Franco-Nevada Corporation (FNV) Q4 2015 Earnings Report, Transcript and Summary

Good morning. My name is Chris and I will be your conference operator today. At this time, I would like to welcome everyone to the Franco-Nevada Corporation Fourth Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Stefan Axell, you may begin your conference.

Thank you, Operator. Good morning, everyone. Thank you for joining us this morning either in person or over the phone to discuss Franco-Nevada's 2015 results. Today’s call will be a little bit longer than usual as we have other items to discuss. 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 an updated edition of our asset handbook. We'd like to remind participants that some of today's commentary may contain forward looking information, and refer you to a detailed note on Slide 2 of our presentation. We have our entire executive management team here participating during the call, as well as Jason O'Connell, who will highlight our oil and gas interest, as well as Phil Wilson, who will discuss on the changes to our portfolio year-over-year. I'll now turn the call over to Sandip Rana to discuss our 2015 result.

Thank you, Stefan. Good morning everyone. Before I get into the numbers, I just want to look back at 2015 as a whole for the mining and energy sector. And if you'd look at the mining and energy sector for 2015, you'd have seen continued volatility in commodity prices, liquidity issues with some companies, the pressure prices and just an overall negative sentiment for the sector as a whole. But I think what 2015 showcased for Franco-Nevada was the strength of our business model, the quality, the diversity of our asset base, the strength of our balance sheet. I think that is reflected in the number of GEOs that the company earned during the fourth quarter as well as for the full year 2015. If you turn to Slide 6, you will see our performance compared to our guidance that was given a year ago. We had guided the street to 335,000 to 355,000 GEOs for the full year. This used pricing of $1,200 gold, $1,200 platinum, and $750 palladium per ounce. As you know, prices did a bit lower than this. And if you exclude the Antamina acquisition, we did come in at the top half of the range, 347,000 GEOs to our account for the full year. When Antamina is included, we surpass 360,000 GEOs for the full year. So performance was very, very good. On the oil and gas side, we had guided $20 million to $30 million in revenue for the full year. Again, we came in at the higher end of the range, $28 million to our account in revenue for the full year for oil and gas. As you turn to Slide 7, we highlight the GEOs that we’ve received over the last 5 years. And as you compare it to 2011, we had approximately 230,000 GEOs to Franco-Nevada. And if comparing that to the 360,000 that we received for the full year 2015, that’s an excess of 50% increase to our account. What I would like to point out is that the number of gold ounces that we actually received in 2015 is higher than all of the precious metal ounces that we received in 2014. So significant growth with respect to our gold ounces and as you can see from the chart on Slide 7, the silver component has increased significantly as well obviously due to Candelaria and Antamina. And year-over-year, 22.7% increase in GEOs. In terms of where the movement was with respect to our GEOs, Slide 8 highlights it through this waterfall chart. As you can see, GEOs did increase from 293,000 to just over 360,000 for the year. On the negative side, you can see that our PGM asset did deliver less. It’s a combination of two things, one being lower production but more importantly, the impact of the lower platinum and palladium prices. When converting that revenue to GEOs, the ratio of platinum palladium to gold price did decrease resulting in less GEOs to our account. But this was more than offset by the additional ounces we received from Antamina. Antamina delivered an excess of a million ounces of silver to Franco-Nevada in Q4, this equated to just over 13,000 GEOs. And we received the benefit of a full year of Candeleria which in excess of 66,000 GEOs to our account in 2015. So our assets performed well. The new acquisitions performed well. Our GEOs increased significantly, but the impact on our financial performance was not as strong, and this is due to the continued weak commodity prices. Turning to Slide 9, you can see we highlight the changes year-over-year for both the fourth quarter 2015, as well as the full year 2015. And you can see that they are all on the downside, the largest being obviously oil which decreased significantly 30% for the quarter and just under 40% for the full year. I guess one positive is that the first quarter of 2016 has shown some positive momentum with respect to commodity prices so we hope that does continue. Slide 10 breaks down our revenue between precious metals and oil and gas. On the revenue side, 2015 was the first year that we surpassed $400 million dollars in precious metals revenue. Despite the downtrend in the gold price which is highlighted by the black line on the charts. To put it in perspective, in 2011 if you were to take that average price of gold and apply it to the GEO's that we earned in 2015, we would have recorded an excessive $550 million in precious metals revenue in 2015. As mentioned, oil and gas - the oil price decreased significantly in the year which did impact our oil and gas revenue and we had it drop from $73.9 million to $28 million in the year. Slide 11 shows highlights of the key financial metrics for the company. I'm not going to get into the details, but there is a few numbers I would like to highlight obviously the gold equivalent ounces, which we are putting in our square boxes, both records for the company for the fourth quarter as well as for full year; approximately 15% increase for the quarter year-over-year and approximately 23% year-over-year increase for the full year. You will notice that we did record a net loss for the quarter of $31.4 million. This was due to some impairments that were recorded on some oil and gas assets, as well as one mineral royalty asset. I will talk to those impairment shortly. Two other items I would like to mention, one being our corporate G&A. Our corporate G&A for the year was $18 million approximately that compares to $15 million back in 2008, so not a significant increase. But our revenue over that timeframe has gone from $150 million to $450 million approximately. So it just shows you the scalability of our business and how we can grow this business without adding significant cost base. Secondly, as you know we did draw it down on our credit facility in 2015. At the end of the year, we did have $460 million in debt. We have paid off $230 million of that. So as of today, we still have $230 million of debt drawn under the facility. It is our intention to pay this off prior to March 31. So as of March 31, we will have a debt-free balance sheet again. Turning to Slide 12. It's a waterfall chart, which highlights the change in adjusted net income from 2014 through to 2015. The largest components being an increase in depletion and as we buy more streams, the larger dollar value transactions that we have been doing, our depletion will increase and it did go up $47.8 million during the year. Our cost of sales also did increase during the year. I look at an increasing cost of sales as a good thing. The largest component is the stream cost where we pay the ongoing payment per ounce. There's two types. Obviously, there is the fixed where we pay $400 per ounce for gold and $6 per ounce for silver; and there is the one where it's percentage of spot price. So if this number is increasing, it means one of two things, either commodity prices are rising or that we are being delivered more stream ounces. So I actually consider it a good thing if cost of sales is increasing for the company. Those negatives were partially offset by lower income tax expense due to the lower taxable income. Slide 13 breaks out the revenue sources for the company by commodity in geography. For the quarter, 95% of our revenue was generated by precious metals with 84% coming from the Americas. If you recall in mid 2014, we had less than 80% of our revenue coming from precious metals. As you can see, we are over 90% now. Two components, one being obviously lower oil and gas revenue, which makes up 3% of our revenue for Q4, but more importantly is the addition of Antamina and Candelaria additional in our precious metal assets. Slide 14 just summarizes the impairments that we did record. On the oil and gas side, $51.4 million impairment take-in predominantly related to the Weyburn Unit and Midale units. We do have some small royalties there, but the largest components are working interest as well as NRI royalty at Weyburn. The lower oil price does have a larger impact on the economics than a typical royalty does. As a result, we did record the impairment. The asset themselves are still performing very, very well. We also recorded an impairment on our Phoenix royalty that is held by - the property held by Rubicon minerals for $11.4 million. As you know, Rubicon did reduce its resources on the property by in excess of 90%. We hold a 2% royalty here, which we bought a few years ago. Our royalty is on title. So whenever this deposit is mind whether it's Rubicon minerals or some other operator, our royalty will be paid and we will collect our royalty payments. So it's just a question of time. I would like to point out that there is no impact on 2016 revenue or adjusted EBITDA by recording these impairments. And again Slide 15, I would just like to again stress the scalability of our business; our fixed costs, which is our corporate G&A highlighted in the blue continues to remain fairly stable; stream costs are increasing, but as I mentioned it's not necessarily a negative. And our revenue has remained stable despite the reducing gold price over this timeframe. Margin is still in excess of 75%. So we think we can add more assets and grow our business without adding significant headcount or cost to the company. And with that, I will turn it over to Paul Brink, Senior Vice President, Business Development.

