Good morning, ladies and gentlemen, and welcome to Franco-Nevada Corporation's first quarter 2022 results conference call and webcast. This call is being recorded on May 5, 2022. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session where you may ask a question through the phone line or webcast. If you are joining by webcast, you may submit a written question for the Q&A session at any time during the call by typing your question in the Q&A section of the webcast platform. If you require immediate assistance during the call, please press star zero at any time for the operator. I would now like to turn the conference over to your host, Bonavie Tek, Vice President of Finance. Please go ahead.
Thank you, Michelle. Good morning, everyone. Thank you for joining us today to discuss Franco-Nevada's first quarter 2022 results. Accompanying this call is a presentation which is available on our website at franco-nevada.com, where you will also find our full financial results. The presentation is also available to view on the webcast. Paul Brink, President and CEO of Franco-Nevada, will provide some introductory remarks, followed by Sandip Rana, Chief Financial Officer of Franco-Nevada, who will provide a brief review of our results. This will be followed by a Q&A period. Our full executive team is available to answer any questions. Participants may submit questions by telephone or via the webcast. 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 3 of this presentation.
I will now turn the call over to Paul Brink, President & CEO of Franco-Nevada.
Thanks, Bonavie Tek. Good morning. I'm pleased to announce strong Q1 results that once again demonstrate the high margin nature of our business. The quarter benefited from strong precious metal, energy, and iron ore prices. The energy contribution was particularly strong, offset somewhat by lower precious metal deliveries. Our total GEOs are on track to meet annual guidance. With slightly lower precious metals deliveries than expected from Cobre, Candelaria, and Sudbury, the impacts were planned maintenance, shipment timing, and transport constraints. None of the issues are likely to impact annual production. Oil and gas prices have been strong. Gas prices, in particular, remain above $7 per Mcf, almost double the $3.75 per Mcf we used to compile our guidance. We're getting accelerated payback from our Marcellus and Haynesville natural gas investments. During the quarter, we published our fourth annual ESG report.
A highlight for this year was the addition of comprehensive emissions disclosure for our producing mining assets. We've made further progress on our diversity goals as our team grows. Our efforts continue to be recognized, and last month, we were named to the Corporate Knights list of best 50 Canadian corporate citizens. Our business stands out in today's inflationary world. Our NSR and stream interests are effectively inflation-proof. Our G&A is less than 3% of revenue, and our energy interests actually provide leverage to energy price inflation. As a result, our revenue growth is translating directly into expanded earnings. We provided guidance at year-end and expect good growth through 2026 from mine expansions and new mines. First Quantum is on track to expand Cobre Panama up to 100 million ton per annum of throughput by the end of 2023.
Detour Lake has seen further exploration success, and Agnico is now considering an underground mine and an even larger throughput expansion. The Tasiast '24K expansion is ongoing and currently is operating around 21,000 tons per day. At Malartic, the Odyssey project construction is on track, and over time, more of East Gouldie appears to fall on our royalty claims. Newmont's Ahafo South production is also moving more onto our Subika claims for the next number of years. The Salares Norte mine build is now 70% complete, and Seguela and Greenstone are under construction. When the industry has access to capital, it typically drives our organic growth. Our asset handbook, launched at our recent Investor Day, highlighted impressive resource growth in the portfolio. M&I royalty ounces were up 15% year-over-year to 18.6 million ounces.
Our calculation of mine life, based on M&I royalty ounces, moved from 28 years to 32 years. We had a couple of small additions to the portfolio during the quarter, a 0.46% NSR on the Caserones copper mine in Chile, and a 2% NSR on claims that cover a portion of the Castle Mountain gold mine, where we have an existing royalty on the border property. We have no debt and $1.7 billion in available capital. We're generating robust cash flow, $231 million in the quarter. Earlier this year, we increased the dividend to $0.32 a share, or roughly $61 million per quarter. Looking forward, our business development team is very active, principally looking to finance new gold mines. With that, I'll hand the call over to Sandip.
