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Edited Transcript of FNV.TO earnings conference call or presentation 6-Nov-18 1:00pm GMT

Q3 2018 Franco-Nevada Corp Earnings Call

TORONTO Dec 11, 2018 (Thomson StreetEvents) -- Edited Transcript of Franco-Nevada Corp earnings conference call or presentation Tuesday, November 6, 2018 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jason O'Connell

Franco-Nevada Corporation - VP of Oil & Gas

* Paul Brink

Franco-Nevada Corporation - President & COO

* Sandip Rana

Franco-Nevada Corporation - CFO

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Conference Call Participants

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* Carey MacRury

Canaccord Genuity Limited, Research Division - Analyst of Metals and Mining

* Cosmos Chiu

CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Equity Research Analyst

* Fahad Tariq

Credit Suisse AG, Research Division - Research Analyst

* Greg Barnes

TD Securities Equity Research - MD and Head of Mining Research

* Joshua Mark Wolfson

Desjardins Securities Inc., Research Division - Analyst

* Tanya M. Jakusconek

Scotiabank Global Banking and Markets, Research Division - Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the Franco-Nevada Corp Third Quarter Results Conference Call. (Operator Instructions) This call is being recorded on Tuesday, November 6, 2018.

I would now like to turn the conference over to Sandip. Please, go ahead.

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Sandip Rana, Franco-Nevada Corporation - CFO [2]

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Thank you, Jessica. Good morning, everyone. Thank you for joining us today to discuss Franco-Nevada's Third Quarter 2018 Financial Results. Accompanying this call is a presentation, which is available on our website at www.franco-nevada.com, where you will also find our full financial results.

I am Sandip Rana, Chief Financial Officer at Franco-Nevada. I will provide a brief review of our results, followed by Paul Brink, President and Chief Operating Officer at Franco-Nevada, who will provide a closing summary. This will be followed by a Q&A period. Representatives from our Board of Directors and management team are present to answer any questions.

Before we begin formal remarks, 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 2 of this presentation.

As you turn to Slide 3, you will see a table summarizing the key financial results for the company. Overall, the company had a solid quarter with significant increases in gold equivalent ounces and revenue over second quarter 2018, but slightly lower than the same period in 2017. Stronger performance compared to second quarter 2018 occurred despite the gold price averaging $1,213 per ounce in Q3 2018 compared to $1,306 per ounce in Q2 2018. The portfolio of assets performed well with 3 assets having strong quarters. Antapaccay and Guadalupe, both delivered more ounces in the quarter compared to prior year; and Fire Creek/Midas had higher GEOs and revenues due to the timing of prepaid ounces being sold.

In addition, Candelaria whose gold and silver deliveries have been lower year-to-date in 2017 had a better quarter. It delivered approximately 18,000 GEOs in third quarter, its highest amount this year. And of course, our Oil & Gas assets performed very well year-over-year. We are pleased with the performance of our portfolio this quarter.

As you turn to Slide 4, the chart highlights the change in GEOs from Q3 2017 to Q3 2018. GEOs sold decreased from $123,787 to $120,021 this quarter. The largest decrease year-over-year was from silver assets, mainly Candelaria and Antamina. Franco-Nevada has been impacted by lower grade ore being processed at Candelaria, but this is only short term and we expect production levels to recover in 2019. As mentioned, we did see improvements in September.

The PGM assets delivered less GEOs during the quarter compared to Q3 2017 despite higher palladium prices due to refiner issues with Stillwater. Franco-Nevada only received royalty payments for 2 months during the quarter. We will be receiving an extra month payment in the fourth quarter. And on the positive note, the company recognized more GEOs from gold NPIs in the third quarter of 2017.

Turning to Slide 5. We have 2 charts on the page. The first chart highlights the total GEOs sold for the previous 5 quarters. Although Q3 2018 GEOs is lower than prior year, the amount is the highest achieved thus far in 2018. As mentioned we had strong quarters from Antapaccay and Guadalupe. The bottom chart highlights precious metals revenue and the average gold price for the previous 5 quarters. Quarterly precious metals revenue has fluctuated between $136.3 million in Q2 2018 to $152.3 million in Q3 2017.

