We're pleased to host our friend Eaun Gray, the Senior Vice President of Business Development and one of the prime dealmakers at Franco-Nevada, who's just been putting billions of dollars away into new deals. Tell us all about it, please.
Thank you, John. I appreciate being included, as always. Before I kick off, I would note the cautionary statement: I will be making forward statements during this presentation. I think you'd be disappointed if I didn't make some. This is available, of course, on the website for review if people wish to review further. As John mentioned, at Franco-Nevada, we're focused on investing within the precious metal space, and we have been doing so at a pace for a while now. The business model lends itself to the scalability, royalties, and streaming, and we're quite excited to have added a number of assets to an already large portfolio. We pride ourselves on an excellent track record. That comes in terms of growth and is really seen by the number of long-term dividend increases.
I think we're sitting at 18 now, John, a little bit more than the last time that we spoke. The portfolio has excellent optionality, and despite putting all that capital to work, we still have good potential to add more assets with significant available capital. One of the things that we think differentiates us is alignment with shareholders. If you look at our disclosure, you'll note that the executives at Franco-Nevada Board are large shareholders, and we act like owners, minimize G&A. Those are core things to our DNA, and we pride ourselves on that. Financial flexibility is another important item to mention. We look to make sure we have the ability to deploy good assets come for sale, which is what we did recently with the Porcupine royalty acquisition and the Côté royalty acquisition over the course of the year to date.
We seek to really be nimble and innovative in terms of how we deploy capital, and you saw that with Porcupine, where we provided a debt facility, and we also participated in the equity to help crystallize that transaction with Tony Makuch. Of course, asset selection at the bottom of this list, but it probably should be the first item, is extremely important in terms of identifying the assets. It can be the good optionality, the exposure to precious metals prices over time. We pride ourselves in identifying the resources that will continue to grow and paying a good price for them. Shareholder returns, I think it goes without saying at this stage almost that this has been a very good model, and Franco has been a good equity for a number of people to hold.
We continue to see this business model providing low-risk exposure in volatile markets and helping kind of offset some of the other volatility that you see either caused by inflation, challenges politically, or otherwise gold. In particular, Franco-Nevada has a good place within people's portfolios, is our belief. We touched on consecutive dividend increases, and this is a point of pride for us in terms of continuing to be able to increase dividends year over year, something we hope to continue to be able to do going forward. It is a great thing to see our shareholders benefit so much from that continued deployment of capital back to them.
Now, one thing we've learned over the years is diversification is a great uplift for shareholders, and we continue to work to build our portfolio in a manner that provides a high level of diversification, both on individual assets, but also on geography and commodity to a lesser extent. You will note that we have deployed a lot of capital into North America recently. We're very happy to have made some investments right here in our backyard in Ontario. We see it as a great gold jurisdiction, and we really are a leader in the gold royalty space here in Ontario and Canada more broadly. John, touching on some of these larger transactions, this is something I'm quite proud of in terms of the capital we've been able to deploy.
With Yanacochia , Cascabel , Sibanye, Porcupine, and most recently Côté, we have added to our portfolio in a very constructive way. We've added what we see as low-risk, long-tenor gold exposure. All of these are major mineral endowments that we see potential for many decades of contribution for our shareholders. That is illustrated in this is a chart that Paul put together, but it's very instructive when you look at the percentage of resources that are in those markets.
Eaun, $750 million of the $2.75 billion are Yanacocha and Cascabel. I know there's some heap leach at Yanacocha, but the real juice is the copper-gold sulfides that they're still waiting to sanction. How much cheaper are the ounces not sanctioned in Yanacocha sulfides and Cascabel compared to the producing properties Sibanye, Porcupine, and Côté?
