,000 on average, plus Palmarejo. So it’s going to become an average asset for us going forward. And I think before some investors don’t know Palmarejo is our biggest cash flow generator, it’s risky, but we fixed that problem.

Maybe Dave and Paul, can you maybe talk in big picture about the strategy of these very large transactions you’ve done? How satisfied are you at this point, judging from the number of pictures you took Dave, you must be pretty happy so far, but maybe talk about as you look at what you’ve accomplished and where it’s going, how is that strategy working out, how frequently we expect to follow that or do you expect to, you combine awful lot of small royalties to that kind of price?

Overall, I’d say our strategy – as you’d see, we’re involved both in very large streaming transactions as well as smaller royalty transactions and we like it that way. In a way, it’s a bit of a barbell approach, the bigger transactions can give us exposure to larger operations, in the case of Cobre Panama, something that will have a lifespan that will be 35 to 50 years, in the case of Candelaria very well proven mine where we get a very stable stream of cash flow that will be in the order of 15, hopefully 20, 25 years. On the other hand, we invest in smaller properties that at the outset don’t have that sort of certainly production or life. But at the end of the day those are the ones that can [indiscernible] and as you well know and the Franco story is be the gold strikes, be in the Detours, hopefully it will be a [indiscernible] where we’ve made investments, very little money down that ultimately end up being in the order of $0.5 billion, or $1 billion worth revenue. So we found that we can get often lot more from smaller investments, but also want to make sure that we deliver to our shareholders a very stable and predictable portfolio. And we can bring some of that with the bigger investments. So as we look forward, we’re open to doing both and in an ideal world, if we’re able to do some of each, we’d be very happy.

And I will add to it, we have the discussion, we sit down there and I got – a peer called me just a month ago, since we bought a royalty for $50,000, but my nightmare is we have this debate all the time, we’ve gotten so big now that we wouldn’t buy the next gold strike well, I recognize that opportunity. And that something that at our heart, that’s our souls are still exploration, we just think we have a business model we can make money out of exploration where we are doing it. And so we’ve got, I think we build our port capacity so we can execute in parallel multiple deals. We have a fellow in Australia that’s good in executing transactions, in Toronto we have an oil and gas piece, we have Paul leading essentially the big transactions team and I’m the gig doing all the little small stuff. And so what I want to do is I’ve got a picture of Ed Hart when he was prospecting for the Horn ore body. He has got his eyes out there looking for the El Croc alongside of the river, paddling away and what I want to do is make sure we don’t miss that next big one because we’re so distracted just trying to buy cash flow. And so, we’re adding royalties, I know if you’re noticed on the Ring of Fire not only to begin royalty on the Ring of Fire, we got eight other royalties, they came from [indiscernible]. So I was just talking to Mac and Clarence stream and these other ones, all follow this story and I’ve got a piece of each of those now. And so you’ll see our count now, just gone up by another nine royalties once we close another, and we’ll be up to 168 royalties. Just remember, total mining assets will be up to 265 mining assets, remember when we became public in 2007, we only had a 176 mining assets. I think we’re progressively adding assets, we don’t put out lot of commentary on really small stuff, but I think what we are doing is we are always increasing potential for upsides in the future. I tell you we get our biggest scores out of the small stuff.

David, if it’s okay I’ve got two questions on the outlook for 2015, one for Sandip and the other one for Geoff. Sandip, good guidance there on what you expect on the revenue side of things from your gold, can you give us some idea what you expect for depreciation and tax rate in 2015?

So tax rate, I would expect it to decline just because of Candelaria and we have structured that to Barbados, so I would model 25% to 26% as an effective tax rate. As for depletion, obviously there will be an increase just because of the Candelaria and per ounce. At this stage, I don’t want to give a range, but we did $163 million in 2014. I would see it in excess of $200 million for 2015.

And the other one for Geoff, if it’s okay, guiding down on the oil revenue, now obviously part of that is going to be the oil price, but is there any shutting of production that you are seeing or is it a combination of shutting of production and also some more weighting of costs coming through our lower contribution from the NPIs?

You’ve got that right. The production, we don’t see any shutting so far and on the NPI and NRI, it’s those costs coming through.

[indiscernible] Asset Management. Given that you seem to be obviously very excited about opportunities in oil and gas, I was just wondering if you comment on your views about oil and gas prices where you see the commodity going versus other commodities.

