Q4 2020 Franco-Nevada Corp Earnings Call
Yeah.
Okay.
Good morning, ladies and gentlemen, and welcome to the Franco Nevada Corporation year end 'twenty 'twenty results conference call.
At this time all lines are in a listen only mode.
Following the presentation, we will conduct a question and answer session.
At any time during this call you need assistance. Please press star zero for the operator.
This call is being recorded on March 11, 2021, I would now like to turn the conference over to Candida Hayden. Please go ahead.
Thank you Joanna and good morning, everyone. Thank you for joining us today to discuss Franco Nevada's 2020 year end results.
Accompanying this call is a presentation, which is available on our website at Franco hyphen, Nevada Dot Com, where you will also find our full financial results, Paul Brink, President and CEO of Franco Nevada will provide introductory remarks, Sandy brenna, our CFO will provide an overview of our 2000.
<unk> results, Ian Gray, our senior Vice President of business development, who will provide an overview of the condos subway transaction and Jason O'connell, Our senior Vice President of energy will provide an overview of the Haynesville transaction. This will be followed by a Q&A period.
Our executive team is available to answer any questions. 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 two of this presentation I will now turn over the call to Paul Brink, President and CEO of free.
For Nevada.
Thank you, Ken Dita and good morning.
Our tagline is Franco Nevada, as the Goldman restaurant that works and we're committing committed to ensuring it does work.
For our shareholders, our operating partners and our communities.
We're proud of the results achieved in 2020.
But we'd like to start by thanking our staff and supporters.
The employees and communities that are operating assets for all your efforts and particularly you will resolve through the pandemic this year to make the results possible.
2020 was a strong year for Franco Nevada.
<unk> top ESG ratings during the year from sustained <unk> MSCI and ISS.
We were active through the year contributing to help communities, whether the COVID-19 crisis.
We're committed to the World Gold Council responsible gold mining principles.
And during the year became a signatory of the UN global compact on the black North pledge.
We've also strengthened our commitment to increase diversity of Franco Nevada by adopting a goal of at least 40% diverse representation at the board and senior management levels by 2025.
Our diverse portfolio of weather the impacts of the pandemic better than expected despite.
Despite the Covid interruptions at a number of our operations and a strike at Kendall area, we were able to match and even slightly beat 2019 Geo sales.
Our energy assets for covered well through the back half of the year also exceeding our revised guidance.
Cobre, Panama produced per store in 2019, but it was really 2020 that have joined candle area and <unk> is one of our core long term cash flow generators.
On the back of higher gold prices the portfolio generated record financial results, our revenue exceeded $1 billion for the first time.
Our EBITDA margin increased over 80% and our fourth quarter was our most profitable quarter on record.
On the strength of these results we are increasing the quarterly dividend to <unk> 30 cents per share starting with our second quarter dividend payment in June.
This will mark our 14th successive annual dividend increase.
The greater than 15% increase was larger than typical.
But now that we're receiving for contribution from Cobre, Panama, we feel it's well warranted.
Our business development team. So good success for the year over the last 12 months, we acquired a royalty on the El Pollo tropical development property in Ecuador.
For the portfolio of natural gas royalties in the Haynesville shale and a precious metal stream on the <unk> copper operations improve.
The team we're selective about the assets they chose.
Patient waiting for the right window in the energy markets and added both for immediate cash flow and long term growth potential.
Along with our results we provided new guidance.
We expect strong growth in 2021, leading to another record year, we're guiding to 10% to 15% growth in our business year over year in.
In particular, we expect increased contributions from Cobre, Panama Candelaria and <unk>.
And that the recovery in energy prices is sustained.
Yeah.
Our five year outlook anticipates, a 20% to 25% growth in our business.
We're expecting cobre, Panama ramping to 100 million tonne Branam maam.
Musselwhite operating again.
Expansions at detour, Stillwater, and Tasiast and new mines in production for large Naughty hard-rock Stibnite Golden Valentine Lake.
Slides nine antenna for deck provide an indication of the contribution of the core assets and the timing of the expansions and new mines.
This is exciting organic growth in the portfolio coming from the drill bit.
The year saw exploration success at many of our assets detour acute in Guadalupe Makassar melodic Valentine Lake and many others.
Much of our long term growth potential is in the form of new copper mines, including Rosemont are Paula <unk> and no other union.
The recent northern investment by wildly metals and Andrew for Us investment vehicle bodes well for our royalties covering much of Ontario for when you fire.