Slide 6 also showcases 2 charts on the page. The top chart highlights total revenue for each of the previous 5 quarters. Q3 2018 did see an increase in total revenue over the previous quarter. This increase was a combination of general improvements in mining operations as well as an increase in Oil & Gas revenue. The bottom chart highlights the Oil & Gas revenue and average oil price for the last 5 quarters. This quarter was a very strong quarter for Oil & Gas revenues. This is due to stronger oil prices and increased production from our newly added U.S. assets. The company is beginning to realize the embedded growth of these U.S. assets. In addition, we had a very strong quarter from Weyburn, which generated $10.6 million in revenue.

On Slide 7 we provide a breakdown of our revenue by commodity and geographic location. The chart on the left provides a breakdown of revenues. 82% of revenue for the quarter was generated by precious metals, with 65% being from gold, 12% from silver and 5% PGMs. The geographic revenue profile has revenue being sourced 83% from the Americas, with Latin America being the largest component.

Slide 8 highlights the diversification of our portfolio. The first chart shows the adjusted EBITDA contributions from our key assets. Antapaccay is our largest contributor at 15% of adjusted EBITDA. Our top 3 assets contribute 34% of adjusted EBITDA. Diversification is our strength. And the second chart highlights how adjusted EBITDA is distributed from a legal ownership perspective with no legal entity accounting for greater than 40% of adjusted EBITDA.

On Slide 9, we highlight the strong margins the company achieves on a consistent basis. Our all-in sustaining cost per ounce was $308 per ounce for the quarter. As you can see, the cost per ounce has fluctuated over time depending upon the source of GEOs earned. That is whether it's royalty or stream ounces. During the quarter, we realized a GEO margin in excess of $900 per ounce. This is reflected by the strong adjusted EBITDA reported by the company. Franco-Nevada is proud of its business model and one of our strengths is the scalability of this model.

As you can see on Slide 10, the company's fixed cost highlighted in the light blue has remained fairly constant as we continue to grow this business. Management believes we can continue to add to our portfolio and grow our business without adding significant overhead to the company. Our margin for Q3 2018 was 79%.

Before I turn it over to Paul Brink, President and Chief Operating Officer, I would like to provide an update on the Canada Revenue Agency review that is currently underway for Franco-Nevada. The process is ongoing whereby Franco-Nevada continues to provide information requested by CRA and is responding to queries from CRA. As previously disclosed, the review relates to fiscal years 2012 through 2015.

I will now turn it over to Paul.

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Paul Brink, Franco-Nevada Corporation - President & COO [3]

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Thank you, Sandip. Our precious metal assets performed well this quarter with Antapaccay and Guadalupe particularly strong. Also, Candelaria's performance improved, and we expect it to be making a full contribution again in 2019. First Quantum remains on schedule for first ore to the mill at Cobre Panama in Q1 2019. They also continue to work with the Panamanian government and others to clarify the legal position of Law 9, following the recent court ruling.

Slide 11 has an update on our Oil & Gas assets. Our U.S. Oil & Gas assets have been performing ahead of expectations. Drill activity is higher and drilling productivity is better than our acquisition assumptions. Revenues for the quarter for these assets was particularly good although approximately $4.5 million related either to lease bonuses or to production from prior quarters only received in Q3. The bonuses relate to leasing out some of our acreage to operate as an exchange for a royalty and an upfront payment.

A portion of our royalty acreage in the SCOOP/STACK is on ground operated by Newfield, and we believe Encana's $5.5 billion acquisition of Newfield will be very positive for the development of these lands. Encana has substantial financial strength and from its activities in the Montney and Permian, some of the industry's best experience in developing these fracking plays.

