Q4 2020 Franco-Nevada Corp Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the Franco, Nevada Corporation, and <unk>, and 2020 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 and much Elevon 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, 2020 year and herself 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.
O'brien, President and CEO of Franco, Nevada will provide introductory remarks, sandy Brian <unk>, our CFO will provide an overview of our 2020 result, and Gray, our senior Vice President and business development will provide an overview of the Congress 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.
And 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 Franco Nevada.
Net.
Thank you, Ken Dita and good morning.
Our tagline is Franco Nevada gold investment that works and we're committing committed to ensuring it does work.
Our shareholders, our operating partners and our communities.
We're proud of the results achieved in 2020, but would like to start by thanking our staff and supporters.
And employees and communities that are operating assets for all your efforts and.
Particularly your resolved through the pandemic this year and make the results possible.
2020 was a strong year for Franco Nevada.
And received top Phd ratings during the year from sustained Olympics 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.
And off price.
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 and whether the impacts of the pandemic better than expected.
Despite COVID-19 interruptions at a number of our operations and the strike and candle area.
We were able to match and even slightly beat 2019 G O sales.
Our energy assets were covered well through the back half of the year also exceeding our revised guidance.
Cobre, Panama produced for the first store and 2019, but it was rather 2020 that have joined candle area and to me and Internet Cai.
One of our cash long term cash flow generators.
On the back and higher gold prices the portfolio generated record financial results, our revenue exceeded $1 billion from the first time.
Our EBITDA margin increased over 80% and our fourth quarter was our most profitable quarter on record.
And the strength of these results we are increasing the quarterly dividend to <unk> 30 cents a share starting with our second quarter dividend payment in June.
And so mark our 14th successive annual dividend increase.
The greater than 15% increase is larger than typical.
But now that we're receiving full 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.
And our portfolio of natural gas royalties and the Haynesville shale.
And a precious metal stream on that kind of stopped like copper operations in Peru.
The team we're selective about the assets they chose.
Waiting for the right window, and the energy markets and.
Added both to 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.
Guiding to 10, and 15% growth and our business year over year and.
And particularly I would expect increased contributions from cobre, Panama Candelaria and <unk>.
And if the recovery and energy prices are sustained.
Our five year outlook, anticipates, a 20% to 25% growth and our business.
And Cobra, Panama ramping to 100 million tonne per annum.
So wide operating again.
Expansions at detour is still water and Tasiast and new mines and production. So there's no hard rock stibnite cold and Valentines Lake.
Slides nine and 10 of the debt provide an indication of the contribution of the core assets and the timing of the expansions and new mines.
So it's exciting organic growth and the portfolio coming from the drill bit.
Yeah. So exploration success at many of our assets detour acute tinnitus, Guadalupe Makassar melodic Valentine Lake and many others.
Much of our long term growth potential is and the former copper mines, including Rosemont, Apollo and <unk> tack and and no other union.
The recent northern investment by Wild and metals, and Andrew Forrest investment vehicles.
Well its wildfire royalties covering much of a terrorist ring of fire.
To wrap up.
Core assets are outperforming and we have built and growth and tremendous long term optionality.
We have no debt $1 9 billion and available capital and are generating upwards of $800 million per year and cash from operations.
We have a good pipeline of opportunities and are looking forward and putting the capital to work as the industry returns to building new mines.
Loss from advanced advertising, we're planning to host an analyst day this year with a more in depth review of our assets.
I can take the second week of April.
And we will publish our annual asset Handbook, and our ESG reported same time.
And it over to standard 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 and the first half of the year because of the pandemic and with the steps that our operators and partners took and as the year progressed, we saw our royalty and stream interests returned to normal operations.
As a result of Franco, Nevada, and a 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.
Due to the impact on operations of the pandemic initial <unk> guidance was retracted and this spring.
Once operations stabilized the revised guidance was $4 75 to 505000 Geos.
As the years as the year progressed, our royalties and stream portfolio has performed better than planned with the Geos sold for 2020 521564 easily exceeding the high end of the revised guidance range.
With respect to our energy assets. The company had guidance of revenue of $80 to $95 million per the year using a $45 <unk> oil price gains due to the unforeseen circumstances the guidance was retracted and this Frank.
The revised revenue range provided was 60% to $75 million and revenue.