To wrap up our core assets are outperforming we have built in growth and tremendous long term optionality we.
We have no debt $1 9 billion in available capital and are generating upwards of $800 million per year in cash from operations.
We have a good pipeline of opportunities and are looking forward for putting the capital to work as the industry returns to building new mines.
Lost some advanced advertising, we're planning to host an analyst day this year with a more in depth review of our assets.
The second week of April and we will publish our annual asset Handbook and our ESG reported at the same time.
I'll now hand, it over to Sandeep for his review of the results.
Thank you Paul good morning, everyone.
As we know 2020 was not a typical year as Paul mentioned, a number of our assets were impacted in the first half of the year because of the pandemic.
The steps that our operators and partners took and as the year progressed, we saw our royalty and stream interest returns for normal operations.
As a result of Franco Nevada ended 2020, with a strong fourth quarter, resulting in record financial results for the quarter and full year.
As you turn to slide 13, you can see how the company performed against the guidance levels that were issued in 2020.
The initial guidance provided by the company was 550000 to 580000 Geos hold.
Due to the impact on operations of the pandemic initial GL sold guidance was retracted in this spring.
Once operation stabilized the revised guidance was $4 75 to 505000 Geos.
As the year as the year progressed, our royalties and stream portfolio has performed better than plan with the Geos sold for 2020 521560 for <unk>.
Usually exceeding the high end of the revised guidance range.
With respect to our energy assets the company had guided to revenue of $80 to $95 million for the year using a $45 <unk> oil price again due to the unforeseen circumstances. The guidance was for attracted in this Frank.
The revised revenue range provided was 60% to $75 million in revenue.
Based on the recovery in energy prices revenue for our energy assets for 2020 was $91 7 million, which also exceeded the top end of our revised range.
I will note that revenue for fourth quarter does include $4 2 million in revenue related to the Mesa transaction, which Jason will talk to shortly.
Turning to slide 14, and looking at the gold equivalent ounces sold for the last five quarters as well as the previous five years, you can see that the portfolio continues to perform well.
The company sold 147476 Geos in the fourth quarter 2020, compared to 153396 in Q4 2019, although it was lower geos and prior year. It was the best quarter of 2020.
This strong fourth quarter closed out the year with just over 521000 Geos sold for 2020, a new record for Franco Nevada.
Gold ounces represented 75% of Geo sold for the quarter and 78% for the year.
For the quarter, we had strong performance from a number of key assets three key contributors being cobre, Panama, and <unk> and Guadalupe who all delivered higher geos than expected cash.
<unk> was impacted by the work stoppage during the quarter, which did reduce the amount of gold and silver delivered we expect a stronger year from candy, Larry and 2021.
Our MSR and NPI royalties at Hemlo had another strong quarter generating $21 6 million in revenue we.
We did have a carryover of third quarter revenue into fourth quarter of approximately $8 million for.
For the year hemlo generated $70 million in revenue for Franco Nevada.
With the increase in the gold price in 2020, it highlighted the leverage debt our net profit interest royalties do have to higher commodity prices.
Also on gold quarry the company received 6123 geos compared to the expected 11250 ounce minimum for.
For 2021 we expect to receive approximately 6000 geos.
2020 saw continued positive momentum in precious metal prices gold silver platinum and palladium prices were higher for the quarter and full year compared to prior year fourth quarter, especially saw a rebound in silver prices.
Energy prices were not as fortunate as both the WTO oil price and natural gas prices were lower year over year, However, natural gas prices due to recovery in the fourth quarter 2020.
Slide 16 highlights total revenue for the last five years, along with the average gold price over the same period.
The Companys total revenue has increased significantly over the period shown.
When combined with slightly higher Geos sold in 2020 with the higher average precious metal prices.
Total revenue surpassed $1 billion for the first time total.
Total revenue increased 21% year over year.
As you turn to slide 17, you will see the key financial results for the company.
There are a lot of financial records for the company for the quarter and full year, which are highlighted in gold as.
As mentioned with the increase in commodity prices the company had strong revenue growth for the quarter and year.
And with the margin generation of our business model. There was a significant increase in adjusted EBITDA and adjusted net income for.
For the full year 2020, adjusted EBITDA was $839 6 million at 24, 6% increase over 2019.
Adjusted net income was $516 3 million or 51, 2% increase over 2019, while adjusted net income per share was $2 71, a 49% increase over full year 2019.
As two of our key contributors for the year with Guadalupe and Hamley hemlo, both of which have minimal book value.
