Franco-Nevada - Q4 2023
March 6, 2024
Transcript
Operator (participant)
Good morning, and welcome to Franco-Nevada Corporation's 2023 Year-end Results Conference Call and Webcast. This call is being recorded on 6 March, 2024. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a Q&A 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 this call, please press star zero at any time for the operator. I would now like to turn the conference over to your host, Candida Hayden, Senior Analyst in Investor Relations. Please go ahead.
Candida Hayden (Senior Analyst, Investor Relations)
Thank you, Laura. Good morning, everyone. Thank you for joining us today to discuss Franco-Nevada's year-end 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, and we refer you to our detailed cautionary note on slide two of this presentation.
I will now turn over the call to Paul Brink, President and CEO of Franco-Nevada.
Paul Brink (President and CEO)
Thank you, Candida, and good morning. Our diversified top-line business has a history of generating leading returns, but in late 2023, we were challenged by the unprecedented production halt at Cobre Panama. We're hopeful that the issues can be resolved, although we've taken a prudent approach to the carrying value of the asset. Despite the issues at Cobre Panama, our business remains robust. We finished the year with no debt and $1.4 billion in cash. Balance of our long-duration business still generates industry-leading cash flow. Top-line business model is fortunately not impacted by industry cost inflation, and in 2023, we generated an 83% adjusted EBITDA margin. During the year, we added a number of attractive royalty interests, principally on gold mines and projects in Canada, Chile, Australia, and the US.
Drop in U.S. natural gas prices also allowed us to add to our natural gas royalty interests. Shareholders depend on us to allocate capital to operations that treat the environment and their host communities responsibly. Work has resulted in top-level ratings from the ESG agencies. Notably, we're top-ranked in the gold sector and in the broader precious metal sector by Sustainalytics for 2024. Our objective is to have a sustainable and progressive dividend that's dependable even in volatile times. In 2024, our board were proud to increase our dividend for the seventeenth consecutive year. Investors from our IPO are now achieving a 9.4 yield in U.S. dollars or a 12.9% yield in Canadian dollars. Growth outlook for the balance of our business is strong over the next five years. Great assets keep getting better.
Antamina has just sanctioned a capital program that will increase production. Candelaria is considering an underground expansion, and Agnico Eagle is planning to add underground production to Detour to expand output up to 1 million ounces per year. An exciting period of new mine builds. We're looking forward to new contributions from Tocantinzinho, Greenstone, and Salares Norte, amongst others, that will drive our organic growth through 2028. This outlook is good certainty. Two-thirds of the production is already under construction. $2.4 billion in capital we have available positions us well to add further assets. Cobre Panama represented roughly 20% of our revenue, and the production halt has seen more than that proportional reduction in our market cap. Prospect of Cobre restarting or an arbitration settlement are all upside optionality from these trading levels. In summary, the outlook for our business is bright.
Our strategy of maintaining a strong balance sheet has never been more relevant, giving us a large treasury to grow the business at a time when capital for the industry is otherwise scarce. Now, I hand the call over to Sandy.
Sandip Rana (CFO)
Thank you, Paul. Good morning, everyone. I will begin with slide 4, which shows how the company performed against the guidance that was issued for 2023. The updated guidance provided by the company for last year was 620,000-640,000 total GEOs sold. Of this total, we guided to 480,000-500,000 precious metal GEOs, with the balance being from diversified assets. The company ended the year with 627,045 GEOs sold, well within the guidance range. We're also within the guidance range for precious metals, with 488,189 GEOs sold. The diversified assets, which include our non-precious metal mining assets and energy assets, resulted in just under 140,000 GEOs sold for the year.
Before I get further into the financial results, I wanted to speak about Cobre Panama. Turning to slide five. Cobre Panama is Franco-Nevada's largest investment and has generated approximately 20% of revenue. Before the halt in production, the mine was operating very well, having successfully completed its expansion to 100 million tons per year. We were delivered 28,318 GEOs during Q4, and just shy of 129,000 GEOs for the full year. However, as previously disclosed, Cobre Panama has been in preservation and safe management, with production halted since November 2023. On November 28, 2023, following protests and President Cortizo's call for a mining moratorium, the Supreme Court of Justice of Panama released its ruling, declaring Law 406 unconstitutional.
