TORONTO Aug 11, 2015 (Thomson StreetEvents) -- Edited Transcript of Franco-Nevada Corp earnings conference call or presentation Tuesday, August 11, 2015 at 2:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Stefan Axell Franco-Nevada Corporation - IR Manager * Sandip Rana Franco-Nevada Corporation - CFO * Paul Brink Franco-Nevada Corporation - SVP of Business Development * David Harquail Franco-Nevada Corporation - President & CEO ================================================================================ Conference Call Participants ================================================================================ * Stephen Walker RBC Capital Markets - Analyst * Josh Wolfson Dundee Capital Markets - Analyst * Cosmos Chiu CIBC World Markets - Analyst * Don MacLean Paradigm Capital - Analyst * Brian MacArthur UBS - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning. My name is Stephanie and I will be your conference operator today. At this time I would like to welcome everyone to the Franco-Nevada Corporation second-quarter 2015 results conference call. (Operator Instructions) Stefan Axell, you may begin your conference. -------------------------------------------------------------------------------- Stefan Axell, Franco-Nevada Corporation - IR Manager [2] -------------------------------------------------------------------------------- Thank you, Stephanie. Good morning, everyone. We are pleased that you have joined us today for the Franco-Nevada second-quarter 2015 results conference call. Accompanying our call today is a presentation, which is available on our website at Franco-Nevada.com where you will also find our full financial results. Sandip Rana, CFO of Franco-Nevada will provide a review of our results and Paul Brink, Senior Vice President of Business Development will discuss updates to our asset portfolio, which will be followed by a Q&A period. Before we begin formal remarks, we would like to remind participants that some of today's commentary may contain forward-looking information and refer you to our detailed cautionary note on slide 2 of our presentation. I will now turn the call over to Sandip Rana, CFO of Franco-Nevada. -------------------------------------------------------------------------------- Sandip Rana, Franco-Nevada Corporation - CFO [3] -------------------------------------------------------------------------------- Thank you, Stefan. Good morning, everyone. As you will have seen from the press release issued yesterday, our overall royalties from [stream] operations continued to perform well despite the volatile commodity markets. This continues to illustrate the strength and diversity of our portfolio. The portfolio continues to deliver and has been further enhanced by the addition of the Candelaria stream, which again performed very well during the quarter. Overall the operational and financial results for the quarter were in line with our expectations. There were some assets which may not have performed as expected, but then there were others that performed better than expectation, this being one of the key benefits of having such a diverse group of assets. Overall it was another solid quarter for Franco-Nevada. As you turn to slide 3, you will see two charts on the page. The first chart highlights the average gold price for each of the last five quarters. For second quarter 2015 you can see that the gold price was down about 7.4% to $1,193 per ounce from Q2 2014. The gold price for the quarter was also down versus Q1 2015. In fact the last time the gold price average below $1,200 per ounce for a quarter was five years ago in Q2 2010. So we are still in this downturn market. With respect to platinum and palladium, these prices have also pulled back significantly versus prior year, which did have an impact on our PGM GEOs and PGM revenues earned. Platinum prices averaged 22% lower than Q3 2014, and palladium prices averaged 7% lower for the same period. The second chart on slide 3 highlights the gold equivalent ounces received by the Company over the last five quarters. Gold equivalent ounces earned increased 28.3% year over year to 83,000 GEOs compared to 64,700 GEOs in Q4 2014. Of the 83,000 GEOs 88% were from gold assets. Turning to slide 4 you will see a waterfall chart showing the source of the movement of the GEOs from Q2 2014 to Q2 2015. As you can see on the slide, other gold assets had a decrease of just over 4,000 GEOs. This decrease was mainly due to lower GEOs from our net profit interest royalties. Both the Hemlo and Goldstrike NPIs were lower in the quarter due to a number of factors. The Goldstrike NPI was impacted by lower gold prices as well as lower production on our lands, resulting in a payout reduction versus the prior year. NPI royalties are highly leveraged to the gold price and we would expect to benefit significantly in a rising gold price environment. With respect to PGM and other mineral assets, they delivered lower GEOs during the quarter due to lower production and price impacts at Sudbury and Peculiar Knob for other minerals. The largest source of the increase in GEOs is the Candelaria addition, where Franco-Nevada purchased a gold and silver stream in late 2014 from Lundin Mining. For the quarter the Company received and sold approximately 24,000 gold equivalent ounces from this asset. In addition the Company received 2,500 gold ounces from Fire Creek/Midas which were sold in the quarter and revenue recorded. This asset was a deal we did last year and it began delivering ounces in June of 2014. Turning to slide 5 you can see that the overall revenue earned by the Company was $109.4 million for the quarter. It was a slight increase over prior year, but what's important to note is