2016
Second Quarter Reportfor the three and six months ended
June 30, 2016
Franco-Nevada Corporation
Press Release
Franco-Nevada Reports Record Q2 2016 ResultsTORONTO, August 8, 2016 - Franco-Nevada Corporation (TSX: FNV; NYSE: FNV) is pleased to report its financial results for the second quarter of 2016. All figures are in U.S. dollars unless noted and highlights include:
• 112,787GoldEquivalentOunces1(“GEOs”)–anewrecord • $150.9millioninrevenue–anewrecord • $118.9millionofAdjustedEBITDA3or$0.67pershare • $42.3millionofNetIncomeor$0.24pershare • $40.0millionofAdjustedNetIncome2or$0.22pershare • $37.7millionoffundingprovidedtotheCobrePanamaprojectduringthequarter • $225.8millionincashatquarterendandnodebt
“Franco-Nevada’sdiversifiedportfoliocontinuestoperformverywell.WithrecordGEOandrevenueresults,wearenowexpectingtobeclosetothetopendofourpreviouslyprovidedguidancerangesfor2016,”statedDavidHarquail,CEO.“Evenmoreexcitingforthefuture,weareseeingrenewedactivityandgoodnewsatmanyofournon-producingadvancedandexplorationassets.Inaddition,ourinvestmentopportunitypipelineremainsveryfull.”
Revenues and GEOs by Asset Categories
For the three months For the three months ended June 30, 2016 ended June 30, 2015
Revenue GEOs 1 Revenue GEOs 1 (in millions) # (in millions) #
Precious Metals Gold $ 108.2 85,724 $ 81.5 68,302 Silver 23.6 18,523 6.2 5,117 PGM 9.4 7,053 8.7 7,323 Precious Metals Total $ 141.2 111,300 $ 96.4 80,742 Other Minerals 1.9 1,487 2.7 2,298 Oil & Gas 7.8 – 10.3 – $ 150.9 112,787 $ 109.4 83,040
Forthesecondquarterof2016,revenuewassourced94%frompreciousmetals(72%gold,16%silverand6%PGM)and84%fromtheAmericas(14%U.S.,19%Canadaand51%LatinAmerica).CostsandexpensesincreasedduetohigherdepletionandcostofsalesasaresultoftherecentAntaminaandAntapaccaystreamacquisitions.Oil&gasproductionlevelswerestablebutloweroilpricesresultedinlowerrevenueyear-over-year.Cashprovidedbyoperatingactivitiesbeforechangestoworkingcapitalwas$109.9million.
Portfolio Updates• PreciousMetals-U.S.:GEOsfromU.S.preciousmetalsassetswereflatyear-over-yearwithincreasesfromGoldstrike
largelyoffsettingdecreasesatStillwaterandBaldMountain.GEOsreceivedfromtheU.S.assetswere16,707GEOs.• Bald Mountain (0.875-5% NSR/GR)-Kinrossreportedthatfirsthalf2016productionwasweakduetohigherthan
anticipatedstripping.Itexpectstoalmostdoubleproductionfor2017and2018andseesfurtherreserveupside.• South Arturo (4-9% GR with AMR)-TheprojectcurrentlybeingadvancedbyBarrickGoldandPremierGold
MinesisexpectedtocontributerevenuetoFranco-Nevadainthesecondhalfof2016.
2016 Second Quarter Report 3
• Hollister (3-5% NSR)-KlondexMines,Franco-Nevada’spartneratFireCreek/Midas,announceditisacquiringtheHollisterMineinNevadaonwhichFranco-Nevadahasuptoa5%NSRroyalty.
• Castle Mountain (2.65% NSR)-NewCastleGoldhasraisedadditionalfundingtoadvancetheCastleMountainprojectinCalifornia.Franco-Nevadarenegotiateditsroyaltycoveringtheassetduringthesecondquarter2016andnowcoversallconcessionswitha2.65%NSR.
• PreciousMetals-Canada:GEOsfromCanadianpreciousmetalsassetsincreasedbyapproximately25%comparedwiththesecondquarter2015to14,919GEOs.ThemaincontributortotheincreasewastheSudburyoperationwhichbenefittedfromstrongerproduction.• Musselwhite (5% NPI)-Goldcorphasannouncedapprovalforamaterialshandlingprojectwhichitexpects
willincreaseproductionby20%over2016-2018.• Brucejack (1.2% NSR)-PretiumResourcesreportedanincreasedresourceestimatefortheBrucejackproject
andthatitstillexpectstobegincommissioningoftheundergroundmineinmid-2017.• Timmins West (2.25% NSR) and East Timmins (0.25-15% NSR)-OperatorshipofseveralCanadianroyalties
movedintostrongerhandswithLakeShoreGoldbeingacquiredbyTahoeResourcesandStAndrewGoldfieldsbyKirklandLakeGold.
• Hardrock (3% NSR)-AfeasibilitystudyfortheHardrockprojectinOntario,whichisbeingadvancedbyjointventurepartnersPremierGoldMinesandCenterraGold,isexpectedinthethirdquarter.
• PreciousMetals-LatinAmerica:GEOsfromLatinAmericanpreciousmetalsassetsrepresentedthelargestyear-over-yearincreaseduetotheadditionoftheAntaminaandAntapaccaystreams.GEOsdeliveredfromLatinAmerica were60,899GEOs.• Antamina (22.5% silver stream)-Antaminadelivered11,898GEOsduringthequarterand29,679GEOsyear-to-
date.Withtheyear-to-dateproductionresultsfromAntamina,GEOsreceivedarenowexpectedtobehigherthanFranco-Nevada’soriginalAntaminaguidancefor2016of40,000GEOs.
• Antapaccay (gold and silver stream)-Antapaccaydelivered19,581GEOsduringthequarterwithfullyeardeliveriesstillanticipatedwithintheoriginal60,000to70,000GEOsguidancerange.
• Candelaria (gold and silver stream) - As Franco-Nevada expected, Candelaria deliveries decreased year-over-year to16,247GEOsfrom24,192GEOsinthesecondquarter2015mainlyduetominesequencing.
• Palmarejo & Guadalupe (50% gold stream)-Inthethirdquarter,the400,000ounceminimumatPalmarejowasmetresultingintheterminationoftheoriginalPalmarejostreamagreementandthecommencementoftheGuadalupestreamagreement.Underthenewagreement,deliveriesarebasedon50%ofthegoldproducedfromthePalmarejoproperty(includingthenewGuadalupemine)withongoingpaymentsequaltothelesserof$800per ounce and the then prevailing spot price for gold.
• Cobre Panama (gold and silver stream)-Duringthequarter,Franco-Nevadacontributed$37.7millionofitsshareofconstructioncapitalfortheCobrePanamaprojectandnowestimatestotalfundingbetween$120-$140millionin2016,downslightlyfromthe$130-$150millionpreviouslyestimated.Franco-Nevadahasnowcontributed$376millionofitstotal$1billioncommitmenttofundtheconstructionofCobrePanama.
• PreciousMetals-RestofWorld:GEOsfromRestofWorldpreciousmetalsassetsincreasedyear-over-yearmainlydueto
deliveriesfromtheKarmafixedounceobligation.GEOsfromtheRestofWorldwere18,775GEOsduringthequarter.• Karma (fixed gold deliveries & 4.875% gold stream)-TrueGold,theoperatorofKarma,hasbeenacquiredby
EndeavourMining.2,500GEOsweredeliveredinthequarterwithonemonthofdeliveriestobecarriedinto thethirdquarter2016.Theadditional1,250GEOswillcontributetorevenueinthethirdquarter2016.
• Ity (1.5% capped NSR)-EndeavourMiningalsonowownstheItymineinCoted’Ivoireandreportedanexpansion of reserves.
• Sissingué (0.5% NSR)-AlsoinCoted’Ivoire,PerseusMiningannouncedplansforthefull-scaledevelopment ofitsSissinguéprojectwithfirstproductionexpectedinlate2017.
• Duketon (2% NSR)-RegisResourceshasannouncedreserveincreasesatitsDuketonbeltprojects.• Tasiast (2% NSR) - Kinross announced that the suspension of mining and processing operations at the Tasiast
minehasbeenresolvedandthatoperationswillresumeinAugust.Kinrosscontinuestoadvancedevelopment oftheTasiastPhaseOneexpansion.
• Subika (2% NSR)-NewmontMiningisexpectedtomakeadecisioninthesecondhalfof2016regardinganAhafomillexpansionandtheundergrounddevelopmentofSubika.
• Oil&gas:Revenuefromoil&gasassetswas$7.8millioninthesecondquarter2016comparedwith$10.3million inthesecondquarter2015.Productionremainsrelativelystable.
The Gold Investment thatWORKS FNV TSX NYSE4
2016 Second Quarter Report 5Franco-Nevada Corporation
Dividend DeclarationFranco-NevadaispleasedtoannouncethatitsBoardofDirectorshasdeclaredaquarterlydividendof$0.22pershare.ThedividendwillbepaidonSeptember29,2016toshareholdersofrecordonSeptember15,2016.TheCanadiandollarequivalentisdeterminedbasedonthenoonratepostedbytheBankofCanadaonAugust5,2016.UnderCanadiantaxlegislation,Canadianresidentindividualswhoreceive“eligibledividends”areentitledtoanenhanced gross-up and dividend tax credit on such dividends. TheCompanyadoptedaDividendReinvestmentPlan(“DRIP”)commencingwiththeOctober2013dividend.ParticipationintheDRIPisoptional.TheCompanywillissuetheadditionalcommonsharesthroughtreasuryata3%discounttotheAverageMarketPrice,asdefinedintheDRIP.However,theCompanymay,fromtimetotime,initsdiscretion,changeoreliminatethediscountapplicabletotreasuryacquisitionsordirectthatsuchcommonsharesbepurchasedinmarketacquisitionsattheprevailingmarketprice,anyofwhichwouldbepubliclyannounced.TheDRIPandenrollmentformsareavailableontheCompany’swebsiteatwww.franco-nevada.com.RegisteredshareholdersmayalsoenrollintheDRIPonlinethroughtheplanagent’sself-servicewebportalatwww.investorcentre.com/franco-nevada.Beneficialshareholdersshouldcontacttheirfinancialintermediarytoarrangeenrollment. This press release is not an offer to sell or a solicitation of an offer of securities. A registration statement relating totheDRIPhasbeenfiledwiththeU.S.SecuritiesandExchangeCommissionandmaybeobtainedundertheCompany’sprofileontheU.S.SecuritiesandExchangeCommission’swebsiteatwww.sec.gov.
