Franco-Nevada Corporation (FNV) Q2 2026 Earnings Report, Transcript and Summary

Good morning, and welcome to Franco-Nevada Corporation's Second Quarter 2026 Results Conference Call and Webcast. This call is being recorded on August 12, 2026. [Operator Instructions] I would now like to turn the conference over to your host, Bonavie Tek, VP, Finance and Investor Relations. Please go ahead.

Thank you, [ Anis ]. Good morning, everyone. Thank you for joining us today to discuss Franco-Nevada's Second Quarter 2026 results. Accompanying this call is a presentation, which is available on our website at franco-nevada.com, where you will also find our full financial results. The presentation is also available to view on the webcast. During our call this morning, Paul Brink, President and CEO of Franco-Nevada, will provide introductory remarks; followed by Sandip Rana, Chief Financial Officer, who will provide a brief review of our results. This will be followed by a Q&A period. Our executive team is available to answer any questions. Participants may submit questions by telephone or via the webcast. We would like to remind participants that some of today's commentary may contain forward-looking information, and we refer you to our detailed cautionary note on Slide 2 of this presentation. I will now turn over the call to Paul Brink, President and CEO of Franco-Nevada.

Thank you, Bonavie, and good morning. We had a strong second quarter with GEOs sold up 18% year-over-year due to higher production at Antapaccay, Antamina, and South Arturo, new contributions from the recently acquired Côté Gold and Casa Berardi interests and start of production at Valentine Gold. In addition to record gold prices in the quarter, we saw strong oil prices. With the higher energy contribution and the processing of stockpiles at Cobre Panamá, we're tracking towards the upper half of our annual guidance range for 2026. At Cobre Panamá, the environmental audit was completed, indicating no major findings and an overall compliance rate by the operation of 87.7%. The government then established a commission of senior ministers to evaluate both the environmental aspects and the economic contribution of a potential mine restart. Simply put in our business, you want to grow through acquisition in the bear market and organically in a bull market. In particular, with our deep royalty portfolio, that organic growth can be very powerful. Q2 is the spring quarter, and we saw green shoots across the portfolio. We received good news on future mine expansions at all of Côté, Detour, Magino, Valentine, Condestable, Caserones and Séguéla. At Candelaria, we had news of a potential pit pushback. And at Porcupine, we had the Kidd acquisition that may ultimately allow a doubling of output. Guadalupe, Hemlo, Bullabulling and AurMac all announced resource expansions. There was positive progress on mine development at Copper World and Stibnite Gold. Crawford Nickel received its federal approval and PSJ Mendocino, previously San Jorge, its Argentinian RIGI approval. And lastly, success of the drill bit, great exploration results in the Porcupine, Borden, Hoyle, Owl Creek and others. Midas, where Hecla considering a restart; Stibnite, where they started drilling again after more than a decade and at AurMac and Bullabulling, where we have new interests. Energy revenue was up on stronger oil prices. While operator capital discipline prevails, there has been a pickup in U.S. oil rig rates, 450 rigs now up from 420 3 months ago in the Lower 48. Also, reinvestment rates amongst the U.S. producers are moving up, 55% now on average versus 51% earlier in the year, both of which bode well for higher future production rates. The leverage on the NPI at our Weyburn interest in Canada gave a nice boost to our Canadian Energy segment. On the sustainability front, we continue to expand our engagement with and contributions to communities at mine sites. Franco-Nevada was recognized as one of Corporate Knights' Best 100 of Best 50 Corporate Citizens in Canada for 2026 and achieved an A rating from CDP. We're in the progress of evaluating candidates for our expanded scholarship program and are delighted with the bumper crop of excellent applicants this year. Eaun and the business development team have a strong pipeline of opportunities. And fortunately, our total available capital stands at $4.3 billion. So we're well positioned to add attractive new assets to the portfolio. With that, I'll hand the call over to Sandip.

