Q2 2022 Franco-Nevada Corp Earnings Call
Participants may submit questions by telephone or via the webcast.
We would like to remind participants that some of today's commentary may contain forward looking information and we refer you to our detailed cautionary note on slide three of this presentation.
I will now turn the call over to Paul Brink, President and CEO of Franco Nevada.
Thank you Bobby and good morning.
We're proud to report, our best quarterly and half year results from record.
Each of revenues adjusted EBITDA and adjusted net income were records for the quarter.
The low risk nature of our business is most pronounced in today's inflationary environment.
Topline precious metal stream and royalty interest helped generate our highest ever margins since adding streaming to our business.
Over 85% for adjusted EBITDA and 55% for adjusted net income.
High energy prices in this environment are a positive for us and drove an increase in our diversified geos.
We offset by marginally lower precious metal Geo sold.
At half year, our total Geo sold are slightly ahead of the midpoint of our guidance range and we are maintaining our previously issued guidance.
In July we were delighted to announce the financing package for the <unk> property in Brazil, with <unk> mining ventures were $353 million.
The financing package included a 250 million gold screen 75 million term loan and a $27 5 million equity financing.
The project is construction ready with first gold deliveries expected in late 2024 and is fully financed the team behind G. Mining ventures is well known in the industry for its record of building mines on time and on budget <unk>.
Including Marion for Newmont mining and fruit of del Norte de for Lundin gold.
We expect <unk> will be the first of many mine builds for the company and have entered into a long term partnership for future financings and acquisitions.
We've been in close dialogue with Lundin mining on the sinkhole that has developed in close to the Alka borough. So a portion of the candle area operations.
Fortunately, all staff and communities safe and the appearance of the sinkhole didn't result in any injuries.
Lundin in Chennai German have experts evaluating the event.
We hope to have an initial understanding of the causes in the coming weeks.
Notable in terms of organic growth news in the quarter was detour Lake.
<unk> announced a 10 year mine life extension to 2052.
And that they are looking to expand throughput to 32 million tons per year as well as potentially develop an underground mine that could increase production to 1 million ounces or more per year.
The detour expansion along with expansions at Stillwater in Tasiast and of course Cobre Panama.
The core of our near term organic growth.
We'll also have contributions from three new mines in the next couple of years on.
And the construction of Soliris, Naughty greenstone and <unk> are all proceeding on track.
We expect the development of Valentine Lake Stibnite Gold and SK Creek default.
With respect to ESG during the quarter Franco Nevada was named to the corporate Knights 2022 list of the best 50 corporate citizens in Canada.
Also as part of the <unk> transaction, we committed $1 million of.
<unk> environmental and community support programs over four years.
We also continued to expand our community engagement and contributions with existing partners.
In summary, Franco Nevada continues to deliver with record financial performance built in growth and long term optionality.
We're cash flow positive with no debt of $1 9 billion in available capital and are generating operating cash flow at a rate of $1 billion per year.
We're focused on growing the company by adding more precious metal assets and are seeing a good pipeline of opportunities.
With that I'll hand, it over to Sandy.
Thank you Paul Good morning, everyone as Paul mentioned, the company reported record financial results for second quarter 2022, with our overall royalty and stream portfolio performing ahead of expectations.
Quarter once again highlighted the benefits of our diversified portfolio by both asset and commodity.
On slide four we've highlighted the Golden gold equivalent ounces sold for three and six months ended June 32022 and 2021.
Overall geos sold were relatively flat when compared to prior year with Q2, 2022, Geos sold being 191052 compared to 192379 last year.
You may recall that in Q2, 2021, and we did record two quarters of Geos and revenue related to the valley a royalty we had just acquired does.
Would have equated to an additional 7600, geos and $13 8 million of revenue recorded in Q2 2021.
Overall, most assets performed as expected during the quarter with less geos delivered by end to Mena and typically Guadalupe and Stillwater.
Prior year.
As we have highlighted previously 2022 is a lower production year for <unk> as the operator is mining through lower grade zones, we expect deliveries to resume to prior year levels for 2023.
France, Mena, we expected 2020 to be more normalized year similar to previous years with a range of $2 8 million to $3 2 million silver ounces being delivered which is what is transpiring.
