Franco-Nevada - Q2 2023
August 9, 2023
Transcript
Operator (participant)
Good morning, and welcome to Franco-Nevada Corporation's second quarter 2023 results conference call and webcast. This call is being recorded on August 9, 2023. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session, where you may ask a question through the phone line or webcast. If you are joining by webcast, you may submit a written question for the Q&A session at any time during this call by typing your question in the Q&A section of the webcast platform. If you require immediate assistance during the call, please press star zero for an operator. I would like to turn the conference over to your host, Candida Hayden, Senior Analyst, Investor Relations. Please go ahead.
Candida Hayden (Senior Analyst in Investor Relations)
Thank you, Sylvie. Good morning, everyone. Thank you for joining us today to discuss Franco-Nevada's second quarter 2023 results. Accompanying this call is a presentation which is available on our website at franco-nevada.com, where you will also find our full financial results. The presentation is also available to view on the webcast. During our call this morning, Paul Brink, President and CEO of Franco-Nevada, will provide introductory remarks, followed by Sandip Rana, Chief Financial Officer, who will provide a brief review of our results. This will be followed by a Q&A period. Our full executive team is available to answer any questions. Participants may submit questions by telephone or via the webcast. We would like to remind participants that some of today's commentary may contain forward-looking information. We refer you to our detailed cautionary note on slide two of this presentation.
I will now turn the call over to Paul Brink, President and CEO.
Paul Brink (CEO)
Thanks, Candida, and good morning. For Q2, our core assets returned to normal production, and deliveries at Cobre Panama and Antamina caught up from the disruptions in Q1. Revenue from our diversified assets was impacted by lower oil, gas, and iron ore prices compared to the relative highs of the prior year period. As a result, we expect total GEOs for the year to be at the low end of our guidance range. With the Cobre Panama CP100 expansion physically complete, we started to see the benefit of higher throughput for the quarter, and First Quantum expects to exit the year at the 100 million ton per annum throughput rate. Following public consultation, the refreshed concession contract was signed by the government and First Quantum and is expected to be presented before the National Assembly during the current sitting.
G Mining continues to do a tremendous job with the construction of the Tocantinzinho gold mine in Brazil. We've now funded $183 million of our total $250 million stream deposit, the project is on track for commercial production in the second half of 2024. The quarter saw first production from a couple of new mines, Argonaut's Magino mine in Ontario and Fortuna's mine in Côte d'Ivoire. Gold Fields expects first production from Salares Norte in Chile before year-end. We added a number of royalty interests during the period. In Chile, we acquired 2.64% gold royalty on Barrick's Pascua property. We also acquired a 0.5% NSR on Hochschild Mining's Volcan gold project, and we increased our holding on Lundin Mining's Caserones copper mine, so we now own a total 0.57% NSR on the mine.
In Canada, we acquired an additional 1.5% NSR on Marathon's Valentine Gold Project, and we now hold a total 3% NSR on the project. During the quarter, we entered an agreement to provide royalty financing to exploration stage companies in partnership with the EMX Royalty Corp. We have great respect for EMX's team of on-the-ground geologists, and they'll be responsible for sourcing the transactions. We were active with community contributions over the three months. We contributed to Sibanye-Stillwater's community initiative in Montana and to the I-80 Fund, which supports small businesses in rural northern Nevada. We also partnered with Perpetua Resources to build social capacity at the Stibnite Gold Project. Franco-Nevada is debt-free, it is growing its cash balances, and at the end of June, we had $2.3 billion in available capital. Our business development team is active.
For many operators and developers, royalty and stream financing is currently the lowest cost of available capital. With high rates, debt financing is expensive, and there's little depth in the market for new issue gold equity. With that, I'll hand the call over to Sandip.
Sandip Rana (CFO)
Thank you, Paul. Good morning, everyone. Our diverse portfolio continued to generate strong cash flows and high margins during second quarter 2023. Antamina and Cobre Panama returned to normal operations and were key contributors to the strong financial performance in the quarter. The remainder of our mining portfolio performed in line with our expectations. For the diversified assets, the retreat in iron ore and energy prices from 2022 did result in a reduction in diversified revenues and associated GEOs in second quarter 2023 compared to prior year. On slide four, we highlight the gold equivalent ounces sold for the last five quarters. Overall, GEOs sold for second quarter were 168,515, down from second quarter 2022.
