Earnings Call: Q2 2020

Aug 6, 2020

Morning, ladies and gentlemen, and welcome to the Franco Nevada Corporation Q2 2020 Results Conference Call. At this time, all lines are in listen only mode. Following the presentation, we will conduct a question and answer session. This call is being recorded on August 6, 2020. I would now like to turn the conference over to Candida Hayden. Please go ahead. Thank you, Colin. Good morning, everyone. Thank you for joining us today to discuss Franco Nevada's Q2 2020 results. Accompanying this call is a presentation, which is available on our website atfranconevada.com, where you will also find our full financial results. Sandy Brenna, CFO of Franco Nevada, will provide a brief review of our results and Paul Brink, President and CEO of Franco Nevada, will provide a business development update. This will be followed by a Q and A period. Representatives from our executive team are present in our boardroom to answer any questions. We would like to remind participants that some of today's commentary may contain forward looking information, and we refer you to our detailed cautionary note on Slide 2 of this presentation. I will now turn over the call to Sandy Barena, CFO of Franco Nevada. Thanks, Candida. Good morning, everyone. As we all know, Q2 2020 was not your typical quarter. Franco Nevada, like many companies, was impacted by the COVID-nineteen pandemic. The company had ended 2019 with very strong performance from its royalty and stream assets, which continued into Q1 2020. However, with COVID-nineteen, we had a number of interest impacted in the Q2. Of our 56 producing assets at the end of March, 15 were impacted in some way. These assets were either mandated to shut down or to partially curtail production. As of today, we are pleased that almost all of the assets that were impacted have resumed normal operations. Only the Golden Highway assets remain closed. We look forward to our royalties and streams resuming normal operations and continuing to deliver the growth built into our portfolio. On Slide 3, we have highlighted the gold and gold equivalent ounces for the 3 months 6 months ended June 30, 2020, 2019. Overall, despite the portfolio not performing as planned due to the pandemic, geo sold were fairly stable for both periods shown. For Q2 2020, geo sold were 104,330 compared to 107,774 a year ago. The company has benefited from GEOs delivered and sold from Cobre Panama as the company began receiving gold and silver ounces in Q3 last year. However, deliveries in Q2 2020 were hindered by the mine being placed on care and maintenance because of the COVID-nineteen pandemic. We expect deliveries to ramp up over the next few months as the mine has resumed operations. One other material asset that did deliver less geos in the Q2 compared to a year ago was Antepekahi. The mine did experience concentrate shipment delays in April May as a result of the pandemic, but we are beginning to see catch up deliveries of those delayed shipments. With respect to the rest of the portfolio, one asset which showcased its leverage to the rising gold prices was Hemmel. Franco Nevada has a 50% net profit interest on the Intralate deposit within Hemlo. The company saw substantial increase in GEOs delivered and revenue recognized for the Q2 compared to a year ago. We expect this asset to continue to do well as gold prices increase. With respect to PGM silver and other mining assets, the company did recognize less GEO sold, which was in line with expectations. Slide 4 highlights our gold and gold equivalent revenue for Q2 2020, Q1 2020 and Q2 2019. The company's gold and gold equipment revenue increased 26% compared to a year ago despite relatively flat GEO sold. The increase in revenue was due to the increase in gold prices with the average gold price for 2nd quarter being $17.11 per ounce compared to $13.10 per ounce a year ago. Energy revenue had a significant decrease year over year, decreasing from $27,600,000 in Q2 twenty nineteen to $14,600,000 in Q2 twenty twenty. Overall production at the assets did increase for the energy side, but this was negated by the lower oil and gas prices realized in the quarter. As you are aware, oil prices reached historic lows in April 2020. As you turn to Slide 5, you will see the key financial results for the company. I won't get into the detailed numbers, but the company continues to deliver strong financial metrics being revenue, adjusted EBITDA and adjusted net income. For Q2 2020, adjusted EBITDA was $158,100,000 a 14.6% increase over a year ago. When adjusting for unusual items, adjusted net income was 43.4 percent higher in Q2 2020 compared to Q2 2019 at $91,800,000 versus $64,000,000 a year ago. On Slide 6, we illustrate the diversification of our portfolio revenue generation. As shown, 92% of our quarterly revenue was generated by gold and gold equivalents in Q2 with gold being 70%, silver 10%, PGM's 11% and other mining 1%. From a geographic revenue profile, revenue was sourced 82% from the Americas with Latin America being the largest. And the 3rd chart highlights the