Thanks, Paul. Good morning, everyone. Franco-Nevada reported another quarter of solid financial results as our portfolio of royalty and stream assets continue to perform well and in line with our expectations. The performance during the quarter continues the very strong start to the year with record financial results achieved for revenue, adjusted EBITDA, adjusted net income and operating cash flow for the first 6 months of 2026. On Slide 4, you will see a summary of commodity prices for second quarter 2026 and '25. Precious metal prices have increased significantly year-over-year with the average gold price higher by 38% and silver by 118% in the quarter. However, both gold and silver prices have retreated from the highs reached during first quarter. For the diversified commodities with the continued conflict in the Middle East, oil price has seen a sharp increase over prior year. The WTI price has been volatile over the last few months, but remains above $80 a barrel. Energy revenues did benefit from the higher price in the quarter, and we expect this to carry through the third quarter. Slide 5 provides an overview of our key financial results. The performance from our assets, combined with stronger commodity prices resulted in an increase in revenue of 57%, adjusted EBITDA of 45% and adjusted net income of 46%. Total GEOs sold for the quarter increased by 18% to 132,405 compared to just over 112,000 in second quarter 2025. Precious metal GEOs sold in the quarter were 114,111, higher by 23% compared to prior year. 56% of total GEOs sold during the quarter were sourced directly from mines where precious metals are the primary commodity. For the quarter, we received strong contributions from several assets. At Antamina, we benefited from both higher deliveries, but also benefited from the higher silver price, resulting in an increase in revenue from $23.3 million in Q2 2025 to $57.4 million this quarter. For Antapaccay, we benefited from the processing of higher-grade ore, which we expect to continue in the second half of 2026. At South Arturo, we had a significant increase in GEOs as we benefited from the Phase 1 production of the open pit. Please note this strong performance was always weighted towards the first half of the year. At Candelaria, production at the mine was lower compared to prior year as last year, the mine had the benefit of higher-grade ore from Phase 11. Lundin Mining expects production to be weighted towards the second half of 2026 due to increased availability of higher-grade Phase 12 ore, combined with increased underground mining rates as the underground insourcing initiative nears completion. Diversified GEOs sold were 18,209 for the quarter compared to 19,644 for prior year despite diversified revenue being 31% higher at $82.2 million. The decrease in GEOs is the result of converting revenue to GEOs at a higher gold price. As you know, we are converting GEOs using a fixed gold price of $4,500 per ounce. With respect to costs, we did have an increase in cost of sales compared to Q2 2025 due to higher fixed costs paid for stream ounces as a portion of our streams have a fixed cost based on a percentage of the gold price. Cost of sales was $45.9 million versus $32.5 million (sic) [ $33.5 million ] last year. Depletion increased to $84 million versus $64 million a year ago, the increase being due to depletion being recorded on some of our recent transactions, Yanacocha, Casa Berardi, Porcupine and Côté. These assets are higher per-ounce depletion assets. We expect the depletion rate to decrease over time as the reserves on the properties grow. And adjusted net income was $349.2 million or $1.81 per share for the quarter, both higher by 46% year-over-year. Slide 6 highlights the continued diversification of the portfolio. 86% of our second quarter revenue was generated by precious metals, with revenue being sourced 88% from the Americas and no one asset generated more than 10% of revenue as we have one of the most diverse portfolios in the industry. The model continues to be a very high-margin business, as shown on Slide 7. The margin per GEO has increased from $1,559 per GEO in 2022 to $4,352 per GEO in 2026, a 179% increase while during this time, the gold price has increased 160%. As we turn to dividends on Slide 8, the company continues to pay a quarterly dividend with $84 million being paid to shareholders during the quarter. With respect to our guidance summarized on Slide 9, we have guided to 510,000 to 570,000 total GEOs sold for the full year 2026. With the strong performance of our portfolio for the first 6 months of '26 with approximately 269,000 GEOs sold and an expected stronger second half of the year, we are tracking towards the upper half of the annual guidance range. We expect stronger second half performance from several assets, including Candelaria, Tocantinzinho, Côté and Valentine. We expect to receive between 9,000 and 10,000 GEOs from Cobre Panamá as First Quantum has begun processing stockpile ore. And with the continued strong oil price, we expect energy revenue to remain strong in the second half of the year. And lastly, Slide 10 highlights our available capital. As at June 30, 2026, the total available capital is $4.3 billion, comprised of $1 billion in cash, $2.25 billion of our credit facility, including the accordion and $1.2 billion in liquid marketable securities. The company continues to remain debt-free and is well capitalized to continue to add good quality assets to the portfolio. And with that, I will pass it over to [ Anis ] as management is happy to answer any questions.