ShareholderInformationThecompleteCondensedInterimConsolidatedFinancialStatementsandManagement’sDiscussionandAnalysiscanbefoundtodayonFranco-Nevada’swebsiteatwww.franco-nevada.com,onSEDARatwww.sedar.comandonEDGARatwww.sec.gov.
Managementwillhostaconferencecalltomorrow,Tuesday,August9,2016at10:00a.m.EasternTimetoreviewFranco-Nevada’ssecondquarter2016results.Interestedinvestorsareinvitedtoparticipateasfollows:
Interestedinvestorsareinvitedtoparticipateasfollows:• Via Conference Call: Toll-Free: (888) 231-8191; International: (647) 427-7450• Conference Call Replay until August 16: Toll-Free (855) 859-2056; International (416) 849-0833; Pass code 46496274• Webcast: A live audio webcast will be accessible at www.franco-nevada.com.
CorporateSummaryFranco-NevadaCorporationistheleadinggold-focusedroyaltyandstreamcompanywiththelargestandmostdiversifiedportfolioofcash-flowproducingassets.Itsbusinessmodelprovidesinvestorswithgoldpriceandexplorationoptionalitywhilelimitingexposuretomanyoftherisksofoperatingcompanies.Franco-Nevadaisdebtfreeandusesitsfreecashflowtoexpanditsportfolioandpaydividends.IttradesunderthesymbolFNVonboththeTorontoandNewYorkstockexchanges.Franco-Nevadaisthegoldinvestmentthatworks.
For more information, please go to our website at www.franco-nevada.com or contact:
Stefan Axell Sandip Rana Director,CorporateAffairs ChiefFinancialOfficer416306-6328 [email protected]
Please refer to Cautionary Statement on Forward Looking Information on page 37 of this Quarterly Report.
The Gold Investment thatWORKS FNV TSX NYSE6
Non-IFRSMeasures:AdjustedNetIncomeandAdjustedEBITDAareintendedtoprovideadditionalinformationonlyanddonothaveanystandardizedmeaningprescribedunderIFRSandshouldnotbeconsideredinisolationorasasubstituteformeasuresofperformancepreparedinaccordancewithIFRS.ThesemeasuresarenotnecessarilyindicativeofoperatingprofitorcashflowfromoperationsasdeterminedunderIFRS.Othercompaniesmaycalculatethesemeasuresdifferently.ForareconciliationofthesemeasurestovariousIFRSmeasures,pleaseseebelowortheCompany’scurrentMD&AdisclosurefoundontheCompany’swebsite,onSEDARandonEDGAR.
1 GEOsincludeourgold,silver,platinum,palladiumandothermineralassets.GEOsareestimatedonagrossbasisforNSRroyaltiesand,inthecaseofstreamounces,beforethepaymentoftheperouncecontractualpricepaidbytheCompany.ForNPIroyalties,GEOsarecalculatedtakingintoaccounttheNPIeconomics.Platinum,palladium,silverandothermineralswereconvertedtoGEOsbydividingassociatedrevenue,whichincludessettlementadjustments,bytheaveragegoldpricefortheperiod.ForQ22016,theaveragecommoditypriceswereasfollows:$1,259/ozgold(2015-$1,193/oz);$17.17/ozsilver(2015-$16.41/oz);$1,004/ozplatinum(2015-$1,127/oz)and$568/ozpalladium(2015-$760/oz).
2 Adjusted Net Income and Adjusted Net Income per share arenon-IFRSfinancialmeasures,whichexcludethefollowingfromnetincomeandearningspershare(“EPS”):foreignexchangegains/lossesandotherincome/expenses;gains/lossesonthesaleofinvestments;impairmentchargesrelatedtoroyalty,streamandworkinginterestsandinvestments;unusualnon-recurringitemsand;impactofincometaxesontheseitems.
3 Adjusted EBITDA and Adjusted EBITDA per sharearenon-IFRSfinancialmeasures,whichexcludethefollowingfromnetincomeandEPS:incometaxexpense/recovery;financeexpenses;financeincome;depletionanddepreciation;non-cashcostsofsales;impairmentchargesrelated toroyalty,streamandworkinginterestsandinvestments;gains/lossesonthesaleofinvestmentsand;foreignexchangegains/lossesandotherincome/expenses.
ReconciliationtoNon-IFRSMeasures Three months ended June 30,
(expressed in millions, except per share amounts) 2016 2015
NetIncome(Loss) $ 42.3 $ 21.6 Income tax expense (recovery) 11.3 11.3 Finance expenses 0.8 0.5 Finance income (1.0) (1.1 ) Depletion and depreciation 68.2 49.1 Non-cash costs of sales 1.7 2.2 Impairment charges – – Gains/losses on sale of investments (2.8) (0.9 ) Foreign exchange (gains)/losses and other (income)/expenses (1.6) (0.5 )
AdjustedEBITDA $ 118.9 $ 82.2 Basic Weighted Average Shares Outstanding 177.8 156.7 AdjustedEBITDApershare $ 0.67 $ 0.53
Three months ended June 30,
(expressed in millions, except per share amounts) 2016 2015
NetIncome(Loss) $ 42.3 $ 21.6 Foreign exchange (gains)/losses and other (income)/expenses, net of income tax 0.5 (0.4 ) Mark-to-market changes on derivatives, net of income tax – 0.1 Gain on sale of investments, net of income tax (2.5) (0.6 ) Impairment charges, net of income tax – – Indexation adjustment – – Valuation allowance (0.6) – Impact of tax increases 0.3 2.2
AdjustedNetIncome $ 40.0 $ 22.9 Basic Weighted Average Shares Outstanding 177.8 156.7 AdjustedNetIncomepershare $ 0.22 $ 0.15
Franco-Nevada Corporation 2016 Second Quarter Report 7
MD&A
Management’sDiscussionandAnalysis
ThisManagement’sDiscussionandAnalysis(“MD&A”)offinancialpositionandresultsofoperationsofFranco-NevadaCorporation(“Franco-Nevada”,the“Company”,“we”or“our”)hasbeenpreparedbaseduponinformationavailabletoFranco-NevadaasatAugust8,2016andshouldbereadinconjunctionwithFranco-Nevada’sunauditedconsolidatedfinancialstatementsandrelatednotesasatandforthesixmonthsendedJune30,2016and2015.TheunauditedcondensedinterimconsolidatedfinancialstatementsandMD&AarepresentedinU.S.dollarsandhavebeenpreparedinaccordancewithInternationalFinancialReportingStandards(“IFRS”)asissuedbytheInternationalAccountingStandardsBoard(“IASB”)applicabletothepreparationofinterimfinancialstatementsinaccordancewithIAS34,InterimFinancialReporting.
ReadersarecautionedthattheMD&Acontainsforwardlookingstatementsandthatactualeventsmayvaryfrommanagement’sexpectations.Readersareencouragedtoreadthe“CautionaryStatementonForward-LookingInformation”attheendofthisMD&AandtoconsultFranco-Nevada’sauditedconsolidatedfinancialstatementsfortheyearsendedDecember31,2015and2014andthecorrespondingnotestothefinancialstatementswhichareavailableonourwebsiteatwww.franco-nevada.com,onSEDARatwww.sedar.comandinourmostrecentForm40-FfiledwiththeSecuritiesandExchangeCommissiononEDGARatwww.sec.gov.
AdditionalinformationrelatedtoFranco-Nevada,includingourAnnualInformationForm,isavailableonSEDARatwww.sedar.com,andourForm40-FisavailableonEDGARatwww.sec.gov.Thesedocumentscontaindescriptionsandmaps of certain of Franco-Nevada’s producing and advanced royalty and stream assets. For additional information, ourwebsitecanbefoundatwww.franco-nevada.com.
Table of Contents8 Overview
9 Highlights
10 Guidance
11 Selected Financial Information
12 Overview of Financial Performance - Q2 2016 To Q2 2015
22 Overview of Financial Performance - Six Months 2016 To Six Months 2015
30 Financial Condition Review
30 Balance Sheet Review
30 Financial Position, Liquidity and Capital Resources
32 Capital Resources
33 Critical Accounting Estimates
33 New Accounting Standards Issued But Not Yet Effective
33 Outstanding Share Data
34 Internal Control Over Financial Reporting and Disclosure Controls and Procedures
34 Non-IFRS Financial Measures
37 Cautionary Statement on Forward-Looking Information
The Gold Investment thatWORKS FNV TSX NYSE8
OvERvIEWFranco-Nevadaistheleadinggold-focussedroyaltyandstreamcompanybybothgoldrevenueandnumberofgoldassets.TheCompanyhasthelargestandmostdiversifiedportfolioofroyaltiesandstreamsbycommodity,geography,revenuetypeandstageofproject.Theportfolioisactivelymanagedwiththeaimtomaintainover80%ofrevenuefrompreciousmetals(gold,silver&PGMs).
Franco-Nevada Asset Counts at August 8, 2016 Precious Metals Other Minerals Oil & Gas TOTAL
Producing 38 5 59 102Advanced 35 7 – 42Exploration 139 38 19 196
TOTAL 212 50 78 340
TheCompanydoesnotoperatemines,developprojectsorconductexploration.Franco-Nevada’sbusinessmodelisfocusedonmanagingandgrowingitsportfolioofroyaltiesandstreams.Theadvantagesofthisbusinessmodelare:
• Exposuretopreciousmetalspriceoptionality;• Aperpetualdiscoveryoptionoverlargeareasofgeologicallyprospectivelandswithnoadditionalcostotherthantheinitial
investment;• Limitedexposuretomanyoftherisksassociatedwithoperatingcompanies;• Afreecash-flowbusinesswithlimitedcashcalls;• Ahigh-marginbusinessthatcangeneratecashthroughtheentirecommoditycycle;• Ascalableanddiversifiedbusinessinwhichalargenumberofassetscanbemanagedwithasmallstableoverhead;and• Aforward-lookingbusinessinwhichmanagementfocusesongrowthopportunitiesratherthanoperationalordevelopment
issues.
Franco-Nevada’s financial results in the short-term are primarily tied to the price of commodities and the amount of productionfromitsportfolioofproducingassets.Fromtimetotime,financialresultsarealsosupplementedbyacquisitionsofnewproducingassets.Overthelonger-term,resultsareimpactedbytheavailabilityofexplorationanddevelopmentcapitalappliedbyothercompaniestoexpandorextendFranco-Nevada’sproducingassetsortoadvanceFranco-Nevada’sadvanced and exploration assets into production.
Franco-Nevadahasalong-termfocusinmakingitsinvestmentsandrecognizesitisinacyclicalindustry.Franco-Nevadahashistoricallyoperatedbymaintainingastrongbalancesheetsothatitcanmakeinvestmentsduringcommoditycycledownturns.