Thanks Sandip. Good morning, everybody. We have been on a journey in Franco-Nevada and none of us could have imagined how it was going to unfold and certainly not how much it was going to grow. As you well know in the old Franco, the principal business was buying third-party royalties and we keep doing that business. Cerro Moro, Brucejack, Hardrock are some examples of assets we've invested in that are advancing towards production. We then got into the business of doing strange and financing new minds into production. That started off with byproduct financing, Cobre Panama is good example. But then we added on to that being able to finance new gold mines and commerce that has being advanced by True Gold is one of those. Then we got involved in M&A. We helped in particular Lundin acquire Candelaria, and then most recently have helped Teck and also Glencore in recapitalizing the companies and have been able to get streams on assets like Antamina and Antapaccay. In the last few years, we have been able to invest in what we believe will be four of the world's top 20 copper mines. First of these was Cobre Panama. It's a development project. Once it's in production its' an asset that will generate streams for us over 30 to 40 years. More recently though we have been able to invest in not only in top tier assets but in operating assets. It's an opportunity we never imagined that we would have. These are assets that have got proven operating parameters low-costs and importantly in doing the transactions we are able to get cash flow immediately from them. To add on top of that when you look at these assets, long life of these assets gives us tremendous option on the gold price. And there is great exploration upside already on Candelaria, Lundin is a great success in exploring the underground there. And on Antapaccay and Antamina, they are both on huge property positions. Extremely prolific trends and both of them you already see they've got big targets that are on their properties. To quantify the impact of these investments on our company, if you take our base ounces prior to doing that its 237,000 ounces or 273,000 GEOs. The added GEOs just from those four transactions is just over 260,000 GEOs. So we are roughly able to double amount of GEOs that we had with these transactions. The total cost for us in doing that is $2.76 billion. Slide 20 has got a summary of some of the recent portfolio news. In this downturn, there hasn't been a lot of exploration activity, but we have still seen good exploration success on the number of properties that we got royalties on. I'll just touch on a couple one of them that's been exciting has been Lake Shore's discovery of the 144 GAP zone. It's a zone that's going to add that to the mine life of that asset very meaningfully. But we think it's one of many of those type of deposits. The Lake Shore will be able to find on what they have a very big property position in the tenants camp. And we think Tahoe probably has a very similar view to us. The second that will be particularly meaningful to us has been the discovery of West Detour by Detour Gold. With that they have recently been able to put out there revised mine plan that extends the mining there out 23 years. That's been a great catalyst for their share price, and we hope to see it a bit of that trickle through to ours. Fewer new mines are being built in this environment, but we have seen a good amount of ground field activity on assets. We are looking forward this year to couple of events. New mine should be making a decision on Subika and that's both the middle expansion plus potentially the Subika underground. Also Kinross has been studying the expansion of Tasiast to face the expansion first part smaller, but possibly a second expansion that would take up to the 38,000 tons per day. If that happens, Tasiast will be a very meaningful contributor to our portfolio. With time royalty and streaming financing has proven out to be very effective financing tool. This is a chart I saw recently that actually came out of Scotiabank Equity Research. Thank you, Tanya. It covers the -- and what it is, it's the chart of the Intermediate and the junior goals and really was just saying what -- who were the top performers of 2015. I was really thrilled in seeing the least in that. If you look at the top five there for those companies that we have overtime financed through royalties and streams, Detour Gold, Klondex, Kirkland Lake and Lake Shore gold. The fifth one there, Premier Gold, we didn't actually financed them; we bought a third-party royalty on their property. On a slightly different note with the bump up in the gold price, which seem the first round of M&A financing. And again companies that we have done royalties and streams on have proven to be attractive targets. So we have seen St. Andrews been acquired by Kirkland lake. Lake Shore has been acquired by Tahoe and now just recently True Gold has agreed with Endeavour and had transaction with them. So royalties as a financing model, they are more flexible in debt. They are less dilutive than equity. It is a financing model that is working for our partners and that really is what's driving the growth of our company. Turing to available capital on Slide 22. We have always managed on balance sheet conservatively, but we want to make sure that any point in time we have got multiple avenues for raising capital for doing transactions. In financing the Antamina transaction, we used our debt facilities to do that. And then we are shortly after that on the back of the Antapaccay transaction able to raise equity, repay that debt and bring our debt back down balance. David likes to say, rather using debt we were just using the credit card. So with that done and having raised that additional capital, we have been able to -- we'll be able to reduce the debt, pay it off and it leaves us with $1.2 billion of available capital for new transactions. We are seeing a good amount of opportunities across the board and that really is the full gamble. There are transactions out there that are refinancing transactions in the mould of Antamina or Antapaccay. There are some potential M&A transactions. There are new mine financing both gold and non-gold. There are third-party royalties out there. And also in doing these recent precious metals financings, we have now taken the precious metal component of our revenues close to record levels. So if we do see a run up in the gold price here and we see attractive opportunities on the non-gold sector, we have got lots of room to be able to do those transactions as well. So with that, I'll hand it over to Jeff who will speak about Oil & Gas.