[Operator Instructions] Your first question comes from Cosmos Chiu with CIBC.

Maybe my first question is on the NPIs. I noticed that Hemlo was down quarter-over-quarter, whereas the Musselwhite's NPI was up quarter-over-quarter. I guess it is always volatile in terms of these NPIs, but how should we look at it based on what we know in Q1 and Q2 on what we should expect in Q3 and Q4?

Cosmos, thanks for the question. You said it correctly. They are volatile. And for us, a lot of it is based on visibility. At Hemlo, in Q2, Hemlo Mining produced less on our Interlake land than previous quarters, which impacted the NPI. I think for the second half of the year, from what we gather, production should increase. Does it hit what was achieved in Q1? I don't know, but it should be higher than Q2. So I would expect a slightly higher NPI for the second half of the year from Hemlo. Obviously, that's all contingent upon commodity prices as well. At Musselwhite, we did have strong performance in Q2. A large component of that was a catch-up entry for 2025. For Musselwhite, we have limited visibility, and then there's a finalization of the NPI calculation that happens in the following year. So in Q2 is when we got that final number, and we recorded that. But considering where commodity prices are right now, I would expect a very strong NPI for Musselwhite for 2026.

Great. And then maybe diving a little bit deeper into Hemlo. Last night, I guess, they reported earnings and they're deferring formal guidance, production guidance from sometime in 2026 into 2027. From where you're standing, and there's a lot of moving pieces. It's based on actual production from the asset, but also the Interlake component. But any concerns in terms of that deferral of guidance? It seems like things are kind of ramping up potentially slower than expected.

I think Hemlo is doing -- the team is doing a very good job there. They just took over the asset last year. From our perspective, we're pretty confident that mining on Interlake will continue for the next number of years. Obviously, it will be volatile just depending on how development is going, but we're pretty confident that the NPI will be there for the foreseeable future.

Great. And maybe switching gears a little bit to Guadalupe on Palmarejo. As you mentioned in your prepared remarks, it continues to be one of the larger contributors of GEOs. But I guess my question is when we talk to Coeur Mining and the management team continues to remind us that exploration continues beyond the Franco-Nevada area of influence. I guess from that perspective, how should we look at it? Is there any kind of near-term concerns to Franco-Nevada?

They've had very good exploration results, both on-stream ground and off-stream ground, on our ground specifically Hidalgo. Based upon what we've seen, production on our land will continue for the foreseeable future. A large portion of their production is still on Franco stream ground. Obviously, they are trying to find additional resources on adjacent lands where the stream doesn't apply. But right now, we don't have any concern.

Great. And then maybe one last question, tracking your margins here. And Sandip, I think you did a good job in terms of looking at the margin expansion. Another way I looked at it was the adjusted EBITDA margin. I noticed that it's increased 87.6% 4 quarters ago to 90.6%, 91% now to 91.2%. Again, the adjusted EBITDA margin. Is that just a function of, I guess, the increase in commodity prices, coupled with not as much of an increase or no increase at all to cost? And is that a percentage that you track yourself? Are you happy with the 91.2% right now?

Yes. No, it's -- we are a very high-margin business. Obviously, it's composed of a number of factors. One is how much of our GEOs and revenue and EBITDA is being generated by streams. It just so happens right now in our -- the recent deals we've done have been more royalty deals, and there's obviously limited or no cost associated with those. So it's just the leverage of the portfolio overall.

Your next question comes from Lawson Winder with Bank of America Securities.