Franco-Nevada’ssharesarelistedontheTorontoandNewYorkstockexchangesunderthesymbolFNV.AninvestmentinFranco-Nevada’ssharesisexpectedtoprovideinvestorswithyieldandexposuretogoldpriceandexplorationoptionalitywhilelimitingexposuretomanyoftherisksofoperatingcompanies.SinceitsIPOovereightyearsago,Franco-Nevadahasincreaseditsdividendannuallyanditssharepricehasoutperformedthegoldpriceandallrelevantgoldequitybenchmarks.
Franco-Nevada Corporation 2016 Second Quarter Report 9
Franco-Nevada’sRelativeSharePricePerformance
HIgHLIgHTSFinancial-ThreeMonths
• TheCompanyearned112,787GoldEquivalentOunces(“GEOs”)1comparedto83,040GEOsinsecondquarter2015, anincreaseof35.8%;
• Revenueof$150.9millionwasgenerated,anincreaseof37.9%fromthe$109.4milliongeneratedinsecondquarter2015;• AdjustedEBITDA2increased44.7%to$118.9million,or$0.67persharefrom$82.2millionor$0.53pershareinsecond
quarter2015;• TheCompanycontinuedtomaintainastrongMargin2of78.8%comparedto75.1%insecondquarter2015;• Netincomeearnedwas$42.3million,or$0.24persharecomparedtonetincomeof$21.6millionor$0.14persharein
secondquarter2015;• AdjustedNetIncome2earnedwas$40.0million,or$0.22persharecomparedto$22.9millionor$0.15persharein
secondquarter2015;• Operatingcash-flowbeforechangesinnon-cashassetsandliabilitiesof$109.9millionwasgeneratedinthesecond
quartercomparedto$78.0millioninsecondquarter2015;and• Dividendspaidtotaled$39.3millioninthequarterwhichisacombinationofcashandsharesissuedundertheCompany’s
dividend reinvestment plan.
1 GEOsincludeourgold,silver,platinum,palladiumandothermineralassets.GEOsareestimatedonagrossbasisforNSRroyaltiesand,inthecaseofstream ounces,beforethepaymentoftheperouncecontractualpricepaidbytheCompany.ForNPIroyalties,GEOsarecalculatedtakingintoaccounttheNPIeconomics.Silver,platinum,palladiumandothermineralswereconvertedtoGEOsbydividingassociatedrevenue,whichincludessettlementadjustments,bytheaveragegold1GEOsincludeourgold,silver,platinum,palladiumandothermineralassets.GEOsareestimatedonagrossbasisforNSRroyaltiesand,inthecaseofstream ounces,beforethepaymentoftheperouncecontractualpricepaidbytheCompany.ForNPIroyalties,GEOsarecalculatedtakingintoaccounttheNPIeconomics.Silver,platinum,palladiumandothermineralswereconvertedtoGEOsbydividingassociatedrevenue,whichincludessettlementadjustments,bytheaveragegoldpricefortheperiod.ForaveragecommoditypricesusedinthecalculationofGEOs,pleaserefertoaveragecommoditypricetablesonpages12and22ofthisMD&A.
2 AdjustedNetIncome,AdjustedEBITDAandMarginarenon-IFRSfinancialmeasureswithnostandardizedmeaningunderIFRS.Forfurtherinformationand adetailedreconciliation,pleaseseepages34-36ofthisMD&A.
450%
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350%
300%
250%
200%
150%
100%
50%
0%
-50%
-100%
FNV IPO:Dec 2007
2008 2009 2010 2011 2012 2013 2014
FNV
Gold Price
2015 2016
S&P/TSX GlobalGold Index
Chart to June 30, 2016. FNV and S&P/TSX Global Gold Index converted to USD
Outperforming bothGold Equitiesand Gold Itself(Chart to June 30, 2016)
The Gold Investment thatWORKS FNV TSX NYSE10
Financial-SixMonths
• TheCompanyearned219,408GEOscomparedto168,121GEOsinthesameperiodin2015,anincreaseof30.5%;• Revenueof$282.9millionwasgenerated,anincreaseof29.4%fromthe$218.6milliongeneratedinfirstsixmonths
of2015;• AdjustedEBITDA2increased34.5%to$222.6million,or$1.27persharefrom$165.5millionor$1.06persharein
thesameperiodin2015;• TheCompanycontinuedtomaintainastrongMargin2of78.7%comparedto75.9%in2015;• Netincomeearnedwas$72.3million,or$0.41persharecomparedtonetincomeof$40.8millionor$0.26pershare
infirstsixmonthsof2015;• AdjustedNetIncome2earnedwas$68.0million,or$0.39persharecomparedto$45.8millionor$0.30persharein
sameperiodin2015;• Operatingcash-flowbeforechangesinnon-cashassetsandliabilitiesof$209.3millionwasgeneratedinthefirst
twoquartersof2016comparedto$155.9millioninthesameperiodin2015;and• Dividendstotaled$77.8millionforthesixmonthsendedJune30,2016whichincludedcashdividendsof$57.5million
and$20.3millioninissuedcommonsharesundertheCompany’sdividendreinvestmentplan.
Corporate Castle Mountain
OnJune16,2016,Franco-NevadaandNewCastleGoldLtd.completedtherestructuringofFranco-Nevada’sexisting royaltiesattheCastleMountaingoldprojectinCalifornia,U.S.intoasingle2.65%royaltycoveringalargerproperty.
Antapaccay Precious Metals Stream
OnFebruary26,2016,Franco-Nevadacompletedtheacquisitionofa$500.0millionpreciousmetalsstreamfromGlencoreplcwithreferencetoproductionfromtheAntapaccayminelocatedinPeru.Underthestreamagreement,goldandsilverdeliveriesareinitiallyreferencedtocopperinconcentrateshipped.TheCompanywillreceive300ouncesofgoldand4,700ouncesofsilverforeach1,000tonnesofcopperinconcentrateshipped,until630,000ouncesofgoldand10.0millionouncesofsilverhavebeendelivered.Thereafter,theCompanywillreceive30%ofthegoldandsilvershipped.TheCompanywillpayanon-goingpriceof20%ofthespotpriceofgoldandsilveruntil750,000ouncesofrefinedgoldand12.8millionouncesofrefinedsilverhavebeendelivered.Thereafter,theon-goingpricewillincreaseto30%ofthespotpriceofgoldand silver.
Equity Financing
OnFebruary19,2016,theCompanycompletedabought-dealfinancingwithasyndicateofunderwritersfor19.2millioncommonsharesat$47.85percommonshare.ThenetproceedstotheCompanywere$883.5millionafterdeductingshareissuecostsandexpensesof$36.6million.
gUIDANCE Thefollowingcontainsforward-lookingstatementsaboutourguidancefor2016.Referenceshouldbemadetothe“CautionaryStatementonForwardLookingInformation”sectionattheendofthisMD&A.Foradescriptionofmaterialfactorsthatcouldcauseouractualresultstodiffermateriallyfromtheforward-lookingstatementsbelow,pleaseseetheCautionaryStatementandthe“RiskFactors”sectionofourmostrecentAnnualInformationFormfiledwiththeCanadiansecuritiesregulatoryauthoritiesonwww.sedar.comandourmostrecentForm40-FfiledwiththeSecuritiesandExchangeCommissiononwww.sec.gov.
Franco-Nevadarealizedrecordgrowthfromitsmineralassetsforthefirstsixmonthsof2016.Mineralassetscontributed219,408GEOswith$11.4millioninrevenuefromFranco-Nevada’soil&gasassetsforthefirsttwoquartersof2016.Forfiscal2016,Franco-NevadaexpectstoreceiveGEOsfromitsmineralassetsinthehigherendofthepreviouslyannouncedguidancerangeof425,000to445,000GEOs.Inaddition,theCompanyconfirmsitspreviousrevenueguidancerangeforOil&Gasof$15.0millionto$25.0million.Ofthe425,000to445,000GEOs,Franco-Nevadaexpectstoreceive295,000to305,000GEOsunderitsvariousstreamagreementscomparedto222,670GEOsreceivedforfullyear2015.
InforecastingGEOsfortheremainderof2016,gold,silver,platinumandpalladiummetalshavebeenconvertedtoGEOsusingcommoditypricesof$1,325/ozAu,$19.50/ozAg,$1,050/ozPtand$600/ozPd.For2016,theWTIoilpriceisassumedtoaverage$35perbarrelwitha$3.50perbarrelpricedifferentialforCanadianoil.2016guidanceassumesthe continued steady state of operations from our assets.
2 AdjustedNetIncome,AdjustedEBITDAandMarginarenon-IFRSfinancialmeasureswithnostandardizedmeaningunderIFRS.Forfurtherinformationand adetailedreconciliation,pleaseseepages34-36ofthisMD&A.
Franco-Nevada Corporation 2016 Second Quarter Report 11
TheCompanyfunded$37.7milliontowardstheCobrePanamapreciousmetalsstreaminsecondquarter2016andhasnowfunded$376millionofthe$1billioncommitment.TheCompanyexpectstofundapproximately$120.0millionto$140.0millionin2016ofwhich$35-$45millionwillbefundedinthirdquarter2016.
Inaddition,for2016,theCompanyestimatesdepletionanddepreciationexpensetobeapproximately$250.0million to$275.0million.