Thank you, Paul. Before we proceed with Oil & Gas presentation, I just want to take a moment here, just to let everybody know that after 24 years starting with the old Franco through the new mine years, in the last eight wonderful years here, in the current version of Franco, I have decided to move on and retire and I will be stepping down at the end of April. At that time, Jason O'Connell will commend and take over responsibilities for the management of Franco's Oil & Gas asset. Jason has been with us since 2008. He joined our Business Development team then in August -- October 2014. His focus became 100% on Oil & Gas. And when I step down at the end of April, he will assume the title of Vice President Oil & Gas for Franco. So at this time, I'd like to bring up Jason and have him proceed with our Oil & Gas presentation. Thank you.

Thank you, Geoff. Interesting time to starting out in the Oil & Gas business with commodity prices where they are. So we carried out an exercise this past year to reevaluate and re-categorize how we count our Oil & Gas asset, really just to bring it in line with how we look at our mineral assets. So formerly, we simply counted the number of royalty contracts that we had in Oil & Gas. It was a straight count in those contracts. However as we started to look at those contract, many of them had multiple royalties covering the same-land area. For example, you may have 5% royalty on Oil, 10% royalty on Gas and maybe a working interest, but they would all pertain to same-land area. And in addition to that, you sometimes had different royalties covering different geologic horizons at depth. So you might have seven or eight different contracts, all with respect to the same-land area. So what we did was we grouped all of those together into really geographic areas. We thought it made more sense to look at that way. The result of that exercise resulted in a change in reduction in how we count our assets. So we now have 59 producing assets, six of those are considered significant revenue generating assets. Those would be Weyburn, Midale. Edson. Then we have 53 other producing assets, which are smaller assets generating smaller amounts of revenue for the portfolio. They are located across the Western Canadian sedimentary basin. And then we have 19 exploration assets, 17 of those are in Western Canada and then we have some leases up in the Canadian Arctic as well as in Quebec with some exposure to the Utica Shale. So the map on Slide 24 shows the location of all those assets that we have now highlighted. You can see the oil assets depicted in green, gas assets are depicted in red. As of last quarter, 94% of the revenue came from oil assets so it's very heavily oil weighted. The company lands are shown on the map in blue. So we have over a million acres of land, again in Western Canada. And lastly it's a long life portfolio. The GLJ, our reserves evaluator has reserved life index for assets of 18 years on the proved and probable basis. On Slide 25, there is chart of revenue going back to 2010 along with the WPI price for oil. You can see that in 2013 there was a significant increase in revenue due to the acquisition of the Weyburn NRI followed in 2015 by a significant decline revenue as a result of the drop in commodity prices. We provided guidance for 2016 of $15 million to $25 million and that's assuming $35 a barrel WTI, a $3.50 price differential for Canadian oil and at $0.70. The majority of our revenue is topline revenue with the exception of the Weyburn NRI, which we report net of capital and operating cost. And that introduces significant leverage into the portfolio. So we provided insensitivities for you for our 2016 guidance, a 10% increase in the price of oil would result in about a 23% increase in revenue, a 10% increase in the Canadian dollar would result in about a 15% decrease in revenue. As Sandip mentioned earlier, on slide 26 we have taken some impairments in Oil & Gas. Those were with respect to Weyburn and Midale. The total amount of that impairment was $51.4 million, most of which is attributable to Weyburn. The impairment really was due to the sharp fall off in commodity prices and we arrived to that impairment by comparing the net asset values provided by GLJ in the reserve reports with the carrying values that we had in the books. Despite the impairment, these are very high-quality assets. They are produced at very steady rates over many years. I'm excited that will continue to that in the coming years. They are very low decline rates on the order of 2% or 3% versus what we see in Western Canada or in the US if anywhere from 15% to 20% or to 30%. So these will produce steadily for a long period of time. They have strong economics that are low costs. Weyburn is - Weyburn and Midale in fact are injecting CO2 into their reservoirs to help recover the oil, and that contributes to that low-cost profile. Weyburn has an operating cost right now of about $15 a barrel. Even if you lump in sustaining cost, sustaining capital and CO2 purchases, the all-in costs are still at a level where these assets are generating positive cash flow even at the low-oil prices that we saw earlier on in the year. And lastly again, they are long life assets. As I mentioned earlier, Weyburn has a reserve life index of 20 years, which basically means that at current production