We can’t, I guess the hardest part is how you value the assets going longer term. And I think you’ve seen what we’re putting out for five years from now, the $75, kind of thinking is a reasonable longer-term projection if we’re going to have to assess assets. But I think everyone is kind of in an accepting mode now the next few years is going to be no major catalyst for the oil price, that’s reflecting in our guidance for this year. But I can’t offer you any more wisdom, I don’t think Geoff can either in terms of market. We have Derek Evans in our board and also Tom Albanese with Vedanta, and they’re both going through the same issue with their own planning and how do they value that and they have to look at impediments too, with what do you tell your auditors you’re going to say it’s the longer term oil and gas prices do you think and what’s the right valuation for your assets in the longer term. So we had a very good discussion during our audit committee meeting two days ago, and I think they are no closer to any clarity on that subject. So we’re just guessing right now.

Just to follow up on that tax question Sandip, did you say 25% to 26%, or?

Yeah, 25%, 26%, I think our effective tax rate normalized if you back out the impairment for 2014 it was 28%, with Candelaria within the Barbados structure, it should come down a little bit. And would that tax rate approximately the cash tax, cash tax will be much lower. In 2014, our cash taxes were $22 million, but $45 million the year before, we had some refunds last year. I would expect $40 million to $45 million in cash tax for 2015.

And then just a question, this might be for Lloyd on the Karma project, could you just talk about the type of security you have in that agreement again, just a refresher?

So we have a very full security back for that transaction from the subs all the way down to the asset level, we’ve got share pledges and the natural asset level security. So the asset level security will be in Burkina Faso, so it’d be local governing there and then the change is going to be with the subs in the various jurisdictions there.

Delighted with that question, because Lloyd was the most shy of my executives, he didn’t want to participate today, so yes, we got him on the speaker phone today.

Just on the write-down at the adjustments impairment at Mine Waste Solutions, can you talk a little bit about is that a rand, driven by the stronger rand, driven by operating issues, what was the driver there?

Yes, under accounting rules, you have a trigger and so you’ve seen operators take write-downs based upon the decrease in the gold price over the last 2 to 3 years, we don’t take that view because we do have optionality in that the additional ounces found on properties we’re not paying for. So we can always put a multiplier on our NAVs and our book values, the NAVs are higher. With Mine Waste Solutions, because there is a cap of 312,500 that optionality does not exist there. So with the depressed gold price environment that was the trigger for us that we did have to go through and exercise. So it’s steady state, 25,000 roughly per year production GEOs to us. So when you run that out, it just worked out to $26.6 million impairment that we’ll be recording. But operationally, it’s working fine.

And if you remember originally that was Gold Wheaton asset, it was only dependent on the First Uranium dump there and I think what we’ve had now is a much more steady operation, because AngloGold is now producing also from their dump, some of them actually is better quality than the First Uranium. And so we’ve had a much more dependable throughput, we’ve been actually pleased, Paul is just visiting there. And I think it was the right call for us, the only way we could actually apply a royalty on Anglo’s dump was with that cap. And I think it’s been the right call for the company.

Question probably for Sandip, on Candelaria, the time lag, how is it a specific amount and would you expect close with the issues with rail?

So for the six months, our share of production was as I said 36,000 GEOs. We received a portion of that, so anything from say mid November onwards selling to January in terms of ounces. So we perceive those ounces, but then I would expect the same thing at the end of this year, say for mid November, any concentrate shipped we’re not getting it paid, so 2016. As for the rain, as Paul said, we don’t have any insight as to how long it’s going to be shutdown, what’s going to happen.

[indiscernible]

So the timeframe in terms of from when Lundin records sales and ships to when we get paid is anywhere from 45 days to 60 days.

Any other questions? I think just one more, operator, if you could just check again if there’s anybody on the line and otherwise we’ll wrap up our investor day and we’ve done it in just under an hour?

[Operator Instructions] And we have no questions over the phone line at this time.

Thank you, operator. So I think last call, any questions in this room? Otherwise, what I would like to do is don’t forget your asset handbooks. Of course, Stefan has lost a lot of sleep in the last two weeks to try to put this out on a timely basis for you. And if anyone on the line, please just email us at info@franco-nevada.com and we’ll send you, be happy to post a copy to you. We’ll be releasing our first quarter results after the market close on May 6 as well as hosting our annual general meeting, so come out and vote for Catharine, the new director. And we look forward to seeing you there. Thank you. Please come and join us for some refreshments.

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