We previously announced transaction to acquire royalties in a strategic relationship with Continental Resources. The first tranche of the transaction for $215 million was closed in October. Continental has been able to acquire royalties at a greater rate than we both anticipated, and we have agreed to move forward some of the spending from the future tranches. As a result, we expect to spend an additional $35 million to $55 million on this venture in 2018. We expect revenue from our Canadian Oil & Gas assets will be negatively impacted in the fourth quarter by the recent widening in Canadian differentials. Overall, following the strong performance of the Oil & Gas assets year-to-date, we're increasing our guidance for 2018 from the previous $65 million to $75 million range to $75 million to $85 million.

Turning to available capital on Slide 12. In funding the first tranche of the Continental transaction, we drew down $200 million from our revolving credit facility leaving us with $900 million of unused capacity under the facility. Working capital and marketable securities at the end of September were $149.9 million and $161.3 million, respectively, providing total available capital of $1.2 billion.

Looking forward, we're entering a period of strong revenue and EBITDA growth. Over the next 2 years, Cobre Panama will be ramping up to full production. In 2019, Candelaria should return to normal operations; and we expect growth from our U.S. Oil & Gas assets over the next few years. As a result, we're expecting a greater than 30% increase in revenue and EBITDA from the assets already in place. Any revenue from future spending under the Continental partnership would be in addition to these projections. Absent any further acquisitions, Franco-Nevada will start building a substantial cash balance in 2019. Cobre Panama is now fully funded, and the remaining commitment with Continental of $250 million over 3 years is only a small portion of the projected operating cash flow projection during that period.

That concludes my comments, and I'll hand the call back over to the operator for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Cosmos Chiu of CIBC.

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Cosmos Chiu, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Equity Research Analyst [2]

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I guess, my first question is maybe taking a step back here. To me, it seems like activity in terms of precious metal stream acquisitions has slowed down a little bit. I guess, first off, is that an accurate statement? Or -- and is Franco-Nevada now better positioned to make acquisition now that you fully funded the Cobre Panama stream? Or is that really just a function of the market?

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Paul Brink, Franco-Nevada Corporation - President & COO [3]

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Thanks, Cosmos, it's Paul. Yes, I think your conclusion there is the right one. The -- we're looking forward to making more acquisitions on the precious metals side, but it is a function of the market. As you're well aware, in this market, there's so little equity capital available that it's making it tough for people to build new mines. We really expect that when the industry gets back to building new gold mines that there'll be good opportunities to add to that side of our portfolio.

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Cosmos Chiu, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Equity Research Analyst [4]

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Okay. And then the -- maybe focusing a bit more on the Cobre Panama. Certainly, there has been news coming out of First Quantum on Law #9 and whatnot. It seems like it doesn't really impact the mining concession itself. So Paul, from your perspective, and based on your understanding and your interpretation, are you at all concerned about what's happening at -- with Law #9?

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Paul Brink, Franco-Nevada Corporation - President & COO [5]

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The -- whenever there's uncertainty like that, Cosmos, yes, it is concerning. Although the interpretation, I think as you alluded there, as it relates more to the law and the form in which the concession was issued. So the current interpretation is that it doesn't impact the validity of the concession itself. So that does give us some comfort, although we are looking forward to having more clarity on the issue, which hopefully we'll get early next year.

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Cosmos Chiu, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Equity Research Analyst [6]

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Great. Maybe switching gears a little bit, and Sandip, you had talked about the CRA audit here. Are you watching what's happening at Cameco in terms of that CRA audit and the Tax Court conclusions? And is Franco-Nevada's situation comparable to what's happening at Cameco, Wheaton Precious Metals or any other -- any of those other ongoing issues?