Thank you, Paul. Good morning, everyone. As Paul mentioned, the company reported strong financial results for Q1 2022. Our royalty and stream portfolio performed well, and the quarter highlighted the benefits of our diversified portfolio by both asset and commodity. Just to remind you of one of the changes with our reporting. Beginning last quarter, we did begin including energy revenues in our gold equivalent ounce total. We believe this provides a more comprehensive measure of our business and will be useful to investors to evaluate the full scale of our portfolio. On Slide 4, we have highlighted the gold and gold equivalent ounces sold for the three months ended March 31, 2022 and 2021. Overall, GEOs sold increased slightly compared to prior year, with Q1 2022 GEOs sold being 178,614.
As we had highlighted during our year-end financial results call, we were expecting less GEOs in 2022 from a few specific assets, Hemlo, Antamina, and Antamina. That did occur during the quarter when comparing year-over-year. At Hemlo, Barrick produced less gold ounces from Franco lands, resulting in a lower NPI than prior year, despite a higher gold price. Costs were relatively the same year-over-year. At Antamina, the operator is mining through a lower grade zone and was impacted by lower recoveries during the quarter. We expect deliveries to resume to prior levels for 2023 and beyond. For Antamina, 2021 was an exceptional year in terms of production. We expected 2022 to be more of a normalized year similar to previous years, with a range of 2.8 million to 3.2 million silver ounces being delivered.
At Cobre Panama, our largest asset, GEOs were relatively flat year-over-year, with 29,495 being sold compared to 29,622 a year ago. First quarter was impacted by some scheduled plant maintenance, which should not be a factor in second quarter. A couple of strong performers in the quarter were Guadalupe and Candelaria, with both delivering more GEOs than Q1 2021. Although Candelaria GEOs were higher year-over-year, there was some impact from delays in shipments. For diversified GEOs, our Vale royalty resulted in just over 9,000 GEOs for the quarter. This does include about 2,400 GEOs related to prior year. As you know, each quarter we make an estimate of what the royalty will be, with the actual amount being announced by Vale in late March and September of each year.
As a result, you will see adjustments to our accruals twice a year in Q1 and in Q3. Energy GEOs increased by 49% year-over-year as we benefited from continued higher energy prices. Slide 5 highlights our total revenue and adjusted EBITDA amounts for the three months ended March 31, 2022 and 2021. As you can see from the bar charts, revenue and adjusted EBITDA has increased year-over-year. The company recorded $338.8 million in revenue in first quarter and $286.6 million in adjusted EBITDA. A margin of 84.6% was achieved. First quarter continued the strong contribution from the energy assets and revenue increased from $45.1 million a year ago to $75.6 million this quarter.
The WTI oil price averaged $94.29 per barrel during the quarter, a 63% increase from prior year. Natural gas prices also increased significantly, with Henry Hub averaging $4.57 an Mcf during the quarter, compared to $2.73 a year ago. As you turn to slide 6, you'll see the key financial results for the company. As mentioned, with the increase in GEOs sold and commodity prices, the company had strong revenue growth for the quarter. On the cost side, we did have an increase in cost to sales despite lower stream ounces being delivered and sold. Cost of sales is dependent on which assets deliver stream ounces, as not all fixed payments per stream ounce are equal.
Depletion was higher at $74.6 million versus $71.2 million a year ago due to the increase in GEOs sold, but also recording depletion related to the Vale royalty, which was not present last year. Finally, with respect to taxes, the effective tax rate for the quarter was 16.5%, which is higher than the 15% we have trended to previously. This was due to higher income being generated in Canada and the United States from our energy assets. Adjusted net income was $177.2 million, a 10% increase over 2021, while adjusted net income per share was $0.93, an 11% increase compared to prior year. Slide 7 highlights the continued diversification of the portfolio, which we consider one of the strengths and differentiators of Franco-Nevada.
As shown, 71% of our Q1 revenue was generated by precious metals. The geographic revenue profile has revenue being sourced 90% from the Americas, with Canada and the U.S. being 37%. With respect to asset diversification, Cobre Panama was our largest revenue generator at 17% of total revenue for the quarter, followed by Antapaccay and Candelaria at 8%. Cobre Panama continues to be the only asset greater than 10% of revenue. The last chart highlights our operator diversity. Our largest exposure to revenue being generated by any one operator is 17%, which is First Quantum, who operates Cobre Panama. We're fortunate to have royalties and streams on many properties mined by some of the most reputable mining companies in the world. Slide 8 illustrates the strength of our business model to generate margins.