Result in lower overall depletion for the company.
Slide 18 highlights the diversification of the portfolio, which we consider one of the strengths and Differentiators of Franco Nevada as shown 91% of our to 2020 revenue was generated by gold and gold equivalents.
The geographic revenue profile has revenue being sourced 86 from the Americas with Latin America being the largest.
With respect to asset diversification Cobre, Panama was our largest revenue generator at 13% of total revenue for the year, followed by epic high at 12% and candidly right at 10% no one asset in our portfolio generates more than 13% of our revenue.
The last chart highlights our operator diversity, our largest exposure to revenue being generated by any one operator is 13%.
<unk> is first quantum who operates Colgate Panama.
We are fortunate to have royalties and streams on many properties mined by some of the most rapid for mining companies in the world.
Slide 19 illustrates the strength of our business model to generate high margins for 2020, the cash cost per Geo, which is basically cost of sales less cost associated with the energy business divided by gold equivalent ounces sold is $292 per Geo. This compares to <unk>.
$266 per Geo in 2019.
This amount will fluctuate each quarter, depending on the mix of royalty versus stream ounces, but as you can see at current average gold prices. The company generates significant margins for 2020 Franco earned a geo margin of approximately $14 80 per geo.
With our business model the company sees an immediate financial benefit to a rise in commodity prices.
The other cost component for the company besides cost of sales as our corporate administration costs.
Our board and management are very proud of our focus on cost management.
We'd like to stress the strength of our business model and the scalability.
The chart on slide 20, clearly illustrates our focus on being cost efficient as possible in managing this business here.
Here, we have highlighted our quarterly revenues and our quarterly corporate administration expenses since our IPO.
Since 2008, our revenues have grown from approximately $25 million to in excess of $300 million. This quarter that is a 12 fold increase.
While our G&A has remained fairly stable over this time period general and administrative cost of average $5 million to $8 million per quarter for the last 13 years.
For Q4, 2020, G&A was less than 2% of revenue.
Management believes we can continue to add to our portfolio and grow our business without adding significant overhead to the company.
2020 was a strong year for Franco Nevada as it built on our momentum from 2019.
We look to 2021 to continue to build on this momentum.
For 2021, we are guiding to 555 to 585000 Geos sold.
This is a 10% increase over the level reached in 2020.
The main drivers of the growth our Cobra, Panama, where we have the mine ramping up and producing at 85 million tons per year.
Increased geos from candidly area as it is running back at normal operations and for <unk>, where we expect an increase in silver deliveries.
We will be receiving our first gold and silver deliveries from the recent Qantas top lease stream to which <unk> will speak to shortly.
These increases will be slightly offset by lower expected ounces from hemlo with a lower gold price and lower production on the interlake claims will reduced profitability.
<unk> will be in production for the full year, but at a reduced rate we expect to receive approximately half. The geos we were delivered in 2020.
Also our stream on Karma steps away from the fixed ounces and becomes a variable.
The guidance has been calculated using $17 50 gold $25 silver and $100 platinum in 2200 palladium per ounce.
On the energy side, we expect revenue of $115 million to $135 million using.
Using a $55 per barrel <unk> price and $2 50, Mcf natural gas price both of which are higher than what was realized in 2020.
This revenue guidance does include a full year revenue from the recent Haynesville acquisition.
As we look forward to 2025, we are proud of the built in growth that the company already has in place.
Our outlook for 2025% to 600 to 630000 Geos sold.
Major contributors will be Cobra, Panama as it ramps up to 100 million tons per year, we are expecting a number of new mines to be in production as Paul mentioned Hardrock, Florida, North Te Valentine Lake has Stephanite gold.
We do expect Mccreedy western Sudbury to remain in production at 2021 levels until 2026.
Also it should be noted that our cap on mine waste solutions reached is reached in 2024.
On the energy side, the revenue outlook is $150 to $175 million for 2025.
This assumes the full capital commitment for Continental has been funded and it also assumes there is a rebound in U S drilling levels, but not to what they were in 2019.
Again, similar to commodity prices or used to ask for 2021.
Overall, when you look at the outlook for Geos sold in energy revenue growth for 2025 at current commodity prices. The company is greater than 20% revenue growth over the next five years.
Obviously this assumes no additional acquisitions added to the portfolio.
With respect to the CRA audit that is ongoing I would like to highlight a few items.
As normal course, CRA has begun auditing years, 2016, and 2017 for Franco.
Proposals or reassessment have been received we.