Sure. It's a good point, John. When you look at Conga and Quillish as an example, if one of the two is developed, which we fully expect in the fullness of time, that the multiple of return on our investment is dramatic, right? If you look at anything near kind of current prices, those ounces are vastly discounted. You could easily see returns of circa 5x-6x if you were to include those discounted ounces in a production profile, which is not something typical of the royalty and streaming space. Given our familiarity with Yanacocha as an example, we think it's a fantastic endowment. It is one of the world's largest high sulfide epithermal systems, but it also hosts fantastic porphyry potential. When the team did the diligence, that was not lost on them, the fact that there's so much potential there over time.
Yes, if you just look at oxides, it's fractional of the investment. That said, even the oxides, given the additional residual leaching they're doing, are vastly outperforming our initial expectations. As you'd note, Newmont's guidance for this year was above last year's just based on the oxide. We do actually see great upside in that. The leach kinetics of Yanacocha are amongst the best we've seen in any heap leach project anywhere. As a result, those residual projects are yielding well above what we had initially anticipated.
So was the Yanacocha a competitive process, or were you in an exclusive situation with Buenaventura?
It depends on when. Look, they did take other bids. Yes, I would say it was a reasonably competitive process. It's hard for it not to be. People have to discharge their fiduciary duty, and they tend to speak with other parties. What I would say differentiated us was we actually were one of the few parties that was able to do the on-site due diligence. As you might expect, the public disclosure by Newmont and Yanacocha is relatively scarce, but that had huge benefits. We dramatically improved our view of the asset, having been able to do that. You layer on that the fact that Yanacocha is an asset that a number of people at Franco-Nevada, having come across from Newmont, have a high level of familiarity with. It gave us a great deal of comfort making that investment.
It would be a great reward for us long-term. I think we started to see that already with the guidance upgrades that have come out versus what we'd initially anticipated.
I went down there the first time in September of 1994, and they started in 1993. The peak output for the JV at Newmont Buenaventura is 3.6 million ounces. I'm wondering if maybe Buenaventura figured that the current level was crumbs by comparison. I'm thinking that you're—I grew up in a tough neighborhood. I don't want to use the expletive that I'm thinking of using. You're a real tough dude because you're buying out the home team, Buenaventura, in the Cajamarca district of Peru that they know better than anybody. I would think that other people did not bid higher because if Buenaventura does not want to own it, they hesitate. I'm thinking you guys are pretty tough guys.
I will look at it another way.
I was going to say something else, but it's a webcast.
Look, I'm no shrinking violet, John. You can say it how you like. The way I look at it is, first off, Newmont bought out Buenaventura, right? That's how they ended up with the royalty. The project, as scoped, the sulfides project, is a huge project, right, from a capital requirement perspective. If you just look at Buenaventura, you can see how it would be a tougher project for them to take on the way that Newmont has scoped it.
They sold out to Newmont, but they did not even want to retain the royalty. It is a free ride.
Sure. Look, I think given everything else going on at Buenaventura, it was a logical step, right? The royalty is not their core business. It is relatively small, and they have other larger projects with which they need to advance. From my perspective, it was a natural trade. They were able to unlock some capital. So far, very happy with that investment.
Excuse me for interrupting and teasing you a little bit.
No problem. So that's a flavor for what we've been doing within the business development team here. It's been a major tailwind in terms of our profile going forward. It's had pretty significant growth and a lot of exposure to what we think are great long-term endowments that will continue to pay. In terms of our investment style, I think we've touched on a lot of this already, but there are multiple pillars on which it's built on. Financing M&A, you saw that recently with Discovery, but that's nothing new. You look at Lundin with Candelaria or Teranga, Klondex. There's been plenty of examples of that. Debt reduction, bolstering the balance sheet. We did that recently with Sibanye, but some of the key assets that underpinned Franco, there's Antamina, Antapaccay. Those were built on those types of transactions.