For the quarter, precious metal GEOs were 132,033, up slightly from same quarter last year and up 19% from first quarter 2023. For the quarter, the largest contributors for precious metal GEOs were Antapaccay, Cobre Panama. At Antapaccay, GEOs delivered and sold were higher in the quarter compared to prior year. Following the temporary suspension of operations and constrained logistics experienced in Q1 2023, operations returned to normalized levels in March, resulting in significantly higher deliveries to Franco-Nevada, with 19,683 GEOs sold in the quarter, compared to just over 10,000 GEOs in Q2 2022. For Cobre Panama, operations ramped back up to full production following an interruption due to export restrictions in first quarter.
Together with the benefit of additional processing facilities related to the CP100 expansion project, we received strong deliveries from Cobre Panama with 36,650 GEOs sold in the quarter. Marigold and Tasiast were also strong contributors during the quarter due to mine sequencing and higher grades and recoveries, respectively. A few assets which performed below expectation were Antamina, Guadalupe, and Stillwater. For Antamina, we had lower GEOs sold than prior year as the operator was affected by a tropical cyclone that affected Peru's northern region in March 2023. This also affected production in April, which will impact our third quarter deliveries. At Guadalupe, the operator mined less ounces from lands covered by our stream, resulting in lower GEOs delivered and sold. At Stillwater, production was impacted by an incident that damaged shaft infrastructure in March 2023. This was remediated in April.
However, the decrease in GEOs compared to prior years also reflects a less favorable PGM to gold conversion ratio. Q2, 2023 saw continued volatility in commodity prices. Slide five shows the average commodity prices for Q2, 2023 and prior year. Precious metals did see an improvement year-over-year, with gold, silver, and platinum averaging higher. However, palladium, iron ore, and energy prices were down significantly. A large component of diversified GEOs and revenue is energy. Production has remained strong and was 25% higher on a BOE basis during the quarter. However, as seen on slide six, the bar charts highlight the retreat in oil and gas prices year-over-year. WTI averaged $73.78 a barrel in the second quarter, down 32% versus prior year. Natural gas averaged $2.32 per Mcf, down 69% versus prior year.
As a result, the sharp fall in energy prices impacted our GEOs sold, generated by our energy assets, which were 28,683 for the quarter, compared to 50,387 in Q2 2022. As you will recall, energy prices saw a sharp increase in 2021 and 2022 due to many factors, with the largest being geopolitical tension. Slide seven highlights our total revenue and Adjusted EBITDA amounts for the three months ended June 30, 2023 and 2022. Revenue and Adjusted EBITDA have decreased year-over-year. The decrease is the result of lower contribution from diversified assets, partially offset by better performance from precious metals. The company recorded $329.9 million in revenue in second quarter and $275.6 million in Adjusted EBITDA.
A margin of 83.5% was achieved. As you turn to slide eight, you'll see the key financial results for the company. As mentioned, GEOs and revenue were lower in the quarter compared to prior year. On the cost side, we had an increase in cost of sales, which is $47.1 million, compared to $45.5 million in Q2 2022. The largest component of this is the per ounce fixed cost we pay for stream ounces. We sold 102,785 stream ounces in the second quarter, compared to 98,163 a year ago. Depletion increased to $75.1 million versus $69.6 million a year ago. Depletion is based on actual mining GEOs sold and barrels of oil equivalent received from energy assets.
As we received higher GEOs from Antapaccay and Cobre Panama, which are higher per ounce depletion assets, this results in higher overall depletion expense. For second quarter 2023, adjusted net income was $182.9 million or $0.95 per share, compared to $195.8 million or $1.02 per share in prior year. Slide nine highlights the continued diversification of the portfolio. As shown, 79% of our Q2 2023 revenue was generated by precious metals. This compares to 69% in Q2 2022. The geographic revenue profile has revenue being sourced 89% from the Americas. With respect to asset diversification, Cobre Panama was again our largest revenue generator at 22% of total revenue for the quarter, followed by Antapaccay and Candelaria. The last chart highlights our operator diversity.
