Q2 2020 Franco-Nevada Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to the Franco Nevada Corporation Q2, 2020 results conference call. At this time all lines are in listen only mode. Following the presentation. We will conduct a question answer session. If at any time. During this call you require immediate assistance. Please.
The press Star zero for the operator. This call is being recorded on August six 2020, I would now like to turn the conference over to Candide Hayden IR. Please go ahead.
Thank you Colin good morning, everyone. Thank you for joining us today to discuss I get about a second quarter Twentytwenty results.
The company. This call is a presentation, which is available on our website at Franco Highpin, Nevada Dot Com, where you will also find or full financial results.
Sandeep Rana CFO of Franco Nevada will provide a brief review our results and Paul Brink, President and CEO Frank in about I will provide business development update this will be followed by Q in a period representatives from our executive team are present in our board Jim to answer any questions, we would like to my purchases.
And stuff some of today's commentary may contain forward looking information and we refer you to our detailed cautionary note on slide two of this presentation I will now turn over the goal to Sandeep Rana CFO of Franco Nevada.
Thanks, Ken good morning, everyone.
As we all know second quarter 2020 was not your typical corker Franco Nevada like many companies was impacted by the coping 19 pandemic.
The company had ended 2019 with very strong performance from its royalty and stream assets, which continued into first quarter 2020.
However, with Colby 19, we had a number of interest impacted in the second quarter.
Or 56, producing assets at the end of March 15 were impacted in some way.
These assets, where either mandated to shutdown or to partially curtail production.
As of today, we are pleased that almost all of the assets that were impacted have resumed normal operations.
Only the Golden Highway assets remained close.
For two our royalties and streams resuming normal operations and continuing to deliver the growth built into our portfolio.
On slide three we have highlighted the golden gold equivalent ounces for three months and six months ended June Thirtyth 2020, and 29 cents.
Overall, despite the portfolio not performing as planned due to the pandemic Geo sold for a fairly stable for both creates show.
For second quarter 2020, Geo sold were 104330 compared to 107770 for a year ago.
The company has benefited from Geos delivered in soles can calibrate Panama as a company began receiving gold and silver ounces in third quarter last year. However, deliveries in Q2 2020 were hindered by the mine being placed on turned me answer because it to cope with 19 pandemic, we expect deliveries to wrap up over the next few months as <unk>.
Resumed operations.
One other material asset that did did deliver last years in second quarter compared to a year ago Santa Buckley.
Mine did experience concentrate shipment delays in April and May as a result can depend on it. So we are beginning to see catch up deliveries up though is delayed shipments.
With respect to the rest of the portfolio, one asset which showcased its leveraged to the rising gold prices was hamill.
Thanks in about a has a 50% net property trust on the interlinked deposit within handle the company saw substantially increasing geo delivered and revenue recognized for second quarter compared to year ago. We expect this asset to continue to do well as gold prices increase.
With respect to PGM silver and other mining assets. The company did recognized last T O sold which was inline with expectations.
Slide four highlights our Golden gold equivalent revenue for Q2, 2020, Q1 2022 to 2019.
The company's Golden gold equivalent revenue increased 26% compared to a year ago. Despite relatively flat chiho sold the increase in revenue was due to the increase in gold prices with the average gold price for second quarter being 17, 11 crowds compared to 13 times, perhaps a year ago.
Energy revenue had a significant decrease year over year.
He's decreasing from 27.6 million in Q2, 2019 to 14.6 million in Q2 2020.
Overall production at the assets did increase for the energy side, but this wasn't a gated by the lower oil and gas prices realized in the quarter as Youre aware all prices reached historic lows in April 2020.
As you turn to slide five you will see the key financial results for the company I won't get into the detailed numbers, but the company continues to deliver strong financial metrics being revenue adjusted EBITDA and adjusted net income.
For Q2 2020, adjusted EBITDA was 158.1 million.
14.6% increase over a year ago.
When adjusting for unusual items adjusted net income was 43.4% higher in Q2 2020 compared to Q2, 2019 91.8 million versus 64 million a year ago.
On slide six we illustrate the diversification of our portfolio revenue generation as shown 92% ever quarterly revenue was generated by Colton gold equivalent in second quarter with gold being 70% silver, 10% Pgms 11, and other mining 1%.