that this revenue did increase despite a 7.4% reduction in average gold price in the quarter and an even larger reduction in oil prices compared to Q2 2014. As you can see on the bottom chart, oil and gas revenue decreased significantly year over year. Actual oil and gas production attributable to Franco-Nevada was fairly consistent with second quarter 2014, with the decrease in revenue being the result of the lower oil price as well as some impact on foreign exchange. However, you can see that we did have an improvement from first quarter 2015 as the oil price did rebound somewhat and there was less capital deducted against the Weyburn NRI. As you turn to slide 6 you will see the key financial results for the Company for the three months and six months ended June 30, 2015. As mentioned the Company earned just over 28% higher GEOs in the quarter, resulting in revenue of $109.4 million. Adjusted EBITDA was $82.2 million for the quarter, down from $87.2 million in 2014. The decrease is due to an increase in stream ounces delivered with the addition of the Candelaria stream, thus increasing our cost of sales. Net income was significantly lower versus prior year at $21.6 million, while adjusted net income was $22.9 million, down from $36 million a year ago. On a per-share basis, adjusted net income was $0.15 per share compared to $0.24 in Q2 2014. Slide 7 provides a waterfall chart illustrating the decrease in adjusted net income from Q2 2014 to Q2 2015. The key movements year-over-year are on the cost side, with the addition of the Candelaria stream. Depletion expense increased significantly during the quarter. It is important to note that as mineral reserves and resources are added at Candelaria or any of our other properties, the depletion cost per ounce will decrease. As well, due to oil and gas production volumes being consistent with prior year, the Company recorded similar depletion amounts in Q2 2015 as Q2 2014 despite the significant decrease in revenue. Also on the cost side, cost of sales did increase as the Company received approximately 53,000 stream ounces during the quarter compared to 33,000 ounces in second quarter 2014. We pay a per-ounce purchase price when stream ounces are delivered to us, which is recorded in cost of sales. These cost increases were partially offset by lower income taxes as a result of lower taxable income and higher revenue, with the increase in mineral asset revenue more than offsetting the decrease in oil and gas revenue. And that result was a decrease in adjusted net income to $22.9 million. We continue to stress the scalability of our business model and believe slide 8 highlights this. Our overall costs have increased since 2010, the increase being due to the addition of streams to our business model, but these are variable costs. Stream costs will increase as the Company has delivered more ounces, which we consider a positive. This has been the case in second quarter with the addition of Candelaria and the increase in stream GEOs to 53,000 ounces. What I think is important to highlight on this slide is the fixed costs. These are the Company's corporate administration costs and as you can see they remain fairly constant each year, regardless of revenue increasing or remaining stable. Corporate administration costs continue to be less than 5% of revenue. We continue to maintain a high margin at 75% for Q2 2015. Unlike operators, our mineral business is not directly affected by operating and capital cost escalation. As you turn to slide 9, the geographic revenue profile continues to be lower risk with 82% of revenue being from the Americas, with Latin America being the largest contributor. For Q2 2015, 88% of revenue was generated from precious metals, 80% gold, 8% PGMs. As well 9% of revenue was from oil and gas and 3% from other minerals. The Company remains diverse with 45 revenue-generating mineral assets currently. And with that, I will turn the call over to Paul Brink to provide an update on our Candelaria investment. -------------------------------------------------------------------------------- Paul Brink, Franco-Nevada Corporation - SVP of Business Development [4] -------------------------------------------------------------------------------- Thanks, Sandip. 2015 has been a very good year for Candelaria, and that's both been production has been very strong at the asset, but also Lundin has been very successful with their exploration program. They put out updated reserves in April this year and those were both open pit and underground. The open pit reserve in particular was increased by 24% from the time that we did the transaction. The drilling has been ongoing there. They've had more success, and so Lundin expecting to put out further increase to reserves and resources later on this year. The other good news was they received environmental approval for the expansion of the property, principally that being able to build the Los Diques tailings facility. So expect construction on that to start in 2016 with the completion 2019. Just recently Lundin have put out a new mine plan, incorporating in particular more underground material, which is higher grade into the mine plan and so that material helps increase the production profile. Lundin is now expecting over the next four years both the copper production, but also the precious metal production will be about 26% higher than the mine plan again at the time that we did the transaction. Turning to slide 11, it's been a good year for growth across the portfolio, and I'll put that really into four different categories where we've seen the growth. The one that's been producing assets where we've seen good exploration success and top of the list there is Candelaria