Franco-Nevada Mines sees nothing but upside for its royalty on Tasiast, Kinross. It has a 2 percent royalty on Tasiast. It booked a little less than $3 million on the royalty in 2011 and is expecting closer to $7 million in 2012. Even if the Kinross expansion produces only half of what is expected, FNV could see $25 million in royalties over the next 20 years.
Although FNV had been working on smaller deals in Q1, in Q2, it was working on larger deals and hopes to be able to report some successes in the future. FNV has the assets to continue with new transactions. It is comfortable buying longer term assets with longer pay back periods because it already has a large base of performing assets.
Although there are some projects shutting down, there are about 11,000 right now and most are going forward. This is not a time where industry-wide companies are no longer exploring or developing projects. There are a lot of opportunities for mine financing in the next few years.
Financials.
Revenue was slightly lower in Q2 than the previous year. Net income was higher, with lower depletion and lower cost of good sold.
84 percent of FNV's revenue comes from North America. 63 percent of revenue was generated from Palmarejo, Goldstrike, Mine Waste Solutions, Sudbury Basin and Weyburn. Production at Goldstrike was still affected by continued maintenance and retrofitting, but there should be stronger performance in the second half as higher grade underground ore is mined. Palmarejo continued to be a strong performer.
Average gold prices for Q2 were up 7 percent from Q1/2011 and were up 14 percent for the first half of the year compared to H1/2011. This increase, but contribution from new acquisitions, led to a 13 percent increase in gold revenue for FNV for the first half of the year.
Platinum prices for Q2 declined by 16 percent. Palladium prices for Q2 declined by 17 percent.
Although FNV's costs have increased lately, the costs have been more than outweighed by a corresponding increase in revenue.
Due to lower commodity prices, FNV believes its revenue guidance for fiscal year 2012 will be at the low end of guidance. Guidance was revenue of $430 to $460 million.
The full transcript of the earnings conference call can be found on Seeking Alpha at the following link:
http://seekingalpha.com/article/801061-franco-nevada-s-ceo-discusses-q2-2012-results-earnings-call-transcript?part=single
Copyright 2012 Jaygo's Earnings Conference Call Summaries
This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.
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