From a geographic revenue profile revenue was sourced 82% from the America with Latin America being the largest.
And the third chart highlights the asset diversification of the company candle area was our largest revenue generator, 14% for the quarter, our top four core assets Cobre, Panama candle area and the Cai and into me now generate 36% of the revenue for the company.
One area that our board and management is very proud of is our focus on cost management and being a high margin business.
We'd like to stress the strength of our business model and the scalability.
Chart on slide seven illustrates how the margins for the company increases that go ask coal prices increase.
Our cost structure, which we reflect in our cash cost per ounce includes Rick cost of sales less cost associated with the energy business.
As you can see it does fluctuate quarterly, but approximates $250 to $300 per ounce.
If gold prices continue to rise we expect to benefit fully has to cost per ounce and should not increased significantly.
This is truly a high margin business.
As you're aware on April 720, 20, the company did to retract its geo sold guidance due to the uncertainty around the impact of coping 19.
In addition, the energy revenue guidance was pulled due to the sharp decrease in energy prices and the related volatility.
Management, its reinstating guidance for 2020 at this royalty and stream assets impacted by the pandemic begin to return to normal operations.
Based upon performance for the first six months at the year and our expectations for the second half the Geo sold Guy guidance is 475000 to fiber and 5000.
This guidance is based on commodity prices of 1800 article $20 Silver 900 plot and 2200 dollar palladium.
With respect to the energy Division revenue is projected to be between 60 to 75 million for the year. This is assuming a $40 w. T oil price and two dollar Mcf natural gas price.
Before I turn it over to Paul I wanted to provide an update on the CRD audits. The respect to the transfer pricing Reassessments receipt for Mexico in Barbados, there are no material changes to what has been disclosed previously.
However in July the company did receive a proposal letter related to tax years, 2012, and 2013 foreigner cool property income.
Sorry claims that the income for those tax years earned in Barbados should be taxed in Canada under copy.
The tax code would be approximately $7 million before interest in penalties.
Franco Nevada does not agree with the proposal nor the calculation prepared by sea Ray and has made this clear to CRM.
And now I will pass over to Paul will provide an update on available capital consist of all these wait while the recorder is connected.
Thank you Sandy.
The cost is now being recorded.
[laughter]. Thank you I'll be talking about recent development.
Business development activity and our future growth drivers.
[noise] during Q2, we reached agreement on 100 million financing for Sogou old, where we will receive a 1% NSR and old production from the cask casket belt property in Mexico.
[laughter] ask about the large copper gold porphyry system amenable to block caving.
We believe one of the best copper gold development projects globally.
And I was also has a 2.7 billion tons at 0.53% copper equivalent.
Very interesting to us that includes more than 21 million ounces of gold.
The results includes high grade call.
More than 440 million tons at 1.4% copper equivalent.
[laughter]. So gold has the option until January of next year to increase the deal by 50%.
That would be a 100% royalty and 150 million dollar financing.
Also have the option to buy back half of the royalty for a period of time.
[noise], we've retained an option to convert the NSR on all metals to a gold only royalty on an NPV neutral basis.
[noise] as cobot travel restrictions were in place when we agreed the transaction onsite due diligence was deferred.
We've provided interim funding to last overall to continue its activities until we can complete out due diligence.
But for the transaction goes to again, great and our business development team.
And they're available to take any questions later in the call.
I will turn out our growth outlook.
We feel particularly well positioned us to gold price runs with a close to 20 years of life and built in growth for the next number of years.
Business development remains active short term, we expect to be successful what some smaller transactions.
Medium term, we're active bidding a larger transactions so low as always these a competitive processes.
We also expect some attractive energy assets will become available as the sector shakes out.
[noise] organic growth is again, becoming a big contributor as we move further into the global market.
Slide 10 shows the expected drivers.
Expansions on Stillwater, Tas, yes, and Mckasson and the construction of Solars Naughty and Karl quite go all included in outside your guidance.
We also have a very broad portfolio was 35, other mining development projects and greater than 200 exploration projects.
The pace of development at many of these assets has picked up.
It's like Valentine late Hardrock stood by Golden Monument Bay.
No not enough 2024 guidance and that development is more and more likely.