Our largest exposure to revenue being generated by any one operator is 22%, which is First Quantum, who operates Cobre Panama. Slide 10 illustrates the strength of our business model to generate high margins. On the slide, you can see that cost of sales has remained fairly consistent over the period shown. The amount of cost of sales will depend on the mix of royalty versus stream GEOs, including mining and energy. During second quarter 2023, the cash cost per GEO, which essentially cost of sales divided by gold equivalent ounces sold, was $280 per GEO. This compares to $238 per GEO in second quarter 2022. Corporate administration costs, including stock-based compensation, was less than 3% of revenue for the quarter.... The total can fluctuate quarter-over-quarter, but it's tended to average approximately $8 million each quarter historically.
In a rising commodity price environment, we expect to benefit fully, as we do not expect our cost structure to change significantly. Slide 11 summarizes the financial resources available to the company, when including our credit facility of $1 billion, total available capital at June 30th, 2023, is $2.3 billion. The company is debt-free. On slide 12, we reiterate our guidance for the year based upon updated commodity prices, as highlighted on the slide, and our expectations of production from our royalty and stream interest. For the second half of the year, we are maintaining our guidance range for total GEOs sold of 640,000-700,000. However, we expect to be at the low end of that range due to the conversion of non-gold revenue to GEOs, based on our revised commodity prices.
Now I'll pass it over to the operator, as we are happy to answer any questions.
Operator (participant)
Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touch-tone phone. You will then hear a three-tone prompt acknowledging your request. If you would like to withdraw from the question queue, please press star followed by two. If you are using a speakerphone, you will need to lift the handset before pressing any keys. Please go ahead and press star one now, if you have any questions. Your first question will be from Fahad Tariq at Credit Suisse. Please go ahead.
Fahad Tariq (Director and Senior Mining Analyst)
Hi, thanks for taking my question. As you think about the diversified commodity prices, so iron ore, energy prices being lower, does that in any way change what you're focusing on in your deal pipeline? I know in the past you've talked about countercyclical investing, I just wanted to kind of tie that in with how the commodity prices are moving. Thanks.
Paul Brink (CEO)
Thanks. You know, more, more the point is, as you say, we, we try to be opportunistic investors. Our focus is always on precious metals, but when we're investing in other commodities, we're, we're looking to get better entry points, that either needs to be, you know, based on lower commodity prices or at least that we can use lower longer-term prices in valuing the deal. So when, when you do have price weakness, that, that is an opportunity.
Fahad Tariq (Director and Senior Mining Analyst)
Okay. Then just on the balance sheet, just given the strength of the, the balance sheet, you know, $1.2 billion of cash, undrawn revolver, can you just walk us through maybe how you're thinking about just use of capital in the context of there aren't that many large deals out there? Just trying to think of, you know, how, how the balance sheet will be utilized. Thanks.
Sandip Rana (CFO)
I'm sure, Sandip here. Really, there's no, no change in strategy. Franco has always had a strong balance sheet, and we're happy having cash on the balance sheet. You know, obviously, dividend is important, but the number one priority is to deploy that capital to add assets. We know it's a cyclical business. There's times when our capital will be needed, and there's other times where we might not be as active. We're happy accumulating cash on the balance sheet, but the second most important thing is the dividend, which we intend to raise as we have done in the past.
Fahad Tariq (Director and Senior Mining Analyst)
Okay, great. Thank you.
Operator (participant)
Thank you. Next question will be from Joshua Wolfson at RBC Capital Markets. Please go ahead.
Joshua Wolfson (Research Analyst)
Yeah, thanks. On the global minimum tax, with the draft legislation out in Canada, I'm wondering if there's been any further clarity on what the potential impact is, and whether this is something that is expected to be affecting 2024 taxes paid?
Sandip Rana (CFO)
Yes, Joshua, no, no change. You know, as we said last quarter, the estimate is 3%-4% of our NAV based on GMT being implemented January 1st. No changes.