When balance sheets are stretched, it's a good opportunity for us to deploy. We continue to benefit from some of the longer-term projects. SolGold is huge in terms of the resource. It needs a lot of infrastructure and careful management to bring it into production. We have another set of projects here that should put us in good stead going forward, whether it's with Skeena , with Marathon , or the Ring of Fire again here in Ontario. There are a number of long-term, very positive projects. Project finance is one of the key things that across the cycle we continue to do. Cobre Panamá was the biggest example of that. We are talking to Zinho with GMIN, yet another example. We continue to see that as a very positive aspect of our business where we think we can grow quite a bit.
Part of that in terms of the project development, similar to what you saw with Discovery, is being able to mobilize other parts of the balance sheet, which in difficult capital markets has been a strategy that has allowed us to grow quite well. That is something that you can expect us to continue to do. Trying to be a good partner in all of these cases and create a win-win solution for everybody, that seems to be working pretty well at the moment. We have discussed these a little bit already. Discovery's transaction, we are obviously very proud to be a part of making that happen with the team there and Tony. As I said, that one-stop financing can be very powerful. There we provided $300 million of royalty, a backstop on a loan that they can draw as they need it.
We participated for just under $50 million in the equity raise, which has returned handsomely to date. Very happy with the outcome from that structure when deployed carefully. Côté was our most recent transaction, one of the largest transactions that has happened in the space in quite some time. This is a case where we worked and had exclusive access to data with IAMGOLD, which was unique. It was a third-party seller of the royalty. We were in the unique position to have access to all the data. We think this is the next generation of very high-quality Ontario gold projects. You are seeing it already. The potential to expand we see is very meaningful after completing our diligence. The resource, as you probably know, is quite large. The mining capacity well exceeds the mill capacity even after adjusting for strip.
We see great potential there for a higher throughput rate in the fullness of time, both with debottlenecking and expansion, hopefully, of the mill. In terms of mine life extension, you have the Côté deposit, you have the Goslin deposit. The drilling has really focused on connecting the two and then expanding Goslin. That larger endowment, we think, again, in the fullness of time will provide multi-decade mine life. That is why we are so excited about being part of this project here in Ontario. Some of the things to note on this royalty, it is a gross margin royalty, so it really is based off cash costs. There is a bit of difference there. A lot of the NSRs we were just talking about, smelting and refining charges here, there are additional charges, and that provides a bit more torque on upside in the gold price.
Conversely, also, of course, if there are any reductions. We see it as a very good trade overall, given the quality of the asset. Again, very happy to be adding this to the portfolio. Part of the benefit of working with IAMGOLD on this is having replacement agreements. What existed previously did not have the kind of clarity and reporting that we would normally seek in a royalty. We were able to remedy that by working closely with IAMGOLD and Sumitomo. In exchange for that, we did provide a buyback to them in two parts. I think that is just part of doing the business here. It was a great partnership working with them on this.
In the fullness of time, if this project were to expand dramatically and gold prices go up, you may see that exercise, but I think that's a very high-quality position for us to be in. John, I'm happy to answer any questions as we go through these. Again, if you're curious or we can wait to the end, I'm going to jump into Discovery just a little bit more before I wrap up.
We hosted Discovery at 8:30, so some of the people might have heard Tony.
Okay. Tony does a better job explaining this than I do. We were chatting about this before we started. Overall, we see this as a fantastic property position that hosts many, many ways to do well over time. Just the existing plan around Hoyle, Borden, that is very attractive. Pamour, we see great potential longer term. If you look at the sensitivities of that pit and some of the geographical constraints that exist around it, it really is a high-quality resource with great potential to grow. Even that, also in comparison to Dome with the open pit project they outlined the 11 million ounces for resource for, that is a pretty unique type of project in this part of the world. We are very excited about that in the medium term as Tony looks to take various steps to unlock the district.
