CIBC ReportEQUITY RESEARCH
March 9, 2022 Earnings Update
FRANCO-NEVADA CORPORATION
In-line Fourth-quarter Results, Rising Prices Continue To
Benefit Energy Portfolio
Our Conclusion
Franco Nevada reported in-line fourth-quarter results, with EPS of $0.86 vs. consensus of $0.86 (CIBC $0.87) and Q4 revenue and EBITDA of $328M and $270M, respectively. Total GEOs, including energy, for the fourth quarter were ~183k, with ~139k GEOs sold from precious metals, compared to our estimate of 141k. Revenue from the energy portfolio exceed the company’s twice revised guidance of $195M-$205M, with a total of ~$210M for 2021, above our estimate of $200M. Our price target goes from C$240 to C$260.
Franco Nevada also provided 2022 guidance and a revised five-year outlook. Total GEO guidance, which now includes revenue from the energy portfolio, is expected to range between 680k and 740k GEOs, increasing to 765k-825k GEOs by 2026. The energy portfolio is expected to contribute 125k-145k GEOs in 2022, equivalent to $225M-$261M, above our estimate of $200M for 2022. The company guided to a slight decline in GEOs from precious metals in 2022, with guidance of 510k-550k (CIBC est. 556k) vs. 558k in 2021, reflecting lower contribution from Palmarejo and expected lower grades at Antamina and Antapaccacy. Despite slightly lower production from precious metals, which is consistent with producer guidance, FNV is well positioned to continue to benefit from rising commodity prices, and with limited exposure to inflation we expect to see continued strong cash flow generation.
Key Points
2022 Guidance: The company anticipates a slightly lower production profile for 2022 relative to 2021, with attributable GEOs expected to range between 680k and 740k GEOs (inclusive of energy revenue) compared to sales of 728k GEOs in 2021. Precious metals assets are expected to contribute 510k- 550k GEOs. FNV benefited from rising iron ore prices in 2021, contributing ~50k GEOs in 2021. The company has assumed $125/tonne 62% Fe benchmark iron ore prices for 2022, and expects production to range between 35k and 55k GEOs in 2022. The energy assets were significant contributors to Franco Nevada’s 2021 revenue (~16%) and are expected tocontinue to be a strong contributor in 2022. The 2022 guidance assumes a commodity price of $85/Bbl WTI and $3.75/Mcf Henry Hub, with production expected to range between 125k and 145k GEOs, an increase from the ~117k GEOs contributed in 2021.
Five-year Outlook: Production is forecast to grow to between 765k and
825k (inclusive of energy) by 2026, and assumes that Cobre Panama will
have expanded its mill throughput capacity to 100Mtpa per year during 2023, as well as the commencement of production at Salares Norte, Greenstone (Hardrock), Rosemont, Valentine Lake, and Eskay Creek, and continued deliveries from Sudbury through 2026.
Strong Balance Sheet: Franco Nevada generated $279M in operating cash flow during the fourth quarter, and ended 2021 with >$500M in cash and no debt, providing the company with $1.6B in available capital.