We did receive reassessment in fourth quarter related to penalties and interest for the 2013 to 2015 previously issued reassessment. These were approximately $10 million.
In our view these are all normal course.
Also the recent court decisions involving Canadian transfer pricing dispute, including that of chemicals are encouraging we believe CRA CRA reassessment or not supported by Canadian tax law, and we are vigorously defending our tax filing positions and we will continue to do so.
On slide 23 summarizes the financial resources available to the company when including our working capital of $610 5 million marketable securities of $191 8 million and our credit facilities of $1 1 billion total available capital at December 31, 2020 is $1 9 billion.
The company did fund the $165 million <unk> transaction subsequent to year end.
Before I turn it over to Ian I'd like to mention that we have added an interactive analyst center to our website, making it easier to download financial data historic financial information has been a day and the website is life and now I will pass it over to Ian Thank you.
Thank you Sandy and good morning.
We're very happy to announce the closing of Golden Silver three for $165 million over the condos solid mine located in Peru mine is owned by southern piece mining, which is a <unk> portfolio company.
We're very excited about this opportunity as we see excellent geological potential in the asset, which I will speak to further in a moment.
<unk> has a very long history has recently grown its institute global resources to over 90 million tons of MNI on the back of significant drilling and very good geological work.
We believe the potential for near mine in depth extensions of these ore bodies is excellent.
And are quite excited to partner with southern piece on the asset where we see very good potential for output growth and mine life extension.
The mine is currently in the process of expanding to eight 4000 tonnes per day this year and advancing studies to move to 10000 tonnes per day.
This further expansion does require some permitting we see 10000 tonnes per day or more is very likely with time.
It's worth noting also that the stream benefits from five years of fixed deliveries, which helps de risk any ramp up.
For the minus privately owned and does not have publicly reported reserves. Our team is confident the current resources should support a 15 year plus volume plan.
Moving to slide 26, we've shown common stock price location in the Andes copper belt and the overall concession.
As Youll see the mine benefits for a location 90 kilometers sales of Lima.
This provide easy access to labor and infrastructure, which underpins very low operating cost and put some line and the bottom half of the cost curve.
It's worth highlighting that our technical team sees great parallels here between the deposits geology, the underground a candle area, where we saw reserves grow tenfold since the acquisition.
The underground Manto vein mineralization is similar between them and both benefited from excellent geotechnical conditions truly helps in terms of cost and safety.
As part of the deal. We're also partnering with the operator on community development initiatives around the volume, we're very excited to have a positive impact here.
Minus enjoy good relationships with the communities for many years.
The stream also covers 45000 hectares, which is a very large land package location of the concession as shown on the right hand side of the page. Our team sees this as highly prospective land I believe theres good potential for more discoveries overtime.
Moving to slide 27, we've shown a cross section of the deposits that makeup consolidated.
The stream applies to the cortisol a role and <unk> mines, which are highlighted on this slide.
Key takeaway here is the potential debt more debt and along strike.
We see good drill indicated upside for appropriate for large size of the system. This it makes us believe the average should be a good contributor across multiple cycles.
Moving on to the next slide we have highlighted the deal terms.
The stream is effective for January one and will start contributing immediately.
The deliveries are fixed for the first five years as I mentioned and they provide roughly 13000 geos annually through that period.
We'd like to fixed feature given the uncertainty in the medium term, but we believe that the variable deliveries give us great exposure to the geological upside that we expect to see here.
The delivery switch to 63% of gold and silver contained in concentrate after year, five which we expect to low.
As for roughly another five years before it steps down to 25% for gold and silver for the entire line of volume.
We have offered the operator, the ability to buy the stream down with an advanced delivery for the first for years. If this were to occur. It would however, boost our returns and still give us immediate exposure with the 25% variable stream, which will commence their volume.
It's worth noting that the buy down in year, one is only possible under certain circumstances.
Overall, we see this as a very good fit with our model as it maximizes geological Optionality on the exciting deposits at a large land package, while mitigating our risk with the initial fixed deliveries.
We expect this asset will be a long term contributor.
Thank you very much and with that I'll hand, it over to Jason.
Thanks, Ian and good morning, everyone. In December we closed the transaction with a private company Mesa minerals partners to acquire their portfolio of royalties in east, Texas for $135 million.
The assets consist of about 2640 net mineral acres.
Which provides for perpetual ownership interest in the land and which is shown on the map on the right hand side of slide 29.