Unfortunately, the Stillwater mine was impacted by a significant flood event in June which resulted in the suspension of operations at the mine.
This suspension will have a slight negative impact on our geos and revenue from Stillwater for third quarter.
One of the surprises in the quarter was to Hemlo, MPI, which was ahead of our expectations coming in at $10 5 million Canadian.
This was a result of an increase in mining on Franco Nevada royalty lands and the improvement in operating costs. As we've mentioned previously it is difficult to predict what the NPI payments will be on a quarterly basis.
For the diversified Geos are valley royalty resulted in 5407, Geos and $10 $1 million in revenue for the quarter. This was lower than previous quarters due to lower production at the mines as well as the lower iron ore price.
Each quarter, we make an estimate of what the royalty will be with the actual amount being announced by valley in late March and September each year.
As a result, you will see adjustments to accruals in Q3.
For our energy assets Geos doubled year over year as we benefited from continued higher energy prices.
Slide five highlights our total revenue and adjusted EBITDA amounts for the three and six months ended June 32022 and 2021.
As you can see from the bar charts revenue and adjusted EBITDA have increased year over year for both periods. The company recorded $352 $3 million in revenue in second quarter, and $301 2 million and adjusted EBITDA, which are both records.
Origin of 85, 5% was achieved.
Second quarter continued the strong contribution from the energy assets as revenue increased from $47 3 million a year ago to $91 $5 million this quarter.
The WTO price averaged $108 per barrel during the quarter at 63% increase from prior year.
Natural gas prices also increased significantly with Henry hub, averaging $7 49, Mcf during the quarter compared to less than $3, an mcf a year ago.
Oil prices have pulled back recently to approximately $90 a barrel, but are still significantly ahead of last year.
As you turn to slide six you'll see the key financial results for the company.
Some key financial metrics revenue adjusted EBITDA and adjusted net income are records for the company for both the three and six months ended June 32022.
On the cost side, we did record a lower cost of sales amount in Q2 2022 as lower stream ounces were delivered and sold.
Cost of sales is dependent on which assets deliver stream ounces as not all fixed payments per stream ounce are equal.
Depletion was also lower at $69 6 million versus $77 2 million a year ago depletion is calculated on actual mining geos sold as well as barrels of oil equivalent received from the energy business with lower mining Geos sold in the quarter and relatively flat energy production. This resulted in less depletion being recorded.
With respect to taxes, the effective tax rate for the quarter was 15, 7%, which is slightly higher than the rate. We have trended to previously this was due to the higher income generated in Canada, and the United States from our energy assets.
Adjusted EBITDA was $301 2 million for the quarter, while adjusted net income was $195 8 million a 7% increase over 2021.
Adjusted net income per share was $1 two.
Per share a 6% increase compared to prior year.
Slide seven highlights the continued diversification of the portfolio, which we consider one of the strengths and Differentiators of Franco Nevada as shown approximately 70% of our Q2 2022 revenue was generated by precious metals.
The geographic revenue profile has revenue being sourced 91% from the Americas, with Canada, and the U S being 42%.
With respect to asset diversification Cobre, Panama was our largest revenue generator at 18% of total revenue for the quarter followed by candle area.
Panama continues to be the only asset in greater than 10% of revenue.
And the last chart highlights our operator diversity, our largest exposure to revenue being generated by any one operator is again, 18%, which is first quantum who operates cobre Panama.
Slide eight illustrates the strength of our business model to generate high margins for.
<unk> second quarter 2022, our cash cost per Geo, which is essentially cost of sales divided by gold equivalent ounces sold is $238 per geo.
This compares to 246 per Geo and second quarter of 2021.
The amount will fluctuate depending on the mix of royalty versus stream geos, including mining and energy, but as you can see at current average gold prices the company generates significant margins.
In a rising commodity price environment, we expect to benefit fully as the cost per Geo sold should not increase significantly we consider our cost structure to be essentially fixed.
The other cost component for the company besides cost of sales as our corporate administration costs.
We'd like to stress the strength of our business model and the scalability.
The chart on slide nine clearly illustrates our focus on being as cost efficient as possible in managing this business here, we have highlighted our quarterly revenues and our quarterly corporate admin and share based compensation expenses since our IPO.