SelectedFinancialInformation For the For the For the For the ThreeMonths Three Months SixMonths Six Months Ended Ended Ended Ended(in millions, except Average Gold Price, June 30, June 30, June 30, June 30,GEOs, Margin and per share amounts) 2016 2015 2016 2015
StatementofIncomeandOther ComprehensiveIncome(Loss) Revenue $ 150.9 $ 109.4 $ 282.9 $ 218.6Depletion and depreciation 68.2 49.1 133.7 100.8Impairments1 – – – 0.1Operating income 49.0 30.9 85.4 61.3Net income 42.3 21.6 72.3 40.8Basic earnings per share $ 0.24 $ 0.14 $ 0.41 $ 0.26Diluted earnings per share $ 0.24 $ 0.14 $ 0.41 $ 0.26
Dividends declared per share $ 0.22 $ 0.21 $ 0.43 $ 0.41Dividends paid (including DRIP) $ 39.3 $ 32.5 $ 77.8 $ 63.6Weighted average shares outstanding 177.8 156.7 175.2 156.7
Non-IFRSMeasures Average Gold Price $ 1,259 $ 1,193 $ 1,220 $ 1,206GEOs2 112,787 83,040 219,408 168,121Adjusted EBITDA3 $ 118.9 $ 82.2 $ 222.6 $ 165.5Adjusted EBITDA3 per share $ 0.67 $ 0.53 $ 1.27 $ 1.06Margin3 78.8% 75.1% 78.7% 75.9%Adjusted Net Income3 $ 40.0 $ 22.9 $ 68.0 $ 45.8Adjusted Net Income3 per share $ 0.22 $ 0.15 $ 0.39 $ 0.30
StatementofCashFlows Net cash provided by operating activities, before changes in non-cash assets and liabilities $ 109.9 78.0 $ 209.3 155.9Net cash used in investing activities $ (6.9) (25.8 ) $ (488.9) (46.9 )Net cash provided by (used in) financing activities $ (23.8) (24.3 ) $ 381.6 (47.9 ) As at As at June 30, December 31, 2016 2015
StatementofFinancialPosition Cash and cash equivalents $ 225.8 $ 149.2Short-term investments – 18.8Total assets 4,209.9 3,674.3Deferred income tax liabilities 29.8 33.2Total shareholders’ equity 4,157.9 3,163.0
Working capital $ 296.2 $ 253.9Debt $ – $ 457.3
1 Impairments include impairment charges on investments, royalties, streams and working interests.2 For average commodity prices used in calculation of GEOs, please refer to average commodity price tables on pages 12 and 22 of this MD&A. 3 Adjusted EBITDA, Margin and Adjusted Net Income are non-IFRS financial measures with no standardized meaning under IFRS. For further information and a detailed reconciliation,
please see pages 34-36 of this MD&A.
The Gold Investment thatWORKS FNV TSX NYSE12
OvERvIEWOFFINANCIALPERFORMANCE-Q22016TOQ22015
Thepricesofpreciousmetals,oil&gasandtheactualproductionfrommineralandoil&gasassetsarethelargestfactorsindeterminingprofitabilityandcashflowfromoperationsforFranco-Nevada.
AverageCommodityPricesandExchangeRate
Q2 Q1 Q2 QOQ YOY QuarterlyAverages 2016 2016 2015 (Q2’16-Q1’16) (Q2’16-Q2’15)
Gold1 ($/oz) $ 1,259 $ 1,181 $ 1,193 6.6% 5.5% Silver2 ($/oz) 17.17 14.83 16.41 15.8% 4.6% Platinum3 ($/oz) 1,004 914 1,127 9.8% (10.9% ) Palladium3 ($/oz) 568 524 760 8.4% (25.3% )
Edmonton Light C$bbl 55.09 41.17 69.07 33.8% (20.2% ) Quality Differential C$bbl (8.08 ) (8.86 ) (6.74 ) (8.8% ) 19.9% Realized oil price C$bbl 47.01 32.31 62.33 45.5% (24.6% )
ExchangeRate4 CAD/US 0.7761 0.7282 0.8135 6.6% (4.6% )
1 Based on London Bullion Market Association (“LBMA”) Gold Price PM2 Based on LBMA Silver Price3 Based on London PM Fix4 Based on Bank of Canada noon rates
Preciousmetalscommoditypriceshavebeeninavolatileanddecliningstateforanextendedperiodoftimewithpricesonlyrecentlybeginningtorecover.Thegoldpricehasincreasedapproximately25%sincethebeginningoftheyear.
Duringthesecondquarterof2016,averagegoldpricestradedbetween$1,213/ozand$1,325/ozwithanaverageprice of$1,259/oz.Thiscomparestoanaveragegoldpriceof$1,193/ozforthesecondquarterof2015,anincreaseof5.5%, and$1,181/ozforthefirstquarterof2016.Historically,thepriceofgoldhasbeensubjecttovolatilepricemovements overshortperiodsoftimeandisaffectedbynumerousmacroeconomicandindustryfactorsthatarebeyondtheCompany’scontrol.MajorinfluencesonthegoldpriceincludemacroeconomicfactorssuchasthelevelofinterestratesandinflationexpectationsaswellascurrencyexchangeratefluctuationsandtherelativestrengthoftheU.S.dollarandthesupplyofand demand for gold.
Duringsecondquarter2016,platinumandpalladiumpricesaveraged$1,004/ozand$568/ozcomparedto$1,127/oz and$760/ozforthesecondquarterof2015,decreasesof10.9%and25.3%,respectively.Silverpricesaveraged$17.17/oz forsecondquartercomparedto$16.41/ozinsecondquarter2015.
CommoditypricevolatilitynotonlyimpactsoverallrevenuesbutalsoimpactsthenumberofGEOscontributedbynon-goldassetswhenconvertingfromsilver,platinum,palladiumandothermineralstogoldequivalentounces.
Despitethevolatilecommodityprices,ourmineralassetscontinuedtodeliverstrongresultsasthemineralassetsperformedwelldeliveringasignificantincreaseinGEOsovertheprioryear.OneofthestrengthsoftheFranco-Nevadabusinessmodelisthatourbusinessisnotimpactedwhenproducercostsincrease.Royaltyandstreampayments/deliveriesarebasedonproductionlevelsoftheunderlyingoperationswithnoadjustmentsfortheoperator’soperatingcosts,withtheexceptionofNPIroyaltieswhicharebasedontheprofitoftheunderlyingminingoperation.Duringthequarter,NPIroyaltiesaccountedforapproximately4%oftotalrevenues.
Franco-Nevada Corporation 2016 Second Quarter Report 13
gEOProductiongrowth
Gold Equivalent Ounces and Revenue Franco-Nevada’srevenueisgeneratedfromvariousformsofagreements,rangingfromNSRroyalties,streams,NPIroyalties,netroyaltyinterests(“NRI”),workinginterestsandother.For definitions of the various types of agreements, please refer to our most recent Annual Information Form filed on SEDAR at www.sedar.com or our Form 40-F filed on EDGAR at www.sec.gov.
Franco-NevadacontinuedtoseesignificantgrowthinGEOswithmineralassetscontributing112,787GEOsinthesecondquarterof2016,anincreaseof35.8%overthesecondquarterof2015.Revenueforthequarterwas$150.9millioncomparedwith$109.4millionforthesameperiodof2015,anincreaseof37.9%.
TheimpactonrevenueearnedbythegrowthinthenumberofGEOsreceivedwasfurtherenhancedbyhigheraveragegoldand silver prices in second quarter 2016 compared to prior year.
106,621112,787
83,040 85,637
106,312
125,000
105,000
85,000
65,000
45,000
25,000
0Go
ld E
quiv
alen
t Oun
ces
Q1 2016 Q2 2016Q2 2015 Q3 2015 Q4 2015
Other Minerals
PGM
Silver
Gold
OtherMineralsPGM
Silver
Gold
The Gold Investment thatWORKS FNV TSX NYSE14
ThefollowingtableoutlinesGEOsandrevenueattributabletoFranco-NevadaforthethreemonthsendedJune30,2016and2015bycommodity,geographicallocationandtypeofinterest:
Gold Equivalent Ounces1 Revenue (in millions)For the three months ended June 30, 2016 2015 Variance 2016 2015 Variance
Commodity Precious Metals Gold 85,724 68,303 17,421 $ 108.2 $ 81.6 $ 26.6 Silver 18,523 5,116 13,407 23.6 6.1 17.5 PGM 7,053 7,323 (270 ) 9.4 8.7 0.7
Precious Metals - Total 111,300 80,742 30,558 141.2 96.4 44.8Other Minerals 1,487 2,298 (811 ) 1.9 2.7 (0.8 )Oil & Gas – 7.8 10.3 (2.5 )
112,787 83,040 29,747 $ 150.9 $ 109.4 $ 41.5
Geography United States 16,816 15,543 1,273 $ 21.2 $ 18.5 $ 2.7Canada 15,898 12,961 2,937 28.4 25.8 2.6Latin America 60,898 37,602 23,296 76.9 44.9 32.0Rest of World 19,175 16,934 2,241 24.4 20.2 4.2
112,787 83,040 29,747 $ 150.9 $ 109.4 $ 41.5
Type Revenue-based 24,018 24,584 (566 ) $ 30.9 $ 31.5 $ (0.6 )Streams 81,180 52,905 28,275 103.2 63.1 40.1Profit-based 4,225 1,352 2,873 9.9 7.0 2.9Other 3,364 4,199 (835 ) 6.9 7.8 (0.9 )
112,787 83,040 29,747 $ 150.9 $ 109.4 $ 41.5
1 For average commodity prices used in the calculation of GEOs, please refer to average commodity price tables on pages 12 and 22 of this MD&A.
GEOsandrevenuewereearnedfromthefollowingassetclasses:
Gold Equivalent Ounces1 Revenue (in millions)For the three months ended June 30, 2016 2015 Variance 2016 2015 Variance
Commodity Precious Metals United States 16,707 15,389 1,318 $ 21.1 $ 18.4 $ 2.7 Canada 14,919 11,854 3,065 19.5 14.1 5.4 Latin America 60,899 37,602 23,297 76.8 45.0 31.8 Rest of World 18,775 15,897 2,878 23.8 18.9 4.9
Precious Metals - Total 111,300 80,742 30,558 $ 141.2 $ 96.4 $ 44.8Other Minerals 1,487 2,298 (811 ) 1.9 2.7 (0.8 )Oil & Gas 7.8 10.3 (2.5 )
112,787 83,040 29,747 $ 150.9 $ 109.4 $ 41.5
1 For average commodity prices used in calculation of GEOs, please refer to average commodity price tables on pages 12 and 22 of this MD&A.
Ourportfolioiswell-diversifiedwithGEOsandrevenuebeingearnedfrom43mineralassetsand59oil&gasinterests invariousjurisdictions.
Franco-Nevada Corporation 2016 Second Quarter Report 15
GEO Reconciliation - Q2 2015 to Q2 2016
GEOsearnedfrompreciousmetalassetsincreasedby37.8%to111,300GEOsinthesecondquarterof2016from80,742GEOsinthesecondquarterof2015.Revenuefrompreciousmetalassetswas$141.2millioninthesecondquarterof2016comparedwith$96.4millionforthesameperiodas2015.ThelargestcomponentoftheseincreaseswascontributedfromourLatinAmericaassetswhichrealizeda62.0%increaseinGEOsand71.3%increaseinrevenuecomparedtotheprioryear as a result of the acquisitions of the Antamina and Antapaccay streams.
