Franco-Nevada Corporation (FNV), a leading gold-focused royalty and streaming company, reported a strong first quarter in 2024, meeting production expectations and benefiting from high gold prices. The company's adjusted EBITDA margin reached 84.2%, and its adjusted net income margin was 56.9%. Franco-Nevada's diversified portfolio saw Antapaccay GEO sales exceed expectations, while Candelaria GEO sales were slightly below.
The company highlighted the contribution of royalties from new mines and a robust pipeline of acquisitions, including interests in natural gas royalties and precious metal streams. With no debt and $2.3 billion in available capital, Franco-Nevada is poised for further growth, expecting a stronger second half of the year as new mines come online and acquisitions continue.
Key Takeaways
- Franco-Nevada's diversified portfolio performed well in Q1 2024, with production meeting expectations.
- Sales for Antapaccay GEO exceeded expectations, while Candelaria GEO sales were slightly below.
- High gold prices contributed to elevated margins, with an 84.2% adjusted EBITDA margin and a 56.9% adjusted net income margin.
- Royalties from new mines and several acquisitions, including natural gas royalties and precious metal streams, have been growth drivers.
- The company has no debt, $2.3 billion in available capital, and an active deal pipeline with a focus on gold and interest in other commodities such as lithium.
Company Outlook
- Franco-Nevada expects a stronger second half of 2024, with new mines coming online in Q2 and Q3.
- The company anticipates reaching the cap for mine waste solutions in Q4.
- Larger transactions are in sight, with potential deals at the $500 million and above level.
Bearish Highlights
- Candelaria GEO sales were slightly below expectations.
- The company does not plan to do share buybacks in 2024 or increase physical gold storage.
Bullish Highlights
- The company is positioned to benefit from robust gold prices and a strong acquisitions pipeline.
- New mines are expected to come online, with Greenstone pouring in Q2 and Salares Norte with G Mining in Q3.
Misses
- No specific timing was provided for when the increased percentage from the Condestable acquisition will take effect.
- No plans for share buybacks or increasing physical gold storage were mentioned.
Q&A Highlights
- Production volume is in line with expectations, and commodity prices are fluctuating but within guidance.
- Antapaccay's performance is expected to fall off but remain within guidance.
- The effective tax rate is around 15% until new legislation is enacted, after which it is expected to rise to 19%.
- An increase in sellers of precious metal streams due to higher gold prices has been observed.
- The outcome of the upcoming elections in Panama could impact the Cobre Panama arbitration process.
Franco-Nevada's first-quarter performance in 2024 reflects a solid operational foundation and financial health. With new mines set to commence production and a strong pipeline of acquisitions, the company is well-positioned to capitalize on opportunities in the gold market and beyond.
The company's strategic focus remains on adding assets to its portfolio, while maintaining a conservative approach to capital allocation, as evidenced by its decision against share buybacks and increasing physical gold storage.
As Franco-Nevada continues to navigate the dynamic landscape of the mining industry, investors will be watching closely for the second-quarter results, expected to be released on August 13th, 2024.
InvestingPro Insights
Franco-Nevada Corporation (FNV) has displayed a remarkable financial discipline, as evidenced by its balance sheet which holds more cash than debt. This positions the company in a robust financial situation, allowing it to navigate market fluctuations with relative ease.
The company's conservative approach is further reflected in its commitment to returning value to shareholders, having raised its dividend for 16 consecutive years, a streak that is expected to continue given the company's dividend growth over the last twelve months.
The company's operational efficiency is underscored by its impressive gross profit margin of 85.59% for the last twelve months as of Q1 2024. This is a critical metric that demonstrates Franco-Nevada's ability to manage costs effectively and maintain profitability in a volatile commodity market.
Investors may also find the company's stock appealing due to its low price volatility. This stability is attractive in a sector known for its cyclical nature and could be a reassuring factor for those looking to invest in the mining and commodities sector.
While the company's P/E ratio stands at -48.67, indicating a premium valuation, the PEG ratio of 0.29 suggests that this valuation could be justified by the company's expected earnings growth. Furthermore, the stock has experienced a significant return over the last three months, with a price total return of 13.96%, highlighting the positive market sentiment towards Franco-Nevada's performance and future outlook.