asset diversification of the company. Candelaria was our largest revenue generator at 14% for the quarter. Our top four core assets, Cobre Panama, Candelaria, Antipakay and Antamina, generated 36% of the revenue for the company. One area that our Board and management is very proud of is our focus on cost management and being a high margin business. We like to stress the strength of our business model and the scalability. The chart on Slide 7 illustrates how the margin for the company increases as gold prices increase. Our cost structure, which we reflect in our cash cost per ounce, includes our cost of sales less cost associated with the energy business. As you can see, it does fluctuate quarterly but approximates $2.50 to $300 per ounce. If gold prices continue to rise, we expect to benefit fully as the cost per ounce should not increase significantly. This is truly a high margin business. As you're aware, on April 7, 2020, the company did retract its GEO sold guidance due to the uncertainty around the impact of COVID-nineteen. In addition, the energy revenue guidance was pulled due to the sharp decrease in energy prices and the related volatility. Management is reinstating guidance for 2020 as its royalty and stream assets impacted by the pandemic begin to return to normal operations. Based upon performance for the 1st 6 months of the year and our expectations for the second half, the GEO sold guidance is 475,000 to 505,000. This guidance is based on commodity prices of $1800 gold, dollars 20 silver, dollars 900 platinum and $2,200 palladium. With respect to the Energy division, revenue is projected to be between $60,000,000 to $75,000,000 for the year. This is assuming a $40 WTI oil price and $2 MCF natural gas price. Before I turn it over to Paul, I wanted to provide an update on the CRA audits. With respect to the transfer pricing reassessments received for Mexico and Barbados, there are no material changes to what has been disclosed previously. However, in July, the company did receive a proposal letter related to tax years 20122013 for foreign accrual property income. CRA claims that the income for those tax years earned in Barbados should be taxed in Canada under FAPI. The tax owed would be approximately $7,000,000 before interest and penalties. Franco Nevada does not agree with the proposal nor the calculation prepared by CRA and has made this clear to CRA. And now I will pass it over to Paul, who will provide an update on available capital and business development. Please wait while the recorder is connected. Thank you, Sander. The conference is now being recorded. Thank you. I'll be talking about recent business development activity and our future growth drivers. During Q2, we reached agreement on $100,000,000 financing for SolGold where we will receive a 1% NSR on oil production from their Casquebel property in Ecuador. Casquebel is a large copper gold porphyry system amenable to block caving and we believe one of the best copper gold development projects globally. M and I resources are 2,700,000,000 tons at 0.53% copper equivalent. Very interesting to us that includes more than 21,000,000 ounces of gold. The resource includes a high grade core of more than 440,000,000 tons at 1.4 percent copper equivalent. SolGold has the option until January of next year to increase the deal by 50%. That would be a 1.5 percent royalty and $150,000,000 financing. They also have the option to buy back half of the royalty for a period of time. We've retained an option to convert the NSR on all metals to a gold only royalty on an NPV neutral basis. As COVID travel restrictions were in place when we agreed the transaction, on-site due diligence was deferred. We've provided interim funding to allow Solgol to continue its activities until we can complete our due diligence. Credit for the transaction goes to Ian Gray and our business development team and they're available to take any questions later in the call. I'll turn now to our growth outlook. We feel particularly well positioned as the gold price runs with a close to 20 year reserve life and built in growth for the next number of years. Business development remains active. Short term, we expect to be successful with some smaller transactions. Medium term, we're active bidding on larger transactions, although as always, these are competitive processes. We also expect some attractive energy assets will become available as the sector shakes out. Organic growth is again becoming a big contributor as we move further into the gold bull market. Slide 10 shows the expected drivers. Expansions on Stillwater, Tasiast and Macassa and the construction of Solaris Norte and Coralcoico are included in our 5 year guidance. But we also have a very broad portfolio with 35 other mining development projects and greater than 200 exploration projects. The pace of development at many of these assets has picked up. Assets like Valentine Lake, Hard Rock, Stibnite Gold and Monument Bay are not in our 2024 guidance and their development is more and more likely. Slide 11 highlights positive portfolio updates from