The acreage is situated in the western portion of the Haynesville shale play and Harrison and Canola counties for the producing formation is at its thickest.
The haynesville along with the Marcellus shale and the northeastern U S are the two most significant natural gas plays in the United States.
The haynesville benefits from its close proximity to the U S Gulf Coast, where low transportation costs provide strong underlying economics for operators.
Throughout the commodity price downturn in 2020, the Haynesville remained one of the most robust basins in North America and saw only limited drawdown in drilling rates relative to other shale plays.
The portfolio of royalties. We are acquiring was originally assembled by Mesa and partnership with rock Cliff energy.
Both companies are sponsored by the private equity group quantum energy partners and that relationship allowed for Mesa to leverage Rockwell's geologic knowledge of the basin and to prioritize acreage buying ahead of raw cliffs drilling program.
For a cliff as the operator on approximately 75% of the acreage position and they are the leading operator in east, Texas part of the Haynesville.
Turning to slide 30.
One of the key attributes of the royalties is that they are generating strong current cash flow.
The transaction had an effective date of October one 2020.
And in Q for the assets generated $4 2 million of revenue from the production of two Bcf of natural gas.
We expect the assets will contribute at a similar level of $4 million to $5 million per quarter in the coming year.
Looking longer term the acreage hosts approximately 700 undeveloped well locations and for context last year. There were about 30 about 60 wells drilled on our lands.
That level of activity will provide for more than a decade of drilling activity followed by a long tail as the wells decline.
Along with excellent mineral tenure and strong current cash flow the transaction is attractive and that it adds to our natural gas weighting, bringing the balance of the gas in our portfolio to about 35% in the current environment.
In addition, it adds increased portfolio diversity from acreage positions within our core of a new high quality basin.
That concludes our prepared remarks for this morning, so with that we'll turn it back to Joanna for for any questions from those on the call.
Thank you.
Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone you will hear with free Tom product acknowledging your request.
You are using a speakerphone. Please go for handset before pressing for Netease.
First question comes from Tyler Langton with Jpmorgan. Please go ahead.
Hey, good morning, everybody. Thanks for taking my questions.
I guess just to start on the energy side I know the guidance for this year is the 115 to 135.
Growing to the $1 50 to 172025 should that be somewhat I guess of a linear increase over the next five years and then can you just remind us how dependent that revenue guidance is on sort of oil and gas prices.
Yes.
Yeah, Tyler the the ramp up in revenue over the course for the next five years.
Not exactly linear for for many assets there will be sort of a reasonably steady increase in production for example from our portfolio assets in the U S.
For those assets where.
We're expecting a continued ramp up in drilling activity for you should see good.
Relatively stable year on year growth on those assets.
For our Canadian assets Theres, not a lot of growth of those assets other than increased revenue true better commodity prices.
And the other U S asset that has a bit of.
A step up call. It at some point in the next few years will be continental.
We have a structure there.
Within that agreement that allows us to take additional distributions from that partnership should the company fall short of certain volume targets.
We expect that that could occur depending on where drilling rates are within the next two or three years. So there will be a.
Net of a step up around <unk>.
<unk> thousand 23 years or so.
And then in terms of the site.
The sensitivity to oil and gas prices.
I don't have an.
An exact number to give you the.
The sensitivity on our Canadian asset.
Is it related to.
Mostly the Wayburn NRI, where we have.
We are responsible for our operating and capital costs of that operation.
So there is a fair bit of sort of financial leverage there.
With the U S asset there is leverage in the form of drilling rates.
And so as prices increase typically operators will increase the capital of the spend and increase the drilling rigs on the acreage.
So it's more than a one to one relationship with price.
But I don't have an exact.
The ratio for you at this point.
Got you and then just.
On the acquisition front I guess can you talk a little bit about what youre seeing more recently I don't know with base metal prices, having increase are you seeing more companies.
Based on all producers looking for steams on the precious metal side, if they have that are just.
More precious metal deals as kind of any color.
Around that and sort of day.
<unk> size and sort of.
Items like that.
ICT here, yes, I would say.
Three legs of the stool at the moment in terms of deal flow probably acquisition finance as people start to look at M&A again seriously.
Development finance and existing royalties.
And in terms of development finance, certainly byproducts lend themselves well to that so we're hopeful we'll see some deal flow there, but that's what I would point you to in terms of new transactions.
Great. Thanks, so much.
Thank you. The next question comes from cause small SKU from CIBC. Please go ahead.
Thanks, Paul Sandeep.
