Franco-Nevada Reports 2023 Results

Business Remains Robust Despite Production Halt at Cobre Panama

(in U.S. dollars unless otherwise noted)

TORONTO, March 5, 2024 /CNW/ – “In late 2023, we were challenged by the unprecedented production halt at Cobre Panama. We are hopeful that the issues can be resolved, although we have taken a prudent approach for the carrying value of the asset”, stated Paul Brink, CEO. “Despite the issue at Cobre Panama, our business remains robust and we continue to benefit from a long-duration, diversified portfolio. We finished the year with no debt and $1.4 billion in cash and cash equivalents. The balance of our business performed well in 2023 and is expected to grow in 2024 with contributions from the completion of the Tocantinzinho, Greenstone and Salares Norte gold mines. Our growth outlook through 2028 is driven by numerous new mines and mine expansions. $2.4 billion of available capital positions us well for attractive acquisitions in an environment where many project developers are capital constrained.”

 Strong Financial Position

No debt and $2.4 billion in available capital as at December 31, 2023
Generated close to $1 billion in operating cash flow in 2023
Quarterly dividend increased 5.88% to $0.36/share effective Q1 2024

Sector-Leading ESG

Rated #1 precious metals company and #1 gold company by Sustainalytics, AA by MSCI and Prime by ISS ESG
Committed to the World Gold Council’s Responsible Gold Mining Principles
Partnering with our operators on community and ESG initiatives
Goal of 40% diverse representation at the Board and top leadership levels as a group by 2025

Diverse, Long-Life Portfolio

Most diverse royalty and streaming portfolio by asset, operator and country
Core precious metal streams on world-class copper assets outperforming acquisition expectations
Long-life reserves and resources

Growth and Optionality

Mine expansions and new mines driving 5-year growth profile
Long-term optionality in gold, copper and nickel and exposure to some of the world’s great mineral endowments
Strong pipeline of precious metal and diversified opportunities

In Q4 2023, we recognized $303.3 million in revenue, down 5.3% from Q4 2022. The decrease in our revenue is primarily attributed to lower gas, oil and PGM prices, partly offset by higher gold prices. Precious Metal revenue accounted for 78.7% of our revenue (65.5% gold, 10.3% silver, 2.9% PGM). Revenue was sourced 86.6% from the Americas (31.9% South America, 23.6% Central America & Mexico, 16.7% U.S. and 14.4% Canada).

Cobre Panama Updates

As previously disclosed, Cobre Panama has been in preservation and safe management (“P&SM”) with production halted since November 2023. On November 28, 2023, following protests and President Cortizo’s call for a mining moratorium, the Supreme Court of Justice of Panama (the “Supreme Court”) released its ruling declaring Law 406 unconstitutional.

In light of these events, we carried out an impairment assessment of our Cobre Panama streams at December 31, 2023. We took a prudent approach in our judgement of the facts and circumstances, and based on the halting of production and the political environment surrounding the ruling by the Supreme Court, we determined the recoverable amount under applicable accounting standards to be nil as at December 31, 2023. As a result, we recognized a full impairment loss of $1,169.2 million. This impairment has been taken without prejudice to, or without at present attributing any specific value to, the legal remedies that may be obtained through any arbitration proceedings or otherwise.

Presidential and national legislative elections are scheduled to take place in May 2024, with a new president, Government of Panama cabinet and National Assembly expected to assume office in July 2024. In the event that there is a change in the facts and circumstances surrounding the halting of production at Cobre Panama and there is a resumption of precious metal stream deliveries to Franco-Nevada, we will assess the recoverable amount of our Cobre Panama streams at that time, which may lead to a reversal of part or all of the impairment loss we have recognized.

We are pursuing legal avenues to protect our investment in Cobre Panama. We have notified the Ministry of Commerce and Industries of Panama (“MICI”) of our intent to initiate arbitration pursuant to the Canada-Panama Free Trade Agreement. As announced to MICI, Franco-Nevada presently and preliminarily estimates its damages to be at least $5 billion, subject to further analysis and development.