As you can see revenues have grown significantly over the period, while corporate costs have remained fairly stable for Q2, 2022, corporate administration, including share based compensation expense was $5 8 million or less than 2% of revenue.
Share based compensation expense can fluctuate quarter to quarter as the company is required to mark to market that deferred share units held by directors.
Management believes we can continue to add to our portfolio and grow our business without adding significant cash overhead to the company.
Slide 10 summarizes our guidance for 2022, we've updated our pricing assumptions for all commodities for the remainder of 2022 as highlighted on the slide.
Our guidance ranges have not changed we are guiding to 680 to 740000 total Geo sold for 2022 of which precious metal Geos are estimated to be 510000 to 550000.
I will now turn it over to Ian <unk>, Our senior Vice President business development to review, our recent transaction with <unk> mining ventures.
Thank you Sandeep.
In July we were very pleased to complete the token to engineered project financing.
We're delighted to be partnering with G mining ventures.
<unk> that has successfully and quite frankly provided one of the best track records delivering similar projects in South America.
The project is conventional from a technical standpoint has good grades and is located in per our Brazil, a season mining jurisdiction.
We believe that there is great upside potential in the broader land package as well.
We have also worked in agreement into the deal such that the G mining team.
We'll provide us opportunities through a REIT on future transactions.
We've included key project parameters on this slide and highlight the very recent feasibility study.
Franco Nevada's participation is primarily through a $250 million gold stream.
But we'll also be providing a $75 million term loan and subscribe for 27 5 million in equity alongside with La mantra and El Dorado.
This financing covers the full expected cost to build the buying plus a buffer.
Finally, as part of this financing we will be contributing to <unk> efforts to support communities and the environment with a commitment for up to $1 million.
Over four years.
On slide 13, we highlight our available capital of $1 9 billion.
Equity valuations of wind developers are particularly depressed at the moment in a high inflation environment. We believe we can put capital to work.
With good developers on good projects.
With that I'll hand, the call back to Bobby.
Okay.
Thank you Sarah presenters.
You may now begin the Q&A session.
Thank you.
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We will take our first question from Adam Josephson with Keybanc.
Thanks, Good morning, everyone.
Sandeep quick question about Stillwater can you be more specific about the impact you're expecting in the third quarter.
Sure Hi, Adam.
I guess they had the flooding late June .
It's very unfortunate but I.
I don't think there were any any injuries or data tap threat and things of that nature.
They are trying to restart it I don't know if they have restarted it.
Or are close to but the impact on our geos would be approximately.
Starting Q3.
Approximately 2000 Geos.
Okay, so not not overly consequential.
Terms noted.
Yes, yes, no. Thank you for that.
In terms of your updated.
Price assumptions I, just wanted to drill down no pun intended on oil and Nat gas for that matter, obviously prices have fallen from the recent peaks because of Chinese lockdowns other demand destruction at combined with expectations of further demand erosion as the.
<unk> deteriorate, perhaps this is best for Ian just based on your conversations with your partners and the production plans that you've seen.
I know you raised your <unk> full year assumptions about five bucks a barrel, but can you just talk qualitatively about what you're seeing in terms of energy markets and more specifically energy prices and how resilient you expect oil and gas prices to be based on those <unk>.
Reduction plans.
Yes, it's Jason here. Thanks for the question I think I'm sorry in oil we've seen.
Steep run up in oil prices over a number of months here.
Part of that is attributable to the Ukrainian conflict, but even before that there was a run up in prices.
It was.
I think attributable to an underlying supply.
Deficit.
Some of that premium has come out as you pointed out over the last month or so here as COVID-19 concerns continue in China and the overall sort.
Sort of negative impact to the economy become apparent.
Going forward.
We still think that prices will remain strong for a while here.
The impact that we've seen on operators as.
Drilling rates and activity rates.
In our U S operations have been strong.
They've rebounded quite significantly from the lows that we saw in 2020.
We're still below peak activity levels that we would have seen back in sort of late 2019 before the oil price crash.
So I'd say looking at it holistically.
Holistically, we're probably 70% to 75% of those <unk>.
Activity levels.
We'll keep an eye on where those activity levels go operators are still discipline.
Discipline in how they are deploying capital.
No.
I don't expect it to be strong ramp up here, but I would say.
It will continue to be robust.