In light of these events, we carried out an impairment assessment of our Cobre Panama streams at December 31, 2023. The recording of impairments is a judgment made by management based on available information at a point in time, which are used to determine the accounting treatment. We took a prudent approach in our judgment of the facts and circumstances, and based on the halting of production and the political environment surrounding the ruling by the Supreme Court, as well as the significant share price impact, we determined the recoverable amount under applicable accounting standards to be nil as at December 31, 2023. As a result, we recognized a full non-cash impairment loss of approximately $1.2 billion. As previously disclosed, we have provided a notice of intent to commence arbitration against the State of Panama.
While we believe in the strength of our claims, the potential proceeds from the arbitration were not reflected in our impairment valuation. Our streams on Cobre Panama remain valid, and we are hopeful of a resolution between First Quantum and the State of Panama, and a restart of the mine, at which time our deliveries would restart. In this situation, we would assess the recoverable amount of Cobre Panama streams at that point in time, which may lead to a reversal of part or all of the impairment loss we recognized. Moving on to the financial performance for the quarter. On slide six, we highlight the gold equivalent ounces sold for the last five quarters, as well as the last five years.
Total GEOs sold were lower when compared to prior year, with Q4 2023 GEOs sold being 152,351, compared to 183,886 in Q4 2022. Of this, precious metal GEOs were 119,581, down approximately 8% from prior year. For the quarter, the largest contributors to the lower precious metal GEOs were Cobre Panama, due to the halt in production as mentioned, Stillwater, which was due to the impact of converting weaker platinum palladium revenue to GEOs, and Candelaria, which had lower production during the quarter. The lower GEOs from these assets was partially offset by stronger production from both Antamina and MWS, both of which had very strong Q4.
Precious metal geos represented 79% of total geos for the quarter, and 78% for the full year. For diversified geos, our Vale royalty resulted in an increase in geos for the quarter compared to prior, due to higher iron ore prices. As you know, each quarter we make an estimate of what the royalty will be, with the actual amount being announced by Vale in late March and September each year. As a result, you will see adjustments to our accruals twice a year, in Q1 and Q3 each year. Energy geos were significantly lower at 25,600 geos for Q4, compared to 47,713 a year ago. This was the result of lower energy prices, natural gas in particular. 2023 saw continued volatility in commodity prices.
As you can see on slide seven, gold and silver prices were higher for the quarter and year, with gold higher by over 14% for the quarter and almost 8% for the year. Palladium prices were significantly lower year-over-year, which did negatively impact conversion of PGM revenues to GEOs. Energy prices were weaker in 2023, coming off multi-year highs from 2022. Slide eight highlights our total revenue and adjusted EBITDA amounts for the last five quarters. As you can see from the bar charts, revenue and adjusted EBITDA has decreased slightly Q4 2023 compared to prior year. The company reported $303.3 million in revenue during the quarter, and $254.6 million in adjusted EBITDA. A margin of 83.9% was achieved for the quarter.
As you turn to slide nine, you will see the key financial results for the company. As mentioned, total GEOs were 627,045, generating $1.2 billion in revenue. On the cost side, we did have a slight decrease in cost of sales compared to Q4 2022, due to lower energy costs. Also, cost of sales is dependent on which assets deliver stream ounces, as not all fixed payments per stream ounces are equal. Depletion decreased to $68.9 million versus $73.5 million a year ago. Depletion is based on actual mining GEOs sold and barrels of oil equivalent received on the energy side of the business. As we received less GEOs from Cobre Panama, Antamina, and Candelaria, this impacted depletion, as those assets are higher per ounce depletion assets.
We did record a net loss for the quarter of $982.5 million or $5.11 per share, due to the impairment recorded on Cobre Panama. This compares to net income of $165 million or $0.86 per share in the prior year. However, adjusted net income was $172.9 million or $0.90 per share for the quarter, up 5% and 5.8% respectively versus prior year.... Slide 10 highlights the continued diversification of the portfolio. From the charts, you can see that 78% of our full year, 2023 revenue was generated by precious metals, with revenue being sourced 88% from the Americas, with Canada and the United States being the largest. Slide 11 illustrates the strength of our business model to generate high margins.
For 2023, the cash cost per GEO, which is essentially cost of sales divided by gold equivalent ounces sold, is $286 per GEO. This compares to $242 per GEO in 2022. This amount will fluctuate depending on the mix of royalty versus stream GEOs, including mining and energy. But as you can see, at current average gold prices, the company generates significant margins. Margin was over $1,600 per ounce in 2023. In a rising commodity price environment, we expect to benefit fully as the cost per GEO sold should not increase significantly. We consider our cost structure to essentially be fixed. The other cost component for the company, besides the cost of sales, is our corporate administration cost. The royalty streaming business model is a scalable model.
