Franco-Nevada Corporation Announces Q1 2017 Results; Increases Revenue 30% Year-Over-Year

TORONTO, May 9, 2017 /CNW/ - "Franco-Nevada's diversified portfolio and business model continues to deliver with record Gold Equivalent Ounces and revenue being realized in the first quarter" commented David Harquail, CEO. "Recent acquisitions are performing well and we continue to benefit from increased activity on many of our properties. It is a testament to both the portfolio and our business model that Franco-Nevada has again declared a dividend increase.  This marks Franco-Nevada's 10th consecutive year of dividend increases since it went public in late 2007.  Franco-Nevada remains debt free with increasing cash balances and we continue to see investment opportunities across various commodities."

Q1/2017 Financial Highlights

• 131,578 Gold Equivalent Ounces¹ (GEOs) sold – a new record and a 23.4% increase year-over-year
• $172.7 million in revenue – a new record and a 30.8% increase year-over-year
• $128.5 million of Adjusted EBITDA² or $0.72 per share
• $45.6 million of net income or $0.26 per share
• $44.8 million of Adjusted Net Income³ or $0.25 per share
• $283.0 million in cash and cash equivalents at quarter-end and no debt

Revenue and GEOs by Asset Categories

For Q1/2017, revenue was sourced 91.5% from precious metals (71.2% gold, 14.1% silver and 6.2% PGM) and 81.0% from the Americas (13.9% U.S., 16.9% Canada and 50.2% Latin America).  Operating costs and expenses increased year-over-year in-line with the increase in the number of GEOs sold during the quarter. Oil & gas revenue increased three-fold year-over-year, reflecting higher prices and lower capital expenses year-over-year on the Company's Canadian assets, as well as the addition of the STACK portfolio of royalties in Q4/2016.  Cash provided by operating activities was $119.8 million, a decrease of 3.5% compared to Q1/2016, as increased gross profits were offset by changes in non-cash working capital.

Corporate Updates

• Dividend Increase: Franco-Nevada is pleased to declare a quarterly dividend of $0.23 per share. The dividend is a 4.5% increase from the previous $0.22 per share quarterly dividend and marks the tenth consecutive annual dividend increase for Franco-Nevada shareholders.
• 2017 Warrants: At the beginning of the year, Franco-Nevada had 6,510,280 common share purchase warrants outstanding. The warrants have an exercise price of C$75.00 per warrant and expire on June 16, 2017. Subsequent to March 31, 2017, Franco-Nevada received proceeds of C$157.6 million from the exercise of 2,100,718 common share purchase warrants. At May 9, 2017, there remains 4,407,675 warrants outstanding.
• Credit Facilities: On March 22, 2017, Franco-Nevada extended the term of its existing $1 billion credit facility from November 12, 2020 to March 22, 2022. In addition, on March 20, 2017, Franco-Nevada's subsidiary, Franco-Nevada (Barbados) Corporation, entered into an unsecured revolving credit facility which provides for the availability of up to $100.0 million in borrowings.
• Midland Oil & Gas Royalties: On March 13, 2017, Franco-Nevada agreed to purchase a portfolio of oil & gas royalties in the Midland shale play of the Permian Basin of Texas for $110.0 million. On March 14, 2017, Franco-Nevada advanced $11.0 million in an escrow account to be applied towards the purchase price upon closing. Closing is expected in Q2/2017 with revenue retroactive to Jan 1, 2017.