rates we continue to produce for 20 years. In reality we'll produce much longer than that given that those volumes will decline overtime. And that will expose the asset to, hopefully several commodity cycles in the future. And lastly on Slide 27, it's just a snapshot of the market for Oil & Gas right now. It is a very active market, particularly that with respect to Oil & Gas royalty packages. In 2015 we did at a small piece of Weyburn in the portfolio, it was a 0.29% working interest that we added by exercising a roll for $6.4 million brings our total working interest up to 2.259%. There are also several other packages that has come onto the market in the last year and then sold. And in addition to that, there continues to be assets that are in the market with Penn West and Husky looking to sell their royalty portfolios. So it is a -- there are a lot opportunities out there. We continue to assess these opportunities as they come by. As Paul mentioned with the decline in oil prices, there is room to add non-gold assets into the portfolio and we may do that in the form of small sort of tuck-in transactions if they arise. And with that, I'll turn it over to Phil Wilson to talk about gold ounces and REUs.

All right. Thank you, Jason, and good morning everyone. In the next few slides what we are going to look at is reserves and resources associated with some of our key assets and the royalty equivalent units. But before that, just want to take a brief moment to roll out our new 2016 asset handbook. It is published this morning. I believe this is the fifth year that we have published this book. It really is the go-to-guide for our business and it includes updates on our key mining assets, Oil & Gas, royalty equivalent units and hosts of other corporate information. We do encourage you to take a look at this. It's available and hardcopy through our offices or you can download it from our website. Slide number 30. This shows the total reserve ounces on key properties in which we have an interest. But for the first time we are actually showing silver expressed a gold equivalent in order to capture primarily Antamina, but also contributions from Cobre Panama, Candelaria and Antapaccay, Midas and the bunch of smaller mines as well. Now, the advantage is showing a simple count of this nature is that information is based entirely on public data. And it gives you an indication of the level of activity in our portfolio. The disadvantage, however, is that it doesn't tell you Franco's attributable share of these reserve ounces. But from the chart, there is one takeaway. It has to be that despite the difficult price environment over the last few years, the total reserves to which we are exposed has remained stable. We turn now to Slide number 31. Looking at some of the most significant changes in the underlying reserve base from the earlier slide, and notable gains have been through acquisitions, principally Antamina and Antapaccay in the last 12 months. But we have also seen reserve growth some of the other mines, Detour and Candelaria are great examples. Nevertheless these gains have been offset a little by decreases on various properties, but also for the first time we've carved out the Subika property from the rest of the half of south reserves, which had quite a substantial impact on the total count. Slide number 32 is the equivalent of the earlier ounce count slide. But this time, we are looking only at mineral resources. You will immediately see there is far more year-on-year volatility then in the reserves. And this is particularly so in the third category while some measure and indicator resource is generally a more robust. And this volatility is primarily a function of metal price. In a good price environment, exploration increases, resource is increased. In a poor price environment, exploration reduces and resource is reduced. Slide number 33 is the royalty equivalent units. You may recall this is a concept that we introduced three or four years ago probably to overcome some of the limitations of a simple out count, but mainly to allow better representation on the value of the royalty and streaming companies. And essentially what we do is apply our best judgment to estimate the ounces on the various properties that are covered by our royalties and then we normalize the various royalty rates types and streams to become the equivalent of an NSR. It's definitely an improvement over simple ounce count. However, it does require a thorough working knowledge of the properties and you will need to relay on management's judgment in these estimations. Slide number 34 just summarizes the changes in the royalty-equivalent units year-on-year. And again from the slide you can see, despite the difficult price environments we have been able to record a modest increase in the two most important categories of reuse, which are proven and probable reserves and measured and indicated resources, but that the inferred hasn't fared too well. But really what this slide is telling us is that if it's not one single ounce more discovered on any of these properties, Franco's attributable share on these reserves and resources is closed to 11 million ounces of gold equivalent and our cost of production is effectively zero. So that's it from me. So now next speaker is David Harquail, President and CEO of Franco. David?