I appreciate that you do you expect to get back to a 100% in the foreseeable future or do you think that perhaps is a stretch.
Based on any number of constraints that continue to exist.
Yes, I think it will depend on where commodity prices ultimately go and how long they stay elevated.
I think if you see very strong commodity prices activity levels inevitably will creep up towards those highs, but if commodity prices are.
<unk>.
Below the credit of $90 a barrel range I don't I don't think youll see activity rates come back to where they were.
At their peak levels, which would imply significant growth in overall production volumes in the U S. I don't think we'll get back to that unless we see very strong commodity prices sort of north of 90 to $100 a barrel.
But thats a guess obviously on our part.
Yes, Thanks, Jason and Paul just one for you there have been some decent size deals announced recently, obviously yourselves included can you just compare the prices being paid for deals today.
What they've been in previous gold market up cycles, and how thats affecting your willingness to transact.
Okay.
I thought maybe a comment our industry has become more competitive no doubt about it.
So the real question is.
Heidrick progressive business and that sort of environment.
Yes, sure I'll turn it to Ian Greg maybe Dan if you can comment on how we're thinking about planning in this environment. Thank you Paul.
In this environment as I mentioned, a moment ago, we do see some stress in the capital markets for minors.
And that drives opportunity, we think that we can partner effectively as we did with <unk>.
<unk>.
Groups that have good projects and good teams.
That need our financing.
So thats going to be a key area of focus for us going forward and that really does drive kind of more medium size deals, but we think it's a good place to focus the majority of our efforts.
I appreciate it.
Is it just is the stress based almost entirely on the inflation at these companies are dealing with or is it because the capital markets also close to some of these Scott with to what exactly would you attribute that stress and consequently, how long do you think it's likely to last.
I would say the capital markets are certainly a contributor to that and given markets are fickle. So they can change but at the moment.
Equity markets remain pretty tough for medium to smaller developers.
That's an opportunity and I think the same with high yield high yield is also a fairly challenging market for a lot of mining companies to access at the moment, so that that also drives opportunity.
Thank you.
Good morning, a question from Heiko with.
H C Wainwright.
Thank you guys Hello, Paul and team. Thanks, so much for taking my questions.
Relations on the G mining deal as well for the product obviously.
Nice to see somewhat larger scale transactions happening again, given the residual climate or folks tend to be good.
Quite a bit scared.
Obviously with <unk>.
It was only partially for the stream nine figures of money, we spend on the term loan and the equity private placement.
And you still have a large amount of dry powder at your disposal, but can you provide a bit of color on what you're seeing in the market with the sellers of streams.
Obviously again, you went into a term loan and a private placement as opposed to the street for at least part of the money.
The big thing being the street, but nonetheless.
And building, all but maybe tell us a bit about what youre seeing other ways that you think yields might get done in the future if not outright stream.
Thank you for the question.
Youre right we did provide.
A term loan components and a participation alongside lamantia and El Dorado and the equity raise.
<unk>.
It was important so I think in the current capital environment to provide a fulsome solution. We're happy to participate in doing that the lion share of our financing still was a gold stream.
But going forward.
You could see this type of financing as a model for others, that's entirely possible should the capital markets remain challenging.
Are you, bringing a few groups together to complete the picture.
Sure.
And then the other at the other spectrum geopolitical risk factors become quite a bit more important 2022 than they've been in many years. We just haven't would administer of mining and energy in South America, who joined the Fray literally today who's ultimately against mining.
You got 49% of revenue tied to Mexico, Central and South America can you just provide.
Color on which parts of the world Youre watching the most intently.
Are you thinking about maybe divesting or trading way some assets, if things get a little bit more dicey than they are as.
As much color as youre willing to provide in this setting.
Sure no doubt about it.
Being a shift to the left particularly in South America.
May well have happened in any case, but certainly spurred on by Covid.
So we do keep an eye on that.
As we think of our portfolio.
Latest strengths is diversification.
In mining you do need to take some risks.
We think about it is.
We want to be a low risk way for investors to participate we know that most of our most of our capital needs to be in good jurisdictions.
Can have some of it exposed areas that have more risk.
So we know we need to continue to participate in some of these countries. So it's just a question of what's the dollar exposure that you have to each of them and is that a reasonable amount in the context of our portfolio, obviously, what's happening in the region means you're a bit more circumspect.