the quarter. I'll point to 1 in particular, Duke DYN in Australia that's undergoing a change, Historically mine is as a number of open deposits. They've discovered major underground extensions and are currently developing the first of a number of underground mines. One development not on the slide, it now appears there's good potential for life extensions at our Sudbury PGM streams. We've also seen great exploration success at a number of our assets, particularly in Canada, the Saddle Zone at Detour, East Goldie at Marlodick and extensions at Macassa and Hemlo. Eske Creek is also increasingly looking like it will have a second life as an open pit operation. All this organic growth would come at no cost. The final topic to cover is our available capital showed on Slide 12. Our cash balance is building rapidly. We have working capital of $478,000,000 and we have no debt, Including our available credit facilities of $1,100,000,000 we have a total of $1,700,000,000 of available capital to deploy our new opportunities to grow the company. With that, I'll hand it to the operator and we welcome any questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Okay. So your first question comes from Puneet Singh of Industrial Alliance. Please go ahead. Hi, good morning. I guess my first question is as Cobre Panama ramps up, do you expect any kind of a lag in deliveries or however that works in terms of recognizing the GEOs for your reporting in Q3? Yes. So the First Quantum states that they'll be fully ramped up by mid August. And then from there, it could take anywhere from 4 to 6 weeks for us to be paid. So we should see some deliveries in August, but I would say towards the second half of September is when we'll get back on track. Okay. And then on the energy side, I see Weyburn was one of the hardest hit and WTI has recovered since. I just want to get a sense of in your guidance for energy revenue, how much of that is allocated to Weyburn? And how do you think that asset performs in relation to the others in the second half of the year? Weyburn should improve dramatically in the second half of the year. As you know, when the prices collapsed in April May, the realized price for Weyburn dropped significantly with around $20 a barrel or so, which was less than the cost for capital and operating. And so there was actually a negative small negative balance there on the NRI. That will turn around to the back half of the year as the price has improved. So there should be significant increase in revenue from particularly the Weyburn NRI in the 2nd part of the year and that is factored into our guidance for energy. Okay. Thanks. Your next question comes from Josh Wolfson of RBC Capital Markets. Josh, please go ahead. Thank you. Looking at the ATM, which has been running at around $50,000,000 to $70,000,000 per quarter, we haven't seen much in terms of use of that cash. So it's, I guess, added to the balance sheet beyond free cash flow. How should we look at the ATM going forward? Is this kind of a constant revenue stream for the company? Or is this expected to be used for a deal? Or is there some implication on valuation we should be looking into for the use of that ATM program? Sure. So it's a tool for us and we've been opportunistic initially the goal was to pay off our debt, which we've done. And then part of that is what's in front of us in terms of deal flow. But if the cash does sit on the balance sheet, I think we've shown over time that we can deploy it. And it's a very cyclical business and whoever has cash usually benefits at the end of the day. Will it be ongoing? I think it's a tool for us to continue to look at using. But as we've always said, we'll be opportunistic. Okay. And then with regards to the change in guidance for 2020, there's a bunch of moving parts, I guess factoring in COVID related items, some changes at the underlying operations and then the change in the commodity price assumptions. Is there any read through on the guidance change with respect to if you could provide in terms of the operating underlying operating asset changes specifically, I guess, the result of that? I guess Candelaria is one larger change, but is there anything else we should be aware of maybe for our forecast going forward? No, I think the main source of the change is just the COVID impact for the various assets. And then in addition to what you mentioned Candelaria where Lundin came out last week with updated guidance. So it's reflecting the update there. But otherwise, we assume the operations will return to normal in the second half of the year. Okay. That's all my questions. Thank you very much. Your next question comes from Jackie Przybylowski of BMO Capital Markets. Jackie, please go ahead. Thanks very much. I'm just going to follow-up with Josh's capital allocation questions. I noticed the dividend went up by $0.01 in the quarter in Q2. Can you talk a little bit about what your thoughts are around the dividend, if you see room for maybe further dividend increases or how you guys are thinking about that in the context of the rest of your