Joshua Wolfson (Research Analyst)
Okay. Then just to confirm, that, that is consistent with, I guess, the initial interpretations of the legislation?
Sandip Rana (CFO)
Yes, correct.
Joshua Wolfson (Research Analyst)
Okay, thanks. Then, speaking of, countercyclical investing, Fahad was asking, with the Pascua-Lama royalty purchase, you know, it's obviously a reasonably well-known asset, but a, a sort of a larger dollar value, I guess, for, for an option style, of royalty. I'm wondering if there's any, additional views, the company has on, on the potential there, or, or if this is, you know, just sort of a tuck-in long-term option, with no further interpretations, at least based on, on what we've heard from Barrick, over the last couple of years.
Paul Brink (CEO)
Joshua, it's the-- We think one of our competitive advantages, given the long-dated nature of our portfolio, is that we can buy some of these long-dated interests. We would like to do it, and, and what we found is, is great endowments are, are the ones that ultimately get developed, also the ones that get better over time. Pascua is certainly one of those, one, one of the best undeveloped gold deposits. I think you're right in, in thinking of it in a countercyclical sense. We've done this before. A great example was, was Detour, when, when Placer had built that mine, as an underground mine, had abandoned it, and, and, we were able to buy a royalty on it, in a sense, in the darkest days, ultimately, it became a very successful mine.
It's the way we like to think about these things. Pascua is a class of deposit that, you'll always have operators, looking to spend capital on it. It's in a good, secure jurisdiction. Our view is it gets developed over time, and I think will be a tremendous investment.
Joshua Wolfson (Research Analyst)
Great. Those are all my questions. Thank you.
Operator (participant)
Thank you. Next question will be from Heiko Ihle at H.C. Wainwright. Please go ahead. Heiko, please unmute your line.
Heiko Ihle (Managing Director and Senior Metals and Mining Analyst)
Oh, oh, sorry. Can you hear me now?
Sandip Rana (CFO)
Yes, we can hear you.
Heiko Ihle (Managing Director and Senior Metals and Mining Analyst)
Oh, hello, Paul. Hello, Sandip. Sorry about that. Yeah, I was on mute, as you correctly identified. I personally thought interest rates would be topping out or potentially even leveling off by now. Clearly, that hasn't really happened. I was curious what longer-term interest rate assumptions that you use in your models, given your future funding commitments and things like, you know, the expansion of underlying streams and, and also even for future acquisitions, please.
Paul Brink (CEO)
You know, I, I think in short, we, we, we're in the very fortunate position, we don't have any debt. The, you know, as rates go up, while many people are constrained, we're not. It really puts us in a position that, that I think we've got more latitude in our investments than, than many other people who are constrained by debt.
Heiko Ihle (Managing Director and Senior Metals and Mining Analyst)
I assume that, with, with commitments that you have in the future, you have some sort of internal models that you use to place yourself against your competition, no?
Paul Brink (CEO)
Yeah, we, we have our models, but, but as we don't have debt and, and, you know, typically we, we don't carry debt as a long-term source of financing. When we've had it, we've repaid it quickly. It doesn't factor heavily into our cost of capital.
Heiko Ihle (Managing Director and Senior Metals and Mining Analyst)
Fair enough. I think, I think we'll take this one offline. Then also, can you provide some color on your plant depletion year by year through 2027? I saw you had the longer term outlook in your presentation. Even just like a rough estimate by year.
Sandip Rana (CFO)
I, I don't have those numbers in front of me, Heiko. We can take that offline.
Heiko Ihle (Managing Director and Senior Metals and Mining Analyst)
Perfect. Then, last one I, I had, just looking at the remainder of the year, what assets do you think might make the biggest difference between, you know, plans for your outlook and what would actually come in? In other words, what do you think, is there anything that analysts should be looking at particularly closely?
Sandip Rana (CFO)
you know, I think we've reiterated our guidance. The ranges that we had provided, as part of our March guidance, I think we're comfortable that our core assets will achieve those targets, in which case, it results in us meeting our guidance levels in the second half of the year.