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Sandip Rana, Franco-Nevada Corporation - CFO [7]

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Sure. Yes, Cosmos. We absolutely do watch what's going on in the Tax Courts. Obviously the Tax Court sided with Cameco, which was a very good positive I think for all of us. The facts are not necessarily exactly the same, but the -- there is elements in the case that are similar to both what's going on with -- at Wheaton Precious and potentially what could happen with Franco-Nevada. So I think it's positive momentum. Obviously the CRA has filed an appeal, but they are only appealing part of the verdict. At the end of the day, they're not appealing the sham conclusion. But they are going after transfer pricing. So I think overall, it is a positive, but we'll have to see how it all plays out.

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Cosmos Chiu, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Equity Research Analyst [8]

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Yes, of course. Maybe switching gears again on Oil & Gas. Paul as you had mentioned, there's differentials now in terms of Canadian oil and U.S. oil. How are you -- how is that sort of factored into your investment decision? I guess, we've seen it because your last few investments have been in U.S. oil. Is that the trend that we should continue to expect as you make more investments in Oil & Gas?

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Paul Brink, Franco-Nevada Corporation - President & COO [9]

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Cosmos, we're -- on the Oil & Gas side, we're -- as you well know, historically, we've had a good amount of assets in Canada. And in recent years we've added some additional assets in Canada, but also in the U.S. The -- so we remain interested in both jurisdictions. But obviously, when we're looking at opportunities, access to markets is one of the things that we always take into account. And often, good access to market makes some assets much more attractive.

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Cosmos Chiu, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Equity Research Analyst [10]

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And then maybe one last question, if I may. Certainly, beyond Cobre Panama, going through your MD&A, going through your press release, there's a lot of exciting things that are happening in the portfolio. There's Fire Creek, which is now under the hands of Hecla. There's Macassa, they're sinking a new shaft. Blitz, they're building a new mine at Stillwater. Paul, what's getting you the most excited in terms of what's happening? There's certainly a lot happening. But what's 1 or 2 things that are the most exciting to you when you look at it?

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Paul Brink, Franco-Nevada Corporation - President & COO [11]

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No surprise, Cosmos, the biggest driver for us is going to be Cobre Panama. As we are well aware for this year, it's been a relatively flat year in terms of revenues for the company. But we're very excited as we go into 2019 and 2020 because we'll have Cobre Panama kicking in. We have the Oil & Gas assets that continue to ramp up over that period, and Candelaria will be back to full strength. So we really see ourselves having very strong growth over the next few years.

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Operator [12]

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Your next question comes from Greg Barnes of TD.

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Greg Barnes, TD Securities Equity Research - MD and Head of Mining Research [13]

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Given the strong growth in Oil & Gas revenues this year and the -- I think you've raised guidance twice now. Can you give us some sense of where you think Oil & Gas revenue will be 2019, 2020? And I know you don't have guidance out yet.

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Jason O'Connell, Franco-Nevada Corporation - VP of Oil & Gas [14]

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Yes. Hi, Greg. It's Jason O'Connell here. Going into 2019, there's a few factors that are going to drive our Oil & Gas revenues. We're going to see or we plan to see some growth from U.S. assets that we've acquired and especially from Continental, as that transaction starts to add revenue. That's going to be offset a little bit if we continue to see weakness in the Canadian oil price. So as you may know differentials right now are quite wide, and so assets like Weyburn may suffer a little bit. So net-net, I think you're going to see growth on the U.S. side, potentially offset a little bit by weakness on the Canadian side from those Canadian assets. And so 2019 revenues should be higher than they are for this year. We haven't provided exact guidance, but order of magnitude, it's probably 10%, 20% higher.

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Greg Barnes, TD Securities Equity Research - MD and Head of Mining Research [15]

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Great. And would you see further growth into 2020 as well? I assume you would.

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Jason O'Connell, Franco-Nevada Corporation - VP of Oil & Gas [16]

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Yes. We should see continued growth again coming from those U.S. assets, and as Continental contributes more and more revenue as assets are acquired into our partnership there. So there should be continued growth really over the course of the next 5 years or so. It will be sort of modest growth here and it will be a bit lumpy. Again, that's dependent though on oil prices remaining where they are and Canadian oil prices staying at a place where Weyburn is profitable and continue to generate strong revenues.