Based on the recovery and 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 and revenue related to the Mesa transaction, which Jason will talk to shortly.
Turning to slide 14, and looking at the gold equivalent ounces sold from the last five quarters as well as the previous five years.
And see that the portfolio continues to perform well.
The company sold 147000, and 476, Geos and the fourth quarter 2020, compared to 153396, and Q4 2019, although it was lower geos and prior year. It was the best quarter of 2020.
And as strong fourth quarter and closed out the year with just over 521000 Geos sold for 2020 and you record for Franco Nevada.
Old ounces represented 75% of Geo sold for the quarter and 78 per cent for the year.
For the quarter, we had strong performance from a number of key assets three key contributors being Cobra, Panama, and <unk> and Guadalupe who all delivered higher geos than expected candy.
Candle area 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 and revenue we.
We did have a carryover of third quarter revenue into fourth quarter of approximately $8 million.
For the year hemlo generated $70 million and revenue for Franco Nevada.
With the increase and the gold price and 2020 and highlighted the leverage debt. Our net profit interest royalties do you have to higher commodity prices.
And also on gold quarry the company received 6123 geos compared to the expected 11250 ounce from minimum.
For 2021 and we expect to receive approximately 6000 geos.
2020 saw continued positive momentum and 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 and silver prices and.
Prices were not as fortunate as both the WTO oil price and natural gas prices were lower year over year, However, and natural gas prices stayed recovery and fourth quarter 2020.
Slide 16 highlights total revenue for the last five years, along with the average gold price over the same period.
The company's total revenue has increased significantly over the period shown.
And when combined with slightly higher Geos sold in 2020 with the higher average price precious metal prices.
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 and gold.
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 and adjusted EBITDA and adjusted net income.
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, and both of which have minimal book value.
Sales and 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 tier 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.
Slowed by epic high at 12% and Candy leery of 10% no one asset and 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%, which is first quantum who operates cobre Panama.
We are fortunate to have royalties and streams on many properties mined by some of the most rapid for mining companies and 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.
And if by gold equivalent ounces sold is $292 per Geo and this compares to $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 zone.
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 and wed.
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 and managing this business 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, two and access of $300 million. This quarter that is a 12 fold increase yes.
This while our G&A has remained fairly stable over this time period general and administrative costs have averaged $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 builds on the momentum from 2019.
We looked at 2021 to continue to build on this momentum.
For 2021, we are guiding to 555000 to 585000 Geos sold.
This is a 10% increase over the level reached in 2020 and.
The main drivers of the growth our Cobra, Panama, where we have the mine ramping up and producing at 85 million tons per year and.
Increased sales from candidly area as it is running back at normal operations and from Anthony and at where we expect an increase and silver deliveries.
We will be receiving our first gold and silver deliveries from the recent Qantas staff lease streams, which Ian 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 reduce profitability.
<unk> will be and production for the full year, but at a reduced rate we expect to receive approximately half. The geos we were delivered in 2020.
And also our stream on Karma steps away from the fixed ounces and it becomes a variable.
Guidance has been calculated using $17 50 gold $25 silver $1100 platinum and 2200 palladium per ounce.
On the energy side, we expect revenue of $150 million to $135 million 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 debt. The company already has in place our outlook for $2025 600000 to 630000 Geos sold Mays.
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 and production as Paul mentioned, Hardrock, Florida, North Te Valentine Lake and <unk>.
And I called.
We do expect Mccreedy, western Sudbury and to remain and production at 2021 levels until 2026.
And also it should be noted that our cap on mine waste solutions reached 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 and U S drilling levels, but not to what they were in 2019.
And similar to commodity prices or used to ask for 2021.
Overall, when you look at the outlook for Geo sold and energy revenue growth to 2025 at current commodity prices and 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 and I'd like to highlight a few items.
As normal course, CRA has begun auditing years, 2016, and 2017 for Franco.
Proposals or reassess since have been received well.
We did receive reassessment and fourth quarter related to penalties and interest for the 2013 to 2015 as previously issued reassessment and these were approximately $10 million and our view. These are all normal course.
And also the recent court decisions involving Canadian transfer pricing dispute, including that of chemicals are encouraging and we believe CRF cra's reassessment or not supported by Canadian tax law, and we are vigorously defending our tax filing positions and we will continue to do so.