About it.
But also what we've seen over time and quite honestly, the same applies to Canada and the U S and elsewhere the pendulum swings.
From from.
From one set of political lead us to the next we're very long term investors.
So we are happy to hold the interests, we don't spend much time thinking about divesting the interests.
More so as I've mentioned just.
Holding amount that is palatable in the context of our portfolio and happy to ride out the bumps.
Along the way.
And obviously you have enough diversification where.
Not one asset we will really breakthrough. Thank you guys. So much for your questions I appreciate it and stay well.
Thank you.
Okay.
We will take our next question from Lawson Winder with bank.
Think of America.
Okay.
Hey, good morning, guys. Thanks for the update today.
I wanted to first of all about the pipeline.
When you see when you say a strong pipeline of precious metal opportunities are these base metal mines with precious metal byproduct or primary precious metal mines.
Thanks for the question.
I would say we are seeing a bit more of a focus at the moment on primary precious metals opportunities not to say that the other opportunities don't exist, but I would say there are probably more focused on the primary product.
Okay got it thanks.
And then I really like your slide where you showed your risk diversification by operator.
And it got me thinking.
How does Franco SaaS, operator concentration risk.
For example, what would the maximum thresholds for example, if one of your top five existing streams or to offer the opportunity to materially increase that exposure via other assets in their portfolio I mean would that be an easy yes.
Or would there be some concerns.
It's something we obviously think about I wish I could say that there was a single arm or a single number it obviously depends on the context it depends on the quality of the assets. It depends on the jurisdictions, where they are it depends on how good that operator is.
So no bright lines.
Obviously, something that we pay attention to.
Yes.
Also when when operators are building assets, so much more important because you're the performance of the asset is sort of dependent on that case.
Capability of bringing it on in time.
So we do focus on operators, we've been very fortunate I got to say as a theme that's played out for Franco over the time.
Overtime, good assets move into even stronger hands.
And.
So part of that also plays into our thinking as we think about investing in assets.
That's an interesting comment you just made that last one so if im interpreting that correctly, you're basically saying.
You like the idea of getting screens on assets that could be possible takeout candidates are acquisition candidates.
So just as we all know you look at any asset in the industry and a company there is a great amount of turnover.
The geology doesn't change the country doesn't change over time, the operators can change and we feel if we get the assets right. If you invest in good assets.
Chances are then migrate into even stronger hands overtime.
Got it well said and then.
Following up on an earlier question regarding South America, it's actually thinking about.
One particular country you do not have a lot of exposure to in South America is Argentina, I think that has actually served frankly quite well given the challenges challenges that countries had and is currently facing.
What would be frankly, the appetite to add material Argentine exposure at this point.
Okay.
We are open to adding exposure to Argentina.
Yes.
Sure.
Evaluating it.
No surprise to anyone on the call the geology is fantastic.
So I think that the I think that.
Things are moving in the right direction in the country at the moment.
Okay.
So we keep monitoring it.
Charity came up we would spend a lot of time on it thats for sure.
Yes, thanks very much your responses today, all the best guys have a great day.
Sure.
We will take our next question from Tanya disconnect.
Connect with.
Deutsche Bank.
Good morning, everyone. Thank you so much for taking my questions.
Of two really I will have wanted to do with just the.
Our guidance looking forward, maybe sandeep can you help me a little bit.
I'm trying to forecast at hemlo.
<unk>.
<unk> had been giving guidance that I think that about 60% of revenues does that come out in Q1 now we've had a stronger Q2. So what are we looking for handler for the next two quarters.
Are you seeing any auction.
So.
I hear your opinion, it was a surprise to us as well.
It's a lot harder to predict because of the cost structure and MPI.
My my estimate and my forecasting Frac for Hamlin for the next two quarters as to.
B, approximately $5 million to $6 million Canadian quarter.
And Thats based upon my understanding of what the production levels should be in an estimate on cost. So that's what I'm forecasting whether that comes to fruition or not time will tell but that's the only guidance I can give you.
Okay. Thank you that's appreciated and just looking out for Q3 and Q4 is it safe to assume we've got obviously the 2000 ounce death at Stillwater.
Hemlo sort of normalizing is it safe to assume as we look at Q3 and.