[noise] slide 11 highlights positive portfolio updates from the quarter.
I'll point to one in particular Dent in Australia, let's undergoing a change.
Historically minus as a number of open bank deposits they've discovered major underground extensions and are currently developing the first of a number of underground mines.
One development not on the slide it now appears this good potential for life extension set us up break PGM streams.
We've also seen great exploration success at a number of our assets, particularly in Canada.
A satellite so on a deed to scolded melodic and extensions at Mckasson handle.
SK Creek is also increasingly looking like it'll have a second life as an open pit operation.
Well this organic growth would come at no cost.
The final topic to cover is available capital showed on slide 12.
Okay balances building rapidly we have working capital of 478 million.
We have no debt.
Including our available credit facilities of 1.1 billion, we have a total of 1.7 billion of available capital to deploy on new opportunities to grow the company.
Well that I'll hand, it to the operator and we welcome any questions.
Thank you ladies and gentlemen, we will now begin the question and answer session.
Should you have a question. Please press star followed by the one on your Touchtone phone you will hear three tone prolific knowledge in your request and your questions will be pulls in the order. They received should you wish to decline on the pulling process. Please press star followed by too. If you are using a speakerphone. Please lift the handset before pressing in Q1.
Moment for your first question.
Okay. So your first question comes from a Puneet Singh of Industrial Alliance. Please go ahead.
Hi, Good morning, I guess my first question is as Koby, Panama ramps up.
Expect any kind of a lagging deliveries however that works in terms of recognizing that yields for your reporting in Q3.
Yes, so they're at first quantum states that there'll be a fully ramped up by mid August and and then from there it could take anywhere from four to six weeks for us to be paid so.
We should see some deliveries in August, but I would say towards the second half of September is when we will get back on track.
Okay. Thank you and then on the energy as I see Weyburn was one of the artist and Doug has recovered since I just want to get a sense of in your guidance for energy revenue how much of that is allocated to weyburn. How do you think that asset performs in relation to the others in the second half a year.
[noise] weyburn should improve dramatically in the second half of the year. The as you know when the prices collapsed in April and May TV realized price for Weyburn dropped significantly it was around.
$20, a barrel or so which was less than.
The cost for capital and operating.
And so there was actually negative small negative balance there on the enterprise.
Now I will turn around to the back half of the year as prices improve so there should be significant increase in revenue from particularly as we bring him and our I.
Second part of the year on that is factored into our guidance.
For energy.
Okay. Thanks.
Your next question comes from Josh Wolfson of RBC capital markets. Josh. Please go ahead.
Thank you I'm looking at the ATM, which has been running at around $50 million to $70 million per quarter.
We haven't seen much in terms of use of that cash asserts I guess added to the balance sheet beyond free cash flow.
You know how should we look at the ATM going forward is this kind of a constant a you know revenue stream for the company or is this expected to be used for a deal or is your son implication on valuation we should be looking at you for for the use of that ATM program.
Sure. So it's a tool for us and Weve been opportunistic initially the goal was to pay off our at our debt, which we've done.
And then part of that is what's in front of mix in terms of deal flow, but if the cash does sit on the balance sheet. I think we've shown over time that we can deploy it and that you know it's a it's a very cyclical business and whoever has cash usually benefits at the end of the day.
Will it be ongoing I think it's a tool for us to continue to look at using but as we've always said we'll be opportunistic.
Okay. Thanks.
And then with regards to they to the change in guidance for 2020, Ah Theres, a bunch of moving parts and I guess factoring in Colgate related items. Some change that the underlying operations and then that and then the change in the commodity price assumptions is there any read through on on the on the Guy.
It's changed with respect to but yes, you could provide in terms of the operating underlying operating asset changes, specifically I guess that resulted not I guess Kendall areas. One one larger change, but as or is there anything else, we should be aware, maybe for our forecast going forward.
The main source of the change is just the Colgate impact for the various assets and then in addition to what you mentioned candidly area, where lending came out last week with updated guidance. So it's it's reflecting the update there but otherwise.
You know we assume the operations will return to normal in the second half a year.
Okay.
That's all my questions. Thank you very much.
Your next question comes from Jackie Frizzy by allow skew of BMO capital markets. Jackie. Please go ahead.