For more detailed analysis and additional InvestingPro Tips, including why analysts have revised their earnings upwards for the upcoming period and the company's expected net income growth this year, visit https://www.investing.com/pro/FNV. Discover a comprehensive range of insights and take advantage of the special offer using coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. There are 13 more InvestingPro Tips available that could provide further valuable information for your investment decisions.
Full transcript - Franco Nev Corp (NYSE:FNV) Q1 2024:
Operator: Good morning and welcome to Franco-Nevada Corporation's First Quarter 2024 Results Conference Call and Webcast. This call is being recorded on May 2, 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're 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. [Operator Instructions] I would now like to turn the conference over to your host, Candida Hayden, Senior Analyst, Investor Relations.
Candida Hayden: Thank you, Julie. Good morning, everyone. Thank you for joining us today to discuss Franco-Nevada's first quarter 2024 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 via the 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 2 of this presentation. I will now turn over the call to Paul Brink, President and CEO of Franco-Nevada.
Paul Brink: Thank you, Candida and good morning. Yesterday, we held our AGM here in Toronto and we're pleased to have Hugo Dryland join our Board. Hugo has for many years led Rothschild's Metal & Mining Advisory business and amongst other areas, has extensive experience in project finance and international arbitration. Hugo fills the seat left empty after Randall Oliphant sadly passed away last year. Our diversified portfolio performed well and production for the quarter met our expectations. Antapaccay GEO sales were above and Candelaria GEO sales slightly below our expectations. Elevated gold prices boosted our revenue and translated directly into some of our highest-ever margins. Adjusted EBITDA margin was 84.2% and adjusted net income margin was 56.9%. Royalties on new mines continue to contribute to our growth. During the quarter, goldfields support the first gold at Salares Norte and Hochschild at Mara Rosa. Equinox and G Mining are on track for first production at Greenstone and Tocantinzinho respectively in the coming months. Alamos' planned acquisition of Argonaut will help realize the full potential of the Magino and the Island deposits including a potential expansion of the Magino Mill facility. Alba reported good progress on the construction of Ballantyne Gold and production there is expected to start in the first half of 2025. While Cobre Panama remains in preservation and safe management. we're hopeful that the issues can be resolved. Panamanian election takes place this Sunday, May 5th. On the business development front, we closed the previously-announced acquisition of natural gas royalties in the Haynesville and added a number of smaller interests. An incremental royalty on Pascua-Lama, a royalty on Scottee Resources property in the Golden Triangle, BC, an increase to the Condestable gold stream in Peru and a Silver Royalty on Perpetua's Stibnite gold property in Idaho. Our organic growth typically accelerates on the back of higher gold prices. A highlight for the quarter is the success that Agnico Eagle (NYSE:AEM) continues to have expanding the detour Lake orebody and also the East Gouldie orebody at Canadian Malartic. To wrap up, we have no debt, $2.3 billion in available capital and an active deal pipeline. I'll hand the call over to Sandip.
Sandip Rana: Thank you, Paul. Good morning, everyone. As mentioned by Paul, our portfolio of assets continued to perform well and were in line with expectations for first quarter 2024. With respect to performance in the quarter, on slide 4, we highlight the gold equivalent ounces sold for the last five quarters. As you are aware, Cobre Panama has not contributed any GEOs or revenue for 2024 as it is under preservation and safe management. On the slide, we highlighted Cobre Panama separately for prior periods. Total GEOs sold were 122,897 for Q1 2024. This compares to 145,331 for the same period in 2023. Of this, precious metal GEOs were $93,018, compared to $111,238 in the prior year. However, if Cobre Panama is excluded from prior-year comparatives, precious metals GEOs were actually higher year-over-year at 93,018 versus 82,575 GEOs. This increase was due to strong contributions from Antapaccay, Guadalupe and Subika, all of which had strong production in first quarter of 2024. This increase was partially offset by lower GEOs sold for Sudbury due to lower production and Stillwater, which was due to the impact of converting weaker platinum palladium revenue to GEOs. In addition, we were delivered approximately 3,000 GEOs per Condestable, which remain in inventory at the end of the quarter. These ounces were not sold during first quarter and have subsequently been sold post quarter end. Precious metal GEOs represented approximately 76% of total GEOs for the quarter. For diversified GEOs, our Vale Royalty contributed an increase in GEOs for the quarter, compared to prior year due to a higher-than-anticipated royalty payment reflecting higher iron ore sales during the second half of 2023. 