QuarterlyRevenueBreakdown(expressed in millions)
$121.3
$132.0
$150.9
$109.4$103.7
160.0
140.0
120.0
100.0
80.0
60.0
40.0
20.0
Reve
nue
Q1 2016 Q2 2016Q2 2015 Q3 2015 Q4 2015
Oil & Gas
Other
PGM
Silver
Gold
Oil & Gas
Gold
Silver
OtherPGM
GEO Reconciliation – Q2 2015 to Q2 2016
GEOs -
Q2 201
5
PGM asse
ts
Acquis
itions
Gold NPIs
Silver
asse
ts
Gold as
sets
Other m
ineral
s
GEOs -
Q2 201
6
112,787
4,131 1,894 811 270
2,873
33,980
83,040
The Gold Investment thatWORKS FNV TSX NYSE16
Overall,GEOsandrevenueincreasesforthequarterareattributabletothefollowing:
• TheCompanyreceived19,581GEOdeliveriesfromAntapaccay,astreamaddedinfirstquarter2016.Secondquarter2016 represented the first full quarter of deliveries from the asset.
• TheCompanyreceived11,898GEOdeliveriesfromAntamina,anassetaddedtotheportfolioinfourthquarter2015.• TheCompanyreceiveditsfirstfullquarterofdeliveriesfromKarmawith2,500goldouncesbeingreceived.Deliveries
fromKarmaarefixedintheinitialyearsatarateof1,250ouncespermonth.Duetotimingofdeliveries,theCompanyexpectstoreceive5,000goldouncesinthirdquarter2016.
• OurSudburypreciousmetalsassetsdeliveredanadditional1,979GEOscomparedtosecondquarter2015.Thisincreaseisduetohigherplatinumandpalladiumproductionattheminespartiallyoffsetbylowergold,platinumandpalladiumpricesontheconversiontoGEOs.
• Goldstrikedeliveredanadditional3,211GEOscomparedtosecondquarter2015whichconsistsofbothhigherNSRandNPIounces.
• TheabovesignificantincreaseinGEOswerepartiallyoffsetbylowerGEOdeliveriesfromCandelaria(-7,945GEOs)wherelowerdeliverieswereexpectedin2016,BaldMountain(-1,391GEOs)andStillwater(-1,077GEOs)inthequarter.
• Duringthesecondquarterof2016,1,385,191ouncesofsilverweredeliveredfromourCandelaria,Antapaccay,AntaminaandCerroSanPedrointerestswhichwereconvertedtoGEOs.
OtherMineralsgenerated1,487GEOsand$1.9millioninrevenue.
Oil&gasassetsgeneratedrevenueof$7.8millionforthequarter(99%oiland1%gas)comparedwith$10.3millionforthesameperiodof2015(97%oiland3%gas),adecreaseof24.3%.Thedecreaseislargelyduetoloweraverageoilpricesrealizedinthesecondquarterof2016.Productionforthequarterwas3.2%lowerthanthesecondquarterof2015.
RevenuefromtheWeyburnUnitforthequarterdecreasedto$6.7million(2015-$8.3million)with$4.4millionearnedfromtheNRI(2015-$5.3million),$2.0millionearnedfromtheworkinginterest(2015-$2.5million)and$0.3millionearnedfromtheoverridingroyalties(2015-$0.5million).RevenuefromtheWeyburnNRIwaslowerduetothedecreaseintheaverageoilprice.ActualrealizedpricefromtheNRIwasC$46.48/boeforthequarter,down22.8%fromtherealizedpriceofC$60.17/boeforthesecondquarterof2015.
Franco-Nevada Corporation 2016 Second Quarter Report 17
RevenueforthethreeandsixmonthsendedJune30,2016was$150.9million(2015-$109.4million)and$282.9million(2015-$218.6million),respectively,andwascomprisedofthefollowing:
Revenue
Forthethreemonthsended Forthesixmonthsended(expressed in millions) June 30, June 30,
Property Interest 2016 2015 2016 2015
PreciousMetals
UnitedStates Goldstrike NSR 2-4%, NPI 2.4-6% $ 7.4 $ 3.2 $ 13.2 $ 6.0 Stillwater NSR 5% 3.2 4.4 6.4 9.1 Gold Quarry NSR 7.29% 3.7 3.3 6.6 7.7 Marigold NSR 1.75-5%, GR 0.5-4% 2.9 2.0 4.5 3.2 Fire Creek/Midas Fixed to 2018 / NSR 2.5% 2.6 2.9 5.0 4.5 Bald Mountain NSR/GR 0.875-5% 0.5 2.2 0.8 4.4 Mesquite NSR 0.5-2% 0.7 0.3 1.2 0.6 Other 0.1 0.1 0.2 0.2
Canada Sudbury Stream 50% 8.6 5.2 14.4 12.0 Detour Lake NSR 2% 3.4 3.0 6.4 5.5 East Timmins NSR 2-15% 2.6 2.6 4.8 5.6 Musselwhite NPI 5% 1.1 0.8 2.1 1.6 Hemlo NSR 3%, NPI 50% 0.7 0.3 2.5 0.5 Kirkland Lake NSR 2.5-5.5%, NPI 20% 1.3 1.0 2.5 2.3 Timmins West NSR 2.25% 0.8 0.9 1.6 2.0 Canadian Malartic GR 1.5% 0.9 0.3 1.1 0.7 Other 0.1 – 0.1 –
LatinAmerica Antapaccay Stream (indexed) 24.7 – 35.9 –Antamina Stream 22.5% Silver 15.3 – 36.3 –Candelaria Stream 68% 20.3 29.0 42.3 55.7 Palmarejo Stream 50% 15.7 14.9 30.5 30.1 Cerro San Pedro GR 1.95% 0.5 0.8 1.0 1.4 Other 0.3 0.3 0.6 0.6
RestofWorld MWS Stream 25% 7.4 6.4 14.5 13.7 Sabodala Stream 6%, Fixed to 2019 7.2 6.7 13.9 15.8 Subika NSR 2% 1.1 1.0 2.1 2.6 Tasiast NSR 2% 0.7 1.3 2.2 2.6 Karma Stream 4.875%, Fixed to 75koz 3.2 – 4.7 –Duketon NSR 2% 1.5 1.2 3.2 3.2 Edikan NSR 1.5% 0.7 0.5 1.6 1.5 Cooke 4 Stream 7% 0.9 0.9 2.2 1.8 Other 1.1 0.9 2.8 2.9
$ 141.2 $ 96.4 $ 267.2 $ 197.8
OtherMinerals $ 1.9 $ 2.7 $ 4.3 $ 5.0
Oil&gas Weyburn NRI 11.71%, ORR 0.44%, Wl 2.56% 6.7 8.3 9.0 11.7 Midale ORR 1.14%, Wl 1.59% 0.4 0.5 0.7 1.0 Edson ORR 15% 0.2 0.4 0.5 0.9 Other 0.5 1.1 1.2 2.2
$ 7.8 $ 10.3 $ 11.4 $ 15.8
Revenue $ 150.9 $ 109.4 $ 282.9 $ 218.6
The Gold Investment thatWORKS FNV TSX NYSE18
80%
70%
60%
50%
40%
30%
20%
10%
0%
60%
50%
40%
30%
20%
10%
0%
2016 2015 2016 2015
Gold Silver PGM Other Minerals Oil & Gas United States Canada Latin America Rest of World
16%
6%
72%74%
6%8%
1%3%
5%9%
14%17%
19%24%
51%
41%
16%18%
Asstatedearlier,twooftheCompany’sprimaryobjectivesaretobuildadiversifiedportfolioofroyaltiesandstreamsbycommodity,geography,revenuetypeandstageofprojectandmaintainpreciousmetalsrevenueabove80%oftotalrevenue.Forthesecondquarterof2016,preciousmetalsrevenuecomprised94%oftotalrevenuecomparedto88%insecondquarter2015.Inaddition,theCompanygenerated84%ofrevenuefromjurisdictionsintheAmericas,with a long history of mining.
RevenuebyCommodity-ThreeMonthsendingJune30th
Revenuebygeography-ThreeMonthsendingJune30th
80%
70%
60%
50%
40%
30%
20%
10%
0%
60%
50%
40%
30%
20%
10%
0%
2016 2015 2016 2015
Gold Silver PGM Other Minerals Oil & Gas United States Canada Latin America Rest of World
16%
6%
72%74%
6%8%
1%3%
5%9%
14%17%
19%24%
51%
41%
16%18%
Franco-Nevada Corporation 2016 Second Quarter Report 19
CostsandExpensesCostsandexpensesforthesecondquarterwere$101.9millioncomparedto$78.5millioninthesameperiodin2015.ThefollowingtableprovidesalistofthecostsandexpensesincurredforthethreemonthsendedendedJune30,2016and2015. Three months ended June 30, (expressed in millions) 2016 2015 Variance
Costs of sales $ 27.7 $ 24.0 $ 3.7Depletion and depreciation 68.2 49.1 19.1Corporate administration 5.7 4.1 1.6Business development 0.3 1.3 (1.0 )
Subtotal $ 101.9 $ 78.5 $ 23.4
Impairment charges – – –
$ 101.9 $ 78.5 $ 23.4
CostsofSales
Costsofsales,whicharecomprisedofthecostofGEOspurchasedunderstreamagreements,costofprepaidgoldounces,netproceedstaxesonmineralinterests,oil&gasproductiontaxesandoperatingcostsonoil&gasworkinginterestswere$27.7millionforthesecondquarterof2016comparedwith$24.0millionforthesecondquarterof2015. Three months ended June 30, (expressed in millions) 2016 2015 Variance
Cost of stream sales $ 24.5 $ 20.0 $ 4.5Cost of prepaid ounces 1.7 2.2 (0.5 )Mineral production taxes 0.7 0.5 0.2Oil & gas operating costs 0.8 1.3 (0.5 )
$ 27.7 $ 24.0 $ 3.7
Theincreaseof$3.7millionisattributabletomorestreamouncesdeliveredpursuanttothevariousstreamagreementsinthesecondquarterof2016whencomparedto2015.Theongoingstreamcostperouncesareeitherafixedamountperouncedelivered(adjustedforinflationeachyear)oranamountbasedasapercentageofspotpriceofgoldorsilver.TheCompanywasdelivered81,180GEOsunderitsstreamagreementsduringsecondquarter2016comparedto52,905GEOsdeliveredinsecondquarter2015.Oil&gasoperatingcostswerelowerduetoproductionandcostefficienciesimplementedbytheoperators.