Our corporate administration costs have increased at a much lower rate than our revenue. Revenue has increased eightfold from 2008, while corporate admin cost has less than doubled over the same period. Management believes we can continue to add to our portfolio and grow our business without adding significant overhead to the company. With respect to guidance going forward, please refer to slide 13. For 2024, we are guiding to total GEOs sold of between 480,000 to 540,000 GEOs sold. Of this total GEOs, we are guiding to 360,000 to 400,000 precious metals GEOs for the year. The balance would be GEOs from our diversified assets, of which we expect energy to account for about 75% for 2024.
Please note that for all guidance ranges, we have excluded Cobre Panama in our GEOs sold numbers. Had Cobre Panama remained in production, we would have expected deliveries and sales of between 130,000-150,000 GEOs annually. The overall main drivers for GEOs year-over-year are: for precious metals, we will benefit from initial ounces from new mines being completed in 2024, Tocantinzinho, Greenstone, Mara Rosa, and Salares Norte. We will have full year deliveries for Magino and Séguéla, and we expect an increase in GEOs from Candelaria based on the guidance from the operator. However, we are anticipating lower production at Antapaccay, based on the mine plan for lower grades.
Our guidance has been calculated using $1,950 per ounce gold, $22.50 for silver, $850 for platinum, $900 palladium, and $115 per ton, 62% iron ore. Obviously, prices are volatile, and as they change, it will impact the conversion of non-gold commodities to GEOs. Also, please note that we expect to reach our GEO cap at MWS by the end of 2024. On the energy side, we are using a price of $75 per barrel WTI and $2.50 Mcf natural gas. This provides a range of 85,000-105,000 GEOs from our energy assets. As we look forward over the next few years, we do forecast 2026 as the current high for GEO sold, based upon what we know today.
Thereafter, we will have the step down for Candelaria in 2027 and then Antapaccay in 2028. Our outlook for 2028 is 540,000-600,000 GEOs sold. Of this range, precious metals will be 385,000-425,000 GEOs. Main contributors will be higher production from Antamina and Guadalupe, based on latest mine plans. New mine starts from Valentine Gold, Stibnite Gold, Eskay Creek, and Castle Mountain, Phase Two. For diversified GEOs, we do expect an increase in GEOs from our Vale royalty, as attributable production should increase with the royalty on the southeastern system becoming payable. For the energy assets, we do assume an increase in production over the next five years, resulting in increase in GEOs.
Also, we have held energy prices flat at $75 a barrel WTI and $2.50 Mcf natural gas for the period. Overall, when you look at the outlook for GEOs sold, the company has approximately 15% built in organic growth from 2023 to 2028 at budgeted commodity prices, excluding Cobre Panama. This also assumes that no additional assets are added to the portfolio. Two additional items to note. With the legal proceedings that we will move forward related to Cobre Panama, we are expecting to incur annual costs of between $10 million-$15 million per year. These costs will be disclosed separately in our financials going forward. And with the proposed implementation of the Global Minimum Tax sometime in 2024, we are projecting that our effective tax rate will increase to approximately 18%-19% going forward.
The Global Minimum Tax will be retroactive to January 1, 2024. The effective tax rate will fluctuate based on the jurisdictions that generate taxable income. Lastly, slide 14 summarizes the financial resources available to the company when including our credit facility of $1 billion. Total available capital at December 31, 2023, is $2.4 billion. Now I'll pass it over to Laura, and we are happy to answer any questions.
Operator (participant)
... Of course. Thank you. During this Q&A session, if you would like to ask a question, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by the number two. If you are joining us on the webcast, please submit your questions through the Q&A section of the webcast platform. Our first question comes from the line of Josh Wolfson from RBC Capital Markets. Please go ahead.
Josh Wolfson (Managing Director and Head of Global Mining Research)
Yeah, thanks very much. First question, just on the long-term guidance. You know, the structure of the deals the company has signed for a lot of its cornerstone assets incorporates these step downs, which, you know, two of which I guess are coming into play here for the five-year guidance. When you look at the outlook for growth and the replacement of some of this production, you know, how do you sort of factor these step downs into the timing of deals? Or is there any motivation to sort of structure these deals so there's consistent growth on a year-over-year basis, longer term?
