Franco-Nevada(FNV) - 2023 Q4 - Annual Report

Tax Reassessments and Liabilities - The Company received a Notice of Reassessment for the 2016 taxation year, resulting in additional Federal and provincial income taxes of $3.5 million (C$4.6 million) plus estimated interest and penalties of $1.4 million (C$1.8 million)[1] - The Company's Mexican subsidiary paid a total of $34.1 million (490.3 million Pesos) in cash taxes for taxation years 2013 through 2016 at a 30$5.1 million (C$6.7 million) plus estimated interest and penalties of$3.3 million (C$4.4 million)[5] - The 2016 and 2017 Reassessments for the Barbadian subsidiary resulted in additional Federal and provincial income taxes of$30.1 million (C$39.8 million) plus estimated interest and penalties of$11.2 million (C$14.8 million)[7] - The Company received a Proposal Letter from the CRA proposing to reassess the 2018 and 2019 taxation years, resulting in additional Federal and provincial income taxes of$17.2 million (C$22.7 million) for 2018 and$31.4 million (C$41.5 million) for 2019 plus estimated interest and penalties of$6.5 million (C$8.6 million) for 2018 and$8.5 million (C$11.3 million) for 2019[8] - The Company estimates that it would be subject to additional Canadian tax of approximately$242.8 million (C$321.1 million), transfer pricing penalties of approximately$91.8 million (C$121.4 million), and other penalties of approximately$33.4 million (C$44.2 million) for taxation years 2020 through 2023[9] - The company faces potential tax exposures of up to$242.8 million (C$321.1 million) for 2020-2023 related to transfer pricing reassessments in Barbados[30] - The company received$13.9 million (C$17.7 million) in returned security deposits from the CRA related to transfer pricing reassessments[28] - The Company reached a settlement with the CRA in respect of the Domestic and FAPI Reassessments, resulting in no FAPI in 2012 and 2013 as computed under Canadian tax law[20] - The Company filed formal Notices of Objection in connection with certain Transfer Pricing Reassessments and posted security in the form of cash totaling$18.5 million (C$24.5 million)[13] - Deferred tax liabilities are recognized for taxable temporary differences, calculated at enacted or substantively enacted tax rates[88] - The company evaluates exposure to uncertain tax positions and recognizes provisions based on the probable outcome of assessments[89] - The Company's deferred income tax assets are reassessed at each reporting period based on forecasts of future taxable income and reversals of temporary differences[119] - The Company applied a temporary exception to accounting for deferred taxes related to OECD Pillar Two model rules, effective immediately upon issuance of the amendment[101] Financial Performance and Position - Total assets decreased from$6,626.8 million in 2022 to $5,994.1 million in 2023, primarily due to a reduction in royalty, stream, and working interests from$4,927.5 million to $4,027.1 million[24] - Net loss for 2023 was$466.4 million, compared to a net income of $700.6 million in 2022, driven by impairment losses of$1,173.3 million[26] - Revenue declined from $1,315.7 million in 2022 to$1,219.0 million in 2023, while gross profit decreased from $852.6 million to$766.6 million[26] - Cash and cash equivalents increased by 18.8% from $1,196.5 million in 2022 to$1,421.9 million in 2023[24] - Operating cash flows remained strong at $991.2 million in 2023, slightly down from$999.5 million in 2022[33] - The company invested $520.0 million in acquiring royalty, stream, and working interests in 2023, significantly higher than the$139.6 million invested in 2022[33] - Dividends paid increased to $233.0 million in 2023, up from$197.6 million in 2022[33] - Net income for 2022 was $700.6 million, while the company reported a net loss of$466.4 million in 2023[34] - Total comprehensive income for 2022 was $571.9 million, compared to a total comprehensive loss of$424.3 million in 2023[34] - Dividends declared in 2022 amounted to $245.8 million, increasing to$262.1 million in 2023[34] - The company's total equity decreased from $6,417.6 million at the end of 2022 to$5,769.1 million at the end of 2023[34] - Franco-Nevada's cash and cash equivalents increased to $1,421.9 million in 2023 from$1,196.5 million in 2022, primarily held in interest-bearing deposits[172] - Franco-Nevada's equity investments increased to $246.4 million in 2023 from$224.6 million in 2022, with Labrador Iron Ore Royalty Corporation being the largest holding at $152.7 million[173] - Franco-Nevada's royalty, stream, and working interests carrying value increased to$4,027.1 million in 2023 from $4,927.5 million in 2022, with mining royalties and streams being the largest components[179][180] - Total net book value as of December 31, 2023, is$4,027.1 million, with $2,990.9 million depletable and$1,036.2 million non-depletable[181] - Additions to royalty, stream, and working interests in 2023 totaled $519.6 million, with significant contributions from streams ($250.2 million) and exploration ($110.2 million)[181] - Depletion charges for 2023 amounted to$270.7 million, primarily driven by streams ($169.4 million) and energy ($60.8 million)[181] - Foreign exchange impact in 2023 resulted in a net gain of $27.3 million, with$14.1 million attributed to royalties[181] - Franco-Nevada recognized a gain of $3.7 million from the disposal of a 0.5$4.1 million due to abandoned tenements and concessions[189] Royalty, Stream, and Working Interests - The Company completed the acquisition of a royalty portfolio in the Haynesville gas play in Louisiana and Texas for a purchase price of $125.0 million[14] - The Company's royalty, stream, and working interests carrying value was$4,027.1 million as of December 31, 2023[16] - Royalty, stream, and working interests are recorded at cost and capitalized as tangible assets with finite lives[51] - Producing mineral royalty and stream interests are depleted using the units-of-production method