Heiko Ihle (Managing Director and Senior Metals and Mining Analyst)
Fair enough. I appreciate it. I'll, I'll give you guys a call back later.
Sandip Rana (CFO)
Okay. Thanks, Heiko.
Operator (participant)
Thank you. Next question will be from Cosmos Chiu at CIBC. Please go ahead.
Cosmos Chiu (Managing Director and Director of Precious Metals Equity Research)
Great. Thanks, Paul, Sandip, team. Maybe my first question is on your guidance as well. You know, Paul, as you mentioned, you're now targeting the lower end of your guidance range. You've kind of answered my question, but I just want to confirm. If I just look at your precious metals guidance, you're actually tracking pretty well. You know, the fact that you're targeting for total GEOs, the lower end, is that really just due to, you know, lower sort of diversified prices, energy prices, iron ore prices, or is that too simplistic of a way to look at it?
Sandip Rana (CFO)
No, Cosmos, you're, you're essentially correct. It's, you know, when we did our original guidance, the iron ore price we used was higher than what it's averaged thus far, in 2023 and what we're using going forward. Same with the energy prices, and so, the other side, gold price, is higher than what we had in our original guidance. You know, you get a, a double impact on converting the non-gold revenue to GEOs, and that's, that's essentially the reason for guiding to the lower end.
Cosmos Chiu (Managing Director and Director of Precious Metals Equity Research)
Perfect. Then, in terms of some of the corporate development here, you know, you talked about in your MD&A, the partnership with EMX Royalty. It's not new, but, you know, at least, or right now, I guess, you're putting a number to it. Joint acquisitions, not huge, $5.5 million, on your end. I guess my question is, what does, you know, each of the parties bring to the table? I kind of know the answer, but I just want to confirm. You know, could this lead to something that's bigger down the road, or is this really the niche in terms of you know, smaller, earlier stage royalties, you know, utilizing, say, the technical expertise of the EMX team?
Paul Brink (CEO)
Cosmos, a couple of things there. We know the team well. We like the team. Part of the DNA of our business is, you know, to keep on bidding on the smaller royalties where we see value. Our issue is how we prioritize our time. The team, most of the time, is engaged on bigger transactions. One of the great benefits for us in this transaction is, the EMX team is targeting these transactions. We pay a bit of a carry on the deal. Our capital being available, you know, means that they can approach parties with more capital to put to work. Those are the main elements of it.
You know, the overall strategy here is, and a bit to what I alluded to in, in the overall comment, capital really is constrained for the gold development sector, and particularly for the earlier stage exploration sector. So, we think we can profitably put dollars to work in, in an area that, that really needs the capital.
Cosmos Chiu (Managing Director and Director of Precious Metals Equity Research)
Yeah, that's good to hear. Maybe, maybe 1 last question, more, you know, asset specific here. Antucoya in the MD&A, you highlighted the exploration potential here at, I'm gonna butcher this, Coroccohuayco, so about 10 kilometers away from Antucoya. Could you, you know, maybe talk a bit more about that, in terms of timing, in terms of upside potential and, you know, what we could expect?
Paul Brink (CEO)
Cosmos, a bit of background on that property, and as you'll recall, the first mine on that property was Tintaya, mined by BHP. It was a skarn deposit. The second, Antucoya, is a porphyry deposit, so on a parallel trend. On that same trend as Tintaya is Corocoraico, another skarn deposit. Total metal value is about three-quarters of what's in Antucoya, but the grades are slightly higher. So it's a project that the Glencore has known about for quite some time. They've been looking at developing it. They've scoped it out as different iterations of underground and open pit and various proportions of that.
They are currently working on building social license with the communities, with a view that they, once they know that they've secured that, that they would look to push the project forward in terms of development. Don't have an exact timeline on, on when it might start contributing, but I think the way to think about it is, you know, that at least by the time Antucoya comes to an end, there is a replacement deposit, and so you'd see production continuing for a long period.
Cosmos Chiu (Managing Director and Director of Precious Metals Equity Research)
Great. Thanks, Paul, Sandip, and team, and clearly, your pronunciation is much better than mine, so I've got to take some lessons here. Thanks again.