Paul Brink (President and CEO)
Josh, it's Paul. You know, at the time we do the deals, it's more looking at what the reserves are and what you're confident will be mined over time, and making sure that we get a minimum return or a minimum estimated return based on that. And then also sizing the long term of the deal so that you've got an acceptable burden on the assets, that you're gonna maximize the optionality. So it really is deal by deal, that you're trying to strike that balance. You know, obviously, it's a negotiation. We would love to push that out further in time, but you see what you can achieve on each transaction.
Josh Wolfson (Managing Director and Head of Global Mining Research)
Okay. And then on Cobre, my understanding is there is some volume of concentrate on site that could potentially be sold down. Has this already been recorded at all in terms of value, I guess, for Franco? And if there was any concentrate sales, would that register as production to Franco this year?
Sandip Rana (CFO)
So Josh, since the concentrate has not yet been shipped, no deliveries have been made to Franco for our share of the gold and silver there. You know, under our agreement, we are entitled to deliveries of gold and silver based on that concentrate.
Josh Wolfson (Managing Director and Head of Global Mining Research)
Okay. And then last question, again, on Cobre. The $5 billion damages value, just so I understand, this is a separate case that would be in addition to the First Quantum arbitration for $20 billion?
Paul Brink (President and CEO)
It is in addition, yes. So we're both pursuing independent arbitrations. So the two numbers are active.
Josh Wolfson (Managing Director and Head of Global Mining Research)
Okay. And then under the stream agreement, Franco would be entitled as well to the proportional share for that $20 billion, and I hope it doesn't come to that situation. But is that my understanding still correct there?
Paul Brink (President and CEO)
So, I mean, that was the one approach that we could have taken, was just First Quantum pursued, and then we get a share of the proceeds. The approach that we've agreed to take between us is that we would each independently pursue it. You know, assuming we're both successful, that we wouldn't share on their side as well.
Josh Wolfson (Managing Director and Head of Global Mining Research)
Okay, thank you very much.
Operator (participant)
Our next question comes from the line of Lawson Winder from Bank of America Securities. Please go ahead.
Lawson Winder (Senior Equity Research Analyst)
Thank you very much, operator. And hello, everybody, and thank you for the call today. I wanted to ask about Cobre Panama as well. How much of the upfront between the two streams, the KORES and the First Quantum stream, has been paid back up to today and before any potential concentrate sales?
Sandip Rana (CFO)
It's roughly half, Lawson. You know, off the top of my head, it's close to about $700 million.
Lawson Winder (Senior Equity Research Analyst)
Okay, perfect. And then sometimes with these agreements, there's these partner guarantees, where any sort of like outstanding upfront that hasn't been paid back in the event of mine closure, the operator then would be on the hook for that. Is that a feature of this agreement?
Sandip Rana (CFO)
Yes, it is. There is an uncredited balance. So as I said, you know, of the $1.35 that we invested, we've received around half of that back. The remainder is an uncredited balance that we would be entitled to at the end of the contract.
Lawson Winder (Senior Equity Research Analyst)
Will you be seeking that now that you've written the asset down to nil? Will you be seeking that now going forward from First Quantum?
Sandip Rana (CFO)
Not at this time. You know, we want the, the contract to remain valid and, you know, we're hopeful of a restart, at which time, you know, the mine resumes production, and we receive our deliveries.
Lawson Winder (Senior Equity Research Analyst)
Okay, perfect. I also wanted to ask about Palmarejo. Which mine plan are you assuming? Are you assuming a reserve-only mine plan, or is there some resources in the mine plan that you've assumed with those GEOs?
Sandip Rana (CFO)
Reserves and resources based on a mine plan that the operators provided to us.
Lawson Winder (Senior Equity Research Analyst)
So would that reflect their most recent technical report?
Sandip Rana (CFO)
I'd have to double-check.
Lawson Winder (Senior Equity Research Analyst)
Okay.
Sandip Rana (CFO)
information we've received.
Lawson Winder (Senior Equity Research Analyst)
Okay, fair enough. Thanks very much for that. I appreciate it. Good luck, guys.
Operator (participant)
Our next question comes from the line of Cosmos Chiu from CIBC. Please go ahead.
Cosmos Chiu (Managing Director, Precious Metals Equity Research)
Thanks, Paul and Sandip. If I can, if I can ask about the write-down at Cobre Panama.
... I just find it interesting that, when First Quantum reported about two weeks ago now, they didn't take a write-down. And on the other hand, yesterday night, you did take a write-down on Cobre, Cobre Panama. And I checked, you know, same auditors, PwC Toronto. So I'm just wondering about the different approach, and should we be at all concerned about the security that you have of your economic interest on the asset?