Now, I think they're all excellent presentations, and Geoff has been a great partner for decades we work together. I think thanks to him, Oil & Gas is always been the least of my concerns. He has been really managed our division; it really has had no major involvement of my part. It's been totally problem free division for us. We are not going to loose Geoff. We have tied him up with the contract for the next couple of years just in case Jason screws up. So we'll have some overlap and so we are good. So Jason can't be too comfortable yet. I think you've heard from the team that we are very satisfied with how our royalty portfolio is performing. And I think you've heard from Paul that we are also very pleased in terms of where we're positioned in the marketplace right now for transactions going forward. So I'm here to talk about what the next year and the next five years look like. And on Slide 36, it's specifically a summary of the main factors that are impacting Franco-Nevada's outlook in 2016. It's usually is a case in a broad portfolio. There is positive and there is negative, but for us it always will be the positive outway to negative. In 2016, we expect to benefit from started contribution of Antapaccay, a full year Antamina, and the starter payment from Karma. Our NPIs are also benefiting from some of the tailwinds in the industry. Offsetting that, you'll see that -- you'll recall that we amended our deal with Couer Mining on the Palmarejo transaction assets so they could transition the mine from the Palmarejo to Guadalupe. That means that we've been up till now getting a minimum of 12,500 ounces per quarter. That's going to end sometime in the summer. But Guadalupe is now up and running. It's performing well. And so the step down in GOs is not going to -- is going to be something that's going to be manageable for us this year. And the other offset on the negatives are self explanatory. On Slide 37, it summarizes our guidance for 2016. We are expecting very good growth in GOs and stable Oil & Gas revenues. On Cobre Panama, we made our first contributions last year. I think in our last year's presentation, I showed you a whole bunch of my BlackBerry pictures from a site visit to convince you the project was going very well. I know number of you were on site last week. They had both of the -- First Quantum had both investor and analyst tours to site, and all the reports I've read confirm our view is the project is progressing very, very well. Now, the construction is being stretched out. It is coming later than originally we anticipated. But as a result also our contributions are being stretched out. So the economics for our investment here haven't changed materially. On Slide 38, it's our outlook and assumptions of expectations of what we expect from the portfolio five year out. I'm pleased to note that we've got substantial growth coming from the company over the next five years even if Franco-Nevada management does not buy another asset. And I think this is why I feel very comfortable with our position. We are not pressured to chase investments or new projects. But anything we might add is actually incremental growth to the growth that we've always billing is already locked into our portfolio. And I think that's the right way to run any resource company in the resource sector. Finally, I'm going to show you on slide 39, I take great pride as a CEO of a company that has been able to deliver a great eight-year track record. As you can see our GO has now more than quadrupled --- if you look at our latest quarter from where we started in 2008. Our revenues again from our latest quarter of more than tripled despite the downturn in commodity prices. And yet as Sandip was showing, despite the growth our G&A stayed absolutely flat over the last eight years. And I think that one what stands out is that I think as demonstrate by Sandip that the scalability of our business. And I like to do little side calculation, because I think one of the main competitors for us as a gold investment as the gold ETF are right now the GLD charges 40 basis points to manage gold in a vault. And if you look at our overhead say a little under $20 million on the market cap of 10 billion, we are running about 20 basis points. So I would like to thank the Franco-Nevada is twice as efficient in the GLD. But most importantly on this chart is the last one on the bottom right and that's our dividends per share. And we have been able to grow our dividends each year for the past eight years. Anyone who bought Franco-Nevada as an IPO, if you bought in U.S. dollar terms, you are not getting a 6% yield on your cost base. If you bought a Canadian dollar terms, you are not getting a 7.4% yield. That's not bad for a gold investment. I'm also pleased to note that at our current dividend Franco-Nevada's projected to declare dividends of almost $150 million this year. I believe this now positions Franco-Nevada as the largest absolute dividend payer in the global mining industry or global goal industry. We will make a dividend announcement at our 2016 AGM, which is on May 4. Our policy has been to ensure our dividend is first sustainable and then progressive. Growing our business allows us to increase our dividends. I'm very confident we'll be increasing our dividend once again this year. You just have to come to our May 4th meeting to hear that. I'm going to leave you with slide 40. It's our standard parting slide showing our performance since our IPO related to both gold and gold equities. I'm proud that this management team has been able to create real value for our shareholders. From our IPO to date, the total return compounded annual growth rate for our shareholders is almost 20% in U.S. dollars or over 23% in Canadian dollars. I believe we have a business model that will continue to deliver investors both yield and alpha at a reasonable risk. We want Franco-Nevada to continue to be the gold investment networks. So with that management here is happy to take questions. We have both visitors in our boardroom and we have participants on the phone. What we thought will do is start first with the participants that we have here in the boardroom. We have a microphone. So any questions then you could just take. We have two microphones. Just take one of those, state who you are and just be so that people on the phone could hear what the questions is. I'll go from there. Steve, we're about to start of with you.