CostsofSalesReconciliation-Q22015toQ22016(expressed in millions)
27.7
2.9 0.5 0.5
0.71.2
0.6 0.1
5.0
24.0
Costs of Sales Reconciliation – Q2 2015 to Q2 2016
COS - Q2 2
015
COS - Q2 2
016
Fire C
reek/M
idas
Palmare
jo
Karma
Cande
laria
Antamina
Other, N
et
Antapa
ccay
Oil & Gas
Expe
nses
The Gold Investment thatWORKS FNV TSX NYSE20
Depletion Reconciliation – Q2 2015 to Q2 2016
Deplet
ion -
Q2 201
5
Cande
laria
Sabod
ala
Karma
Antapa
ccay
Antamina
Bald M
ounta
in
Oil & Gas
Other, n
et
Deplet
ion -
Q2 201
6
68.2
4.9 1.5 0.2 1.2
4.92.1
11.9
8.0
49.1
Depletion and DepreciationDepletionanddepreciationtotaled$68.2millionforthequartercomparedto$49.1millionin2015.Themajorityoftheincreaseof$19.1millionisduetotheincreaseddepletionassociatedwiththetwosignificantstreamacquisitionscompletedbytheCompanyinthelast12months.Duringthequarter,theCompanyrecorded$11.9millionindepletionforAntapaccayand$8.0millionforAntamina.Inaddition,$1.7millionincrementaldepletionforGoldstrikewasrecordedduetohigherproductionandtheCompanyrecorded$2.1millionindepletionforKarmawhereinitialdeliverieswerereceived.TheseincreaseswerepartiallyoffsetbylowerdepletiononCandelariaandBaldMountainduetolowerproductionandOil&gasduetotheimpactofaweakerCanadiandollarrelativetotheU.S.dollar.
Depletion Reconciliation - Q2 2015 to Q2 2016(expressed in millions)
Corporate Administration
Corporateadministrationexpensesincreasedto$5.7millioninthequarter,representing3.8%ofrevenue,comparedto$4.1millionin2015.Theincreaseisprimarilyduetohigherboardofdirectors’costsasthedeferredshareunitsearnedbyboardmembersincreasedinvalueduringthequarter.
Three months ended June 30, (expressed in millions) 2016 2015 Variance
Salaries and benefits $ 1.3 $ 1.1 $ 0.2Professional fees 0.5 0.3 0.2Office costs 0.4 0.5 (0.1 )Board of Directors cost 1.1 0.1 1.0Share based compensation 1.3 1.4 (0.1 )Other 1.1 0.7 0.4
$ 5.7 $ 4.1 $ 1.6
BusinessDevelopmentExpenses
Businessdevelopmentexpensesreflectedanexpenseof$0.3millionduetothecapitalizationofexpensestothemineralinterestfollowingtheclosingoftransactions.Timingofincurringthesecoststypicallyvariesdependinguponthelevelofactivityofthebusinessdevelopmentteamandthetimingofcompletingtransactions.
Franco-Nevada Corporation 2016 Second Quarter Report 21
ForeignExchangeandOtherIncome/ExpensesForeignexchangegainsandotherincome/expenseswereanincomeof$4.4millionforQ22016comparedtoanincomeof$1.4millionforQ22015.Thefollowingtableprovidesalistofforeignexchangeincomeandotherincome/expensesincurredforthethreemonthsendedJune30,2016and2015.
Three months ended June 30, (expressed in millions) 2016 2015 Variance
Foreign exchange gain $ – $ 0.7 $ (0.7 )Mark-to-market loss on warrants – (0.1 ) 0.1Gain (Loss) on sale of gold 1.6 (0.1 ) 1.7Gain on sale of investments 2.8 0.9 1.9
$ 4.4 $ 1.4 $ 3.0
Foreign exchange gains and losses include foreign exchange movements related to cash and cash equivalents and investmentsindebtsecurities,suchastreasurybillsandintercompanyloans,heldintheparentcompany,whicharedenominatedineitherU.S.dollarsorMexicanpesos.Theparentcompany’sfunctionalcurrencyistheCanadiandollar.UnderIFRS,allforeignexchangechangesrelatedtomonetaryassetsdenominatedinacurrencyotherthanthefunctionalcurrency are recorded in net income as opposed to other comprehensive income. The gain on sale of gold relates to physical ounces of gold sold from royalty interests.
FinanceIncomeandFinanceExpensesFinanceincomewas$1.0million(2015-$1.1million)forthequarterwhilefinanceexpenseswere$0.8million(2015-$0.5million).
Three months ended June 30, (expressed in millions) 2016 2015 Variance
Finance Income Interest $ 0.9 $ 1.1 $ (0.2 ) Finance Fees 0.1 – 0.1
$ 1.0 $ 1.1 $ (0.1 )
Finance Expenses Standby Charges $ 0.6 $ 0.4 $ 0.2 Amortization 0.2 0.1 0.1
$ 0.8 $ 0.5 $ 0.3
Financeincomeisearnedonourcashequivalentsand/orshort-terminvestments.Interestincomeintheamountof$0.5millionwasaccruedfromtheNorontloanduringQ22016.
IncomeTaxesFranco-Nevadahadanincometaxexpenseof$11.3million(2015-$11.3million)forthequartercomprisedofacurrentincometaxexpenseof$11.6million(2015-$6.1million)andadeferredincometaxrecoveryof$0.3million(2015-deferredincometaxexpenseof$5.2million)relatedtoourCanadianandMexicanentities.
NetIncomeNetincomeforthequarterwas$42.3million,or$0.24pershare,comparedwithanetincomeof$21.6million,or$0.14pershare,forthesameperiodin2015.AdjustedNetIncomewas$40.0million,or$0.22pershare,comparedwith$22.9million,or$0.15pershare,forQ22015.TheincreaseinAdjustedNetIncomewasdrivenprimarilybyhigher revenue due to the recent asset acquisitions.
The Gold Investment thatWORKS FNV TSX NYSE22
QuarterlyFinancialInformation
Selectedquarterlyfinancialinformationfromourfinancialstatementsissetoutbelow:
Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 2016 2016 2015 2015 2015 2015 2014 2014
Revenue $ 150.9 $ 132.0 $ 121.3 $ 103.7 $ 109.4 $ 109.2 $ 123.0 $ 107.6
Costs and expenses1 101.9 95.6 155.7 77.1 78.5 78.8 109.2 61.0Operating income (loss) 49.0 36.4 (34.4 ) 26.6 30.9 30.4 13.8 46.6Other income (expenses) 4.6 1.7 (1.9 ) (2.9 ) 2.0 (2.2 ) (2.0 ) (0.4 )Income tax expense (recovery) 11.3 8.1 (4.9 ) 8.5 11.3 9.0 10.2 13.0Net income (loss) 42.3 30.0 (31.4 ) 15.2 21.6 19.2 1.2 33.2
Basic earnings (loss) per share $ 0.24 $ 0.18 $ (0.20 ) $ 0.10 $ 0.14 $ 0.12 $ 0.00 $ 0.22Diluted earnings (loss) per share $ 0.24 $ 0.18 $ (0.20 ) $ 0.10 $ 0.14 $ 0.12 $ (0.01 ) $ 0.22
Average Gold Price $ 1,259 $ 1,181 $ 1,104 $ 1,124 $ 1,193 $ 1,219 $ 1,200 $ 1,282GEOs2 112,787 106,621 106,312 85,637 83,040 85,081 92,774 70,071Adjusted EBITDA2 118.9 103.7 95.8 78.0 82.2 83.3 96.2 88.7Adjusted EBITDA2 per share $ 0.67 $ 0.62 $ 0.61 $ 0.50 $ 0.53 $ 0.53 $ 0.62 $ 0.59Margin2 78.9% 78.6% 79.0% 75.2% 75.1% 76.3% 78.2% 82.4%Adjusted Net Income2 $ 40.0 $ 28.0 $ 23.7 $ 19.4 $ 22.9 $ 22.9 $ 31.6 $ 34.5Adjusted Net Income2
per share $ 0.22 $ 0.17 $ 0.15 $ 0.12 $ 0.15 $ 0.15 $ 0.20 $ 0.23
1 Includes impairment charges on royalty, stream and working interests.2 GEOs, Adjusted EBITDA, Margin and Adjusted Net Income are non-IFRS measures with no standardized meaning under IFRS. For further information and a detailed
reconciliation, please refer to pages 34-36 of this MD&A.
OvERvIEWOFFINANCIALPERFORMANCE-SIXMONTHS2016TOSIXMONTHS2015Thepricesofpreciousmetals,oilandgasandtheactualproductionfrommineralandoil&gasassetsarethelargestfactorsindeterminingprofitabilityandcashflowfromoperationsforFranco-Nevada.
AverageCommodityPricesandExchangeRate
SixmonthsendedJune30, (expressed in millions) 2016 2015 Variance
Gold1 ($/oz) $ 1,220 $ 1,206 1.2%Silver2 ($/oz) 16.00 16.56 (3.4% )Platinum3 ($/oz) 959 1,160 (17.3% )Palladium3 ($/oz) 546 773 (29.4% )
Edmonton Light C$/bbl 48.13 61.19 (21.3% )Quality Differential C$/bbl (8.58) (8.76 ) (2.1% )Realized oil price C$/bbl 39.55 52.43 (24.6% )
ExchangeRate4 CAD/US 0.7518 0.8097 7.2%
1 Based on London Bullion Market Association (“LBMA”) Gold Price PM2 Based on LBMA Silver Price3 Based on London PM Fix4 Based on Bank of Canada noon rates
Precious metals commodity prices have largely declined in recent years and have only recently started to recover.
Duringthefirstsixmonthsof2016,averagegoldpricestradedbetween$1,077/ozand$1,366/ozwithanaveragepriceof$1,220/oz.Thiscomparestoanaveragegoldpriceof$1,206/ozforthesixmonthsendedJune30,2015.
Franco-Nevada Corporation 2016 Second Quarter Report 23
Gold Equivalent Ounces and Revenue
Franco-NevadacontinuedtoseesignificantgrowthinGEOscontributedwithmineralassetscontributing219,408GEOs inthefirsthalfof2016,anincreaseof30.5%overthefirsthalfof2015.Revenuefortheperiodwas$282.9millioncomparedwith$218.6millionforthesameperiodof2015,anincreaseof29.4%.AlthoughthenumberofGEOscontributedgrew,loweraveragesilver,platinumandpalladiumpricesreducedtheoverallpositiveimpactofthisincreaseonrevenue.
