Franco-Nevada(FNV) - 2019 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported its strongest financial results ever for Q4 2019 and the full year, with record gold equivalent ounces (GEO) sold at 516,438, a 15% increase over 2018 [6][9] - Gold and gold equivalent revenue increased by 28% in 2019 to $728 million, compared to $567 million in 2018 [13] - Adjusted EBITDA and adjusted net income saw significant increases due to higher commodity prices and GEO sold [14] Business Line Data and Key Metrics Changes - The energy assets generated revenue of $116 million in 2019, exceeding the top end of the guidance range of $70 million to $85 million [7] - The largest contributor to GEO sold was from gold assets, particularly Cobre Panama, which exceeded expectations with over 43,000 GEO sold [10][11] - The cash costs per GEO increased to $266 in 2019 from $239 in 2018, reflecting fluctuations based on the mix of royalty versus stream ounces [17] Market Data and Key Metrics Changes - The company experienced volatility in commodity prices, with precious metals prices increasing significantly in the second half of 2019, a trend that continued into 2020 [12] - The geographic revenue profile showed that 84% of revenue was sourced from the Americas, with Latin America being the largest target [15] Company Strategy and Development Direction - The company aims to leverage the growth from Cobre Panama, which is expected to be the largest driver of growth in 2020, with anticipated sales between 90,000 and 110,000 GEOs [26] - The company is focused on maintaining a diversified portfolio, with no single asset contributing more than 10% of total revenue [16] - The management is actively seeking acquisition opportunities in precious metals and other commodities, particularly in a lower part of the cycle [44] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by lower expected commodity prices and reduced rig activity in the U.S. [31] - The outlook for energy revenue in 2020 is expected to range between $80 million and $95 million, reflecting lower price assumptions [30] - The company remains optimistic about organic growth opportunities within its existing portfolio, especially with gold prices above $1,600 [29] Other Important Information - The company is currently debt-free after repaying $160 million of debt in Q4 2019 [22] - There are ongoing audits by the Canada Revenue Agency, with potential tax payable of $25 million, excluding interest and penalties [21] Q&A Session Summary Question: Impact of oil prices on guidance - Management has incorporated expected changes in operator activity into the 2020 guidance, reflecting a reduction in activity due to lower oil prices [36][37] Question: Sensitivity of revenue outlook to oil price changes - A 10% decline in commodity prices could lead to a 13% reduction in revenue, with more pronounced effects at lower price levels [38][39] Question: Long-term production and revenue expectations - At current prices, the company does not expect significant growth beyond 2024, but there may be incremental growth from existing assets [42][43] Question: Approach to partners regarding CapEx funding - The company does not anticipate needing to adjust its capital allocation significantly, as it has strong tenure for its investments [47] Question: Assumptions for drilling activity in forecasts - The company assumes a rig count approximately 20% lower than the previous year, factoring in historical activity levels and current commodity prices [49][50] Question: Competitive landscape for acquisitions - The company faces increased competition at the smaller deal level but continues to focus on larger, meaningful transactions [54][55]