On gold strike, if someone could speak to what your expectations are for gold strike in 2016 and 2017 particularly with the stockpiles that are going to be processed here over the next 24 months and the implications of when the NPI royalties in particular are going to be kicking in.

Sure, Steve. So you would have seen in 2015 we had a strong NPI in Q4 so we do expect that to continue. As the TCM process ramps up for 2016 I would expect the NPI to be stronger in the second half of the year than the first half of the year, then continue on to 2017. Obviously our guidance was done at $1,200 gold with it being approximately $1,270 now, that will also impact the NPI. But it won't be equal per quarter during the year I would expect the second half to be stronger than the first half.

Thanks, David and team and congrats, Jeff. Well deserved. Cosmos from CIBC here. Maybe first off, in the past six months, David, you made two pretty substantial acquisitions, royalty acquisitions Antamina and Antapaccay. How would you compare and contrast those two? Clearly, one is silver, the other is silver and gold. One has a higher upfront IRR, but it also seems like the other might have a bit more upside to it, longer term. Again, how would you compare and contrast those two?

I appreciate that, Cosmos. It's interesting because I think the market reaction to Antapaccay was so strong because everyone’s focus is very much on IRR today. I should try to remind people, especially in the resource business, if I want a high IRR back in November-December, I could have just bought tax debt, and get an 18% yield. I have absolute every confidence when it matures next year, it’s going to get paid off. But the trouble is the reinvestment risk. So I much better having something that’s going to give me return, that’s going to be over a long period of time. Hopefully, multiple and you get the optionality of that investment through multiple resource cycles. The advantage of Antamina is that we have a much longer term investment there. If you notice that there's a very small stepdown on our royalty at Antamina. There's tremendous larger pit potential at Antamina and expansion potential. There's underground mining potential and there's other development potential. We believe that asset will go for 50 years. It is a great asset, lots of potential as well but the structure of that deal is we have a much larger stepdown, two-thirds stepdown, about 15 years out in the future when they deliver us a certain number of ounces. I hate to have that happen. Giving up my optionality, two-thirds of my optionality on that exploration property. I'm going to have a stream that I'm going to have to worry about 15 years from now to build up again. I'm going to miss some of those other cycles beyond year 15. So I look at it, that was part of the tradeoff. We're getting the quicker payback but I have a bigger reinvestment risk at Antapaccay, than I do with Antamina. I think you build great resource companies when you get into multi-decade type investments that we don't have to worry about the stepdown. And that what you need to have is the ability to not buy things when there's a big bull market for resources and then be able to buy them when you get those dips. Every once in a while you're going to miss a dip or two because you're too conservative. If I miss those particular street car I’ll catch the next one down the road and I think if we can have the luxury of not having to buy things for as much as five years when the market is just too aggressive and not worry about the growth of our Company and then catch the next downturn, I think this is actually a very easy business to make money, continue to grow the Company and deliver great value to the shareholders. And that's what we're trying to position this company is to be Canada's - my hopes is we can make Canada's a Rio Tinto by having such a long duration portfolio and always be counter cyclical in the marketplace and you only do that with long duration assets. That's why I see Antamina is equivalent to Antapaccay in terms of what was added to our portfolio but I'm not as focused on the IRRs. And I'm trying to guide the Street as well. Don't expect those super high IRRs in our next deal because we're still looking for more long duration assets in our portfolio and that's what we're going to build a great Company with.

Great. And my other question is, I don’t know if you want to make a comment on First Quantum, but certainly they monetize - is there a positive read through here to Franco-Nevada’s Cobre Panama royalty?