over the life of the property[52] - Capitalized costs for energy well equipment are depreciated using a 25% declining balance method[57] - Impairment losses are recognized when an asset's carrying value exceeds its recoverable amount, calculated as the higher of fair value less costs of disposal (FVLCD) and value-in-use (VIU)[59] - The Company's royalty, stream, and working interests are subject to significant judgments and estimates, particularly regarding commodity prices, discount rates, and reserve/resource conversion[107] - Impairment losses of $1,173.3 million were recorded in 2023, primarily related to royalty, stream, and working interests[26] - The Company recognized an impairment loss of$1,169.2 million for the Cobre Panama stream interest due to halted production and political environment[108] - Cobre Panama production halted since November 2023 due to political and legal challenges, leading to a full impairment assessment[184][185][186] - Franco-Nevada has initiated international arbitration proceedings regarding Cobre Panama, with potential for impairment reversal if production resumes[187][188] - Acquired an incremental 1.0% NSR on Skeena's Eskay Creek properties for $41.8 million, increasing total NSR to 2.5$18.7 million to Skeena Resources Ltd. for a convertible debenture with a 7% interest rate, maturing by December 19, 2028[124] - Agreed to acquire a royalty portfolio in the Haynesville gas play for $125.0 million, with$12.5 million advanced as a deposit[125] - Fully funded the $250.0 million Tocantinzinho Stream deposit, with stream deliveries based on gold production: 12.5$28.0 million, increasing total NSR to 3.0%[133] - Acquired a 1.5% NSR on Red Pine Exploration's Wawa gold project for $5.0 million, with an option to acquire an additional 0.5$75.0 million[136] - Acquired a 1.5% NSR on Tiernan's Volcan gold project for $15.0 million, with an option to acquire an additional 1.0$9.4 million, increasing total NSR to 0.5702%[142] - Acquired an additional 1.5% NSR on Marathon's Valentine Gold project for $45.0 million, increasing total NSR to 3.0$21.0 million (C$28.5 million), with$19.9 million (C$27.0 million) paid on closing and$1.1 million (C$1.5 million) contingent upon certain conditions[159] - Franco-Nevada acquired a 2$52.5 million, covering both the Magino project and regional exploration properties[161] - Franco-Nevada acquired a 2% NSR on Westhaven Gold's Spences Bridge Gold Belt claims for $6.0 million, with an option for Westhaven to buy-down 0.5$3.0 million within 5 years[163] - Franco-Nevada acquired a portfolio of seven royalties in Chile, each with a 2% NSR on precious metals and 1% NSR on base metals, for $1.0 million[165] - Franco-Nevada acquired an additional 2$6.0 million, increasing its effective NSR on the Pacific Clay claims to 4.65%[166][168] - Franco-Nevada acquired an effective 0.4582% NSR on JX Nippon Mining & Metals' Caserones mine for $37.4 million, with royalty payments commencing from January 1, 2022[169] - Franco-Nevada advanced$18.7 million (C$25.0 million) to Skeena as a convertible debenture with a 7% interest rate, maturing on December 19, 2028, or upon project financing completion[176] Revenue Recognition and Financial Instruments - Revenue from stream arrangements is recognized when control over the commodity is transferred to the customer, typically at the delivery date based on spot prices[73] - Revenue from royalty arrangements is measured at the transaction price agreed with the operator, reflecting the gross value of the commodity sold less deductions[79] - Working interest revenue is measured at the transaction price set by reference to monthly market commodity prices, including adjustments for product quality and transportation[80] - Costs of sales for stream agreements include cash payments for gold, silver, or platinum group metals, based on the lesser of a contractual price or the prevailing market price[82] - The company's financial instruments include cash, receivables, accounts payable, accrued liabilities, debt, and investments, initially recognized at fair value[62] - Equity investments are classified as fair value through other comprehensive income (FVTOCI) and measured at fair value, with changes recognized directly in other comprehensive income[64] Share-Based Payments and Equity - The Company's deferred share units (DSUs) are settled in cash, with the fair value marked to the quoted market price of the Company's common shares at each reporting date[94] - The Company's performance-based restricted share units (RSUs) may vest at a performance multiplier ranging from 0% to 150% of the value[93] - The Company uses the Black-Scholes option pricing model to measure the fair value of equity-settled share-based payments[92] - The Company's earnings per share calculations include the effect of potentially dilutive common share equivalents, such as share options and restricted share units[96] Joint Operations and Subsidiaries - Franco-Nevada holds a 49.9% economic interest in The Mineral Resource Company II, LLC (TMRC II), a joint operation with Continental Resources, Inc.[45] - The company funds 80% of contributions to TMRC II, with Continental Resources funding the remaining 20%[45] - The Company's joint arrangement with Continental qualifies as a joint operation, with revenue distributions ranging between 50-75% based on asset performance[117] - Franco-Nevada operates in multiple regions including South America, Central America & Mexico, United States, Canada, Australia, Europe, and Africa[36] - The company's principal subsidiaries are located in Delaware, Barbados, Australia, Texas, and Chile, all with 100% economic interest[41] Internal Controls and Reporting - Internal control over financial reporting was deemed effective as of December 31, 2023, per management and independent audit[193][197] - The Company's segment reporting aligns with internal reporting provided to the CEO, who is responsible for resource allocation and performance assessment[95]