Sandip Rana (CFO)
You know, Cosmos, as I said, recording impairments is a management judgment. It's based on the information at that point in time, and based on the facts, we opted to be prudent and recorded an impairment. It does not question the validity of our stream agreement. Our stream agreement is in place, and if the mine does resume production, which we're hopeful that it does, we would look to reverse that impairment.
Cosmos Chiu (Managing Director, Precious Metals Equity Research)
Of course. Then, Sandip, as you mentioned earlier, there's $10 million-$15 million of ongoing costs annually. Could you maybe—What—Are those just legal costs? What kind of costs are they? And, could you maybe give us a bit more color?
Sandip Rana (CFO)
Sure. So as you know, we've, we have filed notice of arbitration with the State of Panama under the Canada-Panama Free Trade Agreement. You know, going forward, if this arbitration is pursued and the mine is not restarted, you know, you're basically having legal fees and other consulting fees associated with that arbitration. So we're, you know, under that scenario where this arbitration does actually proceed, that's our estimate right now on an annual basis.
Cosmos Chiu (Managing Director, Precious Metals Equity Research)
Mm-hmm. Of course. And then maybe one last question on 2024 guidance. As you mentioned, there's a number of assets coming on. In part, that's why it is growing year over year without Cobre Panama. Could you maybe talk about, is there any kind of lag between production and when Franco-Nevada receives, starts receiving a stream or a royalty payment on those assets? And how much, you know, conservatism, how much kind of lag have you factored in, just in case there's any kind of delay in the startup of some of these assets?
Sandip Rana (CFO)
You know, obviously, we're, we're basing our projections of what the operators or the, the developers have, you know, released publicly. But in terms of delays of receiving ounces, there shouldn't be, you know, Greenstone and is a royalty, as is Salares Norte. And then TZ is a, a stream where we should get deliveries, on a regular basis, so I, I don't anticipate any timing delays.
Cosmos Chiu (Managing Director, Precious Metals Equity Research)
Great. Those are all the questions I have. Thanks again for answering my questions. Thank you.
Operator (participant)
Our next question comes from the line of Tanya Jakusconek from Scotiabank. Please go ahead.
Tanya Jakusconek (Managing Director and Senior Equity Analyst)
Great. Good morning, everybody. Thank you for taking my questions. Just wanted to follow up on the write-down. So it appears, Sandip, from the how you answered the question for Cosmos, is that you guys decided that you wanted to take the write-down full amount, even before having any visibility on the new government. Is that a fair assumption?
Sandip Rana (CFO)
Yes. As I said, it's a management judgment based on information that's available to us, and that was the decision we made.
Tanya Jakusconek (Managing Director and Senior Equity Analyst)
So you wanted to go that route rather than take a little bit every quarter. Would that be a fair statement?
Sandip Rana (CFO)
That's a fair statement.
Tanya Jakusconek (Managing Director and Senior Equity Analyst)
Okay. Thank you for that. The $10 million-$15 million would be expensed in the income statement that we would put in for this year, assuming the mine comes back up next year?
Sandip Rana (CFO)
Correct. Yes. Yes.
Tanya Jakusconek (Managing Director and Senior Equity Analyst)
Thank-
Sandip Rana (CFO)
Those costs are if it doesn't restart.
Tanya Jakusconek (Managing Director and Senior Equity Analyst)
Yeah. And then just on the Global Minimum Tax, we did see that Barbados has implemented it, and you've given us a tax rate for the year. Is it safe to assume that so far, like, Q1 should have a lower tax rate, and then we would have a top up, like, back up to that 18%-19%, you know, sometime in 2024?
Sandip Rana (CFO)
So Barbados has not, you know, Barbados is, it's not substantively enacted. So for us, in Q1, we would have a lower tax rate until it actually is implemented in Canada. The key here is for Canada to implement the Global Minimum Tax, which then puts Barbados in effect, and then our tax rate would change.
Tanya Jakusconek (Managing Director and Senior Equity Analyst)
Okay, so let's assume this isn't done till mid-year. You'd go through two quarters at the lower tax rate, and then we'd go back up to the higher tax rate and potentially then have to go back to restate for Q1 and Q2.
Sandip Rana (CFO)
It wouldn't be restate. It would be a catch-up adjustment.
Tanya Jakusconek (Managing Director and Senior Equity Analyst)
Catch up, re- yeah. Okay. Thank you for that as well. And just on the guidance, if I could ask, I mean, we were a bit higher, about 1% higher from your midpoint, so I appreciate all the assets that are doing well, and we have all of those. You mentioned Antapaccay that is coming off. Are there any other assets, like, is a halt? I mean, we're always off on hold. Is there any other assets within the portfolio that you can help us understand what would be weaker this year versus last?