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 revenue twice a year in first and third quarters each year. Energy GEOs were lower at $2,182 for Q1, compared to $25,952 a year ago. The decrease in GEOs is a combination of lower revenue due to weaker natural gas prices, but also the impact of converting energy revenue to GEOs using higher gold prices. Q1 2024 saw continued movement in average commodity prices. As you see on slide 5, gold and silver prices were higher for the quarter when compared to prior year. However, platinum and in particular, palladium prices were significantly lower year-over-year, which did negatively impact conversion of PGM revenues to GEOs. Oil prices were relatively flat with natural gas being sharply lower. Slide 6 highlights our total revenue and adjusted EBITDA amounts of last five quarters. As you can see from the bar charts, revenue and adjusted EBITDA are lower in Q1 2024 compared to prior quarters. The company recorded $256.8 million in revenue in first quarter and $216.1 million adjusted EBITDA. A margin of 84.2% was achieved for the quarter. The lower revenue and adjusted EBITDA are due to less GEOs sold during the quarter compared to prior year. Impact on both revenue and adjusted EBITDA of the lower GEOs was partially offset by higher gold and silver prices. In fact, while GEO sold are lower by 15% year-over-year, total revenue was lower by 7%. As you turn to slide 7, you'll see the key financial results for the company. As mentioned, total GEOs were 122,897, generating $256.8 million in revenue and $216.1 million in adjusted EBITDA. On the cost side, we did have a decrease in cost of sales compared to prior year as we did not incur the ongoing fixed cost per ounces delivered by Cobre Panama. Also, cost of sales is dependent on which assets deliver stream ounces as not all fixed payments per stream are equal. Depletion decreased to $58.2 million versus $61 million a year ago. The decrease in depletion was a combination of no depletion being recorded for Cobre Panama being partially offset by higher depletion for Antapaccay and the new Haynesville Natural Gas acquisition. Adjusted net income was $146 million, compared to $152.2 million in Q1 2023 and adjusted EPS was $0.76 per share for the quarter lower by 3.8% versus prior year. Slide 8 highlights the continued diversification of the portfolio. From the chart, you can see that 76% million of our first quarter 2024 revenue was generated by precious metals with revenue being sourced 83% from the Americas. Slide 9 illustrates the strength of our business model to generate high margins. For Q1 2024, the cash costs per GEO, which is essentially cost of sales divided by gold equivalent ounces sold was $2.73 per GEO. This compares to $2.63 per GEO in Q1 2023. Margin was approximately $1,800 per ounce in the first quarter. The average gold price was higher by $183 per ounce for Q1 2024 compared to Q1 2023. At the same time, Franco-Nevada's margin was higher by $173 per ounce or 95% of the gold price increase in the same period. In a rising commodity price environment, we expect to benefit fully as the cost per GEO sold should not increase significantly. The other cost component for the company besides cost of sales is our corporate administration costs. The royalty streaming business model is a scalable model. Our corporate admin costs have increased at a much slower rate than our revenue. Revenue has increased 9-fold from Q1 2008, while corporate admin cost has increased by 2.5 times for the same period. Management believes we can continue to add to our portfolio and grow our business without adding significant overhead to the company. Earlier this year, we had guided to $10 million to $15 million in estimated costs for the Cobre Panama arbitration. For Q1, we incurred $1.4 million in cost. We expect the cost to be weighted more towards the second half of the year. And lastly, slide 11 summarizes the financial resources available to the company. When including our credit facility of $1 billion total available capital as at March 31, 2024, is $2.3 billion. And now, I'll pass it over to Julie and we're happy to answer any questions.
Operator: [Operator Instructions] Your first question comes from Brian MacArthur from Raymond James. Please go ahead.
Brian MacArthur: Good morning and thank you for taking my question. You've left guidance of GEOs unchanged. but there's a lot of different assumptions, which you sort of talked about commodity prices moving in the first quarter. I mean, now, you're much higher gold price assumptions going forward, much lower gas prices. My question really is, is there anything on a volume basis that significantly changed that you're seeing in your portfolio since the beginning of the year. and maybe, it's oil and gas, because gas prices are -- have gone down? And secondly, it looked like Antapaccay versus what you give on a gold GEO basis had a pretty good first quarter. Is that sustainable? Or does it fall off through the year? It kind of goes into the overall volume question.