Q1/2017 Portfolio Updates

• Precious Metals — U.S.: GEOs from U.S. precious metals assets increased by 37.9% year-over-year with increases at South Arturo and Stillwater more than offsetting the decrease from Goldstrike. 19,529 GEOs were received from the U.S. precious metal assets.
  • South Arturo (4-9% royalty) – This project, operated by Barrick and Premier Gold, represented an increase of 4,309 GEOs year-over-year. The partners are looking at a second open pit (Dee) on the property and are advancing permitting for the El Nino underground opportunity below the current pit.
  • Goldstrike (2-4% royalty & 2.4-6% NPI) – Barrick is integrating the Cortez and Goldstrike mines in an effort to reduce all-in sustaining costs which would benefit the profit royalties.
  • Stillwater (5% royalty) – Sibanye Gold successfully closed its acquisition of Stillwater Mining. The Stillwater project contributed an additional 2,004 GEOs compared to Q1/2016. Stillwater is planning low risk organic growth with the Blitz project, which it expects to add between 270,000 and 330,000 PGM ounces of incremental production per annum by 2021.
  • Rosemont (1.5% royalty) – Hudbay released results of a feasibility study for the Rosemont project which outlined a 19 year mine life with annual copper production over the first 10 years of 127,000 tonnes. Hudbay expects the Record of Decision to be signed in June 2017. Franco-Nevada's 1.5% royalty covers all commodities.
• Precious Metals — Canada: GEOs from Canadian precious metals assets increased by approximately 3.3% to 12,652 GEOs compared with Q1/2016.
  • Hemlo (3% royalty & 50% NPI) – Barrick filed a Technical Report for Hemlo outlining the life of mine plan and providing additional detail of the increased reserves previously announced.
  • Macassa (various royalties) – Reserves of gold ounces at the Macassa mine increased by 37% from the last estimate at December 31, 2014 which includes two years of depletion. The reserve grade also increased by 7%.
  • Detour (2% royalty) – Detour Gold provided an updated mine plan in response to near-term permitting constraints. The updated plan assumes a longer mine life and increased life of mine gold production compared to the previous mine plan.
  • Brucejack (1.2% royalty) – Pretium Resources reports that it has stockpiled 187,000 tonnes of ore and has started introducing ore to the crusher.
  • Timmins West (2.25% royalty) – Tahoe Resources expects to provide a maiden reserve estimate for the Gap 144 zone in Q3/2017.
• Precious Metals — Latin America: GEOs from Latin American precious metals assets represented the largest year-over-year increase. 70,429 precious metal GEOs were earned from Latin America, an increase of 20.4% year-over-year due to higher deliveries from Antapaccay, Guadalupe and Candelaria.
  • Antapaccay (gold and silver stream) – Antapaccay delivered 15,019 GEOs in Q1/2017, an increase of 68% year-over-year due to only two months of deliveries in Q1/2016, when the stream transaction was closed.
  • Antamina (22.5% silver stream) – 13,130 GEOs from Antamina were sold during the quarter, a decrease compared to 17,781 GEOs in Q1/2016. The year-over-year decrease was expected, as 2016 was an exceptionally strong year of silver production for Antamina. 
  • Candelaria (gold and silver stream) – Candelaria earned 22,483 GEOs, compared to 18,626 GEOs in Q1/2016, as expected according to its mine plan. The Los Diques tailings facility construction is progressing on schedule and conceptual studies to increase production from five underground deposits to optimize life-of-mine plan are advancing.
  • Guadalupe (50% gold stream) – The Guadalupe agreement, which became effective in Q3/2016, delivered 19,300 GEOs in Q1/2017, compared to 12,501 under the Palmarejo agreement in Q1/2016, due to higher production year-over-year and a reduction of inventory that had built up from the prior quarter. Under the Guadalupe agreement, Franco-Nevada pays an ongoing cost of $800 per gold ounce received versus the inflation adjusted cost of $400 per gold ounce under the prior Palmarejo agreement.
  • Cerro Moro (2% royalty) – Yamana Gold reports that the project is on track for mechanical completion by year-end with startup of production expected early next year.
  • Cobre Panama (gold and silver stream) – During the quarter, Franco-Nevada contributed $50.2 million of its share of construction capital for the Cobre Panama project with a total of $512.4 million of its $1 billion commitment contributed as of the end of Q1/2017. First Quantum reported that the project is over 50% complete as of the end of Q1/2017 and that the project remains scheduled for phased commissioning during 2018, with continued ramp-up over 2019. Franco-Nevada expects to contribute between $200-$220 million to the project in 2017.
• Precious Metals — Rest of World: 25,900 GEOs from Rest of World precious metals assets were sold during the quarter, an increase of 31.8% year-over-year. This reflected the first full quarter of deliveries from Karma, as well as the sale of ounces which had been received in Q4/2016.
  • Subika (2% royalty) – Newmont formally announced plans to develop a new underground mine and expand plant capacity at its Ahafo operation in Ghana. Together, the two projects are forecast to add incremental gold production between 200,000 to 300,000 ounces per year during the first five years of production. The proposed underground mine is estimated to be mostly covered by Franco-Nevada's 2% royalty.
  • Tasiast (2% royalty) – Kinross reports the Tasiast Phase 1 expansion remains on schedule for full production in Q2/2018. Kinross expects to provide a feasibility for a possible Phase 2 expansion in Q3/2017. This is expected to add an additional 18,000 tonnes per day for a total combined throughput capacity of 30,000 tonnes per day.
  • Karma (fixed gold deliveries and stream) – 5,000 GEOs were sold in the quarter of which 1,250 were received in Q4/2016.
  • Sabodala (fixed gold deliveries and stream) –7,500 GEOs were sold in the quarter, of which 1,875 were received in Q4/2016. Teranga Gold won the PDAC award for Environmental & Social Responsibility for its work around the Sabodala mine.
  • Edikan (1.5% royalty) – Perseus Mining released an updated mine plan in February envisioning a 6.5 year mine life.
  • Agi Dagi (2% royalty) – Alamos Gold has tabled a positive feasibility report for the project projecting annual production of 177,600 ounces of gold over 5 years. A positive PEA was also completed for the neighbouring Camyurt project on which Franco-Nevada also holds a royalty.
• Oil & Gas: Revenue from oil & gas assets increased to $10.9 million in Q1/2017 compared to $3.6 million in Q1/2016, reflecting higher prices and lower capital expenses year-over-year on the Company's Canadian assets, as well as the addition of the STACK portfolio of royalties in Q4/2016. The contribution from the new U.S. royalty assets is expected to become more significant after 2017.