Thank you for today's update. Can I start with the 2026 guidance and your expectation to be in the top half of the range, and that includes Cobre Panamá, potentially stronger oil prices. Look, if you just take the midpoint of the GEO volume guidance range of 540 and then add Cobre Panamá, it was about 27.5 GEOs and then you assume higher oil prices, I think you could comfortably get above the range. So it would suggest that you're tracking to above the range? Or I mean, it might also suggest that ex-Cobre Panamá and higher oil prices, the portfolio is tracking to perhaps well below the midpoint. Could you maybe just clear out what would be the right way to think about that?

Good question, Lawson. So for us, obviously, we've looked at our numbers. As you said, the midpoint was 540 of our guidance range. Cobre is 9 to 10. Energy prices will add some additional GEOs, assuming oil prices stay where they are. And then we are expecting stronger performance from Candelaria, Côté, Valentine, a few others. We're expecting weaker performance from South Arturo, which was more focused on the first half of the year. So as we've said, it's going to be tracking at the higher end of the overall range. We're still in the middle of the year, and there is a possibility that you could surpass the range, but a lot of things have to happen for that to occur. So right now, we're comfortable with just providing that guidance range.

Lawson, do you have any follow-up?

Yes. You spoke in the release also about the pipeline, and you noted a relatively robust pipeline. Yet, like I mean, a number of the transactions you did in the quarter, while they were relatively numerous, were relatively small. I mean, total value in the $84 million including -- around $84 million, including the July transaction. Can you just speak to what you're seeing in the pipeline in terms of like substantially large transactions, particularly in light of $4.3 billion? And then the other side of the question would be, I mean, if you're not seeing really substantial meaty deals in the pipeline, if it's a lot more of these smaller transactions like you guys completed in Q2 and Q3 to date, is there a thought to perhaps considering a special dividend?

Lawson, it's Eaun speaking here. Thank you for the question. It's a good question. What I would say is we're active across a range of development phases and deal sizes. You're right that during the quarter, the size did step down from the cadence and magnitude that you had seen in prior quarters. I don't think that's reflective of the pipeline going forward necessarily, though. What I do see at the moment is a number of opportunities in project finance, which suits our financial backer strategy well. So we're hopeful that with time, we'll see more of those types of transactions come forward. And in terms of overall liquidity, looking at the magnitude of the pipeline, I do feel comfortable at this stage that we're going to be able to deploy quite a bit of our capital before we have to think about any other ways to return it.

Okay. And then just -- so thinking about some of the larger transactions you might have in the portfolio, can you help sort of narrow that down to a bit of a size range? Are we talking like $100 million size range? Or are there potential like $1 billion transactions in the pipeline?

It's a wide range, as I highlighted, there are some significantly larger transactions, which are required to deploy the kind of capital that we've accumulated. So I think what you've seen over the last couple of years in terms of transactions is reflective of kind of the potential we see in the pipeline going forward. So we were successful deploying in the past, and I believe we'll be successful going forward.

And then maybe just one final follow-up on the pipeline. To what extent would you describe the current pipeline as urgent? Or how would you describe the urgency of the deals within the pipeline? Is this stuff you could see completed in Q3? Or are we looking at sort of a longer time line, maybe looking out 12 to 18 months?

Sure. That's a good observation. What I would say is the larger transactions tend to be a little bit lumpier. The time line can be longer for those. So hard to kind of handicap exactly when deals are going to close. But I'd see the cadence perhaps just based on what I'm seeing now picking up later in the year and into next year.

Your next question comes from Daniel Major with UBS.

First question on -- just on Cobre Panamá. My understanding is First Quantum has sort of started or is imminently starting negotiations with the government on the fiscal terms to facilitate a restart. Have you had any engagement with the Panamanian government? Has there been any discussions around any potential changes to the economics of the stream?

Daniel, it's Paul. No. First Quantum is the operator there. So they are the party that will engage with the government here. As you know, no formal negotiations yet, but we're not at that table.

Okay. So there's no discussion at this point of any potential changes to the fiscal terms as part of any negotiation or any settlement to start the mine?

