Franco-Nevada Reports Q2 2017 Results

TORONTO, Aug. 8, 2017 /CNW/ - "Franco-Nevada's diversified portfolio continues to perform very well" commented David Harquail, CEO.  "We are now expecting to finish 2017 at the higher end of our original gold equivalent ounce guidance.  The exercise of our 2017 warrants during the second quarter has raised $356 million.  That brings our cash and cash equivalents to over $600 million and we have another $1.1 billion in available credit facilities.  Franco-Nevada is very active in both precious metals and Oil & Gas investment opportunities and I am confident we can add further assets in each category before year end."

Q2/2017 Financial Highlights

• 122,541 Gold Equivalent Ounces¹ (GEOs) sold
• $163.6 million in revenue
• $125.5 million of Adjusted EBITDA² or $0.69 per share
• $45.6 million of net income or $0.25 per share
• $46.1 million of Adjusted Net Income³ or $0.25 per share
• $614.3 million in cash and cash equivalents at quarter-end and no debt, reflecting proceeds of $356.4 million from the exercise of share purchase warrants

For Q2/2017, revenue was sourced 91.9% from precious metals (71.2% gold, 13.9% silver and 6.8% PGM) and 82.2% from the Americas (15.8% U.S., 19.9% Canada and 46.5% Latin America).  Operating costs and expenses increased year-over-year due to the increase in the number of GEOs sold during the quarter. Oil & gas revenue increased 23.1% year-over-year, reflecting higher prices as well as the addition of the STACK and Midland portfolio of royalties.  Cash provided by operating activities was $126.5 million, an increase of 22.2% compared to Q2/2016, reflecting increased gross profits as well as positive changes in non-cash working capital.

Corporate Updates

• 2017 Warrants:  Franco-Nevada received proceeds of C$479.1 million, or approximately $356.4 million, from the exercise of 6,388,528 common share purchase warrants in the first half of 2017.  The warrants had an exercise price of C$75.00 per warrant and were due to expire on June 16, 2017
• Midland Oil & Gas Royalties:  Franco-Nevada reported on this $110.0 million purchase in the West Texas Permian Basin in our last quarterly update.  Following completion of title due diligence, the first part of the portfolio was acquired for $89.8 million and was closed on May 24, 2017.  The second part of the portfolio is expected to close shortly bringing the adjusted total purchase price to approximately $107 million.
• STACK Oil & Gas Royalties: Franco-Nevada has agreed to purchase, for $27.8 million, a second package of mineral titles in the core of the STACK shale play in Oklahoma from a private company. This will complement our existing position acquired in late 2016.  This transaction will have an effective date of June 1, 2017 and is expected to close in November 2017.