Oh, thanks, very much Im just a follow up with a Josh is capital allocation questions I noticed the dividend went up by a penny in the quarter. A in Q2 can you talk a little bit about.
What your thoughts are around the dividend if if you see room for maybe further dividend increases or or how you guys you're thinking about that in the context of the rest of your capital allocation decisions.
Sure such I want to core objectives obsolete out the company is to have a sustainable and progressive dividend and have that track record, where we've increased it every year. Unfortunately, we've been able to do so for the last 13 years.
Yes, we increased it by one one cents per quarter recently, and we'll look to increase it is going forward, but there is no.
[noise] metric that we tie it to you and depending on where we are in this cycle it could lead to higher than traditional increases, but again. It will just depend what's in front of us at the time, but we are committed to to raising our dividend each year.
Great Thanks and.
Oh, sorry, just a yeah. That's it can be the other question just.
A lot to get back into queue, but think about it. Thanks.
Okay. Thanks.
Your next question comes from a carrier mastery of Canaccord Genuity Kerry. Please go ahead.
Good morning, maybe just another question on the updated Geo guidance on just given the timing of concentrate sales.
There any sort of split we should think about in terms of Q3 versus Q4, if we just sort of take and the rest of your guidance.
Yes. So you will you will see a higher geo sold in Q4 versus Q3.
For the split.
It's probably going to be.
60, 40 in terms of the incremental Geo sold for the second half a year.
Okay, and then maybe just on the sole gold transaction just wondering.
No what the schedule looks like just wanted.
Diligence completion.
[noise] Hi, Kerry in Gray here.
Due diligence is ongoing we.
We hope to complete something in the near term.
As we've previously message.
Obviously with cobot, a these things are bit challenging but its ongoing.
Maybe one more question Paul you mentioned some of the bigger opportunities.
So your medium term just when you put some color on medium term.
[noise] or.
The as discussed fall they awesome attractive transactions out there that this development team is very active on that.
They are competitive, though and and we expect to be competitive in them, but as always the objective is to generate returns for shareholders rather than just to grow the size of the company.
Yeah.
Maybe one last one with copper prices sort of back creeping towards $3 is that.
You know some of these potential transactions were more base metal transactions or does that.
Change the outlook for some of these get done.
Yeah.
Sure at Sea and again here.
That takes pressure off some balance sheets. So on balance, yes, I would say take some things off of oil.
However, I would also point to the copper gold ratio still being quite favorable for pay smells producers to do precious metal streets.
That's great that's it for me thanks.
Your next question comes from Cosmos.
Chew of C.I.B.C. Kosmos. Please go ahead.
Thanks, Hi, Paul High Sandeep, Oh first off congratulations on a very solid Q2.
All things considered.
Let me my first question again is on the corporate development side.
Paul as you mentioned it all the opportunities out there.
You know could you maybe you know into POS you talked about you know one opportunity as you talked about is precious metal streams of base metal mines. The other one is of course, it all potentially helping some of these producers.
Transact in M&A transactions are those no still too are the key sort of sources of opportunities coming up.
Cosmos. Thanks, a question I'm going to handed over to you.
Hi caused by you.
[laughter].
So.
I would say M&A Kosmos is probably slowed down a little bit in terms of aquas funding acquisitions.
Probably more or what you're seeing is.
No base metals producers and another theme I would point to is that existing precious metals royalties are increasingly.
On the market, so we're seeing a bit more of that.
Well <unk>.
And then as a follow up and you're not I'm not sure how much you can share with US here, but you know as we've all seen precious metal gold prices have increased.
Record highs silver prices have increased how's it made it more difficult for you to price somebody's deals in that or you know as Paul mentioned, you know these or content competitive situations or producers asking for some of these deals to be priced at spot.
Now would you pay spot.
So kosmos we're looking to do good deals for our shareholders. So certainly we have to take a measured approach to evaluating devaluation.
And that's something that we look to do I can't share obviously too much there. It these are competitive processes.
But we're looking to do good deals not just deals for deals sake.
For sure.
Oh, maybe a question on.
You know the Npis Sandeep as you mentioned hemlo was one where it had a good leverage in the quarter.
You know certainly benefiting from higher gold prices.