I think there is number of positives. I think the site visits that went recently, you can see basically half of the projects have been committed to already. It’s going along well. First Quantum management is proud of it. They’ve also made it clear that that’s their number one priority, is to get that project built by 2018. They see that as the best way to get themselves back on to the right financial convents is make that into a cash generator for a company. They also see it as a way to derisking themselves from the Zambian risk that they have in that company. So all the public indications, and even the private indications to us is absolutely committed to going forward. We could appreciate the market’s concern about the financial capacity. Right now, the way we structured our GEOs, we only put in our money for every $3 they put in the project. So we are not going to be fully committed until close to $6 billion has been invested in that project. That’s a protection for us. We are also very well protected in that project. We have, in our safe right here, the securities for their 80% interest in the project. We’ve now allowed them to do some project borrowing on that project. I think they’ve started that process now. So hopefully, by later this year or early next year, they can borrow some money subject to an inter-credit over Franco-Nevada’s. So we believe we will be protected in all circumstances. And if this project gets further delayed, part of our new agreement with First Quantum because they have every confidence they have this for using at a set rate by 2018. If there is any delay, well, we’ll get a discounted price on our gold beyond that, that will give us extra 5% return on this project for any delay. Because one of our worries was okay, could First Quantum be taken over and if there was a BHP or Rio Tinto they would likely want us that project in - such a major copper project, they don’t more copper supply. And so this is why we feel we needed to have that protection just in case if there is a change there and someone else might have a different perspective on what was to come in the copper market. I am actually very proud of our business development team, I think we have covered all the bases on this project, we are absolutely committed to making our ongoing contribution project because this is the 50 year project, 8 billion tones of reserves and Panama has been a great country to work in, totally business like mentality in relative to South American countries or something that you might work in and so we think its cornerstone effort for us we want to be there.

Maybe one more question David, maybe more question for Jason and Jeff here. What’s your sort of breakeven price for oil and gas, your oil and gas royalties. If we talked about a year ago, would have been I think $35 a barrel, I think you mentioned that at 35, it would have been minimal royalty back to us – certainly the cost structure has now changed.

Yes, again the bulk of our royalties are just top line revenue royalties, there is no issue of breakeven cost there, the issue is on particular. The breakeven cost there - it’s really very difficult to pinpoint to be honest with you. Last year would have been higher. What happens is when your price starts to fall. Operator is probably true for many operators, they start to dial back the capital spending after putting into the asset. And it really start to tightening the cost structure. So cost have come down in the last year. Capital spending has come down significantly in the last year and so as I said, the breakeven cost is difficult to pinpoint but it was cash flow positive earlier this year when oil was under $30 barrels. At that point, you’re getting down to very minimal cash flow from the assets. So its in or about that neighborhood.

Josh Wolfson with Dundee. Following up with the oil and gas comments, you pointed out number of transaction that happen space recently. You guys have been pretty active on deals but not on that side. What you guys seeing that’s a difference and what is your expectations when you’re pricing deals for long term assumption for oil price.

We were active in most of the deals last year at least being involved in, thank God we didn’t buy them. I think our experience and I have to remind myself, whenever you have a big drop of commodity price usually have lot of potential buyers and are expecting type recovery in our commodity price. So once we participated and we didn’t win, we did three processes last year. The only one that we won was that [indiscernible] another transaction. In terms of what we are seeing right now, I think none of them is that exciting, now what we really interesting is large free whole packages which goes back to our philosophy of owning the land and then you don’t worry about how the operators might change over time. Some of the other ones that are in the market right now they tend to be going on core assets, a lot of jointed lands, there is not the larger packages but if buying cheap enough, for sure we can tag on them, some of them actually tie in to our properties maybe we can create something more material over time. So I'd say, we are always at to it looking at something bigger or small in the oil and gas sector last year we were telegraphing, we were really looking at some bigger things. Now we are telegraphing that most – as Jason said, mostly just tuck-in transactions at this stage. Our focus right now is the large gold deals in the marketplace. So if we look like we’re going to do certainly material in the oil and gas space we’ll let you know right now we don’t see any pipeline. On the price deck, we can’t tell you that specifically. Obviously ours is more conservative and the ones that bought last year. And I think – oil and gas is more tricky than mining. Once they build a mill, you know what that throughout is going to be forever, and once that production profile. The trouble with oil and gas is that you’re making essentially the price deck, but if your price deck is wrong, you also get a different amount of capital based on the properties which means there are fewer wells, let’s say enhanced oil recovery on projects then you start getting that production decline recurring very well. So that’s why I think we have to be conservative on oil and gas deck because we have a double whammy there if we get wrong.

And then just one other question on now the financial side. There is big working capital consumption this quarter and that's been the case for the last five quarters. Are we expecting a reversal and really what's that attributed to?

Sandy will speak to that.

You are referring to the cash flow?

Yes.

It's just accounting because we do hold gold from our royalties and then we sell them. So when we sell them there is a re-class that comes out of working capital that goes down to invested. So you'll see proceeds on the sale of gold and so it's coming out of working capital and going down below. So it's a re-class on the cash flow and so as we continue to receive physical gold from harvest and we sell it ourselves you'll see that re-class occurring.

Is there any other working capital uses for the business on a general basis or is it, it's pretty consistent or there should be nothing else. Okay. Thank you.

David, you've done Antamina and are the easy ones done now? Other field more difficult jurisdictions, Paul you're the one who dissolve the work on these so.

