Franco-Nevada's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Franco-Nevada Corporation (FNV)

Q2 2012 Earnings Call

August 9, 2012 10:00 AM ET

Executives

Stefan Axell – Manager, IR

David Harquail – President and CEO

Sandip Rana – CFO

Paul Brink – SVP, Business Development

Analysts

Stephen Walker – RBC Capital Markets

Greg Barnes – TD Securities

Adrian Day – Adrian Day Asset Management

Tanya Jakusconek – Scotia Bank

Brian MacArthur – UBS

Presentation

Operator

Good morning. My name is Stephanie and I will be your conference operator today. At this time, I would like to welcome everyone to the Franco-Nevada Corporation Second Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

Stefan Axell, Manager of Investor Relations, you may begin your conference.

Stefan Axell

Thank you, Stephanie. Good morning, everyone. We are pleased that you have joined us today for a Franco-Nevada Q2 2012 financial results overview. Accompanying our call today is a presentation, which is available on our website, where you’ll also find our MD&A and financial results.

On the line, we have David Harquail, President and CEO; and Sandip Rana, CFO; as well as most of our management team to answer any questions during the Q&A period.

Before we begin the formal remarks regarding our Q2 2012 results, we’d like to remind participants that some of today’s commentary may contain forward-looking information. In this respect, we refer you to our detailed cautionary note regarding forward-looking statements on slide two of our presentation.

I’ll now turn the call over to David Harquail, President and CEO of Franco-Nevada.

David Harquail

Thank you, Stefan. I think as most of you have seen the press release and this was a pretty solid quarter for Franco-Nevada. Sandip is going to review the financial numbers after I make a few brief comments.

I think in our press release, we also covered what I think was a lot of good news across the portfolio. In general, we’re seeing positive developments among a number of our operating assets and as well in our development pipeline of assets. I think the press release covered that pretty well, so I’m not going to belabor all those updates.

The one thing that we couldn’t update you on, of course, last night was Tasiast, Kinross came out about the same time, we did, and I apologize to the analysts for that. We have a 2% revenue royalty at Tasiast. And personally, I only see upside on that asset for Franco-Nevada.

Last year, we booked a little short of $3 million on that royalty, this year we’re expecting closer to $7 million. And even if the Kinross expansion, ultimately, is only half of what they previously projected, this royalty could potentially generate $25 million a year for over 20 years to Franco-Nevada. So, this is going to be – I expect it to be a great asset for Franco-Nevada going forward, and we’re confident we’re going to see the value out of this over time.

On the business development front, you recall our last quarterly we had a pretty busy first quarter with a number of smaller deals. We spent about $110 million in the first quarter. In the second quarter, our focus has been on the larger opportunities, where we’re confident that we should be able to report some success in this area, and so we’re working very hard on that.

Yesterday’s announcement by Silver Wheaton and HudBay, that type of transaction in our view is yet a further endorsement of the growth potential of the royalty streaming business model. Royal Gold, as well, made some news this morning. There are more than enough opportunities for all the royalty and streaming companies and we fully expect to get our share of the deals.

I’ll be happy to take your questions after Sandip reviews our Q2 numbers. Sandip, if you can take it away from here.

Sandip Rana

Thank you, David. Good morning, everyone. Thank you for taking the time to join us on our call to discuss the company’s financial results for the three and six months ended June 30, 2012. With respect to our financial results, as you will have seen from the press release issued yesterday, the company had another good quarter. Our royalty and stream operations continued to perform well.

This was the fifth consecutive quarter that the company surpassed the $100 million mark in revenue. Revenue was slightly lower at $102.7 million for second quarter 2012, when compared to second quarter 2011. But our net income of $36.9 million was higher for the same period due to lower depletion and lower cost of sales reported.

As mentioned, revenue was $102.7 million for the quarter. This compares to $106.3 million for second quarter of 2011. On a year-to-date basis, revenue was $207.7 million compared to $179.4 million a year ago, a 15.8% increase. Although, revenue was slightly less in second quarter 2012 compared to prior year, actual production attributable to (inaudible) Franco-Nevada from our royalty and stream properties was in line with our expectations for the quarter and six months ended June 30.

With respect to pricing, average commodity prices were mixed in the quarter. The average gold price was $1,611 per ounce for the quarter compared to $1,504 in second quarter 2011, an increase of 7.1%. For the six months ended June 30, the average gold price was $1,651 per ounce compared to $1,444 per ounce for the six months ended June 30, 2011, a 14% increase.

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