How about your other Npis you know your Youre, the whatnot Kirkland Lake and I want to gold strike should we expect you know again the same type of leverage.
On a go forward basis that some of those npis as well.
Other or any other npis I might have missed.
Sure so.
Mcafee and with Kirkman Lake and it's a question of whether when the mine on that land. So the anti doesn't apply to the whole property. So I think for the foreseeable future that will be minimal.
Goldstrike just again, it's only applies to certain claims.
And upon what flows through I think 2000 dollar gold you will start to see the leverage come through at the gold strike Npis.
But the up the one we are looking forward to with Musselwhite, where we do have a 5% Npis, obviously musselwhite was impacted by the fire last year.
But it is up and running and that Npis.
Hopefully starting next year, we'll start to kick in that revenue again.
So that will probably have to the most meaningful impact versus Uh huh.
For sure.
And talking about different different zones at the royalties here, one I want to move to us Canadian Malartic underground.
As we kind of started hearing a agnico eagle and Yamana has really started talking up you know the underground potential here at Canadian Malartic. As you mentioned earlier today, you know you talked about a use quality zone.
And you know potentially somebody other underground zones as well could you maybe remind us. This is likely on your website, but could you remind us in terms of for example, east Goldie two 2.7 million ounces in underground resources, how much do you have how much of that as on this on your royalty ground and turns on the other you know.
Deposits Odyssey East Malartic, Oh, you know what do you have in terms of.
Total resources that could be attributable back to Franco Nevada.
[noise] Kosmos Paul really yeah.
Probably the best place to lock is in our asset Handbook, where we do have a schematic that shows the position as we understand it obese goldie relative to our royalty claims recall at them or logic. We have a couple of individual claims we don't coal cover all the property but.
You will see there our best estimate of the portion of East Goldie that we cover and Oh, we do potentially touch on some of the other areas, but east Goldie is probably like area, where we get more ounces. We don't have a detailed breakout of the actual results to give an accurate.
Exactly.
For sure.
And then maybe one last question if I may likely to Jason here no. Good to see that Youve reestablished your revenue guidance for the year in terms of the energy portfolio.
Right now you're looking at I believe $40 per barrel and two dollar per Mcf in terms I believe that's Henry hub.
You know clearly those numbers those assumptions pretty good at this point in time, but Jason could you remind us in terms of the sensitivity a jewel commodity prices.
And who knows it might actually go up from where it is today. If we have more of a V shaped recovery. So I just want to get to understanding in terms of your sensitivity.
Got off to a the oil and also natural gas prices.
Thanks, Scott costs, it's Jason here and you're right there is some leverage.
Two revenue from a rising commodity prices.
We have leverage in our Canadian operations, mostly through our Weyburn in our I and also some through you Orion royalty.
And then in our U.S. assets, we have leverage that comes from a really from increase in drilling activity.
Operators on our lands in the U.S. ramp up their development pace.
It's very hard to give you a an exact number ratio for leverage right now we're sort of waiting to see as the prices come back what response the operators have in terms of increasing their capital budgets and increasing their development pace.
Hi, So I think as a prices sort of settle out here and become more consistent.
We'll probably get a better idea over the next couple of quarters.
As to what a rising commodity price would do for activity rates in the U.S. and then we'll be able to give you a better.
Sort of leverage number to work off of but certainly you should see as the as a commodity price goes up at a minimum you'll see a leverage at our Canadian operations, just because the financial leverage associated with those royalties.
Sounds good so Jason I guess I'm you know it sounds like it's not just so much no commodity sorta leverage it might even be on top of that some kinda operational leverage.
And Oh somebody operators might start pulling putting more drills back into the ground.
Yeah, that's exactly right I think what you saw when.
The oil price sort of crashed in April was a real pull back from peak companies in terms of female dollars they were putting into the ground and drilling and development.
As the price rebounds here, there will be a point where operators start to recommend that capital.
But we just have to fall what we obviously don't have the visibility into.
Operator, slams and we'll have to wait for them to start committing that capital before we ever better idea how that impacts a production going forward.
Yeah, and Jason I guess another follow up here is that your though right now it's back up to about $40 per barrel WT.
Based on your experience do you think that's enough.
For operators to put drills back into the ground or do we need a higher price or do we just need more stability.
