Finance

Resilience in Performance: Franco-Nevada's Business Thrives Amidst Operational Challenges at Cobre Panama

TORONTO, March 5, 2024 /PRNewswire/ - Franco-Nevada Corporation faced significant challenges in late 2023, particularly with the unprecedented halt in production at the Cobre Panama mine. Despite this, the company's year-end financial results displayed the strength and diversity of its business model. Paul Brink, CEO of Franco-Nevada, voiced his optimism for resolving the Cobre Panama issues. Nevertheless, Franco-Nevada has taken a conservative stance regarding the asset's carrying value.

At the close of 2023, the organization stood on solid financial ground, with a debt-free balance sheet and an impressive $1.4 billion in cash and cash equivalents. The remainder of their business exhibited positive performance throughout the year and is anticipated to experience further growth in 2024 with contributions from the newly completed Tocantinzinho, Greenstone, and Salares Norte gold mines.

Franco-Nevada’s growth outlook until 2028 is buoyed by the development of various new mines and mine expansions. With $2.4 billion in available capital, the company is well-positioned for strategic acquisitions, particularly as several project developers face capital constraints.

Financial Highlights and Comparative Results

The fourth quarter of 2023 saw the Franco-Nevada register $303.3 million in revenue, reflecting a 5% decrease compared to the same period in 2022. This dip was attributed mainly to lower gas, oil, and PGM prices, partially offset by an increase in gold prices. The company sold a total of 627,045 Gold Equivalent Ounces (GEOs) for the whole year, a 14% decrease from the previous year.

While overall revenue declined, the adjusted net income and adjusted EBITDA painted a brighter picture. For the last quarter, adjusted net income was up 5% to $172.9 million, and adjusted EBITDA decreased marginally by 3% to $254.6 million. Importantly, Franco-Nevada increased its quarterly dividend by 5.88% to $0.36 per share, effective in the first quarter of 2024, articulating its confidence in its underlying financial health.

Strong Financial Foundation

The absence of debt and strong liquidity, highlighted by $2.4 billion in available capital as of December 31, 2023, speaks to Franco-Nevada's rigorous financial discipline. The organization generated nearly $1 billion in operating cash flow in 2023, reflecting a robust ability to convert earnings into cash.

Commitment to ESG Leadership

Emphasizing Environmental, Social, and Governance (ESG) principles, Franco-Nevada has secured the number one position as a precious metals company and as a gold company by Sustainalytics. They also received an AA rating from MSCI and Prime by ISS ESG. The commitment to the World Gold Council's Responsible Gold Mining Principles is indicative of the adherence to sustainable mining practices. The company aims to achieve 40% diverse representation at the Board and top leadership levels by 2025, setting a precedent for inclusivity in the industry.

Diverse Portfolio Fuels Growth and Optionality

Franco-Nevada boasts the most diversified royalty and streaming portfolio by asset, operator, and country. Core precious metal streams are surpassing acquisition expectations, while long-life reserves ensure the company’s longevity. The five-year growth profile is energized by mine expansions and new projects, further bolstered by significant optionality in gold, copper, and nickel. The pipeline of precious metal and diversified opportunities appears strong and promising.

Quarterly Revenue and Commodity Breakdown

An in-depth analysis of quarterly revenue and GEOs sold reveals crucial insights into Franco-Nevada's business dynamics. During Q4 2023, precious metals constituted a massive 78.7% share of total revenue, with gold leading at 65.5%, followed by silver and PGM. Revenue sourced from the Americas represented 86.6%, with South America contributing 31.9%, highlighting the geographical spread and risk mitigation inherent in the company's approach.

Cobre Panama Updates: Navigating Legal and Political Challenges

Following the halt of production at Cobre Panama in November 2023, and subsequent uncertainties arising from the Panamanian Supreme Court's ruling, Franco-Nevada recorded a full impairment loss of $1,169.2 million for the mine. Presidential elections scheduled for May 2024 in Panama could yield changes in the business environment and the legal situation surrounding the mine. Despite instigating arbitration proceedings against the State of Panama, the company still hopes for a resolution beneficial to all stakeholders.

2024 Guidance and Five-Year Outlook

Looking ahead to 2024, Franco-Nevada has not folded Cobre Panama contributions into its guidance due to ongoing production halts. The company anticipates increased GEO sales from its Precious Metal assets, backed by new mines coming online. However, a decrease in GEOs from Energy assets is expected due to lower oil and gas price assumptions.

By 2028, Franco-Nevada projects its sales to fall between 540,000 and 600,000 GEOs, with a significant chunk arising from Precious Metal assets. This expectation includes the start of production at several key mining projects and increased production from existing operations. Notably, the guidance steers clear of including any potential returns from Cobre Panama.

ESG Initiatives and Portfolio Additions

In the quarter, the company solidified its ESG commitment through partnerships and funding for community-focused initiatives. Strategic additions to its portfolio included an incremental 1.0% NSR on the Eskay Creek project in British Columbia and a $125.0 million royalty portfolio in the Haynesville gas play. These acquisitions underscore Franco-Nevada’s proactive approach to growth and sustainability.

Detailed Q4 Performance across Assets

Franco-Nevada's quarterly performance metrics revealed strengths and challenges across its diverse asset portfolio. Noteworthy contributions include increased GEOs from operations like Antapaccay, while a reduction in GEOs from mines like Candelaria and Stillwater punctuates the need for strategic adjustments. Global endeavors from South America to Canada reflect the company’s wide-ranging impact on the mining and resource sectors.

Financial Position and Cash Flows

The consolidated financial statements show a company with robust liquidity and a sharp focus on maximizing shareholder value. Franco-Nevada ended the year with over $1.4 billion in cash and equivalents. Its operating, investing, and financing cash flows paint a picture of a company adept at managing capital, deploying resources efficiently, and providing returns to shareholders in the form of dividends.

For more in-depth financial details, Franco-Nevada Corporation's 2023 Annual Report, including the complete audited Consolidated Financial Statements and Management's Discussion and Analysis, can be accessed on the company's website at www.franco-nevada.com, on SEDAR+ at www.sedarplus.com, and on EDGAR at www.sec.gov.

Investors and interested parties can join the Franco-Nevada conference call to discuss the results, with details available on the company’s website.

Vision for the Future

Paul Brink's statement at the end of the report encapsulates Franco-Nevada’s core philosophy — robust business, diligent planning, and relentless pursuit of growth while facing challenges head-on. As the company maneuvers through legislative, economic, and operational uncertainties, its enduring focus on operational excellence, responsible mining, and stakeholder engagement remains unrivaled, readying Franco-Nevada for the future's opportunities and its role as an industry leader for years to come.

In conclusion, Franco-Nevada's strategic business acumen and its commitment to ESG principles have shepherded the company towards a path of resilience and growth, even as it navigates through complex global and site-specific challenges. The management's prudence and forward-looking stances are echoed throughout the business's operations, solidifying investor confidence and strengthening Franco-Nevada's position in the market.