capital allocation decisions? Sure. So one of the core objectives of the company is to have a sustainable and progressive dividend and have that track record where we've increased it every year. And fortunately, we've been able to do so for the last 13 years. Yes, we increased it by 0 point 0 $0.01 per quarter recently, and we'll look to increase it going forward. But there is no metric that we tie it to. And depending on where we are in the cycle, it could lead to higher than traditional increases. But again, it will just depend what's front of us at the time. But we are committed to raising our dividend each year. Great. Thanks. And sorry, just yes, that's a community. The other question just popped out of my head. I'll get back in the queue if I think about it. Thanks, Suneet. Okay. Thanks. Your next question comes from Carey MacRury of Canaccord Genuity. Carey, please go ahead. Hi, good morning. Maybe just another question on the updated GEO guidance, just given the timing of concentrate sales. Is there any sort of split we should think about in terms of Q3 versus Q4 if we just sort of take the rest of your guidance? Yes. So you will see higher geo sold in Q4 versus Q3. As for the split, it's probably going to be sixty-forty in terms of the incremental geo sold for the second half of the year. Okay. And then maybe just on the SolGold transaction, just wondering what the schedule looks like just on the due diligence completion? Hi, Carrie. It's Ian Gray here. Due diligence is ongoing. We hope to complete something in the near term as we previously messaged. Obviously, with COVID, these things are a bit challenging, but it's ongoing. And then maybe one more question. Paul, you mentioned some of the bigger opportunities are considered medium term. I'm just wondering if you could put some color on medium term. As discussed before, there are some attractive transactions out there. The business development team is very active on them. They are competitive though, and we expect to be competitive in them. But as always, the objective is to generate returns for shareholders rather than just to grow the size of the company. Maybe one last one. With copper prices sort of back creeping towards $3 is that some of the potential transactions were more base metal transactions. Does that change the outlook for some of these to get done in your view? Sure. It's Ian again here. That takes the pressure off some balance sheets. So on balance, yes, I would say it takes some things off of oil. However, I would also point to the copper gold ratio still being quite favorable for base metals producers to do precious metal streams. Great. That's it for me. Thanks. Your next question comes from Cosmos Chiu of CIBC. Cosmos, please go ahead. Thanks. Hi, Paul. Hi, Sandeep. First off, congratulations on a very solid Q2, all things considered. Maybe my first question again is on the corporate development side. Paul, as you mentioned, the opportunities out there. Could you maybe in the past, you talked about one opportunity, as you talked about, is precious metal streams of base metal mines. The other one is, of course, potentially helping some of these producers transact in M and A transactions. Are those still 2 of the key sort of sources of opportunities coming up? Cosmos, thanks for the question. I'm going to hand it over to Ian. Hi Cosmos. Hi, Ian. So I would say M and A, Cosmos has probably slowed down a little bit in terms of funding acquisitions. Probably more what you're seeing is base metals producers. And another theme I would point to is that existing precious metals royalties are increasingly on the market. So we're seeing a bit more of that as well. And then as a follow-up, and Ian, I'm not sure how much you can share with us here. But as we've all seen precious metal, gold prices have increased, record highs, silver prices have increased. Has it made it more difficult for you to price some of these deals? In that, as Paul mentioned, these are competitive situations. Are producers asking for some of these deals to be priced at spot? And would you pay spot? So Cosmos, we're looking to do good deals for our shareholders. So certainly, we have to take a measured approach to evaluating the valuation. And that's something that we look to do. I can't share obviously too much there. These are competitive processes. But we're looking to do good deals, not just deals for deal sake. For sure. Maybe a question on the NPIs. Sandeep, as you mentioned, Hemlo was one where it had a good leverage in the quarter, certainly benefiting from higher gold prices. How about your other NPIs? The one at Kirkland Lake and the one at Goldstrike. Should we expect, again, the same type of leverage on a go forward basis as some of those NPIs as well? And are there any other NPIs I might have missed? Sure. So at Macassa with Kirkland Lake, it's just it's a question of when they mine on that land. So the MPI doesn't apply to the whole property. So I think for the foreseeable future, that will be minimal. Goldstrike, just again, it's only applied to certain claims. It will depend