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Operator [17]

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Your next question comes from Fahad Tariq of Credit Suisse.

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Fahad Tariq, Credit Suisse AG, Research Division - Research Analyst [18]

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I apologize if this has already been covered and if I missed it. But can you talk a bit about your appetite for Oil & Gas acquisitions, further acquisitions? And how committed are you to kind of maintain an 80-20 split between precious metals and Oil & Gas? Can -- is that something that you're reconsidering now, given the strength in -- the relative strength in Oil & Gas?

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Paul Brink, Franco-Nevada Corporation - President & COO [19]

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Fahad, it's Paul. The -- as you're aware, over the last couple of years, we've seen tremendous opportunities in Oil & Gas and particularly in U.S. Oil & Gas. We continue to see good opportunities there, and we'd like to take advantage of them. We are cognizant of maintaining that balance in our portfolio. And over the long term, it is something that we plan to stick to. We are always looking to be opportunistic though and if good assets come available to find a way to bring them into the portfolio and then balance the portfolio over time.

I think we have discussed before, if Oil & Gas does become a bigger part of our portfolio, that there are always lots of options for us to balance that either by adding more precious metals assets over time or by potentially putting those assets into a separate entity.

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Operator [20]

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Your next question comes from Carey MacRury of Canaccord Genuity.

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Carey MacRury, Canaccord Genuity Limited, Research Division - Analyst of Metals and Mining [21]

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Just another question on Cobre Panama. I recall in the agreement, there's a -- First Quantum has a threshold that they have to exceed the run rate of 58 million tonnes per annum. Just wondering, and I I believe you paid a discounted price on the gold received prior to that. Just wondering if you could just provide a little more color on what that looks like.

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Paul Brink, Franco-Nevada Corporation - President & COO [22]

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So Carey, it's Paul. The way the transaction is set up is that to the extent they don't reach that throughput rate by the start of January next year, that on the initial ounces we receive, we pay a discounted price for those ounces. And the price of each ounce is just discounted by $100 an ounce. And we run out the calculation so that in effect we will receive a 5% return on our invested capital until they reach the 58 million-tonne throughput rate.

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Carey MacRury, Canaccord Genuity Limited, Research Division - Analyst of Metals and Mining [23]

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And is that 58 million tonnes, is that over a quarter or over a month time horizon?

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Paul Brink, Franco-Nevada Corporation - President & COO [24]

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I believe it's a 30-day measurement.

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Operator [25]

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Your next question comes from Tanya Jakusconek of Scotiabank.

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Tanya M. Jakusconek, Scotiabank Global Banking and Markets, Research Division - Analyst [26]

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I have 2 questions. I have 1 for Paul, and then 1 for Sandip. Paul, can I just come back to the Oil & Gas opportunities that you're seeing, because you still do have room to increase your Oil & Gas exposure. Are you right now seeing more opportunities still in the U.S. versus Canada, even with the differential?

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Paul Brink, Franco-Nevada Corporation - President & COO [27]

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I'm going to hand that question over to Jason, Tanya.

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Jason O'Connell, Franco-Nevada Corporation - VP of Oil & Gas [28]

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There are opportunities both in Canada and the U.S. There are some opportunities in Canada to help companies finance expansion or to help with their balance sheet. But really the majority of the opportunities that we're seeing right now, they do remain in the U.S. It is a very opportunity-rich environment. Again, it's the nature of the land base in the United States that really opens up those opportunities. It's just there's a lot more privately held land royalties that we're able to buy. And we're seeing opportunities there, really in a range of formats, I guess. There's small asset acquisitions that we could contemplate that would sort of tuck into the larger portfolios that we've already acquired, right through to very large acquisitions that are essentially out there where private equity groups have assembled; meaningfully-sized portfolios of assets, that we could look to acquire.

And so there are a lot of different types of opportunities, and what we're going to do is just look for one sort of high quality in good areas and just look at if we can get good value for those opportunities or not.

