Franco-Nevada Corporation (TSX: FNV) (NYSE: FN) says that expanding existing mines and developing new ones will drive its growth over the next five years.
In spite of the company’s optimistic projections, company revenues were USD$309.5 million, which indicated a decline of 6.1 per cent over its Q2 revenue of USD$329.9 million, but an increase by 1.7 per cent over its earnings from Q3, 2022. The company said in the Q3 financial statement released on Thursday that the yearly increase has compensated for its decline in revenue from its diversified assets, which occurred due to the decrease in oil and gas prices compared to the year prior.
Revenue from precious metals constitute 77.8 per cent of Franco-Nevada’s total revenue, with 64.5 per cent attributed to gold, 10.2 per cent to silver, and 3.1 per cent to PGM (Platinum Group Metals). The revenue breakdown by region showed that 88 per cent was sourced from the Americas, with 28.7 per cent from South America, 28.4 per cent from Central America and Mexico, 15.9 per cent from the United States and 15.0 per cent from Canada.
Franco-Nevada maintains a strong financial position despite the decline in revenue, boasting a total absence of debt and a substantial USD$2.3 billion in available capital as of September 30, 2023. During the last quarter, the company demonstrated robust financial performance by generating USD$236.0 million in operating cash flow, and offering the sixteenth annual dividend increase. Shareholders now receive a quarterly dividend payout of USD$0.34 per share.
The company considers itself a leader in Environmental, Social and Governance (ESG) practices. Franco-Nevada earned recognition as the top gold company by Sustainalytics and holds an AA rating from MSCI, while also achieving Prime status from ISS ESG.
Franco-Nevada’s has also partnered with the World Gold Council’s Responsible Gold Mining Principles, and the company actively collaborates with its operators on community, and ESG initiatives. The company joins such mining companies as Agnico Eagle Mines Limited (NYSE: AEM) (TSX: AEM), B2Gold Corp (TSX: BTO) (NYSE AMERICAN: BTG) (NSX: B2G) and Calibre Mining (TSX: CXB) (OTCQX: CXBMF), which joined the initiative in 2021.
“Our core precious metal assets anchored the quarter, resulting in increased revenue and earnings over the prior year period,” said Paul Brink, CEO.
“We are looking forward to added precious metal contributions from a number of new mines in 2024 and, in particular, from the Tocantinzinho stream where G Mining Ventures is progressing construction on time and budget. Franco-Nevada is debt-free and is growing its cash balances.”
Chart via Franco-Nevada.
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Franco-Nevada’s portfolio grew in Q3
Franco-Nevada’s portfolio stands out as one of the most diverse in the industry. The company excels in diversification by asset, operator and country. Core precious metal streams on world-class copper assets consistently outperform acquisition expectations, and the company possesses long-life reserves and resources that reinforce its stability and growth prospects.
Franco-Nevada engaged in a series of acquisitions, padding its bottom line with net smelter return (NSR) royalties.
After the end of the quarter, on November 2, 2023, the company agreed to acquire an additional 1.0 per cent NSR on Argonaut’s Magino gold mine in Ontario, Canada, along with a portfolio of Argonaut’s existing royalty holdings in Canada and Mexico, for a total purchase price of approximately USD$29.5 million. This bumps Franco-Nevada’s total NSR on the Magino line to 3 per cent.
In late August, the company acquired a 1.5 per cent NSR on Red Pine Exploration Inc.’s Wawa gold project, located in Ontario, Canada, for a purchase price of USD$5.0 million. The agreement also grants Franco-Nevada the option to acquire an additional 0.5 per cent NSR based on predetermined conditions.
The company agreed to acquire a sliding-scale gold royalty and fixed-rate copper royalty from private individuals pertaining to the Chilean portion of Barrick Gold‘s (TSX: ABX) (NYSE: GOLD) Pascua-Lama project for a purchase price of USD$75 million. In the event of gold prices exceeding USD$800 per ounce, the company will hold a 2.7 per cent NSR for gold, and 0.54 per cent NSR for copper, on the property.
Last July, the company agreed to acquire a 1.5 per cent NSR on the Volcan gold project located in Chile for a purchase price of USD$15 million, which is privately owned by a subsidiary of the Hochschild Mining plc (LSE: HOC).
The NSR covers the entire land package comprising the Volcan project, as well as a surrounding area of interest extending 1.5 kilometers. The company already holds an existing 1.5 per cent NSR on the peripheral Ojo de Agua area, which is owned by Tiernan and forms part of the Volcan project.
Image via Franco-Nevada financial release.
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Diversified assets decline due to lower gas and oil prices
Franco-Nevada’s diversified assets, which consist of its iron ore and energy interests, recorded revenue of USD$68.7 million, a decline from USD$97.5 million in Q3 2022.
This decrease can be attributed primarily to lower oil and gas prices compared to the relatively high prices in the same period the previous year.
Revenue from the iron ore Vale S.A (NYSE: VALE) royalty increased compared to Q3 2022. This boost was driven by higher estimated iron ore prices relative to the prior year quarter.
The company’s attributable interest in revenue remained relatively consistent with Q3 2022. However, Rio Tinto Group (ASX: RIO) (NYSE: RIO) (LSE: RIO), which operates the iron ore company in Canada, faced challenges including extended plant downtime and the wildfires in Northern Quebec in the second quarter of 2023.
Meanwhile, Lundin Mining (TSX: LUN) started an extensive exploration program into the Caserones mine, including a drilling phase of over 10,000 meters. The company expects results in the first half of 2024.
In the Energy sector, revenue from Franco-Nevada’s U.S. energy interests decreased compared to Q3 2022, primarily due to lower realized oil and gas prices. However, the impact of these lower prices was partially mitigated by approximately $1.3 million in lease bonus revenue related to the company’s Haynesville interests.
Higher production from the Permian assets was noted due to the completion of new wells. Meanwhile, revenue from Canadian Energy interests remained relatively consistent with Q3 2022. For the Weyburn Net Royalty Interest (NRI), the effect of lower prices was partially offset by reduced operating and capital expenditures at the Weyburn Unit.
Franco-Nevada Provides Update on Panama. Please see the full press release here: https://t.co/E0RWfgtPgt pic.twitter.com/RwvJ6aJOC2
— Franco-Nevada Corporation (@FrancoNevadaFNV) November 3, 2023
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Franco-Nevada monitoring developing situation in Panama
President Laurentino Cortizo announced that his government plans to hold a public vote on Law 406 in December.
Law 406 approved the revised concession contract for the Cobre Panama mine, and caused a backlash among locals concerned about environmental damage caused by country’s largest mine.
The National Assembly of Panama discussed two bills related to Law 406. The first is a bill proposing a public vote on it, and the second suggests its repeal and proposes a temporary ban on new mining concession contracts in Panama.
Bill 1110 was approved in the third debate on November 3, 2023. However, the proposed public vote and the repeal of Law 406 were not approved, and there are currently no further discussions scheduled on these matters.
As of now, Law 406 and the revised mining concession remain in effect. Several lawsuits challenging the constitutionality of Law 406 have been filed with the Supreme Court of Justice and some have been accepted for consideration. Franco-Nevada is closely monitoring the situation and assessing its available legal protections.
Production at the Cobre Panama mine is ongoing, but protests, including road blockades, have caused disruptions on the site and shortages of certain supplies.
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