Q2/2017 Portfolio Updates

• Precious Metals — U.S.:  GEOs from U.S. precious metals assets increased by 15.8% year-over-year with increases at South Arturo, Gold Quarry, Stillwater, Fire Creek/Midas and Bald Mountain more than offsetting the decrease from Goldstrike. 19,350 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 2,366 GEOs year-over-year.  Premier Gold stated that mining from the current phase has been extended into Q3/2017 and processing at Goldstrike could continue to early 2018.  A further phase of open pit mining is under detailed review for which development could begin in early 2019.  Drilling of the El Nino underground deposit is expected to begin later this year.
  • Stillwater (5% royalty) – In May, Sibanye Gold successfully acquired Stillwater Mining and is now the new operator.  Sibanye continues to advance the Blitz project which it expects to add between 270,000 and 330,000 PGM ounces of incremental production per annum by 2021.
  • Hollister (3-5% royalty) – Klondex reports that it is ramping-up mining rates at Hollister and expects to begin processing ore at the Midas mill in the second half.  An initial reserve was reported for Hollister and drilling is reported to be ongoing, notably at the Hatter Graben area.
  • Bald Mountain (0.875-5% royalty) – Kinross expects production at Bald Mountain to be higher in the second half of the year with overall 2017 production to be double that of 2016.
  • 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.  The final Record of Decision was received from the U.S. Forest Service in June 2017. Franco-Nevada's 1.5% royalty covers all commodities.
  • 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. 
• Precious Metals — Canada:  GEOs from Canadian precious metals assets increased by approximately 14.6% to 17,097 GEOs compared with Q2/2016, primarily from its interests in the Hemlo property and the Sudbury assets.
  • Brucejack (1.2% royalty) – Brucejack poured first gold on June 20, 2017 and declared commercial production on July 3, 2017.  Franco-Nevada's royalty begins after approximately 500,000 ounces have been produced.
  • 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.
  • Hardrock (3% royalty) – Joint venture operators Centerra Gold and Premier Gold submitted the Environmental Impact Statement / Environmental Assessment to initiate the formal environmental review process for the Hardrock project.
  • Dublin Gulch/Eagle (1.5-2% royalty) – Victoria Gold has obtained a $220 million debt financing commitment for the construction of the Eagle gold project. 
  • Positive exploration news since our last quarterly update was provided by operators at Macassa (various royalties), Timmins West (2.25% royalty), Taylor (1% royalty), Canadian Malartic Odyssey project (1.5% royalty), Dublin Gulch/Eagle (1.5%-2% royalty) and on part of the Cariboo/Barkerville play (3% royalty).
• Precious Metals — Latin America:  GEOs from Latin American precious metals assets were flat year-over-year, with 60,548 precious metal GEOs earned in Q2/2017, as increased deliveries from Candelaria were offset by decreases from Guadalupe, Antapaccay and Antamina.
  • Antapaccay (gold and silver stream) – Antapaccay delivered 17,364 GEOs in Q2/2017, a decrease of 11.3% year-over-year, in line with the 2017 life of mine plan.
  • Antamina (22.5% silver stream) –11,081 GEOs from Antamina were sold during the quarter, a decrease compared to 11,898 GEOs in Q2/2016. 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 21,981 GEOs, compared to 16,247 GEOs in Q2/2016, 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 9,683 GEOs in Q2/2017, compared to 12,501 under the Palmarejo agreement in Q2/2016.  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.
  • Cobre Panama (gold and silver stream) – During the quarter, Franco-Nevada contributed $52.4 million of its share of construction capital for the Cobre Panama project, or $102.6 million for the first half of 2017, for a cumulative total contribution of $564.8 million of its maximum $1 billion commitment as of the end of Q2/2017.  First Quantum reported that the project is now over 58% complete as of the end of Q2/2017 and that all aspects of the project remain scheduled for phased commissioning during 2018, with continued ramp-up over 2019.  Franco-Nevada expects to contribute $200-$220 million to the project in 2017.
  • Cerro Moro (2% royalty) – Yamana reports that the mine construction is proceeding on schedule with production expected in 2018.
• Precious Metals — Rest of World:  22,651 GEOs from Rest of World precious metals assets were sold during the quarter, an increase of 20.6% year-over-year, primarily due to an increase in the fixed ounce deliveries from Karma.
  • Sabodala (fixed gold deliveries and stream) – Teranga Gold announced that, as at June 30, 2017, Sabodala has increased its Mineral Reserve to 2.7 million ounces of gold representing an increase of more than 400,000 ounces.
  • Subika (2% royalty) – Newmont announced plans to begin underground mining 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.  Franco-Nevada estimates that the majority of underground reserves are covered by its 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.  Encouraging drilling in the Tasiast Sud area (located immediately south of the Tasiast mine) has accelerated an infill drilling program and initiation of a pre-feasibility study.
  • Karma (fixed gold deliveries and stream) – 4,453 GEOs were sold in the quarter, an increase compared to 2,500 in Q2/2016, due to a scheduled increase in the fixed ounce deliveries. Q2/2016 also only included two months of deliveries.
  • 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.
  • Duketon (2% royalty) – Gloster and Erlistoun, two satellite deposits at Duketon, commenced operations to provide additional mill feed.  Regis Resources continues to actively explore the extensive land package.
  • At Sissingue (0.5% royalty), Perseus Mining reports that construction remains on schedule and first gold is expected in early 2018.  At Ity (1.5% royalty), Endeavour Mining has reported an additional 1 million ounces of M&I resource compared to the year end 2016 estimate.
• Oil & Gas: Revenue from Oil & Gas assets increased to $9.6 million in Q2/2017 compared to $7.8 million in Q2/2016, reflecting higher prices and higher production levels year-over-year on the Company's Canadian assets, as well as the addition of the STACK and Midland portfolio of royalties.  The contribution from the new U.S. royalty assets is expected to become more significant after 2017.

Dividend Declaration

Franco-Nevada Corporation is pleased to announce that its Board of Directors has declared a quarterly dividend of US$0.23 per share. The dividend will be paid on September 28, 2017 to shareholders of record on September 14, 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, August 9, 2017 at 10:00 a.m. Eastern Time to review Franco‑Nevada's Q2/2017 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 August 16^th: Toll-Free (855) 859-2056; Toronto (416) 849-0833; Pass code 54013459
• 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.