With 140,000 hectares roughly that they have inherited from Newmont here in what has been one of the greatest, most prolific gold complexes in North America, we see excellent potential longer term. That is not hyperbole with Porcupine producing 70 million ounces to date. That district really has been a great contributor to the Ontario economy over time. We are very proud to have been part of that transaction. The equity, people often ask if that is a core part of our business. It really is not, but in certain circumstances where it is helpful to make a transaction happen, we are keen to do it. This was one such case. We have seen very solid returns on this. Also, likewise with GMIN over time where we provided a meaningful amount of equity to make those transactions happen.
Trying to be nimble so that we can work around inconsistencies in the capital markets. That acquisitive growth, I think, is very helpful in terms of the portfolio over time. We see great potential there to add value for shareholders. We have not spoken about Cobre Panamá. At Cobre Panamá, we see excellent potential there as well in terms of the restart. If you look at the slide that I have currently got on the screen, it is notable the optionality of 130,000 ounces. Now, what is factored in right now in terms of the stock, there are a number of brokers out there that have wagered estimates. I do believe that there is good potential upside here in terms of our growth profile with Cobre Panamá plus what we see on the acquisition side.
Could you explain in your middle bar, just kind of saying back at the previous slide, the 2029 outlook, what are the step-downs and depletions? Clearly, some of your operators are doing great things. One would think the gain would be bigger than your middle bar, even not counting Cobre Panamá.
Yeah. I think mine waste was a meaningful step-down that we had in 2024 towards the end of the year. That was the South African tailings retreatment.
That went to nil because you met a cap.
Yeah, that one had a cap. And so that, John, would probably be one of the more meaningful items where you go, "Okay, why wouldn't it be larger?
Is there a big grade decline somewhere like Antamaki?
What you're going to see, and I don't have the exact timing in terms of the year in front of me that we're expecting it, but towards 2029, maybe in 2029 itself, there are two step-downs on our streams to be aware of. Candelaria is one, and Antapaccay is the other. The contract does have a reduction in the attributable metal deliveries for those when those take place. Now, what isn't immediately apparent yet where, John, I think you could see meaningful upside is Crocowico , as is highlighted here. If that were to come in off of Antapaccay's current run rate, even with a step-down, you've got good potential to offset a good chunk of that. Likewise, with Candelaria's underground expansion versus what is being modeled.
I think on those two where there are contractual step-downs to be aware of, there are also projects which could ameliorate some of that, if not all, depending on how they are measured.
You're not counting in 2029 the Dome open pit, the TVZ underground refractory, or some other potential additions beyond the technical study at Discovery Silver.
Correct.
You're just following the January 2028 tech study, even though he said that he's going to have a pre-feas after year-end that's going to make additions.
Correct. Correct. I think there are a couple of things in there in that timeframe, depending on how things go. At Discovery, you could see a meaningfully different plan, right? I think that's inherent with the capital spend that's going on there. Likewise, there's potential beyond what is implicit in that profile on a number of other assets. We've got to make assumptions. In most cases, we're using something similar to what has been provided by the operator. Everything gets aggregated in here, and we do make adjustments. It is just based on a set of assumptions. You're right. There are a number of upside scenarios.
Your team is traditionally conservative.
Yes. Look, there's potential as well for some of these to be delayed. One of the big benefits of Franco is we have such a large portfolio where there can be a number of contributions. You look at it in the first quarter with Hemlo as an example, right? The diversification has really helped us over time where you see assets starting to mature. Another one here would be the Magino expansion, which Alamos has talked about increasing the mill capacity there. That's a meaningful royalty. Valentine likewise. Overall, we see there being great upside potential in terms of the number of ounces in 2029 and then beyond. In that time period, we've highlighted the incremental growth pro forma from Côté. That pushes it up, Cobre Panamá, and then hopefully we see more.
Please continue with your last couple of slides. I interrupted you.
That's really it, John. Just finishing here saying we're not done in terms of acquisitions. Pipeline remains very robust. I'm actually surprised at just how healthy it continues to be. I thought I might get the summer off, but no rest for the wicked. I know after the Discovery deal, you suggested to Paul, maybe he should let me play a little bit of golf, but my golf game's still lousy. It continues to be a busy time, and hopefully we can add some assets to the portfolio. Maybe I'll end there.