Operator (participant)
Thank you. Next question will be from Martin Pradier at Veritas Investment Research. Please go ahead.
Martin Pradier (Investment Analyst)
Thank you. In terms of the volumes, I, I look at the Vale volumes that were down 11%, and I was expecting more. The question is why and what is the expectation going forward?
Sandip Rana (CFO)
Sorry, volumes related to which?
Martin Pradier (Investment Analyst)
Vale iron ore volumes.
Sandip Rana (CFO)
Oh, Vale.
Martin Pradier (Investment Analyst)
Not, not-
Sandip Rana (CFO)
Yes. Yes, so there was two components. One is, Vale. The production is usually lower in the first half of the year versus the second half of the year, so we've always guided 45% of our geos will be in the first six months and 55 in the second six months. But there was lower production at the, the mines themselves, and then with the lower iron ore price, resulted in lower revenue from Vale. When you convert to geos, at a higher gold price, it results in lower geos. There's a number of-
Martin Pradier (Investment Analyst)
No, I'm not talking GEOs. I'm talking simply if you, if you take the iron ore number-
Sandip Rana (CFO)
Yes.
Martin Pradier (Investment Analyst)
that's lower. It's 11% lower. And, my expectation is that they would produce more.
Sandip Rana (CFO)
The revenue number is, it's our best estimate at this time, right. We don't, we don't receive a number from Vale. We're making our best estimate. It could be a case of we'll be making an adjustment in Q3 based upon what the actual numbers come out from, from Vale.
Martin Pradier (Investment Analyst)
What is expectation going forward? Because that asset was supposed to grow, and it doesn't seem to be growing much.
Sandip Rana (CFO)
Yeah, they-- obviously, they've had production challenges, which hopefully get rectified, but they, they have a threshold in late 2024, early 2025, where our royalty there will kick in. For our, for Franco-Nevada, we do expect higher production from that royalty going forward, but that won't kick in till end of 2024.
Martin Pradier (Investment Analyst)
Okay. The tax was rather low, this, this, the tax rate was 13%, which is lower than, than what I expected. What should I expect in terms of tax for the year?
Sandip Rana (CFO)
The, the rate was lower because, it's a mix of where the, the income is earned, because we had higher stream ounces from Cobre Panama and Antucoya. Our Barbados subsidiary was a larger contribution of our, of our net income, which has resulted in a lower tax rate, and we had lower energy revenue, which comes out of the U.S. and Canada. Going forward, you know, we typically guide to about 15% effective tax rate.
Martin Pradier (Investment Analyst)
Okay, perfect. Thank you very much.
Operator (participant)
Thank you. Next question will be from Tanya Jakusconek at Scotiabank. Please go ahead.
Tanya Jakusconek (Managing Director and Senior Equity Analyst)
Yes, good morning, everyone. Thank you so much for taking my questions. Just wanted to follow up on Pascua Lama, if I could. Just wanted to know, does the royalty on the gold and copper cover all of Barrick's reserves and resources on the Chilean side?
Paul Brink (CEO)
Yes, Tanya, that's right. The royalty applies only to the Chilean side of the border, but it does cover all of the current resources on that side of the border. In fact, there's an area of interest that is broader than, you know, Barrick's property position itself.
Tanya Jakusconek (Managing Director and Senior Equity Analyst)
If I was to take about like, you know, go into Barrick's, reserves and resources and take 60%, 'cause I kindly, I, I remember it was about 60% of, of the asset that's on the Chilean side versus 40 on Argentina, would that be how you kind of viewed it when you paid your $75 million on it?
Paul Brink (CEO)
... Yeah, you'd have to look at Barrick's disclosure to try to form a view of, of resources on the, on the Chilean side. Our view was a bit higher than that. Our view was more like 80%. When we were looking at our economics, we were using closer to 80% of the resource on the Chilean side.
Tanya Jakusconek (Managing Director and Senior Equity Analyst)
Okay. All right. That helps. Thank you for that. Maybe just again, on the, on the, M&A front or transaction front, Paul, should we be surprised to see you do an energy and/or iron ore deal ahead of a gold deal right now because the price, because of where the prices are?