ThefollowingtableoutlinesGEOsandrevenueattributabletoFranco-NevadaforthesixmonthsendedJune30,2016and2015bycommodity,geographicallocationandtypeofinterest:
Gold Equivalent Ounces1 Revenue (in millions)ForthesixmonthsendedJune30, 2016 2015 Variance 2016 2015 Variance
Commodity Precious Metals Gold 162,477 138,813 23,664 $ 199.7 $ 167.5 $ 32.2Silver 41,150 9,793 31,357 50.4 11.9 38.5PGM 12,249 15,306 (3,057 ) 17.0 18.4 (1.4 )
Precious Metals - Total 215,876 163,912 51,964 267.1 197.8 69.3Other Minerals 3,532 4,209 (677 ) 4.4 5.0 (0.6 )Oil & Gas – – – 11.4 15.8 (4.4 )
219,408 168,121 51,287 $ 282.9 $ 218.6 $ 64.3
Geography United States 31,091 29,950 1,141 $ 38.1 $ 36.0 $ 2.1Canada 29,182 26,251 2,931 49.3 47.4 1.9Latin America 119,408 72,561 46,847 146.7 87.8 58.9Rest of World 39,727 39,359 368 48.8 47.4 1.4
219,408 168,121 51,287 $ 282.9 $ 218.6 $ 64.3
Type Revenue-based 47,163 52,279 (5,116 ) $ 59.6 $ 67.2 $ (7.6 )Streams 156,474 106,841 49,633 194.6 129.1 65.5Profit-based 8,891 2,206 6,685 16.2 9.4 6.8Other 6,880 6,795 85 12.5 12.9 (0.4 )
219,408 168,121 51,287 $ 282.9 $ 218.6 $ 64.3
1 For average commodity prices used in the calculation of GEOs, please refer to average commodity price tables on pages 8 and 22 of this MD&A.
GEOsandrevenuewereearnedfromthefollowingassetclasses:
Gold Equivalent Ounces1 Revenue (in millions)ForthesixmonthsendedJune30, 2016 2015 Variance 2016 2015 Variance
Commodity Precious Metals United States 30,873 29,677 1,196 $ 37.7 $ 35.7 $ 2.0Canada 27,171 25,060 2,111 35.5 30.2 5.3Latin America 119,408 72,561 46,847 146.7 87.8 58.9Rest of World 38,424 36,614 1,810 47.2 44.1 3.1
Precious Metals - Total 215,876 163,912 51,964 $ 267.1 $ 197.8 $ 69.3Other Minerals 3,532 4,209 (677 ) 4.4 5.0 (0.6 )Oil & Gas 11.4 15.8 (4.4 )
219,408 168,121 51,287 $ 282.9 $ 218.6 $ 64.3
1 For average commodity prices used in calculation of GEOs, please refer to average commodity price tables on pages 8 and 22 of this MD&A.
The Gold Investment thatWORKS FNV TSX NYSE24
gEOReconciliation-SixMonths2015toSixMonths2016
GEOsearnedfrompreciousmetalassetsincreasedby31.7%to215,876GEOsin2016from163,912GEOsin2015.Revenuefrompreciousmetalassetswas$267.1millionin2016comparedwith$197.8millionforthesameperiodas2015.ThelargestincreasecamefromourLatinAmericanassets.
Overall,GEOsandrevenueincreasesareattributabletothefollowing:
• TheCompanyreceived28,499GEOdeliveriesfromAntapaccay.Thisincludes371,000silverouncesdeliveredandsold bytheCompany.Thisisanewassetfor2016.
• TheCompanyreceived29,679GEOdeliveriesfromAntaminaforthefirstsixmonthsof2016.• ThenewstreamKarmahasdeliveredthreemonthsoffixedouncesthusfarin2016accountingfor3,750GEOs.• TheCompanybenefittedfromtheHemloNPIcontributinganadditional1,559GEOsin2016comparedto2015due
to higher gold prices and stronger production.• Goldstrikedeliveredanadditional5,752GEOscomparedtothefirstsixmonthsof2015whichconsistsofbothhigher
NSRandNPIounces.• TheabovesignificantincreasesinGEOswerepartiallyoffsetbylowerGEOdeliveriesfromCandelaria(-11,024GEOs)
wherelowerdeliverieswereexpectedin2016,BaldMountain(-2,941GEOs)andStillwater(-2,344GEOs)inthefirst six months of 2016.
• DuringthesixmonthsendedJune30,2016,3,132,933ouncesofsilverweredeliveredfromCandelaria,Antapaccay,AntaminaandCerroSanPedrointerestswhichwereconvertedtoGEOs.
OtherMineralsgenerated3,532GEOsand$4.4millioninrevenue.
Oil&gasassetsgeneratedrevenueof$11.4millionforthefirstsixmonthsof2016(98%oiland2%gas)comparedwith$15.8millionfor2015(95%oiland5%gas),adecreaseof27.8%.Thedecreaseisduetoloweraverageoilpricesrealized in2016.Productionforthesixmonthswas3.7%lowerthanforthesameperiodin2015.
RevenuefromtheWeyburnUnitfortheperioddecreasedto$9.0million(2015-$11.7million)with$5.3millionearnedfromtheNRI(2015-$6.8million),$3.2millionearnedfromtheworkinginterest(2015-$4.2million)and$0.5millionearnedfromtheoverridingroyalties(2015-$0.7million).RevenuefromtheWeyburnNRIwaslowerduetothedecrease intheaverageoilprice.ActualrealizedpricefromtheNRIwasC$40.18/boefortheperiod,down23.5%fromtherealizedpriceofC$52.53/boeforthefirsthalfof2015.
ForthesixmonthsendedJune30,2016,preciousmetalsrevenuewas94%oftotalrevenuecomparedto91%in2015. Inaddition,theCompanygenerated83%ofrevenuefromtheAmericas.
GEO Reconciliation – Six Months 2015 to Six Months 2016
GEOs -
Six Mon
ths 20
15
PGM asse
ts
Acquis
itions
Gold NPIs
Silver
asse
ts
Gold as
sets
Other m
ineral
s
GEOs -
Six Mon
ths YTD
2016
219,408
10,401 3,191 3,057 677
6,685
61,928
168,121
Franco-Nevada Corporation 2016 Second Quarter Report 25
RevenuebyCommodity-SixMonthsendingJune30th
Revenuebygeography-SixMonthsendingJune30th
80%
70%
60%
50%
40%
30%
20%
10%
0%
60%
50%
40%
30%
20%
10%
0%
2016 2015 2016 2015
Gold Silver PGM Other Minerals Oil & Gas United States Canada Latin America Rest of World
18%
5%
70%
77%
6%9%
2% 2%4%
7%
14%16% 17%
22%
52%
40%
17%
22%
80%
70%
60%
50%
40%
30%
20%
10%
0%
60%
50%
40%
30%
20%
10%
0%
2016 2015 2016 2015
Gold Silver PGM Other Minerals Oil & Gas United States Canada Latin America Rest of World
18%
5%
70%
77%
6%9%
2% 2%4%
7%
14%16% 17%
22%
52%
40%
17%
22%
The Gold Investment thatWORKS FNV TSX NYSE26
CostsandExpensesCostsandexpensesforthesixmonthsendedJune30,2016were$197.5millioncomparedto$157.3millioninthesameperiodin2015.ThefollowingtableprovidesalistofthecostsandexpensesincurredforthesixmonthsendedJune30,2016and2015. SixmonthsendedJune30, (expressed in millions) 2016 2015 Variance
Costs of sales $ 52.1 $ 46.4 $ 5.7Depletion and depreciation 133.7 100.8 32.9Corporate administration 11.1 8.2 2.9Business development 0.6 1.8 (1.2 )
Subtotal $ 197.5 $ 157.2 $ 40.3
Impairment charges – 0.1 (0.1 )
$ 197.5 $ 157.3 $ 40.2
CostsofSales
Costsofsales,whicharecomprisedofthecostofGEOspurchasedunderstreamagreements,costofprepaidgoldounces,netproceedstaxesonmineralinterests,oil&gasproductiontaxesandoperatingcostsonoil&gasworkinginterestswere$52.1millionforthefirstsixmonthsof2016comparedwith$46.4millionforthesecondquarterof2015. SixmonthsendedJune30, (expressed in millions) 2016 2015 Variance
Cost of stream sales $ 46.2 $ 40.2 $ 6.0Cost of prepaid ounces 3.5 3.3 0.2Production taxes 1.3 1.1 0.2Oil & gas operating costs 1.1 1.8 (0.7 )
$ 52.1 $ 46.4 $ 5.7
Theincreaseof$5.7millionisattributabletomorestreamouncesdeliveredpursuanttothevariousstreamagreementsinthefirstsixmonthsof2016whencomparedto2015.TheCompanywasdelivered156,474GEOsunderitsstreamagreementsduringfirstsixmonthsof2016comparedto106,841GEOsdeliveredinthefirstsixmonthsof2015.Oil&Gasoperatingcostswerelowerduetoproductionandcostefficienciesimplementedbytheoperators.
Franco-Nevada Corporation 2016 Second Quarter Report 27
CostsofSalesReconciliation-SixMonths2015toSixMonths2016(expressed in millions)
Depletion and DepreciationDepletionanddepreciationtotaled$133.7millionforthesixmonthscomparedto$100.8millionin2015.Theincreaseof$32.9millionisdueinparttotheAntaminaacquisition($20.2million),theAntapaccayacquisition($17.3million),andinitialdepletionfortheKarmastreamcostduetotheinitialdeliveriesreceived($3.2million).TheseincreaseswerepartiallyoffsetbylowerdepletiononCandelariaandBaldMountainduetolowerproductionandonOil&GasduetotheimpactofaweakerCanadiandollarrelativetotheU.S.dollar.
DepletionReconciliation-SixMonths2015toSixMonths2016(expressed in millions)
COS - Six
Months
2015
Fire C
reek/M
Idas
Palmare
jo
Antapa
ccay
Antamina
Other, N
et
Oil & Gas
Expe
nses
Cande
laria
Karma
COS - Six
Months
2016
52.1
3.9 0.6
1.70.90.20.10.1
7.2
46.4
Depletion Reconciliation – Six Months 2015 to Six Months 2016
Deplet
ion -
Six mon
ths 20
15
Cande
laria
Sabod
ala
Karma
Antapa
ccay
Antamina
Bald M
ounta
in
Oil & Gas
Other, n
et
Deplet
ion -
Six mon
ths 20
16
133.7
6.73.1 2.0 1.7
3.25.7
17.3
20.2
100.8
The Gold Investment thatWORKS FNV TSX NYSE28
Corporate Administration
Corporateadministrationexpensesincreasedto$11.1millioninthefirstsixmonthsof2016,from$8.2millionin2015.Theincreaseisprimarilyduetohigherboardofdirectors’costsasthedeferredshareunitsearnedbyboardmembersincreasedin value during the quarter.