Concerning the politics in Panamá, we do not talk to attorneys or those kinds of people. My assistant, Alicia, is Mexican, and she reads the newspapers in Spanish and then translates the articles for me. We try to read the Panamánian press. The president wants to restart the mine, and the local towns want to restart the mine. The president is afraid to take it to the legislature or a national referendum, which is what the Constitutional Court ruled a couple of years ago was their preferred process. It was like everybody approves it. By trying to bypass the legislature and the national vote, it sort of gives rise to the kind of rabble-rousers we have in Los Angeles on the street now here in the U.S. trying to make something out of nothing.
I kind of wish that Mulino built a bigger consensus and took it to the legislature and had a national referendum because it's a great way to build consensus. I think it's going to happen. It's just a matter of how and how long and what the best way to get it going is.
Yeah. What I think we've been very impressed by is the engagement by the Mulino government. It's definitely a group of people that is keen to open the country up for investment in business. We obviously have our own arbitration around the stream, and that gives us decent insight into what's transpiring. Overall, I think the government at the moment, the steps they're taking towards the project are quite positive and constructive. They're deliberate and appear to be quite well thought out. We were very happy to see the steps forward around the maintenance program, the export of concentrate, the restart of the power plant. Those are all, I think, very good steps forward for the project we've been waiting on for some time. The exact timing, it's a good question, John. The president has said he'd like to address the issue by the end of the year.
What I have seen to date is when Mulino says something, he means it. They have done a pretty good job as a government in terms of meeting their timelines that they have set out for themselves. I am quite optimistic on it. Obviously, it is a great project. The potential to add many thousands of well-paying jobs, improve Panamá's current account situation, and boost its creditworthiness is immense. It is not something that I think the government there takes lightly. I am quite hopeful for a restart in the coming months.
I have kind of a tongue-in-cheek question.
Of course.
As to whether the unsanctioned and unpermitted assets of Franco are bigger than your 2029 forecast. I'm adding up six: Yanacocha sulfides of Newmont, SolGold Cascabel, Cobre Panamá, Barrick Pascua Chile, and then Newmont's Conga and Quillish in Peru. Is Franco in limbo bigger than Franco that's in process?
It's close. One of those things that we'd like to have is good upside, right? Optionality is important, I think, in the broader context of the portfolio. In the fullness of time, those are, in our view, great resources that stand a good chance of being developed. Beyond 2029, we've highlighted in some of the other slides the potential of some of these assets that you know. It really provides the potential to do a lot better on growth. You're right. Some of them are quite large, and that's deliberate. When we're going to make those types of investments that are longer dated, we try to pick the ones that provide that outsized return if they happen, like at Conga or Quillish. You look at how much of the money we get back off of the oxides and then the sulfides project.
If you have those on top, that's a huge windfall potentially in the future. You have this very good skew towards the upside in the investment, which justifies taking some of that risk, especially around time. One of the other things is longer-term investments, especially gold space. We see good potential for the gold price to continue to improve over time. If you see something like a Quillish come into production in two decades' time, it's still a really meaningful contributor because likely you're going to see some improvement in prices if they were to increase at or above inflation over that period. Some of those longer-dated assets, they hold us in good stead in terms of being a long-term, sustainable, and attractive business for investors.
I'm trying to say this in a more diplomatic way. Is it a deliberate strategy to buy long-dated assets in the Franco-Nevada culture? I remember 40 years ago, Seymour and Pierre bought the Interlake Development zone at Hemlo, which was different than David Bell, Golden, Giant, and the Williams main zones. After 30 years, when the good zones were developed, Barrick was only so happy to mine that zone.