No, there isn't.

Okay. That's clear. Second question is on the energy diversified portfolio. You obviously highlighted the benefit from higher revenues and made a reference to the increase in the rig count in the U.S. Would you also expect to see any pickup in sales volumes on -- not on a GEO basis, but on a unit basis in the second half and potentially following through into 2027?

I'm hopeful that they will be. In my own estimation for the U.S. plays, you need at least 6 months for people to change their drill programs. So Q2 was still too early. If you go 6 months ahead of that, your oil prices were probably still in the $60 ranges. So I expect the back end of this year, as you say, beginning of next year that you'll see those -- the higher drill rates translating into production. I am hopeful that we'll see higher unit volumes as a result.

Okay. So there's a potential tailwind independent of energy pricing into 2027 from a GEO basis?

Yes.

Okay. And then the next one, just thinking about the question on the project pipeline. New Prosperity has been something you've mentioned on previous calls. Can you give us an update on the catalysts we should be looking for there?

Yes. As we've spoken before, the arrangement that was set up, I think it's about a year ago now between the operator there and First Nations was that there's potential that if the First Nations decides to go ahead with the mining operation that they would be -- they would have 20% ownership of that. So it's -- there is a land use planning process that is going on amongst the First Nations. There's no time line to that. It's their determination, but they and the BC government are working on that. So I'm hopeful it will come to a positive conclusion. I can't put a time line on it. So I think that is the outlook.

Okay. Great. And one just very last quick one, if I may. I think Lundin mentioned the step down in the Candelaria stream around the end of this year. What quarter or can you give us any sort of clear guidance on when you expect that to come through?

So our estimate is first half of 2027. Obviously, depending upon how production goes at Candelaria for the remainder of '26, it could happen later this year. But for now, we're estimating first half of 2027.

Your next question comes from Tanya Jakusconek with Scotiabank.

Sandip, can I start on just the revenue side? That was a bit light on the oil and gas -- on the energy side. So I'm just wondering on the energy side, was there a little bit of a delay in sort of the pricing of oil and sort of when you received your revenue that shifted it into Q3? I'm just wondering why I was a bit light -- sorry, I was a bit heavy on my side on the oil side.

Sure, Tanya. So part of that is just information in terms of production. There's a delay in receiving actual production data for the wells that's on our land. And so we do make an estimate. But in our nature, we do try to make sure that we're as accurate as possible and lean more towards the conservative side. So wells that we are producing, and the production data for, say, May and June, we don't get the actual numbers until a few months later. So that's probably partly the reason why you were light. Sorry, too high.

Yes, too high. And then the other area I was a bit too high on was also iron ore. So just wondering on Vale side, how should I be thinking about the second half? And then on Sudbury on the PGMs, how should I be thinking about that?

Sure. Hi, Tanya, it is Matt Begeman here. On the iron ore, I think that is impacted in part by our estimate on the shipping rates is probably the largest variance there. I know that is also an accrual where we get the true-up later into September. But probably the largest variance there is our estimation to the read-through of the higher shipping rates caused by Strait of Hormuz closure.

Okay. Should I be thinking that we have a better second half? Or what should I -- how should I be thinking about that?

Yes. I think I would probably be a bit more flat absent the change in the kind of maritime rates.

Okay. And anything on the PGMs in Sudbury that had an impact?

No, it's -- we have the stream there with Magna Mining. They actually did quite well in terms of their production for the first half of the year. On the PGMs, it's just lower production from Stillwater and the Sibanye assets than initially expected for the first part of this year.

Okay. And then if I could come back just maybe to capital allocation before I come back to just the transaction environment. Should -- how should I be thinking should IAMGOLD decide to purchase back half the Côté Gold NPI, it would be $500 million coming in for you guys. Would I be thinking of that as something you would allocate to the dividend if something like that was to occur?