Sandip Rana (CFO)
You know, in our guidance, we've highlighted the material ones. Obviously, other assets, they're small movements, positive and negative, but I think we've highlighted the large, large movers.
Tanya Jakusconek (Managing Director and Senior Equity Analyst)
Okay. We'll take... And it's fair to assume that it's, you know, as you look at your year and second half, weighted with the better, you know, you know, coming on with some of these, you know, Tocantinzinhos and Salares Nortes, et cetera.
Sandip Rana (CFO)
That is correct.
Tanya Jakusconek (Managing Director and Senior Equity Analyst)
... And then if I could ask on just the natural gas acquisition that you did, is there any guidance that can be provided on these royalties or contribution and, or other? Like, is there anything you can help us with on that?
Jason O'Connell (SVP, Diversified)
Yeah. Hi, Tanya. It's Jason here. So yeah, you'll have noted that acquisition at the end of last year was $125 million that we spent on assets in the Haynesville. They're a complementary set of assets to what we already own in Haynesville. In terms of contribution, I guess what we could tell you is last year, on an annualized basis, the royalties that we acquired generated about 6.5 million Mcf. And so depending on your gas price, so if you had a $2.50 gas price, that would be a little over $16 million in revenue. There are some deductions and costs associated with that, so you'd have to deduct those, but that's a rough guide as to how the assets performed last year.
We would expect volumes to be sort of in a similar range this year, although they do depend on drilling activity, and operators have been a little bit more conservative in their drilling activity or drilling pace, so far this year. But that, that's sort of a rough, rough estimate.
Tanya Jakusconek (Managing Director and Senior Equity Analyst)
Okay, so somewhere in that, if we were to be conservative, $10 million-$15 million for 2024 and into the 2028, we would be somewhere in there on the revenue line?
Jason O'Connell (SVP, Diversified)
Yeah, I think that's a reasonable estimate. And, yeah, our best guess in terms of, you know, five-year guidance would be similar to the coming year.
Tanya Jakusconek (Managing Director and Senior Equity Analyst)
Okay, perfect. And then just lastly, maybe someone can just address some of the M&A opportunities out there. I would assume, and maybe you can correct me if I'm wrong, that the focus will shift back to precious metals, or maybe someone can just tell me how you're looking at transactions right now from either, you know, commodity base, you know, producers versus developers, helping on the funding of these, you know, assets potentially for sale from Newmont and, or maybe corporate transactions. So and size-wise, that would be very helpful. Thank you.
Euan Gray (SVP, Business Development)
Thank you for the question, Tanya. It's Euan speaking. I think those are very astute observations. I'd say we're spending the majority of our time on precious metals first off, but we do look at other commodities, and increasingly I think we see a lot of opportunity there. So, you know, coming out of the last couple weeks of conferences, you know, we see good opportunities kind of across commodities, but we are spending majority of our time on precious metals. In terms of the types of transactions, I would say there's certainly a bent towards project finance getting things constructed. But M&A finance, of course, is also pretty near the front of the pack in terms of potential transactions, so looking at that carefully as well.
Tanya Jakusconek (Managing Director and Senior Equity Analyst)
Would it be fair to assume from what you said, that you're looking at project financing, you know, to help fund that, but also corporate transactions from an M&A standpoint?
Euan Gray (SVP, Business Development)
Yes. Yes, certainly both. I'd say in terms of volume, though, there's more project financings than acquisition financings, in terms of the pipeline.
Tanya Jakusconek (Managing Director and Senior Equity Analyst)
Size-wise, Euan, if I could, what you're seeing out there?
Euan Gray (SVP, Business Development)
I don't think it's changed much since we last spoke. Probably more towards the kind of medium size, you know, $200 million-$300 million is, you know, I would say, the typical kind of size of those transactions. There are some smaller. We don't mind doing some of the smaller transactions if they give us good torque on resource, but that's the general kind of medium size.
Tanya Jakusconek (Managing Director and Senior Equity Analyst)
Thank you so much, and thank you for taking all my questions. I could go on, but I should leave a chance for someone else to ask. Thank you.
Euan Gray (SVP, Business Development)
Thanks, Tanya.
Operator (participant)
Our next question comes from the line of Martin Pradier from Veritas. Please go ahead.