And then Jason and the team here great to see a very strong Q4 and also great to see the dividend increase here.
Maybe my first question is on energy as well, it's kind of funny, sometimes you don't want to talk about it now everyone lots of talk about it.
Jason I don't know if youll have this handy in front of you but could you.
Remind me what percentage of your revenues.
Sensitive to the different commodities I know you have some exposure to WTS exposure to a coal exposure the WCS.
Exposure to Henry hub like what percentage are we talking about based on your revenue.
Sure Cosmos and I always love to talk about energy for thanks for the question.
In terms of where we have exposure our portfolio as of Q4 was about 35% gas.
Most of that is reference to Henry hub.
So call it 35% of our revenue would have Henry hub exposure.
Yeah.
We do have a bunch of exposure to natural gas liquids, so that would be propane ethane in those various commodities, so they're exposed to a different benchmark.
And then within the oil side call it 55% of our revenue as of last quarter.
I don't have the exact split, but I would say probably.
One third exposed to.
Canadian light oil so that's in Alberta benchmark.
Another 10% exposed to WCS, which has a heavy benchmark in Canada and then the remainder would be WTO exposure. So the broad buckets are 35% gas 10.
10% Ngls and.
55% or so oil.
Great. Thanks.
Digging a little bit deeper here certainly back in 2020 with a rising gold price the NPI hemlo.
It really well just given that there's more leverage to it on the energy side, Jason given the recent increase in.
<unk> oil and gas prices is there anything similar to it because I know for example, you talked about Wayburn Wayburn has NRI, which is kind of like an NPI. There is also a working interest can we expect the same thing happen here in terms of.
More.
Don't want to say parabolic but.
Giving greater leverage either way burn or somewhere else.
Yes as mentioned the the biggest sort of form of financial Leverages from the Wayburn asset, which is it's a good portion of our Canadian revenue.
And there we do have direct leverage to increases in commodity prices that leverage obviously changes depending on what the prices for example in the spring when commodity prices were $30. A barrel we were earning next to nothing from that royalty and so every $5 incremental increase.
The oil price generated a big lift in revenue will continue to see.
Good leverage there as oil prices are moving to $65 per barrel or so in today's environment.
And the other form of leverage, which I sort of touched on a little bit as from the.
The level of activity, that's associated with drilling on our U S assets.
As commodity prices increase operators are earning more money, they're putting more capital to work, they're drilling more wells and all of that.
Benefits are royalties, it's just very difficult to give you an exact ratio of how that unfolds.
I think in this environment, we saw drilling rates really get reduced in 2020.
North America, I think as prices rebound, we're going to get not only the benefit of higher revenue, but we're going to get the benefit of higher volumes associated with that increase in drilling.
And of course, well, maybe more of an accounting question here based on the energy front.
Early last year, <unk> was quite negative and as a result.
Thank you Franco Nevada.
About a $200 million write down on.
On the energy portfolio, maybe a bit premature at this point in time, but.
When would you start considering.
Taking a look at that.
For the I guess value of your energy portfolio and potentially kind of writing a backhaul.
Hey, Cosmos Sandeep here.
Okay.
Look at it every quarter as we're required to under accounting rules at the big trigger for US, we'll beat that sustained capital spend as Jason alluded to the spending by operators on the well drilling.
Especially in the United States.
If that really comes back at significant levels Bowl will take a look at it but I wouldn't expect a reversal in the near term.
Okay got it maybe switching gears a little bit.
Contestable cotton does Huawei.
I just wanted to get a better understanding of the buyback or by Donald right here.
My understanding is that it.
It were to get exercise say tomorrow, which I know you said.
It's very very restricted in the first year or so but just as an example, if it gets.
Exercise tomorrow than really what happens is that I would have to figure out the value of 25% of what that's worth and then say over 15 years because in your presentation. It says 15 plus years and if I were to come to a value and I did yesterday, and I know I'll say $90 million.
Based on spot.
You'll have to add that $90 million to 119 debt they have to pay you so over $200 million.
For something whereby you paid $165 million for.
I guess my question is my understanding correct or is my concept here correct and number two if that's the case then the conclusion that it would be fairly expensive for the operator to buy it back is that correct as well.
Yes, Hi, Cosmos, yes. Thank you.
So the exact buyback amount is $118 75, and yes, they would have to deliver that value go to us it would be subject to the same 20% transfer price our delivery cost.
For those ounces.
So you would net that off.
And yes, it would be 25% stream would then commence immediately.