that we've just spoken of. But other assets with great exploration success have been Timmins West, Duketon, Guadalupe, Macassa, Fire Creek and Midas, and also Sabodala. We have seen first gold coming out of Phoenix's Rubicon and Barrick is also ramping up the project they have at Goldstrike for TCM. In the third category really our new construction decisions, and there we've seen decisions to go ahead and build South Arturo, Brucejack, Cerro Moro, and Sissingue. And then also at Karma where construction had started earlier in the year. It was halted, but we've just seen the restart of construction at Karma. The last category there is really assets that have received sponsorship or moved into stronger hands, and the two there are Centerra investing $300 million in Hardrock and Yamana acquiring Monument Bay. Slide 12, we still have a good amount of capacity to add new assets, taking into account our undrawn credit facility and our Cobre commitments this year. We have in excess of $1.1 billion to invest in new acquisitions. With that, I'll end my comments. -------------------------------------------------------------------------------- Stefan Axell, Franco-Nevada Corporation - IR Manager [5] -------------------------------------------------------------------------------- Stephanie, you can open the line for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question comes from Stephen Walker with RBC Capital Markets. Please go ahead. -------------------------------------------------------------------------------- Stephen Walker, RBC Capital Markets - Analyst [2] -------------------------------------------------------------------------------- Thank you and good morning, everybody. Just wanted to ask a question here on Cobre Panama, if I could. You've given the capital cash call commitment to mid-year 2015 as $275 million. With such a specific number this sounds like there has been progress with respect to negotiations with First Quantum. Could you comment on that progress? Also, could you comment on your commitment to the project? I believe that there has been visits to the site, and what your expectations are for that project and maybe some expectations for cash costs for the balance of the year and 2016 as well? -------------------------------------------------------------------------------- David Harquail, Franco-Nevada Corporation - President & CEO [3] -------------------------------------------------------------------------------- Stephen, thank you for that. It's David Harquail here. Yes, there is progress. We have a constructive relationship with First Quantum. It's taking long because there is a moving target and First Quantum is trying to see what works with all their respective bankers. Franco-Nevada is absolutely committed to the original deal and we're working to accommodate First Quantum's needs. But we have to do that with a reasonable risk tradeoff to Franco-Nevada. And so we think we -- we're proud of always having good relationships with our operators. We're going to be supportive here. And I think the $275 million was a reflection of we recognize that effectively they have been carrying our contributions to date, and so we wanted to give them some benefit as a result of that. So agreeing on that catch-up amount to June 30 I think is an illustration of the progress that we've made. But truly I can't say a lot more. I really expect we will be funding this project this year, but it's a dynamic market. -------------------------------------------------------------------------------- Stephen Walker, RBC Capital Markets - Analyst [4] -------------------------------------------------------------------------------- Thanks, David. Maybe just a question, if I could, on debt. You've increased the credit facility to -- significantly. It's clear that you're going to need to draw down debt particularly with future payments from Cobre Panama expected. Could you give us a sense of the level of debt you're prepared to take on within the capital structure, debt to total capital? Or how would you manage -- how you would manage or drawdown in credit facility as far as paying back or rolling it into a longer fixed term debt structure? -------------------------------------------------------------------------------- David Harquail, Franco-Nevada Corporation - President & CEO [5] -------------------------------------------------------------------------------- Stephen, we disagree actually. We don't see in terms of our existing commitments. Even though we have a commitment to Cobre Panama, we believe we'll be also generating cash flow from our existing assets. And we've been stress testing and I guess our best projection going forward is we believe we can meet all our commitments without actually having to tap on our credit facilities. I think we'd only be using our credit facilities if we do more material acquisitions going forward. So we wanted to have that flexibility because there's been, as you see, there's been a lot of opportunities in the marketplace. We have been active in many of the transactions. What's important for us is how each deal or opportunity fits into our overall portfolio. And I can say right now there's no shortage. And so we just felt it was prudent to both expand and extend our credit facility, but if we didn't buy anything new I don't think we need to touch our credit facility. -------------------------------------------------------------------------------- Stephen Walker, RBC Capital Markets - Analyst [6] -------------------------------------------------------------------------------- I would agree. I'm just thinking maybe you could define for us what a material acquisition would be? -------------------------------------------------------------------------------- David