You know it it's a bit of both I think what you're seeing right now is sort of a rebalancing in the whole energy market. You, obviously had a huge disruptive event that happened.
We're operators cut capital significantly.
Curtailed production, they really trimmed their development plan.
We've just recently come back up to $40 and I think a few companies are still a little bit reluctant to really increase their capital budgets or most of them. If you look at what they've been saying publicly is that they plan over the next year or so I asked these types of prices $40, a so to try to keep their production reasonably flat or.
Let me introduce I'm very low rate of growth on the order not to 5%.
Nobody out there right now is talking about growth.
20 or 25%.
They were at higher prices I think that's going to take time, how you're going to see you're going to see more sustained higher prices before you would expect those kind of growth rates to come back.
$40 I think.
Right now in the market. That's that's a recipe for operators to kind of maintain production profile a.
I don't really reasonably flat level.
Great. Thanks, a lot a those all the questions. So thanks again.
Your next question comes from Kenya.
Cool stomach help us Scotia Bank tenure. Please go ahead.
Oh, Yes, hi, good morning, everybody and I'm, sorry, I jumped on the call it a little bit late and I think Sandeep, maybe you had given some guidance on them Kobe, Panama I you know what I understand is that by September we're gonna be back on track.
Shifting that.
Is that fair to assume that that's when we can get back to about 25000 L. A quarter right. Okay. Then in September yes, yes towards the end of September that should be the going rate going forward.
I'm, sorry did I Miss on Anthony I know it was about eight to 10000 ounces of gold equivalent to quarter did you provide when we got back on track there I know not at this time.
Okay and just.
In Q1, you gave guidance that you still expect the oil and gas front, we have a lag in terms of revenue impact then we were going to feel that in the second half of 2020 is that still the case.
Oh, Yeah, that's factored into the guidance that we provided 10, okay. We do think there would be like as the see lower commodity prices impact production levels.
But that is factored into the guidance that we provide.
Okay. Okay.
Okay. That's if on the guidance, maybe just coming back on the M&A and I did we are hair Polynesian talk little bit about that.
And then when you mentioned the small to moderate five among Q1, you had mentioned that was under 500 million is that now that that all five that you're seeing in the short term short to medium term.
Yeah, I mean, we're seeing some smaller transactions that are most actionable under 100 million Mark I would say.
But it really runs the whole gamut 10 in terms of size at the moment within the pipeline.
From quite large to relatively small.
Okay and you also mentioned that with the higher you know <unk> metal prices the balance sheet at her on the on the base metal side, but you had mentioned on Q1 that you were also looking at transactions and the non passion model. They stop they model of them. All is that still something you're seeing now or Oh, yes, you're right now around.
Okay shipped to the energy that there.
No I think right across the spectrum, there as well both precious.
Other mining, so basically bulks and energy. So we're looking all of those things booking for the best deposits.
Okay.
Okay, and then and then just on the technical due diligence that you mentioned that you still doing the technical due diligence how are you finding.
Now I think is opening up.
There is to certain respect we're also getting better at a more creative ways to to get comfort on assets and.
Leveraging a.
Contacts and so forth, where we have them.
So we know and trust.
Okay.
Thanks, that's all pretty much on not you know it getting access to hit places I still have that cattle restriction.
Yeah. There are so there are certainly some places but other places it's just more challenging in terms of logistics.
Okay.
Okay. Thanks, a lot.
Your next question comes from Greg Burns of TD Securities. Greg. Please go ahead.
Yes. Thank you Sandy on the sea Ray situation is there an avenue to open up settlement discussions with CRH and come to some kind of conclusion, along with some lines that we did.
That is one of the options, we will evaluate as time goes on and the discussions I think you know we waited for the cameco decision and that was favorable.
When the appeal. So it is one of the options, but we'll explore all our avenues time at the end of the day, we think we've done everything in compliance with the laws.
And so we think.
We shouldn't have to pay anything else, but we will continue to explore options.
You had another open discussions with them on that front, yes.
Not yet.
And then on the M&A front, you've mentioned the would competitive a number of times.
The biggest deal done recently.
My pleasure to out likely we've done it about a 3% IR is that the kind of.
Oh metrics, we should be looking out for deals going forward now.