Q for that.
Most companies have this at Q4.
Have a better performance on a geo basis in Q3.
And historically Q4 has been a strong quarter for us.
For Q3 to one.
Part that we're not aware of yet as the valley debenture payment that will get announced on September 30th.
Obviously, we've made accruals for our royalty there, but if the dividend that BIOLASE Pan comes in higher.
We would make that adjustment in Q3, so all things being equal, yes, Q4 will likely be a.
A little stronger than Q3, but Q3 does have that.
<unk> adjustment to the accrual that will come through.
Okay now thats helpful. Thank you.
And maybe I can circle back just on Lamb.
The M&A environment and maybe.
Someone can help me understand so.
Number one I think we've mentioned that there are medium sized deal opportunities. What do you define as medium size are we still in that 100 to 300 range here and your medium sized 500, what is your medium size.
Hi, Tanya, it's Ian I think <unk> got it.
I think a fair characterization of what we think of as medium.
Kind of that one Harry.
Yes.
And when.
When you are looking at these deals which appear to be mostly on gold companies that are developing.
Assets should I be thinking.
Again your focus is on precious metals should I be thinking that.
The new Formula for deals going forward right. Now is yes, then I have a stream plus an equity component plus a debt component so three components.
For an overall transaction beginning of the year I started seeing guest <unk>.
Dream and equity and now it's between equity and debt is that sort of how I should be thinking of transactions going forward.
At <unk> Paul.
The way, we're thinking about it.
And the way, we think about our businesses and our royalty and streams are terrific instrument and we want to do as much of it as we can because we love the optionality that you get in it.
But the other element of our business.
We need to make yourself successful and I think we're good at is picking the right assets.
About the ability to do due diligence and take give you which are the better assets that you think can do better over time.
As the market gets more competitive what we've said is let's stick to that that's really pick the assets that we like the most.
And then let's recognize that in this market other elements of the capital structural heart folks to rates.
If we can get our primary objective of that stream and royalty and help them with their overall financing package. That's the approach we're taking.
So more than anything it's get the asset right.
And be flexible about how you provide the financing.
And as you think about that.
Yes.
I've been surprised that ive seen such big royalty transactions occurring in Alaska It a while.
Just kind of keen to.
I understand your view are you seeing other royalty portfolios that are out there of material size that.
<unk>.
We're not aware of.
Or maybe even royalty portfolios are smaller and are you looking at any of those.
Okay.
<unk> seen again.
Do see on an ongoing basis various opportunities with existing royalties.
So that is that is a component, but where we are spending a lot of our time as I mentioned is trying to work with developers.
Okay. So the big Cortez transaction, there were very few of those left outstanding.
I wouldn't say there is a large number but there are.
Royalties like that that exists and they trade from time to time.
Okay.
Helpful. Thank you very much I'll, let someone else ask questions.
Thanks, Ken.
Our next question from John Tumazos, with John Tumazos, very independent research.
Thank you for taking my question.
In terms of.
Brazilian transaction you just did.
Production is two years out.
It's a new operator, but they are veterans of many many campaigns.
Where are we.
The junior companies the emerging companies the new company is absolutely steps of management often not in this case.
But there are companies that have the hardest time raising money.
Could you give us a little more.
Explanation.
As you might consider.
Dancing of a new mine.
New company.
How many years out you'll go.
How many executives they need to have it.
Build how many mines before.
You know the.
Emerging companies can't afford the full suite of management like first quantum or newmont and Barrick.
Okay budgets are tight.
Sorting out the depths of management's challenge.
John .
Put your finger on a key industry is a key issue it's.
Yes.
The industry often suffer from a shortage of experienced folks and we see that in particular when it comes to building projects. So.
Something that we spend a lot of time on.
Is looking at.
The ability of folks to execute particularly on a bill.
Again, I won't say, we put it down to an exact amount of people that they have.
Do pay attention to do they have good execution plans do we believe that they can execute on those plans.
We're not we're fortunate again in our portfolio. We've got good growth over the number of years. So we're not hung up on trying to add immediate growth. So in terms of the timing of when those deals come in.
We can be flexible.
Even more so when we're looking at projects and stages of development.
Our business.
One of our global rules is.
On your downside case, you put your money in on your downside case, you want to make sure that you get your money back.