While we continue to pursue these legal remedies, we strongly prefer and hope for a resolution with the State of Panama that results in the best outcome for the Panamanian people and all parties involved. 

2024 Guidance

For both our 2024 guidance and 5-year outlook, when reflecting revenue from gold, silver, platinum, palladium, iron ore, oil and gas commodities to GEOs, we assumed the following prices: $1,950/oz Au, $22.50/oz Ag, $850/oz Pt, $900/oz Pd, $115/tonne Fe 62% CFR China, $75/bbl WTI oil and $2.50/mcf Henry Hub natural gas. In addition, we do not assume any other acquisitions and do not reflect any incremental revenue from additional contributions we may make to the Royalty Acquisition Venture with Continental as part of our remaining commitment of $69.8 million. The 2024 guidance and 5-year outlook are based on public forecasts and other disclosure by the third-party owners and operators of our assets and our assessment thereof. Please see our MD&A for the year ended December 31, 2023 for more details on our guidance and see “Forward-Looking Statements” below.

We present our guidance in reference to GEO sales. For streams, our projected GEOs reflect GEOs we acquire from the operators of our assets and subsequently sell. Our GEO sales may differ from operators’ production based on timing of deliveries, and are presented net of recovery and payability factors.

We assume Cobre Panama will remain in P&SM through 2024 and have not included any contributions from the asset in our guidance. We expect an increase in GEO sales from the balance of our Precious Metal assets in 2024. The net increase reflects initial contributions from new mines including Tocantinzinho, Greenstone and Salares Norte. We are guiding towards lower GEOs from our Energy assets based on lower assumed oil and gas prices.

We estimate depletion expense to be between $230 and $260 million. Our remaining capital commitment to the Royalty Acquisition Venture with Continental is $69.8 million, of which between $10.0 million and $20.0 million is expected to be deployed in 2024. In addition, we expect to fulfill our $75.0 million term loan commitment to G Mining Ventures, of which approximately $42.0 million was advanced in January 2024.

5-Year Outlook

We expect our portfolio to generate sales between 540,000 and 600,000 GEOs in 2028, of which 385,000 to 425,000 GEOs are expected to be generated from Precious Metal assets. This outlook assumes the commencement of production at Valentine Gold, Stibnite Gold, Eskay Creek, Castle Mountain Phase 2, and Copper World. It includes an expected increase in attributable sales from Vale’s Northern and Southeastern systems, higher production from Guadalupe-Palmarejo and Antamina, and continued production from Sudbury through the end of 2028. Production growth from the continued development of our U.S. Energy assets is expected to be partly offset by lower assumed commodity prices when compared to 2023. The outlook anticipates that our Candelaria stream will step down in 2027 from 68% to 40% of gold and silver produced and that our deliveries from Antapaccay will be based on 30% of gold and silver produced rather than indexed to copper production in 2028. At this stage, our outlook does not assume any deliveries from Cobre Panama. Had Cobre Panama remained in production, we would have expected deliveries and sales of between 130,000 and 150,000 GEOs.

Environmental, Social and Governance (ESG) Updates

During the quarter, we partnered with G Mining Ventures at Tocantinzinho to help fund infrastructure and other community initiatives in Para, Brazil and with Endeavour Mining on their Great Green Wall reforestation initiative and ‘Elites de Demain’ educational assistance initiative, both in Senegal. We also renewed our funding support for the Enseña Perú education initiative in Peru. We continue to rank highly with leading ESG rating agencies. We were ranked by Sustainalytics as the #1 precious metals company and the #1 gold company for 2024 and we tied for the second ranked mining company in The Globe and Mail’s 2023 Board Games.