upon what flows through. I think at $2,000 gold, you will start to see the leverage come through at the gold strike NPI. But the one we are looking forward to is Musselwhite where we do have a 5% NPI. Obviously, Musselwhite was in White where we do have a 5% NPI. Obviously, Mussel White was impacted by the fire last year, but it is up and running and that MPI hopefully starting next year will start to kick in revenue again. So that will probably have the most meaningful impact versus Hemlo. For sure. And talking about different zones at the royalties here, one I want to move to is Canadian Malartic underground. As we've kind of started hearing Agnico, YIGO and Yamana has really started talking up the underground potential here at the Canadian Malartic. As you mentioned earlier today, you talked about yeast, Guldi zone and potentially some of the other underground zones as well. Could you maybe remind us this is likely on your website, but could you remind us in terms of, for example, at East Goldie to 2,700,000 ounces in underground resources, how much do you have? How much of that is on your royalty ground? And in terms of the other deposits, Odyssey, yeast, Malartic, what do you have in terms of total resources that could be attributable back to Franco Nevada? Cosmos, it's Paul. Probably the best place to look is in our asset handbook where we do have a schematic that shows the position as we understand it of East Goldie relative to our royalty claims. Recall at Marlartic, we have a couple of individual claims, which we don't call cover all of the property, but you will see there our best estimate of the portion of East Goldie that we cover. And we do potentially touch on some of the other areas, but East Goldie is probably the likely area where we get more ounces. We don't have a detailed breakout of the actual resource to give an accurate percentage. For sure. And then maybe one last question, if I may, likely to Jason here. Good to see that you've reestablished your revenue guidance for the year in terms of the energy portfolio. Right now, you're looking at, I believe, dollars 40 per barrel $2 per Mcf in terms of I believe that's Henry Hub. Clearly, those numbers, those assumptions look pretty good at this point in time. But Jason, could you remind us in terms of the sensitivity to commodity prices? And who knows, it might actually go up from where it is today if we have more of a V shaped recovery. So I just want to get an understanding in terms of your sensitivity to the oil and also natural gas prices? Thanks, Cosmos. It's Jason here. And you're right, there is some leverage to revenue from a rise in commodity prices. We have leverage in our Canadian operations mostly through our Weyburn NRI and also some through the Orion royalty. And then in our U. S. Assets, we have leverage that comes from really from increase in drilling and activity as operators on our lands in the U. S. Ramp up their development pace. It's very hard to give you an exact number or ratio for leverage right now. We're sort of waiting to see, as the prices come back, what response the operators have in terms of increasing their capital budgets and increasing their development pace. So I think as the prices sort of settle out here and become more consistent, we'll probably get a better idea over the next couple of quarters as to what a rise in commodity price would do for activity rates in the U. S. And then we'll be able to give you a better sort of leverage number to work off of. But certainly, you should see as the commodity price goes up, at a minimum, you'll see leverage at our Canadian operations just because of the financial leverage associated with those royalties. Sounds good. So Jason, I guess, it sounds like it's not just so much commodity sort of leverage, it might even be on top of that some kind of operational leverage when some of the operators might start pulling putting more drills back into the ground? Yes, that's exactly right. I think what you saw when the oil price sort of crashed in April was a real pullback from E and P companies in terms of the amount of dollars they were putting into the ground in drilling and recommit that capital recommit that capital. But we just have to follow it. We obviously don't have the visibility into operators' plans and we'll have to wait for them to start recommitting that capital before we have a better idea of how that impacts production going forward. Yes. And Jason, I guess the follow-up here is that right now it's back up to about $40 per barrel WTI. Based on your experience, do you think that's enough for operators to put drills back into the ground or do we need a higher price or do we just need more stability? It's a bit of both. I think what you're seeing right now is sort of a rebalancing in the whole energy market. You obviously had a huge We've just recently We've just recently come back up to $40 and I think E and P companies are still a little bit reluctant to really increase their capital budgets. Most of them, if you look at what they've been saying publicly, is that they plan over the