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 condo stoplight transactions subsequent to year end.
Before I turn it over to Ian I'd like to mention that we have added and 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.
Happy to announce and closing of gold and silver stream for $165 million over the condos Sabra and mine located in Peru.
Mine is owned by southern piece mining, which is a <unk> portfolio company.
Very excited about this opportunity as we see excellent geological potential and the asset, which I will speak to further in a moment.
<unk> has a very long history and has recently grown and institute global resources to over 90 million tons of MNI on the back and significant drilling and very good geological work.
We believe and potential for near mine and depth extensions of these ore bodies is excellent and quite and are quite excited and partner with southern piece on the asset or we see very good potential for output growth and mine life extension.
The mine is currently and 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 and we see 10000 tonnes per day or more is very likely with time.
And it's worth noting also that the stream benefits from five years or six deliveries, which helps de risk any ramp up.
While the mine is 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 are showing common stock price location and the Andes copper belt and the overall concession and.
As Youll see and mine benefits from a location 90 kilometers sales and Lima.
This provides easy access to labor and infrastructure, which underpins very low operating costs and puts and 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 and the underground a candle area, where we saw reserves grow tenfold since the acquisition.
The underground Manto and 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 and we're also partnering with the operator and community development initiatives around the mine and we're very excited to have a positive impact here.
Minus enjoy good relationships with the communities for many years.
And.
And the stream also cut versus 45000 hectares, which is a very large land package and location of the concession as shown on the right hand side of the page and our team sees this as highly prospective land and believe theres good potential for more discoveries overtime.
Moving to slide 27, we've shown a cross section of the deposits that makeup Kona software.
The stream applies to the cost Salt Lake Raw and VHS mines, which are highlighted on this slide.
The takeaway here is the potential to add more debt.
And along strike.
We see good drill indicated upside from per vehicle large size of the system. This it makes us believe the average would be a good contributor across multiple cycles.
Moving on to the next slide we have highlighted the deal terms.
The stream is effective from January one and it 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 like the fixed feature given the uncertainty and the medium term, but we believe that the variable deliveries give us great exposure to the geological outside and we expect to see here.
The delivery switch to 63% of gold and silver contained in concentrate after year, five which we expect to last for roughly another five years before it steps down to 25% of the gold and silver for the entire life.
We have offered the operator and the ability to buy the stream down with and advanced delivery for the first four years and this work or it would however, boost our returns and still give us immediate exposure with the 25% variable stream, which was commenced their bonds.
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 and a large land package and 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 and east, Texas for $135 million.
And the assets consist of about 2000, and 640 net mineral acres.
Which provides for perpetual ownership interest and 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 or 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 and the United States at.
And 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 so only limited drawdown and 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 groups quantum energy partners and that relationship allowed from Mesa to leverage rock cliffs geologic knowledge of the basin and to prioritize acreage buying ahead of raw cliffs drilling program.
Rockford, because the operator on approximately 75% of the acreage position.
And they are the leading operator and 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 and 2020.
And in Q4, the assets, China generated $4 $2 million of revenue from the production of two Bcf from 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 locations and for context last year. There were about 30 about 60 wells drilled on our lands.
So 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 and our portfolio up to about 35% and the current environment.
In addition, it adds increased portfolio of diversity from acreage positions within our core of a new high.
All of the basin.
That concludes our prepared remarks for this morning, so with that we'll turn it back to Joanna from for any questions from those on the call.
Thank you.
Ladies and gentlemen, and 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 today, Tom prompt acknowledging our request.
And if you are using a speakerphone please lift the handset before pressing any keys.
Next question comes from Tyler Langton with JP Morgan. Please go ahead.
Hey, good morning, everybody. Thanks for taking my questions.
I guess just to start on the energy side I know that you know the guidance for this year is the 115 to 135.
Growing to the $1 50 to 170 in 2025 should that be somewhat I guess I have 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, Tyler the the ramp up and revenue over the course of the next five years is.
Not exactly linear for from any assets, there will be sort of as you know.
Reasonably steady increase in production for example from our portfolio assets and the U S.
For those assets where.
We're expecting a continued ramp up and drilling activity. So you should see good a relatively stable year on year growth from those assets.