Portfolio Additions

Financing package with Skeena Resources on the Eskay Creek Gold Project – British Columbia: On December 18, 2023, we acquired an incremental 1.0% NSR on Skeena Resources’ Eskay Creek project for a purchase price of $41.8 million (C$56.0 million). We now hold a 2.5% NSR covering Skeena’s Eskay Creek properties. Additionally, we advanced $18.7 million (C$25.0 million) to Skeena and received a convertible debenture.
Acquisition of Additional Natural Gas Royalty in the Haynesville – U.S.: On November 21, 2023, we agreed to acquire a royalty portfolio in the Haynesville gas play in Louisiana and Texas for $125.0 million. The royalties are complementary to our existing Haynesville acreage and provide additional exposure to a diverse set of operators and a basin that is expected to help supply a growing LNG export capacity from the U.S. Gulf Coast. The transaction closed subsequent to year-end, on January 2, 2024.
Acquisition of Additional Royalty on the Magino Gold Mine – Ontario: As previously announced, we acquired an additional 1.0% NSR on Argonaut’s Magino gold mine for a purchase price of $28.0 million. The transaction closed on November 15, 2023. Inclusive of our initial 2.0% NSR, we now hold an aggregate 3.0% NSR on Magino.
Funding of G Mining Ventures Term Loan: Subsequent to year-end, on January 29, 2024, we funded approximately $42.0 million under our term loan commitment to G Mining Ventures. The term loan is part of a financing package we provided to G Mining Ventures in July 2022 in connection with the Tocantinzinho gold project, in Brazil.

Q4 2023 Portfolio Updates

Precious Metal assets: GEOs sold from our Precious Metal assets were 119,581, compared to 129,642 GEOs in Q4 2022. Higher contributions from Antapaccay, MWS and Hemlo were more than offset by lower deliveries from Cobre Panama, Candelaria and Stillwater.

South America:

Candelaria (gold and silver stream) – GEOs delivered and sold in Q4 2023 were lower than in Q4 2022. For 2024, we forecast GEO sales of between 72,500 and 82,500 GEOs, an increase compared to 66,710 GEOs sold in 2023, based on higher expected production due to mine sequencing and the mine plan grade profile. Debottlenecking initiatives of the Candelaria plant pebble crushing circuit were also completed in 2023. Lundin Mining received an approval of its Environmental Impact Assessment, allowing the extension of Candelaria’s mine life to 2040 and include various measures that will support sustainable social, economic, and environmental development in the Atacama Region.
Antapaccay (gold and silver stream) – GEOs delivered and sold were higher in Q4 2023 compared to Q4 2022 due to higher grades. For 2024, we anticipate GEOs sold to decrease from 61,158 GEOs in 2023 to between 50,000 and 60,000 GEOs reflecting lower expected production based on the mining sequence.
Antamina (22.5% silver stream) – GEOs delivered and sold were lower in Q4 2023 compared to Q4 2022. For 2024, we anticipate between 2.0 to 2.4 million silver ounces, consistent with silver ounces sold in 2023. We expect this to be equivalent to between 22,500 and 27,500 GEOs based on the commodity prices we assumed for 2024. Teck Resources announced that Antamina’s Modification of Environmental Impact Assessment was approved in February 2024, allowing the extension of the Antamina mine life from 2028 to 2036.
Tocantinzinho (gold stream) – G Mining Ventures reported the physical construction of the Tocantinzinho project was 76% complete as of the end of December 2023 and remains on track for commercial production in H2 2024.
Salares Norte (1-2% royalties) – Gold Fields announced a delay in first gold production from December 2023 to April 2024, with production in 2024 now expected to be approximately 250,000 gold equivalent ounces. Once steady state production is reached, production is expected to increase to 580,000 gold equivalent ounces in 2025 and 600,000 gold equivalent ounces in 2026.
Posse (Mara Rosa) (1% royalty) – Hochschild Mining announced that the first gold pour took place on February 20, 2024, with commercial production expected towards the end of Q2 2024. Mara Rosa is expected to produce between 83,000 to 93,000 gold ounces in 2024 and has reported average annual production of approximately 80,000 gold ounces over an initial mine life of 10 years, with approximately 100,000 gold ounces annually over the first four years.
Cascabel (1% royalty) – In February 2024, SolGold announced the completion of a new pre-feasibility study, which outlined reduced initial capital costs and a 28-year mine plan containing 3.2 million tonnes of copper, 9.4 million ounces of gold, and 28 million ounces of silver (540 million tonnes grading 0.60% copper, 0.54 g/t gold, and 1.62 g/t silver).
Pascua-Lama (2.9% gold & 0.6% copper royalties) – Barrick reported that it anticipates an updated Pascua preliminary economic assessment in 2024 to outline potential scope options. A closure environmental impact assessment for the existing site was submitted in January 2024 specifically regarding water management.