Martin Pradier (Equity Research Analyst)
Yes, thank you. My first question is, in terms of the arbitration, is there any legally established time for the arbitration to take time? I mean, is it like two years, one year, or there's no limit, so on how long this can go on?
Lloyd Hong (Chief Legal Officer & Corporate Secretary)
Hi, Martin. It's Lloyd Hong. There is no sort of prescribed timeline for these things. As a general rule, I think you should probably expect that if it does go to conclusion, it will take several years.
Martin Pradier (Equity Research Analyst)
The second question would be, how enforceable will an arbitration be? Because these things, like other countries, had, you know, legal rulings against them, and people will never be able to enforce it.
Lloyd Hong (Chief Legal Officer & Corporate Secretary)
Yeah, so in terms of the recognition of the award, pursuant to international conventions, I mean, it would be treated as if it were a final judgment of the highest court of any given country that's a party to that convention. Collection following that is something that would have to be pursued.
Martin Pradier (Equity Research Analyst)
In terms of Condestable, can you provide some guidance, what you expect on that mine?
Speaker 14
So Condestable, there's a minimum delivery in place. It's roughly 11,000 GEOs a year. But I can call you afterwards to give you the specifics.
Martin Pradier (Equity Research Analyst)
Perfect. Thank you.
Operator (participant)
Our next question comes from the line of Jackie Przybylowski from BMO. Please go ahead.
Jackie Przybylowski (Managing Director, Metals & Mining Equity Research)
... Thanks very much for taking my question. I wanted to ask you about your arbitration claim. The amount that you disclosed, the $5 billion, it just seemed like it was higher than I guess than what we would have expected in terms of in terms of the amount that that you know would be owed to you in arbitration for Cobre Panama. I was wondering if you might just be able to walk us through how you arrived at that number and sort of what that represents to Franco-Nevada.
Paul Brink (President and CEO)
Jackie, it's Paul. You know, so under the Canada-Panama trade agreement, in terms of our claim and what we've got a right to recover is, I think it's the wording is full reparations, full amount, full amount of the damages suffered. So there are a number of ways that you get to that in terms of calculating the value of the asset that within our company. One of those measures is, you know, any loss of market valuation. That, for us, is a minimum of $5 billion. But we expect the... As we work through the details, we'll finalize what that number is, but I expect it, it'll be well supported by the valuation for the asset and would be a minimum of $5 billion.
Jackie Przybylowski (Managing Director, Metals & Mining Equity Research)
That's, that's super helpful. I hadn't, I hadn't factored that in, so thank you for for clarifying that. And maybe, maybe just one other question. This is probably unlikely, but I'm gonna ask anyways. Is, is there any recourse to to you if if you don't collect on arbitration or if your arbitration doesn't doesn't conclude favorably? Is there any other recourse to you? Could you or would you, you know, put a direct lawsuit against First Quantum? Is that something that's available, or would you consider that?
Paul Brink (President and CEO)
We haven't considered that, Jackie. You know, in terms of the plans, yeah, plan A is a negotiated solution to get the mine restarted. Plan B would be the arbitration.
Jackie Przybylowski (Managing Director, Metals & Mining Equity Research)
All right. Thank you very much. All my other questions have been answered, so thanks, thanks. That's all for me. Thanks.
Operator (participant)
Our next question comes from the line of Greg Barnes from TD. Please go ahead.
Greg Barnes (Managing Director, Head of Mining Equity Research)
Yes, thank you, Candida. I'm gonna apologize. I'm gonna ask about the impairment as well. Are there any tax issues that went into you deciding to take the impairment now? It just seems rather early. And what other factors maybe went into your thinking, given it's a management's decision?
Euan Gray (SVP, Business Development)
Hey, Greg. No, tax had nothing to do with it. You know, as I've said, it's a management judgment based on the impact on our share price, based on the Supreme Court decision, based on the mine being halted. All triggers in our analysis of recording an impairment and that is, you know, we try to be prudent, and that's this decision that management made.
Greg Barnes (Managing Director, Head of Mining Equity Research)
Okay. Okay, fair enough. So I would think the share price reaction may have been one of the biggest factors in that decision?
Euan Gray (SVP, Business Development)
It was part of it.
Greg Barnes (Managing Director, Head of Mining Equity Research)
Okay, that's it for me.
Operator (participant)
We have a follow-up question coming from the line of Martin Pradier from Veritas. Please go ahead.