For first quarter 2022, the cash cost per GEO, which is essentially cost of sales divided by gold equivalent ounces sold, was $244 per GEO. This compares to $231 per GEO in the first quarter of 2021. This amount will fluctuate depending on the mix of royalty versus stream GEOs, including mining and energy. As you can see, at current average gold prices, the company generates significant margins. In a rising commodity price environment, we expect to benefit fully as the cost per GEOs sold should not increase significantly. We consider our cost structure to be essentially fixed. The other cost component for the company, besides cost of sales, is our corporate administration cost. We like to stress the strength of our business model and the scalability.
The chart on slide 9 clearly illustrates our focus on being as cost efficient as possible in managing this business. Here, we've highlighted our quarterly revenues and our quarterly corporate administration and share-based compensation expenses since our IPO. As you can see, revenues have grown significantly over the period shown, while corporate costs have remained fairly stable. For first quarter 2022, corporate admin and share-based compensation expense was $9.9 million or less than 3% of revenue. We'd like to highlight that share-based compensation expense was higher than in previous quarters as the company is required to mark to market the deferred share units held by directors. With the increase in the Franco-Nevada share price during the quarter, there was a corresponding increase in this expense.
Management believes we can continue to add to our portfolio and grow our business without adding significant cash overhead to the company. Slide 10 summarizes the financial resources available to the company. Effective March 2022, the $100 million credit facility held by one of our subsidiaries was not renewed. At this time, we have one corporate facility for $1 billion, and when including this with our cash and cash equivalents, total available capital at March 31, 2022 is $1.7 billion. Now I'll pass it over to Michelle, and we're happy to take questions.
Thank you. We will now begin our Q&A session. If you would like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. If you would like to withdraw your question, please press the star followed by the 2. If you are joining us on the webcast, please submit your question through the Q&A section of the webcast platform. Please stand by for your first question. Your first question comes from Heiko Ihle of H.C. Wainwright. Please go ahead.
Hey, thanks for taking my questions.
How are you doing, Heiko?
Wonderful. Thank you. Hey, with the higher rates at Candelaria and the commensurate higher GEOs that you received, at what point in time will that start to get reflected in your outlook? On that same token, are there maybe any assets that really came in differently this quarter than you expected, either, you know, strongly to the upside or to the downside, besides the, call it 20-ish assets that you mentioned in your release?
Can you repeat the Candelaria question?
Obviously there was higher grades at site during the quarter.
Yeah.
You got more GEOs than you really thought you would get in your outlook. At what point in time do you think we'll see the impact of that in your longer term outlook?
Yeah, I think Dean speaking here, what we would point you to is Lundin's guidance, which is really what we based our outlook upon as part of their forecast and mining sequence.
Yeah.
Maybe just to add a comment on that, one of the issues they've been dealing with at Candelaria was the grade reconciliation, and they have been able to improve on that issue. I think this quarter was a good demonstration of that. I don't think they've put guidance out there, but once they have a better grip on that grade reconciliation and are comfortable that they can keep the dilution low, I expect that they, there's a chance that they would increase their production outlook.
Got it. Besides this.
Heiko Ihle
Sorry, go ahead.
Your second part of your question, assets that were higher or below our expectation, I think most were in line. As we highlighted, Sudbury was lower due to transport issues, but they're still mining and stockpiling ore. Candelaria did have some delays on shipments, but otherwise, most assets were in line with our expectations.
Got it. Just following up on that a little bit, just thinking out loud here a bit too. I mean, your energy asset segment, obviously, is phenomenal, not a surprise. You're the only precious metals royalty company in our coverage universe, at least, that has this kind of leverage to energy prices. Where, I mean, Paul mentioned this earlier, in quite the inflationary environment. I mean, just from what we model, there's not all that many large-scale projects coming online in the next few years. Then again, you know, interest rates are going up. I'm just trying to get your thoughts on pricing that you're seeing in the market.
Maybe if you could for both energy and metals, obviously, the current environment, it's got to be getting tougher, but I think some people to offset this might also be getting a little bit more desperate to make a deal.