Paul Brink: Thanks for the question, Brian. On a production basis, as we said, the assets both mining and energy from a production volume basis are in line with expectations. So right now, from a production standpoint, they're in line. Obviously, commodity prices are moving around. But we are within our guidance range at this point. With respect to Antapaccay, I would expect or we do expect Antapaccay to fall off towards -- for the rest of the year and still be within that guidance range we have provided as part of our year-end results.
Brian MacArthur: Thank you. My second question just relates to Condestable and the increase from up to 37.5% and 25%. I assume everything else the points, where it kicks in are all still the same. So, it'll be kind of middle 2030s or if you can guide when that 30%, you see that 25% to 37.5% kicking in please?
Eaun Gray: Hi, Brian, it's Eaun speaking. Good morning. Yes. the change really just relates to the final rate. So, we wouldn't expect the rest to change meaningfully in the near to medium term.
Brian MacArthur: And is mid-20s, 30s sort of where you see that now kicking up? I just don't have the data on how that's developed since the original deal.
Eaun Gray: Yes. I don't have that immediately handy. We are fixed deliveries. I think it was for the first five years.
Brian MacArthur: Yes.
Eaun Gray: Those come off and it goes to a variable percentage in terms of the exact estimate as to when those second variable percentage kicks in. I don't have that offhand unfortunately. We can chat offline.
Brian MacArthur: Great. Thank you. And maybe, my final question. Just Sandip, on the accounting for the taxes on a global basis, can you just review how you're going to do that given when it technically gets enacted?
Sandip Rana: So right now it's not enacted, neither Barbados or Canada. So for the foreseeable future, our effective tax rate will be 15% roughly. But when it is enacted, assuming it's retroactive, there will be an adjustment in that quarter, which we did highlight. It'll be an adjustment to taxes of about $47 million. And as guided, at the end of the year, we expect our effective tax rate to be about 19% going forward.
Brian MacArthur: Thank you very much. I appreciate it.
Operator: Your next question comes from Heiko Ihle from H.C. Wainwright. Please go ahead.
Heiko Ihle: Hey there. Thanks for taking my questions.
Sandip Rana: Hi, Heiko.
Heiko Ihle: You've made quite a meaningful number of acquisitions here in the last few months. In your intro to the earnings release, you also state that you still have an active deal pipeline. Unsurprising, but still good to hear. Conceptually, are you seeing pricing improvement from sellers of streams that are more willing to negotiate right now? And if so, are you seeing this phenomenon more in mining or more in energy?
Paul Brink: Heiko, it's Paul. I'd say the -- in this environment, probably the main impact is with gold prices moving up, players that have got precious metal byproducts, it's a very attractive environment for them to raise capital through the sale of a precious metal stream. So I'd say that's the predominant trend right now, and that's making for an active deal pipeline.
Heiko Ihle: Fair enough. Building on that last question, I mean, with gold prices where they are, inflation levels where they are, has there been a bit of a shift with sellers looking for fixed fees versus a percentage of spot pricing as your cash payment, or is there -- is it just the same and they more or less take whatever they can get?
Euan Gray: Hi, Heiko, it's Euan. Good morning. I would say generally the market has shifted towards the percentage in terms of the fee we pay to the seller. Fixed is far less common these days, and I haven't seen any trend there recently other than to kind of maintain that.
Heiko Ihle: Fair enough. That's helpful. Thank you guys for your time.
Operator: Your next question comes from Cosmos Chiu from CIBC. Please go ahead.
Cosmos Chiu: Thanks, Paul, Sandip, and team. Maybe my first question is on Panama. As you know, the elections coming up this weekend on May 5th. Is this something that you're watching closely? Any variables that you might be watching for? And do you see a potential outcome that could impact Franco-Nevada in the near term, or is it really a longer-term sort of event to you?
Paul Brink: Cosmos, yes, we're watching it closely in the lead-up to the election, and no surprise, given what happened in the country and the populist sentiment against mining and against the mine. I'd say all the candidates have been quite circumspect in terms of commenting on what their approach might be. But still, we're hopeful that with a new government in place, that there can be a new dialog. And I'm sure that the first quantum will be engaging with whoever that is to see if there is a route to find a way to reopen the mine.