Martin Pradier (Equity Research Analyst)
Yes, just one question about the end credit balance, that you could have some recourse against First Quantum, if I understood correctly, that you could probably go for, like, $650 million, if my math is correct. But that, you didn't account for any of that when you did your impairment?
Euan Gray (SVP, Business Development)
Correct. We did not factor that into our analysis.
Martin Pradier (Equity Research Analyst)
But it's a potential course of action?
Euan Gray (SVP, Business Development)
It is, yes.
Martin Pradier (Equity Research Analyst)
Okay, thanks.
Paul Brink (President and CEO)
Well, you know, as Euan said, it's not the current plan. We're very hopeful that there is the potential for a restart, so we wouldn't want to make the contract to make that claim. We'd rather keep it open, and we're hopeful for success.
Martin Pradier (Equity Research Analyst)
Perfect. Thank you very much.
Operator (participant)
We have a follow-up question coming from the line of Lawson Winder from Bank of America Securities. Please go ahead.
Lawson Winder (Senior Equity Research Analyst)
Hi. Thanks, operator, and thank you guys for taking the question again. I just wanted to follow up on the discussion around deal flow and ask whether or not you're seeing any deal flow in terms of transactions where there's a balance sheet repair element. I mean, obviously, you know, those were some of the biggest transactions you guys have done. And are you seeing any signs of those in your discussions? Thanks very much.
Euan Gray (SVP, Business Development)
Hi, Lawson, it's Euan again. Yes is the short answer. We do have some of those that we're currently looking at. They do make up part of our, you know, typical deal flow. With higher interest rates, I think, you know, continuing that is likely to remain part of what we do over the next little while.
Lawson Winder (Senior Equity Research Analyst)
So those, when you discuss the various sizes of those transactions, would that fall into that sort of, you know, like lower hundreds of millions of dollars ranges, or some of those, you know, getting bigger, like they had been in sort of the 2015-2017 period?
Euan Gray (SVP, Business Development)
It, it varies. There are, there are some out there that would be meaningfully larger. As I said, that was kind of the median, size of, of what we're looking at. And there are some that are, are smaller, that still fall into that category.
Lawson Winder (Senior Equity Research Analyst)
Okay. Well, that's intriguing. Thank you very much.
Paul Brink (President and CEO)
There are a couple of things driving it there, and the one is the cost of debt. You know, people who've got debt and rates are high and struggling to repay that. The other area is the availability of equity. And so there are folks where they were hoping to, you know, raise the next set of funds to advance their projects, you know, to feasibility or do the next stage of economic study, and they're just not able to get that money in the equity market. So the industry is feeling a squeeze, and so, you know, as I characterize the portfolio, it's very active right now because of the need for capital.
Euan Gray (SVP, Business Development)
Thanks, Paul. Thanks, Euan.
Operator (participant)
There are no further questions on the phone line. I will now turn the Q&A session over to Candida Hayden, who will take questions from the webcast.
Candida Hayden (Senior Analyst, Investor Relations)
Thank you, Laura. Our first question comes from Michael Fine of Investing for Retirees. What have you learned from the Cobre Panama experience, and how are you applying that to your business strategy?
Paul Brink (President and CEO)
So Michael, it's Paul. We didn't at the time anticipated the political risk in Panama. Part of that is the world has changed. In terms of what went, you know, what went on, we see how, you know, despite having a government that was supportive of the mine and renegotiating contracts with the company, there was a populist uprising that has caused these issues. So as we look at countries going forward, that is the new world we're in, and we've got to take that into account.
Candida Hayden (Senior Analyst, Investor Relations)
Our next question is from Björn Wiklander from Sweden. How is the current market environment in finding new high-quality streams and royalties, and how is the competition for the opportunities?
Euan Gray (SVP, Business Development)
Thank you for the question. I think we covered a lot of that with Tanya's and Lawson's question. I would say competition remains, you know, relatively vigorous. That said, you know, I think we're benefiting significantly from our strong liquidity and cash flow position vis-à-vis some of our peers. Larger balance sheet helps us compete on a number of transactions, and also we've demonstrated, I think, in a number of cases, that we're a partner of choice, as people look towards project financing, that we can offer a unique and very helpful solution, as you saw with the Tocantinzinho transaction. You know, that was very well conceived and I think received by the market.
Candida Hayden (Senior Analyst, Investor Relations)
Thank you, Euan. There are no further questions from the webcast. This concludes our 2023 results, year-end results conference call and webcast. We expect to release our Q1 2024 results after market close on May 1, with the conference call held the following morning. Thank you for your interest in Franco-Nevada. Goodbye.