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Tanya M. Jakusconek, Scotiabank Global Banking and Markets, Research Division - Analyst [29]

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And Jason, when you say small and large, the small opportunities that you usually kind of put in with your quarters are in the sort of tens to -- couple -- $10 million, $20 million, $30 million ones. And then what would you consider your larger ones? Are we still talking $500 million?

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Jason O'Connell, Franco-Nevada Corporation - VP of Oil & Gas [30]

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There are opportunities of that size that exist. Whether or not we pursue those opportunities, we don't know at this stage. But certainly, there are portfolios out there that are held again by these private equity groups that are in that range, yes.

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Tanya M. Jakusconek, Scotiabank Global Banking and Markets, Research Division - Analyst [31]

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Okay. So maybe just a better way to ask you is what sort of range are you looking at? Or do you see more opportunities right now?

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Jason O'Connell, Franco-Nevada Corporation - VP of Oil & Gas [32]

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Really, it's across-the-board. So there are more opportunities than we can look at right now. And they are all sizes right through from $10 million, $20 million, right through to $500 million plus.

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Tanya M. Jakusconek, Scotiabank Global Banking and Markets, Research Division - Analyst [33]

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Okay. That's helpful. And then maybe, Paul, just for you. Are you -- maybe you mentioned that you didn't see any opportunities right now in the precious metals space. Are you looking at the non-precious metals space, excluding Oil & Gas? Are you seeing any opportunities there?

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Paul Brink, Franco-Nevada Corporation - President & COO [34]

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Yes on both. We are seeing some opportunities on the precious metals space. I would say they're midsize transactions rather than any big transactions. There are some decent prospects, though. The -- and yes, we are also looking at mining assets that are non-gold assets. And again, there are some decent-sized opportunities there. So looking forward into 2019, I think you'll probably see a good mix in terms of gold, non-gold mining and Oil & Gas assets that we add to the portfolio.

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Tanya M. Jakusconek, Scotiabank Global Banking and Markets, Research Division - Analyst [35]

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Okay. And then again, Paul, just sort of size that we're talking in midsize for the precious metals and the non-precious metals. What sort of sizes are you looking at?

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Paul Brink, Franco-Nevada Corporation - President & COO [36]

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Midsize would be $100 million to $200 million, and I think for us, a large transaction is at $500 million plus.

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Tanya M. Jakusconek, Scotiabank Global Banking and Markets, Research Division - Analyst [37]

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Okay. And that's more in the Oil & Gas versus the non-precious metal?

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Paul Brink, Franco-Nevada Corporation - President & COO [38]

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Yes.

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Tanya M. Jakusconek, Scotiabank Global Banking and Markets, Research Division - Analyst [39]

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Got it. Okay. Perfect. Sandip, if I could, just coming back to the CRA review. Can you just give us an idea of what exactly you're doing, what the CRA is asking from you right now over those years of 2012 to 2015?

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Sandip Rana, Franco-Nevada Corporation - CFO [40]

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Sure. So the way the -- our review works is CRA will submit a list of questions on how things work, requesting certain levels of documentation. So we are providing that documentation to them. It also includes potentially interviewing staff of our various subsidiaries. So we're going through that process as well. So it's an ongoing process. It's an information exchange. They ask questions, we answer. And they've raised no issues at this time. And they just continued to request information and we comply and provide it.

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Tanya M. Jakusconek, Scotiabank Global Banking and Markets, Research Division - Analyst [41]

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Okay. So they haven't asked anything specific from you. It's just general questions.

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Sandip Rana, Franco-Nevada Corporation - CFO [42]

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It's general questions.

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Operator [43]

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Your next question comes from Josh Wolfson of Desjardins.

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Joshua Mark Wolfson, Desjardins Securities Inc., Research Division - Analyst [44]

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Just related to the Oil & Gas properties that have current production, SCOOP/STACK and Midland. Those assets performed well again this quarter. I recall part of the tailwinds last quarter I think was some catch-up payments. Was that the same reason for the out-performance this quarter? Or was that more related to current production?