Paul Brink (CEO)
Tanya, you know, our preference is always to add more precious metal. We always say we're, we're, we're open to all commodities. It's, it's driven by good deposits. You shouldn't be surprised if you see an iron ore or an oil and gas deal. You should expect it would be on a great deposit.
Tanya Jakusconek (Managing Director and Senior Equity Analyst)
Okay. On all of these opportunities that you're looking at, are we still in that, you know, sub $500 million range? I'm just trying to still see whether we're in that. I think it was, like, $100 million-$350 million. I forget. On all of these that you're looking right now, is that the range I should be thinking about?
Paul Brink (CEO)
yes. Most of what we're looking at is a modest size, so you're accurate.
Tanya Jakusconek (Managing Director and Senior Equity Analyst)
100 to 300 area?
Paul Brink (CEO)
Yes.
Tanya Jakusconek (Managing Director and Senior Equity Analyst)
Okay, perfect. Then, Sandip, maybe if I could come to you to just ask about the year. So you've given us guidance that 55% of the production, obviously pricing, has an impact on the GEOs in that second half of the year. Oil and gas or the energy division to be lower in the second half. Is there anything on the gold side? Is it evenly distributed? I know Cobre Panama is ramping up. I just don't know what the timing of your sales. Should I be thinking even distribution on the gold side?
Sandip Rana (CFO)
At this stage, yes, Tanya, I'd, I'd expect Q3 and Q4 to be pretty similar. You know, even if Cobre Panama ramps up with a stronger Q4, there's other assets that will, you know, do better in Q3 than Q4. It's just, we don't have the exact detail by, by quarter, so I, I say essentially they'll be similar.
Tanya Jakusconek (Managing Director and Senior Equity Analyst)
Okay. Yep, that's it, from me. Thank you so much.
Operator (participant)
Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touchtone phone. Your next question will be from Brian MacArthur at Raymond James. Please go ahead.
Brian MacArthur (Managing Director and Senior Equity Analyst)
Hi, good morning, and thank you for taking my question. Just following up on Pascua. Can I ask whether the copper royalty came with the gold royalty? I guess where I'm going with this is whether you paid very much for the copper royalties. It said it was bought from different individuals. Really the question then is, do you see something different at Pascua, where we'd be getting copper going forward, or, or was most of the bid price based, assuming on the 2.7% NSR gold?
Paul Brink (CEO)
Yeah. Hi, Brian. The, the royalty that we bought was primarily based on the value in the gold, so the 2.7% NSR at today's gold prices. The, the copper, the small copper royalty came attached to that. We did buy it through different sellers, but each royalty had gold and copper in it. The, the copper was more a tag along. We don't see as much value in the copper royalty at this stage.
Brian MacArthur (Managing Director and Senior Equity Analyst)
Great. That's what I thought. The second part, you talked about it being a sliding scale, and you give us about $800. There were some ones around on the property, if I remember, that were scaled pretty aggressively. Is, is it still like, can I assume it's just 2.7% above 800, even if the gold price goes to, like, many times that, and the sliding scale part is on the lower end? Or is there a function as we ramp up through certain higher prices, that you get an extra kicker?
Paul Brink (CEO)
The sliding scale tops out at $800 an ounce. You know, at today's prices, anything above $800 an ounce, it's 2.7%. We would obviously just get the benefit of the higher gold price in that scenario.
Brian MacArthur (Managing Director and Senior Equity Analyst)
Great. Thank you very much.
Operator (participant)
Thank you. At this time, we have no other questions registered. Please proceed with any closing remarks or Q&A on the web.
Candida Hayden (Senior Analyst in Investor Relations)
Thank you, Sylvie. There are no questions on the webcast. This concludes our second quarter 2023 results conference call and webcast. We expect to release our third quarter 2023 results after market close on November eighth, with a conference call held the following morning. Thank you for your interest in Franco-Nevada.
Operator (participant)
Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending, and at this time, we ask that you please disconnect your lines.