For our Canadian assets Theres, not a lot of growth out of those assets other than increased revenue true better commodity prices.
And the other U S asset that has a bit of.
And a step up call it at some point and the next two years will be continental.
We have a structure there are 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 bit of a step up around.
2023 or so.
And then in terms of the.
The sensitivity to oil and gas prices.
I don't have and.
And exact number to give you the.
The sensitivity on our Canadian assets.
Is it related to.
Mostly the waiver and NRI, where we have them.
And also 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 assets, there is leverage and the form of drilling rates.
And so as prices increase typically operators will increase the capital that they 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.
And our ratio for you at this point got.
Got you and then just on.
And the acquisition front I guess can you talk a little bit out and what Youre seeing more recently I don't know with base metal prices, having increase or you see more companies.
Based on all producers looking for streams on the precious metal side. If they have that are just you know more precious metal deals just kind of any color around that and sort of.
Deal size and and sort of items like that.
I see here, yes.
Yes, I would say.
Three legs of the stool at the moment in terms of deal flow or probably acquisition finance and people start to look at M&A again seriously.
Development finance and existing royalties and in terms of development financing certainly byproducts lend themselves well to that so we're hopeful will cease and deal flow there and that's what I would point you to in terms of new transactions.
Great. Thanks, so much.
Thank you. The next question comes from Cosmos <unk> from CIBC. Please go ahead.
Thanks, Paul Sandeep, you and and Jason and the team here.
To see a very strong Q4, and also great to see the dividend increase here.
Maybe and my first question is on energy as well, it's kind of funny, sometimes you don't want to talk about it and now everyone loves to talk about it.
Jason and I don't know if you have this handy in front of you, but could you maybe remind me what percentage of your revenues.
Sensitive to the different commodities I know you have some exposure to <unk> exposure to a coal exposure to WCS.
Well go to Henry hub like what percentage are we talking about based on your revenue.
Yes, sure Cosmos, and and I always love to talk about energy for thanks for the question.
In terms of where we have exposure in 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.
We do have a bunch of exposure to natural gas liquids, so that would be propane ethane and there's various commodities so they're exposed to a different benchmark.
And then within the oil side.
Call. It 55 per cent of our revenue as of last quarter.
I don't have the exact split, but I would say it's probably.
And one third exposed to Canadian.
Canadian light oil.
And that's in Alberta benchmark, probably another 10% exposed to WCS, which has a heavy benchmark and Canada and then the remainder would be <unk> exposure. So the broad buckets are 35% gas.
And 10% Ngls and.
<unk> 55 per cent or so oil.
Great. Thanks.
And be digging a little bit deeper here, you know 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, you know, Jason you know given the recent increase and.
<unk> oil and gas prices is there anything you know similar to it because I know for example, you'd talked about Wayburn Wayburn has a and our I would just kind of like and MPI and Theres also a working interest and we expect the same thing happened here in terms of you know low.
Or I don't want to say parabolic, but giving greater leverage either a waiver and or somewhere else.
Yeah as I mentioned, the the biggest sort of form of financial Leverages from the waiver and asset which is 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, and the spring when commodity prices were $30. A barrel we were earning next day nothing from that royalty and so every $5 incremental increase and.
Oil price generated a big lift and revenue will continue to see.
Good leverage there as oil prices are moving to $65 per barrel or so in today's environment.
The other form of leverage, which I sort of touched on a little bit as from.
The level of activity, that's associated with drilling on our U S assets.
As commodity prices increase.
And as our earning more money and 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 <unk>.
Asia of how that unfolds.
And I think in this environment, we saw drilling rates really get reduced in 2020.
Cross North America.
And 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 and drilling.
And of course, well, maybe more of an accounting question here based on on the energy front.
Early last year, and <unk> was negative and as a result.
Thank you Franco Nevada debt above.
A $200 million write down on.
On the energy portfolio, maybe a bit premature at this point in time, but.
And when would you start considering and <unk>.
And I look at that are the D. I guess value of your energy portfolio and potentially kind of writing and backup.
Hey, Cosmos Sandeep here.
Okay.
We look at it every quarter as we're required to under accounting rules and the big trigger for us will be that sustained capital stack as Jason alluded to the spending by operators on the well drilling and.