next year or so at these types of prices $40 or so to try to keep their production reasonably flat or maybe introduce a very low rate of growth on the order of up to 5%. Nobody out there right now is talking about growth of 20% or 25% like they were at higher prices. I think that's going to take time. You're going to have to see more sustained higher prices before you would expect those kind of growth rates to come back. So at $40 I think right now in the market that's the recipe for operators to kind of maintain production profiles at a reasonably flat level. Great. Thanks a lot. Those are all the questions I have. Thanks again. Your next question comes from Tanya Jakusconek of Scotiabank. Tanya, please go ahead. Yes. Good morning, everybody. And I'm sorry, I jumped on the call just a little bit late. And I think Sandy, maybe you had given some guidance on the Cobre Panama. What I understood is that by September, we are going to be back on track on those shipments. And is that fair to assume that that's when we get back to that 25,000 ounces per quarter rate sort of in September? Yes, yes. Towards the end of September, that should be the going rate going forward. And sorry, did I miss on Antamina? I know it was about 8,000 to 10,000 ounces of gold equivalent a quarter. Did you provide when we got back on track there? No, not at this time. Okay. And just on in Q1, you gave us guidance that you still expect the oil and gas front. We have a lag in terms of revenue impact and we were going to feel it in the second half of twenty twenty. Is that still the case? Yes, that's factored into the guidance that we provided. We do think there will be a lag as we see lower commodity prices impact production levels, but that is factored into the guidance that we provided. Okay. So that's just on the guidance and maybe just coming back on the M and A and I did hear Paul and Ian talk a little bit about that. And when you mentioned the small to moderate size, among Q1 you had mentioned that was under 500,000,000 dollars Is that still that sort of size that you're seeing in the short term, short to medium term? Yes. We're seeing some smaller transactions that are most actionable under the $100,000,000 mark, I would say. But it really runs the whole gambit, Tanya, in terms of size at the moment within the pipeline from quite large to relatively small. Okay. And you also mentioned that with the higher base metal prices, the balance sheet is a bit better on the base metal side. But you had mentioned on Q1 that you were also looking at transactions in the non precious metal space, base metals and bulks. Is that still something you're seeing now or has your focus shift to the energy sector? No, I think right across the spectrum there as well, both precious, other mining, so basin bulks and energy. So we're looking at all of those things, looking for the best deposits. Okay. Okay. And then just on the technical due diligence that you mentioned that you're still doing the technical due diligence. How are you finding it now? Are things opening up? There is to a certain respect. We're also getting better at more creative ways to get comfort on assets and leveraging contacts and so forth where we have them, folks that we know and trust. Okay. But things are still pretty much on getting access to places that still have that those travel restrictions? Yes, there are certainly some places, but other places it's just more challenging in terms of logistics. Okay. Okay. Thanks a lot. Your next question comes from Greg Barnes of TD Securities. Greg, please go ahead. Yes. Thank you. Sandeep, on the CRA situation, is there an avenue to open up settlement discussions with CRA and come to some kind of conclusion along the same lines that we did? That is one of the options. We will evaluate as time goes on and the discussions, I think, we waited for the Cameco decision and that was favorable. They won the appeal. So it is one of the we shouldn't have to pay anything else, but we will continue to we shouldn't have to pay anything else, but we will continue to explore our options. And you have not opened discussions with them on that front yet? Not yet. Okay. And Ian, on the M and A front, you've mentioned the word competitive a number of times. The biggest deal done recently, if I price it out rightly, we've done it about a 3% IRR. Is that the kind of metrics we should be looking at for deals going forward now? Greg, it's hard to comment on specific transactions that have occurred within the marketplace. And there's obviously a lot of assumptions that go into your calculation there. But I would say that we're looking to do deals with reasonable levels of return visavis deals that we've done in the past and using similar methodologies to look at metals prices. So we're not breaking the mold. Okay. And Sandeep, final question just returning to you. With your balance sheet, where is that and the free cash flow you're going to be generating, does it make sense to have a more efficient capital structure and carry some debt going forward and then that would enable you to do a