Harquail, Franco-Nevada Corporation - President & CEO [7] -------------------------------------------------------------------------------- I would say material is $500 million plus. -------------------------------------------------------------------------------- Stephen Walker, RBC Capital Markets - Analyst [8] -------------------------------------------------------------------------------- Okay. Perfect. Thank you very much for that, David. -------------------------------------------------------------------------------- Operator [9] -------------------------------------------------------------------------------- Your next question comes from Josh Wolfson with Dundee Capital Markets. Please go ahead. -------------------------------------------------------------------------------- Josh Wolfson, Dundee Capital Markets - Analyst [10] -------------------------------------------------------------------------------- Good morning. Just I guess following up on Stephen's question on the debt. When I look historically at the Company, which I guess has never been operating in a net debt position in your commentary on the potential using debt for future transactions, looking at your cost of capital and so forth how would you factor utilizing debt for future transactions? And I guess how would that change things going forward in terms of what your required IRRs would be? -------------------------------------------------------------------------------- David Harquail, Franco-Nevada Corporation - President & CEO [11] -------------------------------------------------------------------------------- Do you want to handle that, Sandip? -------------------------------------------------------------------------------- Sandip Rana, Franco-Nevada Corporation - CFO [12] -------------------------------------------------------------------------------- Sure. With respect to the debt, our cost to debt is actually not that significant. It's LIBOR plus 120 basis points for us right now. And based upon our EBITDA level it would be quite cheap for us. We don't have the intention of having long-term debt on our books. If we did draw down on the credit facility, it would be with the objective to pay that down as fast as possible. The deals that we do enter into are long-term deals. So in adjusting our IRRs I don't think it would have a material impact. -------------------------------------------------------------------------------- David Harquail, Franco-Nevada Corporation - President & CEO [13] -------------------------------------------------------------------------------- Josh, as you know our philosophy is not to use debt. We think there's enough leverage in the very cyclical industry such as we're in. But if you're ever going to use debt, you use it when the great opportunities are available at the bottom of the cycle. And so we just think there's opportunities coming our way. We just want to be prepared. And so -- but if we do use debt facilities, I expect we wouldn't be there very long. -------------------------------------------------------------------------------- Josh Wolfson, Dundee Capital Markets - Analyst [14] -------------------------------------------------------------------------------- Okay. Thanks very much. -------------------------------------------------------------------------------- Operator [15] -------------------------------------------------------------------------------- (Operator Instructions) And your next question comes from Cosmos Chiu with CIBC. Please go ahead. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets - Analyst [16] -------------------------------------------------------------------------------- Good morning, thanks, David, Sandip, Paul, and Stefan. Congrats on a solid quarter once again. A few questions here. Maybe if I can first start off with a question on taxes. Certainly -- I just want to get a deeper understanding in terms of the tax structure that is currently residing within Franco-Nevada. Certainly there is a lot of questions out there these days in terms of what's happened to one of your competitors and the comparability of that tax structure compared to say, some streams within Franco-Nevada. But again, looking at how much taxes you pay, if I worked it out correctly you've paid 18.5% cash taxes in the current quarter, 22% cash taxes so far in first half of 2015. So certainly it looks like you're doing all the right things, but I just wanted to get a quick, maybe a deeper understanding in terms of potential impact. -------------------------------------------------------------------------------- Sandip Rana, Franco-Nevada Corporation - CFO [17] -------------------------------------------------------------------------------- Sure. Cosmos, Sandip here. With respect to our tax structure, we enter into -- deals in Canada are done through Canada. Deals in the United States are done through the United States. And we typically do deals in the jurisdiction that the operations are in. The one difference is for our international streams, which we do do through our Barbados subsidiary. So our international streams, not our royalties, but just our streams of our 380 assets, only seven assets are held in that subsidiary. So in terms of total number, it's not significant. So at this time we don't think there's any material impact to us with respect to having that structure in place. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets - Analyst [18] -------------------------------------------------------------------------------- And Sandip, could that change once say Cobre Panama comes in? Or is it kind of like a fluid situation at this point in time, seeing how the structure plays out in terms of how you're going to react to it? -------------------------------------------------------------------------------- Sandip Rana, Franco-Nevada Corporation - CFO [19] -------------------------------------------------------------------------------- We're always looking at the structure to enhance it. And as we add deals say through our offshore structure, we're also adding deals in Canada, United States, and elsewhere. So it's -- I can't forecast what our portfolio will look like in four years time. But it's always evolving. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets - Analyst [20] -------------------------------------------------------------------------------- And then maybe switching gears a little bit. On Cobre Panama, certainly David, maybe Paul as well, you've talked about stress testing the model, protecting Franco-Nevada's interests. Have you looked at -- certainly at this point in time it's not the gold price that's been under pressure in 2015. The copper price has been under pressure as well. Have you sort of looked at how that could impact the project, Cobre Panama and indeed even bigger picture First Quantum? And how -- is there any risk in terms of production curtailments, CapEx? First Quantum has talked about CapEx decreases however without impacting production. How have you looked at it from the perspective of Franco-Nevada in terms of stress testing and the risk to Franco-Nevada? -------------------------------------------------------------------------------- David Harquail, Franco-Nevada Corporation - President & CEO [21] -------------------------------------------------------------------------------- As I said earlier, Cosmos, it's been a bit of a moving target. So all of those factors that you mentioned are things that we're taking into consideration when we're talking to First Quantum. But we're trying to be supportive. We believe this project is going to get built and we want to be part of it. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets - Analyst [22] -------------------------------------------------------------------------------- For sure. And then maybe moving on to Candelaria. Paul, you mentioned certainly that's a net positive to Franco-Nevada with a 26% increase in average production. I just want to make sure, because I know in the Lundin press release they had talked about CapEx increases to accommodate that improvement in production. From the Franco-Nevada perspective you've paid $7.5 million in the current quarter, or in Q2. Are there any more needs in terms of payments from the perspective of Franco? -------------------------------------------------------------------------------- Paul Brink, Franco-Nevada Corporation - SVP of Business Development [23] -------------------------------------------------------------------------------- No, Cosmos. At the time we did the transaction there were some reserves that we were expecting to be published and just weren't out yet. And so that was the reason for that one-time adjustment. There is nothing forward; there's nothing on a go-forward basis other than receiving and paying for the stream ounces. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets - Analyst [24] -------------------------------------------------------------------------------- Perfect. And maybe one last question in terms of oil and gas. I see that for the rest of the year you're looking at forecast -- using the assumption for your guidance of $50 per barrel WTI, I think I've asked you this question in the past, but just trying to figure out what's the sensitivity in terms of if right now the spot price for WTI is $43 per barrel, how does that change the picture? Would that just mean that you would still meet the guidance for the year, but you come in at the lower end? -------------------------------------------------------------------------------- David Harquail, Franco-Nevada Corporation - President & CEO [25] -------------------------------------------------------------------------------- Yes, Cosmos, that's essentially correct. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets - Analyst [26] -------------------------------------------------------------------------------- And Geoff, how would I -- I think I've asked you this in the past as well. How would I convert WTI into Edmonton Light? I know it's a different demand supply structure, but at least in Q2 it looked like I could just -- I could have just applied the exchange, US dollar Canadian exchange rate to WTI. And I was able to get pretty close to what Edmonton Light was in Q2. Is that one way to do it? -------------------------------------------------------------------------------- David Harquail, Franco-Nevada Corporation - President & CEO [27] -------------------------------------------------------------------------------- That's one way to do it. There's also further differential in there, so it's not an exact conversion. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets - Analyst [28] -------------------------------------------------------------------------------- But it would get you close enough. -------------------------------------------------------------------------------- David Harquail, Franco-Nevada Corporation - President & CEO [29] -------------------------------------------------------------------------------- It's close, it's close. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets - Analyst [30] -------------------------------------------------------------------------------- Okay. Cool. That's all I have. Thank you. -------------------------------------------------------------------------------- David Harquail, Franco-Nevada Corporation - President & CEO [31] -------------------------------------------------------------------------------- Thanks, Cosmos. -------------------------------------------------------------------------------- Operator [32] -------------------------------------------------------------------------------- Your next question comes from Don MacLean with Paradigm Capital. Please go ahead. -------------------------------------------------------------------------------- Don MacLean, Paradigm Capital - Analyst [33] -------------------------------------------------------------------------------- Good morning, guys. This is maybe a bit of a more of a big picture business about the business climate. We've seen Royal Gold do a couple of pretty big deals, one of which you would obviously be quite close to with, at least from my perspective, remarkably low rates of return. I guess on one hand it suggests there's a lot of competition. We know there is competition that's been added. But this is also something that's a bit of a function of what happens at the bottom of a market too. So just wondering if you could put those transactions and the general business climate into a bit more context? Because David, you had said there was lots, and Paul you indicated that there was business to be had. But it sure sounds like it's an awful lot more competitive or at least we need to set our sights lower in terms of the rate of return at this stage of the market. -------------------------------------------------------------------------------- David Harquail, Franco-Nevada Corporation - President & CEO [34] -------------------------------------------------------------------------------- Don, I just -- I think I sort of take a different take on it. Really there's a barbell of transactions out there. I think if you look at the really long-dated assets that have mine lives of 30-plus years, they have a different valuation than you would have just looking at the IRRs or NPVs of those assets. I think there are key building blocks of any portfolio. It's something you'd want in an overall balanced portfolio. I think if you look at the other types of smaller type transactions with the shorter mine lives, I don't think the returns have ever been better. For ourselves we were very active in last year. We did over $930 million of commitments to new deals. I always see these transactions coming in waves. I think the fact that you're seeing so many streaming and royalty transactions in the marketplace right now, I think it really is demonstrating this is becoming a preferred financing mechanism. There's a lot of opportunities still out there. It's one of the reasons why we've increased our credit lines. For us it's just a question of because we've got some choices right now we're just waiting to get the right fit in terms of what fits into our portfolio between the risk and the upside that those assets bring. So I couldn't be more upbeat about the marketplace. I think some IR presentations earlier I was telling the market the range of opportunities was expanding for the streamers. We've gone from not only buying third party royalties to byproduct streams to be doing mine development and then M&A. And now we're doing debt reductions for the majors. So I've really been seeing an expanding universe of investment opportunities. When your universe gets bigger, you get more investment opportunities, you get better deals. So I don't want to comment on the returns on the other deals. I think we're looking at better returns than we've seen historically on our deals going forward. I'm optimistic we'll be booking those. -------------------------------------------------------------------------------- Don MacLean, Paradigm Capital - Analyst [35] -------------------------------------------------------------------------------- So that's sort of the shorter life or I guess the more normal end of the spectrum? -------------------------------------------------------------------------------- David Harquail, Franco-Nevada Corporation - President & CEO [36] -------------------------------------------------------------------------------- No. -------------------------------------------------------------------------------- Don MacLean, Paradigm Capital - Analyst [37] -------------------------------------------------------------------------------- You see more opportunity? -------------------------------------------------------------------------------- David Harquail, Franco-Nevada Corporation - President & CEO [38] -------------------------------------------------------------------------------- I see the opportunities across the board. I think one of the things is we have been active in the oil and gas bids as well earlier this year. I think there's still been too much optimism in some of the bids that would have a very rapid recovery in oil and gas. I think in some of these transactions it's going to serve us to be patient until we get the right pricing environment for certain transactions. We've got some capital to spend but we don't have unlimited capital. We're very reluctant to issue debt in this Company. We want to make sure we use our bullets in the right direction. -------------------------------------------------------------------------------- Don MacLean, Paradigm Capital - Analyst [39] -------------------------------------------------------------------------------- I guess touching on that, you have had a history of no debt in the Company and yet the opportunities, as you say, are numerous. The equity market is not exactly very friendly these days. You have had also a history of progressively higher equity prices. -------------------------------------------------------------------------------- David Harquail, Franco-Nevada Corporation - President & CEO [40] -------------------------------------------------------------------------------- That's right. -------------------------------------------------------------------------------- Don MacLean, Paradigm Capital - Analyst [41] -------------------------------------------------------------------------------- So there may be a tradeoff required there if you see real opportunities. Which is more important? No net debt or issuing equity at a higher price? -------------------------------------------------------------------------------- David Harquail, Franco-Nevada Corporation - President & CEO [42] -------------------------------------------------------------------------------- Most important is when the major opportunities are there that we grasp them. And then how we finance them, we have the credit facility is our first stop to use that. And then after that, we would have to look at what's the best way to do it. I think we're not preempting any options, but I'd say we wouldn't do an equity issue without a specific use of proceeds at the discount that we're trading at today. So I think what's important for us is that we've got the flexibility to buy the opportunities that come in front of us. We have that flexibility today. -------------------------------------------------------------------------------- Don MacLean, Paradigm Capital - Analyst [43] -------------------------------------------------------------------------------- Right. So you're a bit more philosophical about the opportunities that present themselves as opposed to the fact that the equity market, including your own, is at depressed levels? -------------------------------------------------------------------------------- David Harquail, Franco-Nevada Corporation - President & CEO [44] -------------------------------------------------------------------------------- Don, right now we don't need the equity market. -------------------------------------------------------------------------------- Don MacLean, Paradigm Capital - Analyst [45] -------------------------------------------------------------------------------- Okay. Thanks very much, Dave. -------------------------------------------------------------------------------- David Harquail, Franco-Nevada Corporation - President & CEO [46] -------------------------------------------------------------------------------- Thanks, Don. -------------------------------------------------------------------------------- Operator [47] -------------------------------------------------------------------------------- Your next question comes from Brian MacArthur with UBS. -------------------------------------------------------------------------------- Brian MacArthur, UBS - Analyst [48] -------------------------------------------------------------------------------- Good morning. I want to go back to Cobre Panama for a minute. Maybe I'm reading too much in this. You talk about $275 million being paid on a revised deal signed. And in your available capital flood you have $325 million for the year. Originally you were guiding $300 million to $350 million. Has anything changed there with that $325 million or should I be reading that as there's a different timing of expenditures? Or should I be reading that as a revised deal? Or am I reading too much into this and that's just an estimate of where you'll sync up at end of the day? -------------------------------------------------------------------------------- David Harquail, Franco-Nevada Corporation - President & CEO [49] -------------------------------------------------------------------------------- We're still estimating $325 million for the end of the year. The $275 million was finalizing our understanding of what First Quantum has spent on the project and on our behalf up to June 30. We expect there will be further capital incurred in the project to year end, so we still think the $325 million is a valid number for the year. -------------------------------------------------------------------------------- Brian MacArthur, UBS - Analyst [50] -------------------------------------------------------------------------------- Right. So that extra $50 million is just a ratio of how you see it spending under the original deal going forward? Or did percentages or something change, or can you comment? -------------------------------------------------------------------------------- David Harquail, Franco-Nevada Corporation - President & CEO [51] -------------------------------------------------------------------------------- No, no, no, it's just going forward, same percentages. -------------------------------------------------------------------------------- Brian MacArthur, UBS - Analyst [52] -------------------------------------------------------------------------------- Perfect. Thanks very much. -------------------------------------------------------------------------------- Operator [53] -------------------------------------------------------------------------------- (Operator Instructions) There are no further questions at this time. -------------------------------------------------------------------------------- Stefan Axell, Franco-Nevada Corporation - IR Manager [54] -------------------------------------------------------------------------------- Thank you, Stephanie. We expect to release our third-quarter 2015 results on November 11 with a conference call held the following morning, and want to thank you for your interest in Franco-Nevada. -------------------------------------------------------------------------------- Operator [55] -------------------------------------------------------------------------------- Thank you. This concludes today's conference call. You may now disconnect.
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