Especially in the United States and if that really comes back at significant levels ball will take a look at it that but I wouldn't expect a reversal and the near term.
Okay got it maybe switching gears a little bit.
And desktop or con job away.
I just wanted to get a better understanding of the buyback or buy down right here.
And all my understanding is that if it were to get exercise say tomorrow, which I know you and you said.
And it's very very restrict and a first year or so but just as an example, if it gets.
Exercise tomorrow than really what happens is that a I would have to figure out the value of 25% of what that's worth and.
And then say over 15 years because in your presentation. It says 15 plus years and if I were to come to you know a value and I did yesterday and I know I'll say $90 million based on spot and we essentially have to add that $90 million to 119 debt. They have to pay you so over $200 million core something whereby you paid 165.
Sure.
I guess my question is my understanding correct or is my concept, you're correct and number two if that's the case then is the conclusion that it would be fairly expensive for.
And the operator to buy it back is that correct as well.
Yes, Hi, Cosmos, yes, and so the exact buyback amount is $118 75, and yes, they would have to deliver that value and go to us it would be subject to the same 20%.
And for price our delivery costs.
For those ounces.
And net that off and yes. The 25% is three would then commence immediately.
And so you'd have to value that so I think youre looking at it the right way.
But perhaps we just need to accounts and 20% transfer price on what gets reported as part of the buyback.
For sure.
And then maybe as a follow up here and all.
By now you know I think Franco Nevada, never really liked to dabble and buy downs and our past and I'm sure you know that is 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 shall 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 and which made it particularly importance in terms of how big This is a feature that was salience and.
And so.
And price Optionality is key and we're able to full land package, which is really important.
Stream and its residual amount, 25% is actually meaningful.
<unk> equivalents.
Net smelter returns.
So its size such that our optionality.
Right.
Over time, and we're not giving up too much of that so we have debt balance that out.
Versus what the operator is looking for that you have seen more of these things.
But certainly not something that we see.
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 try and understand what we should be thinking about and hemlo now.
And 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.
And forward. So I will give you a range Greg I think you know for.
And it'll be a wide range, but I think between 20000 30000 Geos for 2021 based on current commodity prices and what we know what the mine plan at hemlo for internally.
It'll be in that range.
And I know, it's a wide range per touch.
That's what I can tell you at this stage.
And do you have enough visibility to guess.
So what happens post 2021.
We do we do it will it will tail off over time.
And.
I think 2021 2022 will be similar in terms of production of our claims and then starting in 2020 three it will start to tail off and and carry on every year at a lower rate.
Okay.
And how big it will be at the table.
And at these prices I would estimate about 10000 geos per year.
Hey.
Thank you that's it from me.
Yeah.
Thank you. The next question comes from Kerry Macquarie at Canaccord Genuity. Please go ahead.
Hi, Good morning, everyone, maybe similar vein Sandeep, you mentioned Mccreedy west production going through 2026, and I know your guidance for 2020, one is lower than 2020, but just on that particular extreme and what we should expect maybe over to Nevada.
There is there a number we can use over the five year period.
Sure. So I think for 2020, we did about 21000, Geos will do half of that and.
For 2021, and that's our estimate and and.
And we see that just being carried through and through to 2026 at this stage.
Okay, Great and then maybe two more questions. So I guess on Goldcorp.
Transition from the minimum and just wondering is that something that was planned or is or what.
How that came about and then secondly, unanswered Mackay, obviously a record quarter.
Some of that sort of carry through from Q2 Q3 or is that relating to Q4 production.
And so on gold quarry, yes.
And the annual minimums 11000 to safety, we did expect that to drop off starting and that 2022. So it's a year ahead of schedule.
So we did about 6000 Geos will do about 6000 for 2021 and.
And then post 2021 right now our estimate is.
And one 350 going forward. However, the caveat with that is is how the reserves change at gold Corey.
So there is certain lay backs that if they get included the reserves will increase with our minimum we 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 to edge and edge of Mackay, Yes, it's had some carryover of deliveries.
From Q3 for production from Q3 into Q4.
Okay, Great and then maybe just one question on the new stream I'm, not sure and try to pronounce and Peru, but.
Just thinking about the mine life. There you guys talked about a sort of 15, you're sort of planning mine life, but you know based on the resource base and it looks like Theres more than 40 years, there and obviously it looks like it's still open from exploration and so I'm just trying to understand.