And so you'd have to value that so I think youre looking at it the right way.
Perhaps.
Just need to account for 20% transfer price on what gets reported as part of the buyback.
For sure.
And then maybe as a follow up here.
By now I.
I think Franco Nevada never really like to dabble in buy downs in the past and I'm sure that's not.
That's not ideal at this point in time as well, but.
Given the current dynamics of the day environment is this now sort of like a ticket to entry should we look at it that way or is it just on a case by case basis.
No I don't think so cosmos, there are certain circumstances here, which made a particularly important in terms of having this as a feature that with Dalian.
And so.
Price Optionality is key.
For land package, which is really important.
Stream and its residual amount, 25% is actually meaningful.
Equivalent.
Net net smelter returns.
So its size such that our Optionality is right.
Over time, then we're not giving up too much of that so we have debt balance that out.
This is what the operator is looking for that you have seen more of these things.
But certainly not something we strive to do.
Of course, thanks, a lot goes all the questions I have thanks, a lot once again.
Okay.
Thank you. The next question comes from Greg Barnes at TD Securities. Please go ahead.
Thank you Sandeep just trying to understand what we should be thinking about the hemlo now.
We said, we should expect the level of revenues in 2021.
Is there any way to give us some kind of framework, we should think about.
Moving forward. So I will give you a range Greg I think for.
For and it will be a wide range, but I think between 20000 30000 Geos for 2021 day.
Based on current commodity prices and what we what the mine plan at hemlo for entirely debt.
Ill be in that range.
I know, it's a wide range, but that's.
That's what I can tell you at this stage.
And do you have enough visibility to guess.
But what happens post 2021.
We do we do it will tail off over time.
And.
I think 2021 2022 will be similar in terms of production on our claims and then starting 2023, it will start to tail off and carry on every year at a lower rate.
Okay.
And how big will be the paywall.
At these prices I would estimate about 10000 geos per year.
Yes.
Thank you that's it for me.
Okay.
Thank you. The next question comes from Kerry Macquarie at Canaccord Genuity. Please go ahead.
Hi, Good morning, everyone, maybe almost similar vein Sandeep, you mentioned Mccreedy west production going through 2026, and I know your guidance for 2021 is lower than 2020, but just on that particular stream, what we should expect maybe over to <unk>.
There is a number we can use over the five year period.
At share so I think for 2020, we did about 21000 geos volume of that.
For 2021, that's our estimate and we see that just being carried through.
Through to 2026 at this stage.
Okay, Great and then maybe two more questions. So I guess on gold Corp.
Its transition from the minimum I'm, just wondering is that something that was planned or sort of what.
How that came about and then secondly on <unk>, obviously a record quarter.
Some of that sort of carry through from Q2 Q3 or is that relating to Q4 production.
Sure so on gold quarry, yes.
The annual Minimums 11250, we did expect that to drop off starting in 2022. So it's a year ahead of schedule.
So we did about 6000 Geos will do about 6000 for 2021.
And then post 2021 right now are estimated at 1350 going forward. However, the caveat with that is how the reserves change at Goldcorp.
So there is certain layback that if they get included the reserves will increase with our minimum will go back up so.
Those are the numbers at this stage, but as we get more information from the operator.
The minimum could change.
And then with respect on the edge.
And answered for Cai, yes.
Had some carryover of deliveries.
From Q3 for production from Q3 into Q4.
Yeah.
Okay, Great and then maybe just one question on the new stream on that day in terms of announcing Peru, but.
Just think about the mine life. There you guys talking about that sort of 15 year sort of planning mine life, but.
Based on the resource base. It looks like there is more than 40 years, there and obviously it looks like it's still open for exploration. So I'm just trying to understand.
The context around 15 years.
In terms of my life for potential.
Being here yes.
Yes, there is a very large resource base there. It's one of the things that we really like about the asset in terms of the immediate mine life. Obviously, you have to look at what is our highest level of confidence around it.
In terms of that resource, which we provided and so thats, how we come up with that we think there will be very long and fruitful mine life. The asset has been operating now.
Some capacity for over 50 years and continued good drill results. So.
Yes.
How we look at it yes, we do see for potential for <unk>.
<unk> well beyond that.
Great. That's it for me thanks, everyone.
Yes.
Thank you. The next question comes from Brian Macarthur at Raymond James. Please go ahead.
Hi, Good morning, a lot of my questions have been answered, but maybe go into another street here just on the restructuring of.
They all are.