The worst case outcome that expose yourself to the upside.
What does that mean in terms of projects and stage of developments. It means we've got enough. It's got to be at a stage of development, where we've got enough confidence it comes to mind and enough confidence.
But they are the economics.
The amount of water and the downside cases make sure that we can.
Get our money back.
And expose yourself to upside so those are sort of brackets around.
When we're looking at meaningful capital, what we can and can't do.
Okay.
If we were to contrast Franco Nevada.
So.
Cisco gold royalties for sandstorm.
Those companies have invested a bigger slug of their capital and earlier stage companies.
You, obviously have a much poorer valuation.
Maybe maybe.
Staying with the majors is really good.
For the valuation of your stock.
Yes.
Rather than thinking of it that way.
What we always hold ourselves out to I think a good part of the premium that the company trades at.
Yes.
Isn't about two parts one is the built in Optionality and a lot of that comes from the depth of the royalty portfolio that we have I think the other part of it is track record.
So what you do I think if you can demonstrate to shareholders that you can make good decisions and ultimately get them. Good returns on your capital that that feeds into a premium.
So in my mind I think those are the two things that are important in the company to sustain that valuation.
Do you think you'll be investing in more projects that are two years or three years from production.
Because.
That's partly the point, where the companies need to write the checks.
It's harder for them to raise money in the tough markets before production.
I think theres, a good likelihood of it now and for all the reasons that you say, it's just it's where the market is so those seem to be the people that need the capital the most.
So I am hopeful that we can put more money to work in that area.
Thank you.
Well take our next question from Adam Josephson with Keybanc.
Thanks for taking my follow up I appreciate it Ian you mentioned in response to a previous question that more of the streams and royalties that youre looking at.
Our on precious metals mines.
Rather than on base metals mines can you just go into more detail about why you think thats the case.
Sure.
I would say first off it's probably somewhat symptomatic of the capital markets.
And then also I think on the precious side you do have a larger number of projects generally.
Kind of the size that we've spoken about.
Also.
Base metals prices up until quite recently have been quite elevated. So I think that has left a number of balance sheet is quite strong.
And so with that in mind, just the latter point.
Particularly would you expect that to change in the foreseeable future as the global economy weakens obviously.
Base metals prices have come down quite considerably in many cases, how long a lag with you expect there to be if that were to continue to be the case at what point might you expect the pendulum to shift.
Back toward base metals mines.
Certainly this is a cyclical industry and <unk>.
The pendulum swing fairly quickly and we've seen that in the past.
At the moment it hasn't.
A major degree, but certainly it could move relatively quickly.
And I appreciate that thanks Ian.
It appears there are no further questions on the phone line I will now turn the Q&A session over to one of your tech with who will take questions from the webcast.
Thank you Christina we do have one question from Diego attended Chemo agnostic capital management easier.
He is your long term target still to generate less than 20% of revenue from energy assets.
Yes.
Our overall target is to be the go to gold stock, which means we got to keep the proportion of Goldman precious metals in the portfolio are high.
And our overall strategy is unchanged we do.
The core thing behind that as markets are cyclical opportunities come at different times and when good assets come available, we want to be able to do that so.
Where we're trying to stay away from putting a particular number out there.
So that we have as much flexibility as possible so that when good assets come available precious or diversified that we can take them.
On board.
But manage the portfolio.
A.
The vast amount of it is gold and precious metal over time to make sure that the stock performance as a gold stock.
Where are we right now in the market.
We've been so fortunate.
Energy prices are doing, particularly well, let me say a larger portion of revenues.
We look at that is the exactly the reason.
If you want to capture local run in prices when you have it in different commodities.
It tends to be a.
Self fixing problems.
Right now I think oil prices are particularly weak equity markets are weak. It means a good place to add assets as in the gold sector.
I think we have good opportunities in most likely the next deals that we will do will be in precious metals and we will.
Buildup that side of the business.
Thank you Paul and thank you Diego Fair question.
There are no further questions from the webcast. This concludes our second quarter 2022, with our conference call and webcast.
We expect to release, our third quarter 2022 results before market open on November seven with a conference call also have that morning. Thank.
Thank you for your interest in Franco Nevada.
Okay.
Yes.
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Yes.
Yes.
Okay.