Dividend Increase

Franco-Nevada is pleased to announce that its Board of Directors has declared a quarterly dividend of $0.23 per share. The dividend is a 4.5% increase from the previous $0.22 per share quarterly dividend and marks the 10^th consecutive annual dividend increase for Franco-Nevada shareholders. Canadian investors in Franco-Nevada's IPO in December 2007 are now receiving an effective 8.3% yield on their cost base.  The dividend will be paid on June 29, 2017 to shareholders of record on June 15, 2017 (the "Record Date").  The Canadian dollar equivalent is to be determined based on the daily average rate posted by the Bank of Canada on the Record Date.  Under Canadian tax legislation, Canadian resident individuals who receive "eligible dividends" are entitled to an enhanced gross-up and dividend tax credit on such dividends.

The Company has a Dividend Reinvestment Plan ("DRIP").  Participation in the DRIP is optional.  The Company will issue additional common shares through treasury at a 3% discount to the Average Market Price, as defined in the DRIP.  However, the Company may, from time to time, in its discretion, change or eliminate the discount applicable to treasury acquisitions or direct that such common shares be purchased in market acquisitions at the prevailing market price, any of which would be publicly announced.  The DRIP and enrollment forms are available on the Company's website at www.franco-nevada.com.  Registered shareholders may also enroll in the DRIP online through the plan agent's self-service web portal at www.investorcentre.com/franco-nevada.  Beneficial shareholders should contact their financial intermediary to arrange enrollment.

This press release is not an offer to sell or a solicitation of an offer of securities. A registration statement relating to the DRIP has been filed with the U.S. Securities and Exchange Commission and may be obtained under the Company's profile on the U.S. Securities and Exchange Commission's website at www.sec.gov.

Shareholder Information

The complete Condensed Consolidated Interim Financial Statements and Management's Discussion and Analysis can be found today on Franco‑Nevada's website at www.franco-nevada.com, on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.

Management will host a conference call tomorrow, Wednesday, May 10, 2017 at 8:30 a.m. Eastern Time to review Franco‑Nevada's Q1/2017 results.

Interested investors are invited to participate as follows:

• Via Conference Call: Toll-Free: (888) 231-8191; International: (647) 427-7450
• Conference Call Replay until May 17^th: Toll-Free (855) 859-2056; Toronto (416) 849-0833; Pass code 8958319
• Webcast: A live audio webcast will be accessible at www.franco-nevada.com

Corporate Summary

Franco-Nevada Corporation is the leading gold-focused royalty and stream company with the largest and most diversified portfolio of cash-flow producing assets.  Its business model provides investors with gold price and exploration optionality while limiting exposure to many of the risks of operating companies.  Franco-Nevada is debt free and uses its free cash flow to expand its portfolio and pay dividends.  It trades under the symbol FNV on both the Toronto and New York stock exchanges.  Franco-Nevada is the gold investment that works.