Cosmos Chiu: Of course. Thank you. And going to your financial statements here, I noticed that your finance income, $16 million, has increased quite a bit year-over-year and quarter-over-quarter as well. I just want to make sure, is that just due to the G Mining term loan? And if that's the case, what else is in there?
Sandip Rana: So, Cosmos, the interest income is in two places on the financials this quarter up in revenue. You'll see interest income not relates to actual interest on the G Mining loan as well as the Skeena convertible note that we did at the end of last year. So any loans we've made up, that interest income is up in revenue now. And it was about $1.2 million for the quarter. The finance income, you're referring to, the $16 million, that is the interest we're earning on our cash balance.
Cosmos Chiu: Okay. And is there a reason why you separate those two or just really accounting?
Sandip Rana: It's all accounting, technical related, the loan interest, because it's due. It's related to mining assets and up in revenue. And we intend to do more debt-like structures going forward. So we've included that up top.
Cosmos Chiu: Perfect, it sounds good. And then maybe one last question again on the accounting side as well. I know Brian asked it earlier in terms of the global minimum taxes, but it sounds like now Barbados has their own legislation and Canada also has their own sort of legislation that's going through. Is there a situation where in terms of timing, when legislation the two countries are being enacted, is there a chance that things can get really complicated later on if they're enacted at different times, different quarters, or is that something that we don't really need to worry about?
Sandip Rana: So our understanding right now, neither one has enacted the laws. Barbados effective tax rate will be 15% going forward once the law is enacted. But our understanding is it's contingent on Canada implementing the GMT. So they should both come into play at the same time. But obviously we'll have to wait and see.
Cosmos Chiu: Okay, great. Thanks, Sandip and Paul. Those are the questions I had.
Operator: Your next question comes from Tanya Jakusconek from Scotiabank. Please go ahead.
Tanya Jakusconek: Good morning, everybody. Some of my questions have been answered, but I've got to come back to just Hemlo. Sandip, how should we be thinking of this royalty? Because this one's always quite variable. What guidance can you give us for the year?
Sandip Rana: Tanya, it was lower than I expected in Q1, considering where commodity prices were. And I think [indiscernible] release yesterday, they had higher costs. So going forward, I think we stick with what we had guided to as part of our year-end guidance. It's probably going to be at this stage similar to last year, but we'll have to see how the year-end folds.
Tanya Jakusconek: Okay. And then for my mine waste solution, that we're getting to the cap. So that would imply the rest of the year a bit lower. Would that seem fair?
Sandip Rana: Yes. So we do anticipate to reach the cap in Q4 this year. Depending upon how the next two quarters play out, it could be early in Q4.
Tanya Jakusconek: Okay. No, that's what we have as well. And then as we look at the year, with everything said and done and appreciate a lot of variability. But should we be thinking that a slightly better second half with some of the new mines coming in? And can you just remind me for Q2 and Q3, when the new contributions are coming in? So first, stronger second half, should we be thinking like 52%, 53% of GEOs, and then the new mines, if you can remind me, who's coming in Q2, Q3?
Sandip Rana: Sure. Yes. So we do expect a stronger second half, and not just because, as you said, the new mines will be online. In Q2, Greenstone is pouring. Sorry, yes. Equinox is pouring first gold for Greenstone and second quarter Salaries Norte tokens in with G Mining is Q3. I don't have the specific split as to whether it's 52-48 or what have you, but definitely a stronger second half.
Tanya Jakusconek: Okay, so that's helpful. I just want to make sure, because production, I mean, you get paid exactly when they start producing. There's no deferral. It's not, from my understanding, even if they're non-commercial ounces?
Sandip Rana: Yes. So on the royalties, we accrue the revenue. If ounces have been produced, we're entitled to it. So we will accrue, even if we haven't been paid, but we will accrue.
Tanya Jakusconek: Okay, perfect. And then just on the environment, I think, Paul, you mentioned that what you're seeing right now is mainly streams on non-gold assets for precious metals. So, base metal producers, can you just come back and verify that we're looking at that sort of like $100 million to $300 million range? Is that still the range that you're thinking about for these streams?
Paul Brink: I'm going to hand that over to Euan, Tanya.
Tanya Jakusconek: Sorry. Euan, sorry. Yes.
Euan Gray: Good morning, Tanya. Good question. As Paul noted, it's an active pipeline. It's been evolving over the course of the year. So far, I'd say, generally the size has scaled up a bit, Tanya. Beyond 300, we're seeing more potential for larger transactions as well. So we're quite encouraged by that.