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Jason O'Connell, Franco-Nevada Corporation - VP of Oil & Gas [45]

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Thanks, Josh; this is Jason. It really was both again. There were some catch-up payments from prior quarters. We'll likely continue to see that going forward. That's sort of the nature of how payments are received. We typically get paid for wells that have been drilled and completed and come online 6 to 8 months prior. But we'll continue to get those catch-up payments. But also, it's a function of production growth. And again, we expect to see that building into next year and going forward over the next 5 years or so.

The other element that we do get that does contribute to our revenue from time-to-time are lease bonus payments. So we did have -- it was $2 million of lease bonus payments this quarter. We'll continue to get those lease bonus payments, although they are sporadic and they're basically impossible to predict. So they will continue to contribute to revenue going forward as well.

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Joshua Mark Wolfson, Desjardins Securities Inc., Research Division - Analyst [46]

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Got it. And that's roughly $3 million, I guess, Continental payments revenue this quarter, is that reasonable to expect going forward? Or is it going to grow or change substantially in the short term?

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Jason O'Connell, Franco-Nevada Corporation - VP of Oil & Gas [47]

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It is going to grow quarter-over-quarter. So I think $3 million is a good place to start for the beginning of 2019, but it's going to grow quarter-over-quarter. And be likely meaningfully higher than that by the end of the year.

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Joshua Mark Wolfson, Desjardins Securities Inc., Research Division - Analyst [48]

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Not a bad start. And one other question related to Cobre, and I'm not sure if there's any sort of updated view. In terms of when deliveries are expected to start that accrue to Franco, are we still expecting first half year? Or is that potentially maybe midyear at this point?

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Jason O'Connell, Franco-Nevada Corporation - VP of Oil & Gas [49]

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Yes. I don't have the exact timing on it, Josh. They are speaking end of the first quarter for first ore through to the mill. The question was asked of First Quantum in their call and they do have quite extensive capacity for storing concentrates at site. So they'll obviously build up enough concentrate until they can justify a large shipment before they make the first shipment. And obviously, it's when that shipment gets made that we get our first payment. So I expect that, that will be some months after first ore through the mill.

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Joshua Mark Wolfson, Desjardins Securities Inc., Research Division - Analyst [50]

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Got it. And just is there a potential -- and now that I think about the -- I guess if you're receiving production based on concentrate sales and the, I guess, the kicker on the cost side is related to throughput, is it possible that you'll benefit from that over a shorter period upfront before the difference, I guess, of our deferral of some of the production of the concentrate build up? I'm not sure if that's clear.

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Paul Brink, Franco-Nevada Corporation - President & COO [51]

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Yes. Won't you restate that, Josh?

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Joshua Mark Wolfson, Desjardins Securities Inc., Research Division - Analyst [52]

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Sorry. It's a bit confusing in my mind. I guess, given the throughput is the factor that determines the lowered costs for Franco, is it possible that you would benefit from that cost reduction over a shorter period, but that there would be a delay if you're talking about the concentrate that would be built up on-site? If it's not clear, I'd be happy to take that off-line.

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Paul Brink, Franco-Nevada Corporation - President & COO [53]

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Yes. I'm not sure where you're getting there in particular, Josh. But we do expect the -- once we start making -- once we start receiving those initial deliveries that we would be paying a discounted amount. And as mentioned previously, it's a $100 discount from what we would otherwise pay, and we keep effectively receiving that discount until we have received a 5% return on capital on our invested capital that's outstanding at the time.

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Operator [54]

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(Operator Instructions) There are no further questions at this time. Please proceed.

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Sandip Rana, Franco-Nevada Corporation - CFO [55]

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Thank you, Jessica. We expect to release our year-end 2018 results after market close on March 19, 2019, with the conference call held the following morning. Thank you for your interest in Franco-Nevada.

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Operator [56]

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Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.