And the context around 15 years.
In terms of my life and potential.
And here yes.
Yes, there is a very large resource space, there and it's one of the things that we really liked about the asset.
In terms of the immediate mine lives. Obviously, you have to look at what is our highest level of confidence around it.
In terms of that resource, which we provided and.
And so that's how we come up with that we think there will be a very long and fruitful mine life and the asset.
And has been operating now and some capacity for over 50 years and.
And continued good drill results so.
Yes.
And how we look at it yes, we do see the potential for life.
Well beyond that.
Great. That's it from 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 our SAB and they all got.
It talks about a 105750 cumulative is that from September 21st or is that like day one.
Exactly how 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've seen before.
Yes so.
What happens with a seven dollar is there is a fixed delivery profile, which continues as outlined and there's quite a bit of detail and the MD&A.
And so they can continue to deliver through to that total ounce threshold and at the end of that threshold you have to look and say, okay. How much actually came from sabadell.
As if you were to.
And the 6%, which was as well as three went to anyways.
Versus what came from elsewhere.
Mass flow and.
And then effectively what would happen is if there was a lot of displacement from mass low which is likely.
We will go on hiatus, and a 6% won't start again until and caught up with net cumulative amount with production from South Dallas.
So I mean youre right.
And more detail offline as well if there 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 Jackie.
Shannon at Scotia Bank. Please go ahead.
Yes, good morning, everybody and this is a couple of questions I'm going to start and to the Cai if I could.
And just turning on to the Carl coil lateral project.
And the timing I just wanted to ask number one what changed there and number two is it still included in your five year guidance.
It was last year.
Hey, Tony as Paul.
And so parkway cope.
And Andrew Mackay at as and additional deposits and Cisco and deposits. It's about three quarters the size of <unk> itself.
Glen go ahead.
And have been planning to develop.
And they plan their work on and was a combination.
And the ground, mostly on the ground.
With limited footprint.
<unk> had some success with the community there believe now they can build and mine was a bigger footprint.
And so it can make its largely and open pit mine.
So thats they are back to the drawing board on the asset and looking at that Big and mine plan. So there's <unk>.
Good and bad news there it means over time more metal.
Yes.
And they have moved it back in terms of the timing.
It's more likely to contribute at the backend of fee and the timeline.
Okay. So it's not and your five year guidance.
It doesn't impact our five year guidance.
That all that production is from Adam.
Okay.
And then maybe just turning over back to.
And the stable guidance that you provided this morning does that higher end of the production guidance range of Sam expansion and suggest 80 8400 tons, a day or 10000 tons per day.
Hi Tech and yes.
Yes, so the bottom end of the range is closer to the 8400 tons per day.
And the 10000, and I believe and be more towards the middle end of the range as I said, we see growth potential there too to increase further in time, given the size of the overall resource.
Okay perfect. Thanks, and then just turning to the energy portion I'm, just trying to understand a little bit your guidance.
For 2021.
We have seen significant are showing significant growth from existing assets. Despite the big Capex cuts.
And that we've seen and most operators seem to be aiming to flat rather than growing production. So what are you assuming in terms of operator capex increases relative to your 2021 bad debt.
Yeah.
And I'm, telling you for 2020, one we're assuming a modest improvement over what we saw this year there was a lag and 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 a half of a normal year and then half of 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.
Pre OPEC and shock levels.
Okay.
And then maybe just on <unk>.
And just transaction wise, you talked about channel what Youre seeing out there in terms of acquisition finance development and existing royalties.
And maybe just sort of the size of the transactions number one and number two can we see you do more in the oil and gas space.
And just the pipeline, it's a good pipeline.
Okay.
As Ian mentioned the combination there of net new mines and acquisitions.
So I'd say those are the most of the themes.
And 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 is the high likelihood through this year.
And are we looking still and the range of a couple of hundred million debt 500 million size range.
Yes, I would say everything and the pipeline is.
Meaningful to move the needle.
And that also and software base that it would.
And also all the assets increase our diversification.
Okay. Thank you very much.
Yes.
Thank you and 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 5th with a conference call held the following morning. Thank you for your interest and Franco Nevada Goodbye.
Okay.
Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and we ask that you. Please disconnect your lines.