Tanya, if they do the buyback, obviously, that would be an influx of cash for us. As the team has highlighted, we're active on the deal pipeline front. We're not -- we've never been worried about having cash on the balance sheet. As we know, this is a very capital-intensive industry, and there's always a requirement for financing. But if we did come to that conclusion, it wouldn't be any sort of special dividend of that nature. It would just be looking at what's on our balance sheet in terms of cash and increasing the dividend at a higher percentage than we have in possibly previous years.

Okay. All right. And then maybe just on the deal transaction, Eaun, [Audio Gap] it's quite varied. And again, I always divide the deals into 2 categories. There's the precious metals deals and then there's the non-precious metals one. So maybe you can talk a little bit about sort of in the non-precious metals side, you had talked about value -- deals in the $200 million to $500 million range. Has that changed at all from Q1? Or has anything changed in that area?

Yes, Tanya, good question. I think that remains unchanged. It continues to be very active on the precious side, I would highlight for you. The magnitude of potential transactions does vary. As you've seen in the market, some can be very large. We like to maintain optionality when we see it at relatively low cost. And so we'll still do some of the smaller deals when we've got capacity. So pretty much steady as she goes.

Okay. But in the non-precious metals, is that $200 million to $500 million still valid?

Yes.

Okay. So that's that. And in the precious metal side, we had talked previously about sort of these larger operators in the base metal side looking at streaming of gold and silver maybe, and we had looked at build -- mine builds. Anything changed there from Q1?

Look, I think it's very mainstream. Any CFO now has to look very seriously at streaming and royalties as an option to finance, including at the very large companies. So potential exists there, and we need liquidity to be able to execute on those appropriately. The key theme, however, that I see emerging, Tanya, as I mentioned earlier, is project finance. We're seeing good impetus for new mines to be built. And our strategy, as you would have noticed, we've tilted towards backing teams to get projects built, and we're looking to do that big and small.

And still the same thing, Eaun, in terms of the stream component plus an equity component and a debt component, has anything else changed in the structure of these deals?

No, I think you precisely got it. What we're trying to do is where there's acute need for capital provided makes it smoother, provides the market confidence that the team has got the backing they need to get a project built. And so we'll continue to work across the capital structure with the core however continuing to be royalties and streams.

Your next question comes from Brian MacArthur with Raymond James Financial.

Most of my questions have been answered. But can I just ask on Karma, whether there's any update? And secondly, if that doesn't work out, I assume the book value of that's pretty low.

Brian, it's Lloyd here. There's no real update since we put out our press release. We are continuing to pursue our remedies under the agreement, which is governed by Ontario law. We do believe that the Burkinabè judgment is not valid and are continuing to seek to have that vacated. In terms of book value, it's -- we have -- we are not carrying any book value for that asset.

And maybe just one other question. This LOMI deal, is that totally separate from G Mining? And what are you actually trying to do with that to the extent that you can talk about it? And should I think about you doing more of these things?

Brian, it's Paul. As you know, we've got a very strong relationship with the Gignacs back then in the build of Tocantinzinho. The -- one of the next ventures here is with Tintina. You would have seen that they have made an investment there. We also were included in that investment. It's a copper-gold property down in Chile. Their objective was that they could invest in that without having to liquidate any of their shares in GMIN Ventures. So we have backed them in doing that. I'm sure they will be very successful, and we're hopeful that there will also be a stream opportunity on that asset in due course.

Sorry. So if I can just follow up, that was kind of my question. Do you, by doing this, get a first right of refusal or an option on a stream or a royalty if they go forward? Is that like you're kind of buying, I almost think of it as exploration dollars with a return, and you're getting an option off that. Is that the way to think about it?

There's no obligation there, Brian. We're just trying to -- we've got a very strong relationship, and we hope this helps build the relationship and that positions us well.

There are no further questions on the phone line. I will now turn the Q&A session over to Bonavie Tek who will take questions from the webcast.

Thank you, [ Anis ]. There are no questions from the webcast. This concludes our second quarter 2026 conference call and webcast. We expect to release our Q3 2026 results after market close on November 10, the conference call held the following morning. Thank you for your interest in Franco-Nevada.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.