Tanya Jakusconek: And when you say larger transaction, are we talking in over $500 million or still under $500 million?
Euan Gray: There are transactions at the $500 million and above level that are possible. So that's perhaps a bit of a change versus the last time when we spoke. These still are smaller transactions. And as Paul said, byproduct transactions are more common than they were. That said, with capital still constrained to the gold space, with gold producers, I think there's still decent latitude to transact.
Tanya Jakusconek: I would assume, Euan, with the higher gold price for gold producers that would want to put some sort of royalty or stream on their gold assets with this higher gold price, their overall view on their valuation has gone up. Would that be a fair statement to say?
Euan Gray: Yes, I think so. Byproducts, precious metals producers probably also have a similar elevated view. Us is take a balanced view on gold price, but we're certainly constructive on that as well.
Tanya Jakusconek: Okay. And then, Euan, maybe just on. I know in your Investor Day, I think it was Paul that mentioned that you are looking at lithium potential transaction and other non-gold transactions. Can you just comment on where you are on that? Whether we're still -- those are in the pipeline and whether we can see those in 2024 or is the focus still gold ahead of these non-gold?
Jason O'Connell: Hi, Tanya. It's Jason speaking. I would say the focus still is on gold. I think that's where we spend the majority of our time. That said, there are a lot of opportunities in many different commodities right now. Lithium is one that is interesting to us, just given where we are in the price cycle. There's obviously been a significant pullback in the lithium price, which has created a bit of a challenge for developers looking to finance new mines. And so there is, as a consequence, potentially a role there for us to play a part. And so it's something that we're spending time on, and we may be active this year. Just depends on the opportunities that are in front of us.
Tanya Jakusconek: And what size would those opportunities be in, Jason?
Jason O'Connell: It's a range, I think probably the sweet spot for us would be 50 to maybe up to $300 million, $400 million if we did something very sizable.
Tanya Jakusconek: Okay. And my last question, if I could just on uranium. We've seen volatility in that space as well. Anything in terms of looking at uranium for you guys?
Jason O'Connell: We do look at uranium from time-to-time. There aren't as many assets available for us to participate in. There's a couple that we keep our eye on, but it's not something that we're spending a lot of time on recently, despite the change in commodity price.
Tanya Jakusconek: Okay, I appreciate that. I'll leave it for someone else to ask questions and really appreciate you answering my questions. Thank you.
Jason O'Connell: Yes.
Operator: Your next question comes from John Tumazos from Very Independent Research. Please go ahead.
John Tumazos: Thank you very much. It's always hard to figure out how to value things. Presumably, Franco, as you approach new transactions, values them at the spot gold price or today, 2,300-ish. And then you put a capitalization rate based on the mine life and quality, and maybe that would have been 8x or 10x revenue for a simple royalty, or adjusting for how much in the money a stream is. But gold stocks are actually a little bit lower, even though gold is higher. And now there's the minimum tax rate, which equips your return a little bit. So is it fair to assume that given the valuation of gold stocks and the tax status not only in Franco, but your peers as well, that you'd be capitalizing revenue at a lower rate going forward than you might have a couple years ago? Also, interest rates are higher. That's another factor. Excuse me.
Paul Brink: John, it's Paul. A lot of things in there. Number one thing, anytime we're looking at a property is as less so commodity prices, it's more figuring out what are we comfortable is there, happy to pry, pay a fulsome price for what we're comfortable will get produced, and then want to participate in the upside. And it's really getting the calls right and being able to participate in the upside that generally has the greatest impact on our returns. So the vast majority of our work, though, is figuring out what are we comfortable we'll get produced. Particularly when you're looking at development projects. Sometimes our view is less than what you can see in reserves. Sometimes it's far more. That's by far the biggest determinant. In terms of commodity prices, we're trying to price deals in the context of the market. The trick is you don't want to get caught when prices run up sharply in paying peak prices. And on the other hand, when the market turns down, that's really where you want to get your deals done. You don't want to get caught up using bear market prices, because you undervalue everything. So it's, in a sense, it's trying to take a longer-term view of prices regardless of where the market has moved to in the time. On your last comment, in terms of rates and how do we think about rates? We think of it as a bit of a competitive advantage. And the competitive advantage is we don't have much debt. So with so many parties, their cost of capital is moving up and down with their cost of debt. We don't really have that. So we think it's an advantage. We can do deals in the market. We can extend capital to people at a more consistent rate than other players over time. And so particularly when other folks are forced to use a higher cost of capital, we don't have to. And I think that's a bit of a competitive advantage.