There are good amount of transactions out there Greg. So as I say there are transactions that I think people would consider as equivalent to those transactions, but that are potentially doable. They are streams in the market which are definitely further upheld and given that we've got the option of investing in safer jurisdictions, that's where we would like to spend the money at this stage. I should -- I will also just clarify one thing David had mentioned on the -- I also think there is on about 60% roughly gold and then once we have the reduction over time it reduces down to about 30 of the gold. So it's about one third of the goal, but the reduction is about a 50% reduction.

I think with that maybe we should turn it operator to anyone on the line that might have a question. And operator could pull that?

[Operator Instructions] And the first question is from John Bridges of JPMorgan. Your line is open.

Hi David everybody. Congratulations on the results. I think a while ago, my question on Cobre Panama. So I'm out and I'll pass the next guy. But well done on the results.

Thanks John.

The next question is from Chris Terry with Deutsche Bank. Your line is open.

Hi guys. I got a question just on the overall strategy I guess and trying to say how you're positioning the business. You've obviously talked about it in a number of the questions already. But if you look at Slide 17 might be the best starting point, how do you see your ability to pick the cycles as they go forward. And I guess when you look at the rig capitalization cycle today, you could argue that the base metals oil and gas is still very much in that equation. But the mix cycle probably for gold will be back to the 2011 primary product funding arguably. So how do you get the balance right going forward of investing in gold as opposed to the rig capitalizations?

It's a good question and I think that's one of the things that we always have to address with our investors. They always expect us to be buying things all the time. And this is the feaster family business and you got to make hey when the sun is shining and it stop when it's raining. And so we expect there is actually a very limited window hereby. The next year, either these major companies are going bankrupt or they've solved with their financial equation. So they will be doing -- be done in terms of their financial situation. And all the portfolio cleaning that's being done by the gold companies, I think that's roughly going to run its course over the next year. So we kind of see this as the feast period time as if we're going to help on transactions help on the recapitalization. We can't let any of our business development team going holiday. So we want to do that because we then expect when the industry’s back and bull market and the equity market we won't be able to buy anything. How do we judge this? It's really when the opportunities come over to us and people are saying and willing to start negotiating with us on very interesting properties and have good geological potential and a long duration and upside. We're always in the market for those And as just the opportunity come back when they really need us. They generally don't need us. Their other financing options are open and we're very relaxed about that. When those bull markets come back again, we have a great pipeline of development properties and exploration properties that we then get organic growth from those properties as other people are spending on those properties. In terms of the commodity mix as well, it's driven a bit by what's seems to be so underweighted by our portfolio. Oil is sending a signal right now. We should be buying more oil but right now our big strategic opportunity is in the gold space. We can never have too much gold and we'll be 95% precious metals this year, that's not a problem. If you remember two years ago, there was a problem we were over 20% oil and we were actually looking to see how can we reiterate size of the portfolio to keep to our precious metals commitment to stay always at least 80% precious metals in the company. But I would say this is actually a very easy business. You buy when people are selling and you don't buy when there is a bull market. Simple as that, I think our luxury is we have a very long term timeframe and that we have permanent cap in our business. It gives us a big strategic advantage over about just everybody else.

Okay. Thanks. Thanks David. So is it fair to say that rate recapitalization deal, you're still going to be aiming at more chunky tough deals whereas the setting the business up for the future in the next cycle, those might be bought size or tuck-in tied deals?

I think that's fair enough. I think to be material enough for the companies that are in recapitalization it used to substantial. So those will be the chunky deals. We're still doing where we just don't talk about a little royalty deals. Some of my directors call me retentive, but I buy royalties for as little as $50,000 up at Red Lake and if they're going to make some future deals look good, and so we'll always add in and you can see from our numbers we're up to 262 different royalties and streams. We first started this business in 2008. It was $176. We just don't put press releases or anything that's less tens of millions of dollars now, but we'll always be adding on the exploration front and just the materiality is not there.

Thanks very much David.

And currently showing no further questions by phone.

Any other questions in the room here? Okay. I can see everyone is anxious. For the visitors that we have today, we have some refreshments outside. All the Management you recognize them by the tags are -- would love to spend time and address any questions you have. We even tidied up our desk if you want to have a tour of our office and see our setup. We're happy to show you how we're doing. Just as an aside we're running our company, we are increasing the number of employees. We're up to 29 employees, so it's getting up there. But I think about 18 or 19 of them are in this officer here. So you're seeing the bulk of the entire Franco-Nevada operations and you can maybe get an appreciation on why we're running as efficiently as we are. The other thing I refer to people on line is don't forget if you send us an email info at franco-nevada.com, we'll send you a hard copy because I think the best investors are the ones that are registered and have poor eyesight and they need these sort of bigger print copies to be able to see what's going on and the tabs. So I think it's hard to do when you're looking on a website and our Annual Meeting is going to be on May 4. We'll come up with our first quarter results on that day. We'll give you an update on our dividend decision for 2016 and you're welcome to attend our Annual General Meeting. It's at the Broadcast Center at Toronto Stock Exchange at 4:30 on May 4. And so please join us. Thank you very much for your interest.

Ladies and gentlemen this concludes today's conference call. You may now disconnect. Thank you.