[noise], Greg you know, it's hard to comment on specific transactions that have occurred within the marketplace and Theres, obviously, a lot of assumptions that go into your calculation there but.
I would say that we're looking to do deals with reasonable levels of return vis-a-vis deals that we've done in the past.
And using similar methodologies to look at metals prices.
So we're not breaking the mold.
Okay.
Sandeep final question, just returning to you.
With your balance sheet, whereas that and that's free cash flow you're going to be generating.
Does it make sense to.
I have more efficient capital structure and carry some debt going forward when that would enable you to do a big deal, but also continued to pay a large dividend or launch.
Yes, it's a fair comment Greg, but I think what we've seen in in the history of the company is that a you know when this is a cyclical business and the best time to put on debt is when there's a downturn and.
We did that in 2014 2015, when we added candidly area active calling into Nina we went into that downturn with no no leverage and it was the perfect time to add leverage. So that's that's the way we view the caps.
Is there is a time to put that on the balance sheet, but now it's not the time.
Okay. Thank you.
It.
Question comes from Bahar terrific of Credit Suisse. Please go ahead.
Hi, Good morning, just one for me I'm on the energy side of the business can you talk about.
This year, obviously energy revenue is gonna be maybe lots and 10% of the overall mix what does it look like in a more normalized year next year is it still back to that 15, 20%, maybe even higher.
And are there opportunities to lower the capital commitment with Continental next year as well thanks.
So I'll take the first part of that question Sandeep here with respect to next year, it going forward or would be significant increase in precious metals prices energy revenue will will likely be below the 10%.
If commodity prices stay where they are currently it will definitely be less to 10% of revenue.
And with respect to contact I'll pass it over to Jason.
Yes.
There is potential to.
Decrease that commitment or spread it out over longer time period.
The objective of that partnership is to try to buy acreage on the ground in front of Continental's drilling program.
And so it depends a little bit on how aggressive continental is in their development efforts and their drilling efforts if drilling and development continue at a slower pace. There is less acreage available to to buy on the ground.
Places and if Thats the case, we may.
Lower commitment there.
That's a question we haven't really address the continental yet we'll have to wait.
The later in the year before we determine what the the appropriate level spending next year should be.
Thank you.
Your next question comes from Brian Macarthur of Raymond James Brian. Please go ahead.
Hi, Good morning, just following up first of all Antonios question about the delays for oil and gas royalties coming in it should we expect Q3 to be had relatively hard versus Q4, just because of the time either oil price and a lag effect. The when the drilling goes on well Q3 again be quite a bit lower than Q O Q4, if I look at.
Awaiting by quarter.
Yes, Jason your Brian I think that's that's correct I think you will see some carryover into low price impact in Q3 more southern Q4, so if you're looking at dividing up that revenue over the balance of the year you'd want to weighted a little bit more.
Towards the fourth quarter than the third quarter.
[noise] and my second question is kind of philosophical even pretty good historically about doing counter cyclical investing.
If I if I ask you now I mean oil and gas and sort of got into but I could argue gold high even probably base metals are high oil low relatively speaking right now and yes, you got your deal with Continental which regulates how you do think but philosophically should we.
We would we be surprised we saw you enter at oil deal with someone else going forward I'm, just trying to philosophically see back to where youd be allocating capital and I realize it depends on what deals come available, but you've talked about doing energy based model precious metals.
On a counter cyclical basis, maybe oil right thing to do right now.
[noise], Brian it's Paul.
You're absolutely right as you well know this focus is on gold, but any other commodities, we try and be opportunistic the general criteria there.
For the other commodities are.
Or is it a good deposit that's the number one driver, but if we're doing deals outside a goal. We also say how do we justify that that is better deal than we could do in the goal space and some of the ingredients go into that is I think a jurisdictions because its current cash flow.
And also for those other commodities are we being opportunistic.
Do we went out we're going to get the timing absolutely right, but for those other commodities. We want to believe that were in the lower half of the commodity price cycle, when we do that.
So.
As any deal comes forth that those are the criteria that we look at and Uh huh.
You're absolutely right the they are.
Assets in the energy sector that will fall into that and that's why we say as the sector settles down and a sellers.
Find a price level that they are willing to sell assets and maybe some good opportunities.
Great. Thanks, very much Paul.
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