Central America & Mexico:

Cobre Panama (gold and silver stream) – GEOs delivered and sold were lower in Q4 2023 than in Q4 2022. During the quarter, Cobre Panama experienced illegal blockades at the Punta Rincón port and on the roads to the site. Production was halted at the end of November 2023 and the mine is currently on P&SM. At the request of MICI, First Quantum delivered a preliminary draft for the first phase of a formalized P&SM on January 16, 2024.
Guadalupe-Palmarejo (50% gold stream) – GEOs sold from Guadalupe-Palmarejo decreased in Q4 2023 compared to the same quarter in 2022 due to lower production at the mine. For 2024, we anticipate gold deliveries to remain relatively consistent with those received in 2023, ranging between 32,500 and 37,500 GEOs.

U.S.:

Stillwater (5% royalty) – PGM production improved over the course of 2023, as operations recovered from a shaft incident that occurred in Q1 2023. For 2024, we expect increased PGM production at the mine, offset by the impact of PGM prices. Sibanye-Stillwater also announced a restructuring at its US PGM operations in light of the lower palladium price environment.
Marigold (0.5-5% royalties) – SSR Mining forecasts lower production in 2024 when compared to the record production achieved at Marigold in 2023. Further, we expect production to take place on ground that carries a lower royalty rate.
Stibnite Gold (1.7% royalty) – Perpetua Resources announced that it was conditionally awarded up to $34.6 million in additional funding under the U.S. Defense Production Act. Perpetua anticipates that the U.S. Forest Service will publish a Final Environmental Impact Statement and Draft Record of Decision in Q2 2024 and a Final Record of Decision in Q4 2024.
Copper World Project (2.085% royalty) – Hudbay provided an updated pre-feasibility study for the Copper World project in September 2023. The study outlined an extended 20-year mine life for Phase I, where only state and local permits are required, lower initial capital expenditures, and a higher mill feed grade than was previously contemplated.

Canada:

Detour Lake (2% royalty) – Agnico Eagle reported it now expects the mill to reach a throughput of 28.0 million tonnes per annum in Q2 2024, previously expected in 2025. Agnico Eagle also reported an initial underground inferred mineral resource totaling 1.56 million ounces of gold (21.8 million tonnes grading 2.23 g/t gold) and continues to evaluate the potential for underground mining, with continued exploration success outside of the mineral resources open pit. Mill optimization to reach 29.0 million tonnes per annum is expected in 2026, with an internal analysis for expansion expected in H1 2024 including potential underground mining scenarios.
Hemlo (3% royalty & 50% NPI) – Barrick anticipates production at Hemlo to improve relative to 2023, where production was impacted by interruptions to the underground operations.
Brucejack (1.2% royalty) – Newmont, which acquired Brucejack through its acquisition of Newcrest Mining in November 2023, anticipates an increase in production in 2024 compared to 2023, where operations were impacted by a fatality in December 2023.
Macassa (Kirkland Lake) (1.5-5.5% royalty & 20% NPI) – Agnico Eagle reported that the Macassa mill is expected to reach full capacity of 1,650 tonnes per day by mid-2024. The AK deposit contributed approximately 160,000 ounces of gold in Mineral Reserves (0.74 million tonnes grading 6.69 g/t gold) to the Macassa complex, and was incorporated in Agnico Eagle’s production guidance for 2024 to 2026 with production expected in H2 2024.
Canadian Malartic (1.5% royalty) – Agnico Eagle reported that the planned mining rate of 3,500 tonnes per day at Odyssey South was reached earlier than anticipated and that ramp development also exceeded target. Agnico Eagle also declared an initial mineral reserve in the central portion of the East Gouldie deposit of 5.17 million ounces of gold …

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