It talks about a 105750 cumulative is that from September 21st or is that like day one.
Exactly how does that one work now going forward over the next number of years and then what's the 6% true up based on the time period now or what you would have seen before.
Yes so.
What happens with seven dollar is theres, a fixed delivery profile, which continues as outlined there is quite a bit of detail in the MD&A.
So they can continue to deliver through to that total low threshold and at the end of that threshold you have low.
And say, okay, how much actually came from <unk>.
Versus if you would assume the 6% which was as well as free went to anyway.
Versus what came from elsewhere.
Mass flow and then effectively what would happen is if there was a lot of displacement for mass low which is likely.
We will go on hiatus in the 6% won't start again until it caught up for the cumulative amount with production from Sabadell.
So I mean youre concerned about other.
In more detail offline as well that would be helpful.
Okay, maybe I'll do that thank you very much.
Okay.
And ladies and gentlemen, as a reminder, should you have any questions. Please press star one.
Next question comes from Tanya Jacquie.
Shannon at Scotiabank. Please go ahead.
Hi, Yes. Good morning, everybody just a couple of questions I'm going to start and.
And to the Cai if I could.
And just turning on to the Carl Cryo lateral project the scope and the timing I just wanted to ask number one what changed there and number two is it still include the day near five year guidance I think it was last year.
Hey, Tony its Paul.
So far for Michael.
<unk>.
<unk> it is an additional deposits <unk> deposits.
About three quarters the size of <unk> itself.
Glenn Cohen.
Have been planning to developer.
Plan their work on was it a combination.
Well most of the on the ground.
Please limit for footprint.
Yes.
They've had some success with the community there believe now they can build a mine with a bigger footprint.
So it can make its largely an open pit mine.
So thats they are back to the drawing board on the asset looking at that Big a mine plan.
So theres, good and bad news there it means over time more metal.
They have moved it back in terms of the timing.
I expect it's more likely to contribute at the backend of fee at a timeline plan.
Okay. So it's not in your five year guidance.
It doesn't impact our five year guidance for it.
Expect that all that production is from Adam.
Okay.
And then maybe just turning over back to them.
Columbus stable guidance that you provided this morning does the higher end of the production guidance range of Sam expansion to Jeff 88, 400 tons, a day or 10000 tons per day.
Hi, Ted.
Yes, so the bottom end of the range is closer to the 8400 tons per day.
And the 10000 I believe it would be more towards the middle end of the range as I said, we see growth potential there too to increase further with time given the size of the overall resource.
Okay perfect. Thanks, and then just turning to <unk>.
Energy portion I'm, just trying to understand a little bit your guidance for.
For 2021.
We have seen significant yes, showing significant growth on existing assets. Despite the big Capex cuts.
That we've seen in most operators seem to be aiming for flat rather than growing production, but what are you assuming in terms of operating capex increases relative to your 2021 bad debt.
Okay.
Yes, Tim here for 2021, we're assuming a modest improvement over what we saw this year there was a lag in 2020.
If you recall at the beginning of the year oil prices were still reasonably strong and operators were still carrying out a fairly robust level of drilling and so what happened is.
2020 had kind of call it half of a normal year and then have a very depressed here for 2021, we're assuming a continued rebound.
Still not to the levels that we saw though in sort of pre COVID-19 free.
OPEC shock levels.
Yes.
Okay.
And then maybe just on <unk>.
Just transaction wise, you talked about channel what Youre seeing out there in terms of acquisition finance development and existing royalties may.
Maybe just.
What are the size of the transactions number one and number two can we see you do more in the oil and gas space.
So plenty of interest for pipeline its a good pipeline.
Okay.
As Ian mentioned the combination there.
At new mines and acquisitions.
So I'd say those are the most of the things.
On the energy side, very very happy to add the Haynesville here, we continue to look.
Although I'd say in terms of what's active at the moment, most likely precious metal and also other metals. This is the high likelihood through this year.
And are we looking still in the range of a couple hundred million debt 500 million <unk> range.
Yes, I would say everything in the pipeline is.
Meaningful to move the needle.
But also in Boston I think that it would.
But it also for the assets that increase our diversification.
Okay. Thank you very much.
Yes.
Thank you there are no further questions I will now turn the call back over to Peter Haden for closing remarks. Thank.
Thank you Joanna.
We expect to release, our first quarter 2021 results after market close on May five with the conference call held the following morning. Thank you for your interest in Franco Nevada Goodbye.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and we ask that you. Please disconnect your lines.