Yeah, you know, perhaps a comment on the outlook and, you know, more so where we're active right now is on the precious metal side. I think it's a constructive environment to do deals in precious metals. There's always a balance. You'd love to do most of your deals when commodity prices are weak. You get a better return on the prices. Part of our business is financing new builds. You need a robust enough gold price environment for people to be building mines. We always say a lukewarm environment is a good environment for us. I'd say that's the sort of environment we're in, certainly for gold equities. There is some gold equity availability, but not at crazy prices.
I'd say that the gold price set up, we're very bullish on long-term gold prices. The industry is building mines. We do think it's a good time to be financing new gold mine builds. We're delighted with the performance on the energy assets, but prices are high at the moment. Also because of the balance of our portfolio, we're not looking to add more energy assets at the moment. I'd say that's a broad summary of what we're thinking.
Got it. Thank you guys so much. I'll get back in queue.
Your next question comes from Cosmos Chiu of CIBC. Please go ahead.
Hi. Thanks, Paul, Sandip, and team. Maybe my first question is on the Caserones royalty, not so much on the acquisition itself, but I found it interesting that along with the royalty acquisition, you've put in a private placement with EMX Royalty. Was that more like a finder's fee? Were they the ones who initiated it, in terms of the royalty? Could you maybe talk a bit more about that arrangement?
Sure, Cosmos. A couple of things. You know, we know Dave Cole, who runs EMX, from way back when we were all working at Newmont and have been intrigued by the business that he's built over time. I think they stand out amongst the small royalty companies in, you know, where many companies are competing to buy assets in what's probably an overheated market. Their business is got a large component which is around royalty generation, where they're prospect generating, selling on the properties and keeping royalties. They've built up a very large portfolio of royalties, so we think an attractive business model. We've had discussions for a long time with Dave in terms of participating in his business.
You know, where it all came together is yes, they had acquired a portion of this royalty before, which put them in the driving seat in terms of acquiring the second portion, and they included us in that transaction and we decided to make the investment at the same time.
Great. Maybe another question here, maybe it's related or maybe it's not related. I'm sure earlier this week you saw that Sandstorm is, you know, making an acquisition of Nomad. As you said, you know, the competitive nature of the industry, at least on the smaller end, is now ultra-competitive. You know, any comments you wanna make on M&A in the royalty space, and does that need to continue?
Yeah, I'd say from our perspective, Cosmos, it's always. We see good prospects to do private deals. It really is just around what's the best use of your capital? What's the best return on capital? We've always found that in doing private deals, we believe we can get a better return on capital. So that has certainly been our focus. I do see the rationale, obviously, for smaller players. Size does matter more in terms of relevance to investors, so I can see the impetus for smaller players to merge in order to create scale and create liquidity.
Of course. Thanks, Paul. Maybe switching gears a little bit, I think, Sandip, you sort of mentioned it, but I noticed that for the iron ore revenue, you know, $16.8 million in the quarter, of which $4.5 million is related to the second half of 2021. As you mentioned, it gets trued up, you know, twice a year and make an estimate. I also noticed that, you know, in Q1, iron ore prices increased quite a bit, you know, compared to Q4 last year and, you know, even compared to when it peaked earlier on last year as well. You know, does that also play into, you know, what the adjustment could be?
Like, I guess what I'm trying to ask is, as iron ore prices go up, is the adjustment that usually comes through a positive? And then, you know, of course, when the other way around, when iron ore prices come down, is the adjustment usually negative?
In theory, yes. I guess part of that is also we don't have complete visibility to the prices that Vale is selling the iron ore at, 'cause they have entered into certain contracts.
Mm-hmm.
You know, we're just taking sort of the average price for the quarter, making our best estimate, and obviously we also estimate the deductions that get applied against the royalty. In theory, yes, if you're in a rising iron ore price environment, you'd get the positive adjustment. The unknown there is the realized prices that Vale will actually achieve.
Mm-hmm. Got it. Thanks, Paul and Sandip. Those are the questions I have. Thanks again.
Your next question comes from Tanya Jakusconek of Scotiabank. Please go ahead.
Good morning, everybody. Thank you so much for taking my question. Just maybe starting off with Sandip, just a couple on the modeling side. Just wanted to talk to you. You said the portfolio performed as expected. Two assets that were different for us were number one, Hemlo, and number two, Gold Quarry. Just starting with Hemlo, much stronger than we had expected. Any change to your guidance there? You had provided guidance for us earlier, but this seems to have done very well in Q1.