John Tumazos: Thank you.
Operator: Your next question comes from Tanya Jakusconek from Scotiabank. Please go ahead.
Tanya Jakusconek: Good morning again. Sorry, I forgot to ask about Cobre Panama. I know Cosmos asked about it with the election happening on May 5th, but can you just review for us when do the parties actually then get into office? Are we talking, like, July-ish or thereabouts? And once they get into office, are we expecting more clarity? So maybe just a bit of timeframe for us on getting some news out on Cobre Panama?
Paul Brink: Tanya, you're exactly right. Election is coming up now, but the actual official change of government will only happen in July. So that's the first time that they could. They're in a position of power. It doesn't mean that you can't have dialogue with them before that. But to your point, I don't want to expect any news, any direction on Cobre until later in the summer.
Tanya Jakusconek: Okay, no that's very helpful because we maybe I'll be waiting Sunday night, and then Monday morning thinking something might be said. But probably realistically, it's probably not until the end of the summer?
Paul Brink: [Indiscernible] sooner. But you got to be realistic.
Tanya Jakusconek: Yes, I appreciate that. Yes. Thank you so much and good luck.
Paul Brink: Thank you.
Operator: There are no further questions on the phone line. I will now hand the Q&A session over to Candida Hayden, who will take questions from the webcast.
Candida Hayden: Thank you, Julie. Our first question comes from Deepankar Nayak [ph]. Do you plan to do any share buybacks in 2024?
Sandip Rana: Thanks for the question. We do have a large cash balance on our balance sheet, but our number one priority is to add assets to the portfolio. It comes down to what's the best use of a dollar and for us to continue to add assets. So, no, there, we don't intend to do a share buyback.
Candida Hayden: Your second question also comes from Deepankar Nayak. Do you have any option of storing physical gold assuming price would go up in the medium term?
Sandip Rana: We do have the option. It comes down to streams versus royalties. Streams, we do get physical credits of precious metals to Franco-Nevada. But for accounting to book revenue, we have to sell that metal. So that's what we do on a quarterly basis. There are some royalties that we actually do receive in kind. And so on any given time, we have roughly 20,000 to 25,000 ounces of gold to our account held in various refineries around the world. But there's no plan to increase that level at this stage.
Candida Hayden: Next question comes from Diego Tremiterra from Noster Capital Management. What are the next steps to consider in the Cobre Panama arbitration and could the election have any impact on the process of arbitration?
Lloyd Hong: Thanks for the question, Diego. It's Lloyd Hong. In terms of the next steps, as we previously disclosed, we have filed a notice of intent to initiate arbitration. The next step following that would be to actually file a request for arbitration which would formally kick that off. In terms of the election process, as Paul had mentioned. I mean, we are -- we hope for the first quarter will be able to engage in a constructive dialogue with the new government once it's elected, which could lead to the potential restart of the mine. And obviously, that would impact whether the arbitration proceeds or not.
Candida Hayden: Thank you. The next question comes from Bernie Peachey [ph] at Palisade Capital. BHP (ASX:BHP)'s interest in acquiring Anglo makes me wonder if Franco-Nevada has opportunities in the current mining industry's M&A environment knowing this has not been your traditional area of opportunity?
Paul Brink: Thanks for the question. I would say when I saw that potential acquisition, my first thought is that's a huge positive for the copper price. If BHP is acquiring assets rather than building assets, it doesn't add to the world's copper supply. So I'm not surprised to see that the copper price is running up on the back of it. Could there be assets that come out of that that would create some deal activity for us? Possibly more actionable though, and is transaction that's already happened and that's Newmont acquiring Newcrest. They've announced that there are asset sales that they are doing, so I think there should be some opportunities that come out of that M&A process.
Candida Hayden: Thank you. There are no further questions from the webcast. This concludes our first quarter results conference call and webcast. We expect to release our second quarter 2024 results after market close on August 13th with a conference call held the following morning. Thank you for your interest in Franco-Nevada. Goodbye.
Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.
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