Yeah. I would add that Mark , our Chair, was a big part of that transaction. And David has instilled on us that those smaller royalties, those earlier-stage royalties, if you pay the right price for them, they can be fantastic and very accretive for our shareholders. The short answer, John, is yes. That is something that is considered very carefully. It is not all that we do. If you look at the transactions that we have completed recently with Porcupine and Côté and Sibanye, those that are cash flowing now are also quite relevant. What we get with a lot of those is both, right? If you look at a Yanacocha, we have good current cash flow. You also have all of that upside longer term.
If the net kind of contribution of those longer-term projects is huge relative to the value that you attribute to them today, yeah, that's absolutely something we'll seek out.
We welcome and thank everyone for their participation. We invite all questions through the question box, of which there is one. Can we expect more collaboration with Osisko royalties? Let me also add you have a JV with EMX Royalty to collaborate.
Right. That's a good question. The overall view is that on a case-by-case basis, syndication can be positive, right? Within other aspects of finance outside of royalties and streaming, you see it all the time, right? Whether it's putting together an equity syndicate for a raise or in the debt market. I think royalties and streaming, from our perspective, is no different. Where there is a desire for additional diversification or a requirement for larger sums of capital, it's got a space. We do our best to play nice in the sandbox with our neighbors. We do not really make a lot of disparaging comments. We are quite keen to work with them in the appropriate situations. All that said, it is a competitive market, and we always seek ways to diffuse that competitive tension.
As I mentioned earlier, putting yourself in the capper seat for transactions is important. Whether it was working early with Tony on Porcupine or getting access to data with IAMGOLD and being able to recut that agreement, those things are important. At the same time, I do expect there will be further syndicated transactions in the fullness of time.
Eaun, you didn't really answer, but are those six big babies in limbo bigger than your 2029 guidance?
That's a good question. I don't have.
It's at least two-thirds, right?
It's true.
Cobre alone is 140.
Cobre alone is a big chunk.
The three Newmont assets, Yanacocha sulfides, Quillish, and Conga are huge. Pascua is big.
Yeah.
Cascabel is big.
Cascabel is big. They all.
Franco in hibernation is bigger than Franco in production. You do not have enough in your PE for it.
Yeah. It's an interesting observation, John. You're always good at kind of picking those things out that other people miss. What we've done is quite deliberate on those. Where you can get an outsized potential contribution for a good price, that's a good investment.
If other people think something's far-fetched, if you're a contrarian buying a beat-up cyclical at the bottom, that's when you get them for a gift.
Yeah. Our business allows us the luxury of buying some of those assets because we do have a large portfolio as it is. We can be patient. I think the ability to be patient allows us to make some very good deals.
Eaun, you've been working real hard. You're down to nil net cash, but that's still good because you got a balance sheet and $3 million a day coming in.
Yeah.
You've got over $100 million of gold in inventory. Will your gold in inventory go up how much just because the gold price went up since March 31? Does $100 million become $115 million without buying another ounce?
Yeah. It's a good question. We manage that gold portfolio fairly actively based on our capital deployment needs. I think you can expect that to vary over time.
If you sell something, you pay taxes. So when you're holding gold, you have a tax-free ride.
Looks like a retirement.
It's like a retirement account in America.
Yeah. If we were to redeploy it, it would be likely into gold investments where we see good optionality. I do not think that would be a bad trade overall. Your observation, I think, is a really important one, is based on the cash flow generation. Even post-Côté, the balance sheet will be in a great spot very quickly here.
You guys are so strong. It's like the offensive line of the Eagles. You just spent $2.75 billion, and you don't have debt. You basically got nil net debt. Pro forma June 30.
Yeah. Yeah. We do not like taking on debt. It is not our favorite thing to do. As Pierre said, we will use it as a credit card. With that kind of cash flow, even if we did, it would be paid back very quickly.
Eaun, thank you very much. Congratulations. Thank you for your service to the shareholders.
Thank you, John. Always a pleasure.
Thank you. Thank you, everyone, for participating.