There is a small component of Q1 revenue for Hemlo, Tanya, that was related to prior year. As you know, we make an estimate on the NPI, and then it gets trued up each quarter based upon what Barrick reports to us. There was a little bit of carryover. You know, going forward, you know, I would expect it to be less than Q1 for each quarter for the rest of the year. My guess it's probably gonna be, you know, about half to 60% of what we achieved in Q1 going forward. Again, it's an unknown. Costs were in line with prior year, just that the production was less on our royalty ground.
I'm making the assumption that that will continue for the remainder of this year. With respect to Gold Quarry, last year in Q1, we had a true-up for the previous year. It was a catch-up payment. Year-over-year, it looks like there's a large variance for Gold Quarry, but the amount that we recorded for Q1 was our expectation.
Okay. Are we getting any more from Gold Quarry than the rest of the year? Because we were expecting.
No, it'll be next to nothing, basically.
Okay. All right. That's helpful. As a portfolio overall, now that you have these, you know, GEOs, like for the entire portfolio, is there any guidance you can give us for, you know, whether you're expecting a stronger second half, you know, anything that you can help with quarter-over-quarter improvements? What can you help us with?
All I can say is that right now we're on track to achieve our guidance, Tanya, for both the precious metals side and the total GEOs.
Okay. Maybe just, Sandip, just on the global minimum tax, I know we ask you all the time, but it is now in the Canadian federal budget 2022. Can you just give us your thoughts about, you know, you know, what's your take on it? Do you think it'll get implemented? If so, when? Anything you can share, that would be helpful.
You know, yes, it was part of the Canadian, the federal budget that was released a couple of weeks ago. It's in consultation now. I think they're asking for consultation till early July. I think July seventh is the date. It's definitely, you know, moving forward in terms of process. You know, there's lots of articles out there that are saying it's gonna be tougher to implement as well to get everybody on side. I think there was an article in the Financial Post this morning on the global minimum tax and, getting everybody aligned. At this stage, you know, we're under the assumption that it will be implemented, but all we can do is follow the process and just see how it all plays out at the end of the day.
Do you think seeing that 2023 is an optimistic timeframe, or how do you see that?
I think with everything that's going on in the world right now, I think 2023 is optimistic. I think, you know, it was early 2023. Now I think they're saying to the end of 2023. If it does happen, 2024 or beyond is likely.
Okay, perfect. My final question, just on M&A, and I know I ask this all the time. See that you're doing a lot of smaller royalty deals under $50 million, and I know that Paul mentioned that you're seeing, you know, interest for mine builds. In this inflationary environment, are you seeing that maybe these operators, you know, with these capital blow-ups that are happening, that they're just pulling back on moving forward on some of these projects or, you know, and thus you're doing more royalty deals or is it just that, you know, we just haven't seen some of these mine builds just go through? Just some clarity on what you're seeing there. Thank you.
Hi, Tanya. It's Euan here. In terms of mine builds, I would say, yeah, there continues to be a decent pipeline, especially on the gold side of projects that are moving forward towards development. A number of them have quite current capital estimates, so we're hopeful that that continues. On the small royalty side, you know, as we typically say, you know, we look across the spectrum. If we see good royalties, even if they're smaller, we like to add those because we think there's some optionality within the portfolio. We'll continue to do that as well.
Okay. Just on the mine builds, still in the same range, that $200 million that we've talked about over and over again?
I'd say across the spectrum, but on the gold side, that's the typical type of size that you might see.
Okay, great. Thank you so much. I'll leave someone else to ask questions. Appreciate the insights.
Thanks, Tanya.
There are no further questions on the phone lines. I will now turn the Q&A session over to Bonavie Tek, who will take questions from the webcast.
Thank you, Michelle. We have no further questions from the webcast either. This concludes our first quarter 2022 results conference call and webcast. We expect to release our Q2 2022 results at the market close on August 10th, with a conference call held the following morning. Thank you for your interest in Franco-Nevada.
Ladies and gentlemen, this does conclude your call for this morning. We would like to thank you all for participating and ask you to please disconnect your lines.