big deal but also continue to pay a large dividend or a larger dividend? It's a fair comment, Greg, but I think what we've seen in the history of the company is that when this is a cyclical business and the best time to put on debt is when there's a downturn and we did that in 2014, 2015 when we added Candelaria and Tipacay and Antamina. We went into that downturn with no leverage, and it was the perfect time to add leverage. So that's the way we view the capital structure. There is a time to put debt on the balance sheet, but now is not the time. Got you. Okay. Thank you. Your next question comes from Bahad Tariq of Credit Suisse. Please go ahead. Hi, good morning. Just one for me. On the energy side of the business, can you talk about this year, obviously, energy revenue is going to be maybe less than 10% of the overall mix. What does it look like in a more normalized year next year? Is this still back to that 15%, twenty percent, maybe even higher? And are there opportunities to lower the capital commitment with Continental next year as well? Thanks. So I'll take the first part of that question. Sandeep here. With respect to next year going forward, with the significant increase in precious metals prices, energy revenue will likely be below the 10%. If commodity prices stay where they are currently, it will definitely be less than 10% of revenue. And with respect to Continental, I'll pass it over to Jason. Yes. There is potential to decrease that commitment or spread it out over a longer time period. The objective of that partnership is to try to buy acreage on the ground in front of Continental's drilling program. And so it depends a little bit on how aggressive Continental is in their development efforts and their drilling efforts. If drilling and development continue at a slower pace, there is less acreage available to buy on the ground in favorable places. And if that's the case, we may slow our commitment there. But that's a question we haven't addressed with Continental yet. We'll have to wait until later in the year before we determine what the appropriate level of spending next year should be. Okay. Thank you. Your next question comes from Brian MacArthur of Raymond James. Brian, please go ahead. Good morning. Just following up, first of all, on Tanya's question about the delays for oil and gas royalties coming in. Should we expect Q3 to be hit relatively hard versus Q4 just because of the timing of the oil price and the lag effect of when the drilling goes on? Will Q3 again be quite a bit lower than Q4 if I look at a weighting by quarter? Yes. Jason here, Brian. I think that's correct. I think you will see some carryover of the low price impact in Q3 more so than Q4. So if you're looking at dividing out that revenue over the balance of the year, you'd want to wait it a little bit more towards the Q4 than the Q3. And my second question is kind of philosophical. You've been pretty good historically about doing countercyclical investing. If I ask you now, I mean, oil and gas sort of got into, but I could argue gold high, even base metals are high, oil low relatively speaking right now. And yes, you've got your deal with Continental, which regulates how you do things. But philosophically, should we would we be surprised if we saw you enter an oil deal with someone else going forward? I'm just trying to philosophically see back to where you'd be allocating capital and I realize it depends on what deals come available. But you talked about doing energy, base metals, precious metals. On a countercyclical basis, maybe oil is the right thing to do right now. Brian, it's Paul. Absolutely, you're right. As you well know, the focus is on gold. But in the other commodities, we try and be opportunistic. The general criteria there for the other commodities are, is it a good deposit? That's the number one driver. But if we're doing deals outside of gold, we also say how do we justify that, that is a better deal than we could do in the gold space. And some of the ingredients go into that is, are they good jurisdictions? Is it current cash flow? And also for those other commodities, are we being opportunistic? We're never going to get the timing absolutely right, but for those other commodities, we want to believe that we're in the lower half of the commodity price cycle when we do that. So as any deal comes forward, those are the criteria that we look at. And you're absolutely right. There are assets in the energy sector that will fall into that. And that's why we say as the sector settles down and sellers find a price level that they're willing to sell assets at, there may be some good opportunities. Great. Thanks very much, Paul. Okay. So it appears there are no further questions at this time. Please proceed. Thank you, Colin. We expect to release our Q3 2020 results after market close on November 4 with a conference call held the following morning. Thank you for your interest in Franco Nevada. Goodbye. Ladies and gentlemen, this concludes your conference call for today. We ask thank you for attending and please disconnect your lines.