SixmonthsendedJune30, (expressed in millions) 2016 2015 Variance
Salaries and benefits $ 2.8 $ 2.3 $ 0.5Professional fees 0.7 0.3 0.4Office costs 0.7 0.4 0.3Board of Directors costs 2.2 0.1 2.1Share based compensation 2.4 2.7 (0.3 )Other 2.3 2.4 (0.1 )
$ 11.1 $ 8.2 $ 2.9
BusinessDevelopmentExpenses
Businessdevelopmentexpensesreflectanexpenseof$0.6millionduetothecapitalizationofexpensestothemineralinterestfollowingtheclosingoftransactions.Timingofincurringthesecoststypicallyvariesdependinguponthelevelofactivityofthebusinessdevelopmentteamandthetimingofcompletingtransactions.
ForeignExchangeandOtherIncome/ExpensesForeignexchangelossesandotherincome/expenseswereanincomeof$6.3millionfor2016andalossof$1.2millionfor2015.Thefollowingtableprovidesalistofforeignexchangeincome/lossesandotherexpensesincurredforthesixmonthsendedJune30,2016and2015.
SixmonthsendedJune30, (expressed in millions) 2016 2015 Variance
Foreign exchange loss $ (0.1) $ (1.8 ) $ 1.7Mark-to-market loss on warrants – (0.3 ) 0.3Gain on sale of gold 2.1 – 2.1Gain on sale of investments 4.3 0.9 3.4
$ 6.3 $ (1.2 ) $ 7.5
Foreign exchange gains and losses include foreign exchange movements related to cash and cash equivalents and investmentsindebtsecurities,suchastreasurybillsandintercompanyloans,heldintheparentcompany,whicharedenominatedineitherU.S.dollarsorMexicanpesos.Theparentcompany’sfunctionalcurrencyistheCanadiandollar.UnderIFRS,allforeignexchangechangesrelatedtomonetaryassetsdenominatedinacurrencyotherthanthefunctionalcurrency are recorded in net income as opposed to other comprehensive income.
Franco-Nevada Corporation 2016 Second Quarter Report 29
FinanceIncomeandFinanceExpensesFinanceincomewas$2.1million(2015-$1.9million)forthesixmonthswhilefinanceexpenseswere$2.1million(2015-$0.9million).
SixmonthsendedJune30, (expressed in millions) 2016 2015 Variance
Finance Income Interest $ 1.8 $ 1.9 $ (0.1 ) Finance Fees 0.3 – 0.3
$ 2.1 $ 1.9 $ 0.2
Finance Expenses Standby Charges $ 1.0 $ 0.7 $ 0.3 Interest 0.8 – 0.8 Amortization 0.3 0.2 0.1
$ 2.1 $ 0.9 $ 1.2
Financeincomeisearnedonourcashequivalentsand/orshort-terminvestments.TheincreaseinfinanceincomeisduetofinanceincomeearnedfromtheTrueGoldadditionalfinancingoptionundertheKarmastreamagreement.Interestincomeintheamountof$1.0millionhasbeenaccruedin2016fromtheNorontloan.
Financeexpensesincreasedduetointerestexpenseassociatedwiththe$460.0milliondrawdownofthecreditfacilityin Q42015.Inadditiontothe$0.8millioninterestexpensed,$0.7millionwascapitalizedtotheCobrePanamastreaminterestproject.Theamortizationexpenserelatestoamortizationoftheinitialset-upcostsincurredwithrespecttothecreditfacility.
IncomeTaxesFranco-Nevadahadanincometaxexpenseof$19.4million(2015-$20.3million)forthesixmonthsendedJune30,2016comprisedofacurrentincometaxexpenseof$17.1million(2015-$13.4million)andadeferredincometaxexpenseof $2.3million(2015-$6.9million)relatedtoourCanadianandMexicanentities.
NetIncomeNetincomeforthefirstsixmonthswas$72.3million,or$0.41pershare,comparedwithanetincomeof$40.8million,or$0.26pershare,forthesameperiodin2015.AdjustedNetIncomewas$68.0million,or$0.39pershare,comparedwith$45.8million,or$0.30pershare,for2015.TheincreaseinAdjustedNetIncomewasdrivenprimarilybyhigherrevenue due to recent asset acquisitions.
The Gold Investment thatWORKS FNV TSX NYSE30
FINANCIALCONDITIONREvIEW
SummaryBalanceSheetandKeyFinancialMetrics
As at As at June 30, December 31, (expressed in millions, except ratios) 2016 2015
Total cash and cash equivalents $ 225.8 $ 149.2Current assets 318.4 274.7Non-current assets 3,891.5 3,399.6
Total assets $ 4,209.9 $ 3,674.3
Current liabilities 22.2 20.8Non-current liabilities 29.8 490.5
Total liabilities $ 52.0 $ 511.3
Total shareholders’ equity $ 4,157.9 $ 3,163.0Dividends paid (including DRIP) 77.8 129.0Debt – 457.3Total common shares outstanding 178.1 156.9
Key Financial Ratios Working Capital $ 296.2 $ 253.9Debt to equity – 0.14:1
BalanceSheetReviewTotalassetswere$4,209.9millionatJune30,2016comparedto$3,674.3millionatDecember31,2015.Ourassetbaseisprimarilycomprisedofnon-currentassetssuchasourroyalty,streamandworkinginterests,andcurrentassetsofcashandcashequivalents.Thisreflectsourbusinessstrategyofgrowingadiversifiedportfolioandensuringcashisavailableforfutureacquisitionsanddividends.TotalliabilitiesatJune30,2016were$52.0millionincludingcurrentanddeferredincometaxliabilities.
FINANCIALPOSITION,LIQUIDITyANDCAPITALRESOURCESCashflowgeneratedforthethreeandsixmonthsendedJune30wasasfollows:
ThreemonthsendedJune30, SixmonthsendedJune30,(expressed in millions) 2016 2015 2016 2015
Cash generated from operating activities $ 82.3 $ 60.1 $ 181.4 $ 129.5Cash used in investing activities (6.9) (25.8 ) (488.9) (46.9 )Cash provided by (used in) financing activities (23.8) (24.3 ) 381.6 (47.9 )Effect of exchange rate changes on cash and cash equivalents $ (2.1) $ 2.3 $ 2.5 $ (16.4 )
Change in cash and cash equivalents $ 49.5 $ 12.3 $ 76.6 $ 18.3
OperatingCashFlow
Cashprovidedbyoperatingactivitiesafterchangesinnon-cashassetsandliabilities,relatingtooperatingactivities,was$82.3millionand$60.1millionforthethreemonthsendedJune30,2016and2015,respectively.Cashprovidedbyoperatingactivitiesafterchangesinnon-cashassetsandliabilities,relatingtooperatingactivities,was$181.4millionand$129.5millionforthesixmonthsendedJune30,2016and2015,respectively.Theincreasesareattributabletohigherrevenuesgeneratedinthe quarter as a result of recent Antamina and Antapaccay mineral stream acquisitions.
Franco-Nevada Corporation 2016 Second Quarter Report 31
InvestingActivities
Cashusedininvestingactivitieswas$6.9millionforthequartercomparedto$25.8millioninthesameperiodof2015.ThedecreasewasduetothefundingoftheCobrePanamastreamof$37.7millionbeingmorethanoffsetbyproceedsfromthedispositionofinvestmentsandgoldbullion.
Cashusedininvestingactivitieswas$488.9millionforthesixmonthsendedJune30,2016comparedto$46.9million inthesameperiodof2015.Theincreasewasduetotheacquisitionsofinterestsinmineralpropertiesin2016comparedto2015,inparticulartheAntapaccayacquisitionof$500.0million.
Financing Activities
Netcashusedinfinancingactivitieswas$23.8millionforthequartercomparedtoauseof$24.3millionfor2015.
Netcashprovidedbyfinancingactivitieswas$381.6millionforthefirstsixmonthsof2016comparedtoauseof$47.9millionfor2015.Theincreaseincashprovidedisattributabletothefundsraisedfromtheequityissuanceof19.2millionsharesresultingin$883.5millionnetproceedstotheCompany.Thisinflowoffundswaspartiallyusedtorepaythe$460.0millionthendrawnonthecreditfacility.
CashResourcesandLiquidity
OurperformanceisimpactedbyforeigncurrencyfluctuationsoftheCanadiandollarandAustraliandollarrelativetotheU.S.dollar.ThelargestexposureiswithrespecttotheCanadian/U.S.dollarexchangerateasweholdasignificantamount of our assets in Canada and report our results in U.S. dollars. The effect of this volatility in these currencies against theU.S.dollarimpactsourcorporateadministration,businessdevelopmentexpensesanddepletiononmineralandoil&gasinterests incurred in our Canadian and Australian entities due to their respective functional currencies. The Canadian dollar tradedinarangeof$0.7593to$0.7972,closingthequarterat$0.7687,andtheAustraliandollartradedbetween$0.7176and$0.7801.
AsatJune30,2016,ourcash,cashequivalentsandshort-terminvestmentstotaled$225.8million(December31,2015-$168.0million).Inaddition,weheldinvestmentsatJune30,2016withacombinedvalueof$123.4million(December31,2015-$94.8million),ofwhich$91.4millionwasheldinpubliclytradedequityinstruments(December31,2015-$64.6million).
Management’sobjectiveswhenmanagingcapitalareto:
(a) ensurethepreservationandavailabilityofcapitalbyinvestinginlowriskinvestmentswithhighliquidity;and
(b) ensure that adequate levels of capital are maintained to meet requirements.
Franco-Nevadainvestsitsexcessfundsintermdeposits,treasurybillsoftheU.S.government,Canadianfederalandprovincialgovernmentsandhighqualitycorporatebonds.AsatJune30,2016,themajorityoffundswereheldincashdepositswithseveralfinancialinstitutions.AsatJune30,2016,investmentshadmaturitiesuponacquisitionof92days.Accordingly,asatJune30,2016,theinvestmentswereclassifiedasshort-terminvestments.
Ournear-termcashrequirementsincludefundingoftheCobrePanamacommitments,corporateadministrationcosts,certain costs of operations, payment of dividends and income taxes directly related to the recognition of royalty and stream revenues.Asaroyalty/streamcompany,therearelimitedrequirementsforcapitalexpendituresotherthanfortheacquisitionofadditionalroyalties/streamsandworkinginterests’capitalcommitments.Suchacquisitionsareentirelydiscretionaryandwillbeconsummatedthroughtheuseofcash,asavailable,orthroughtheissuanceofcommonsharesorotherequityordebtsecuritiesoruseofourcreditfacility.Webelievethatourcurrentcashresources,ouravailablecreditfacilityandfuturecashflowswillbesufficienttocoverthecostofourcommitmentsunderthevariousstreamagreements,administrativeexpenses,costsofoperationsanddividendpaymentsfortheforeseeablefuture.
The Gold Investment thatWORKS FNV TSX NYSE32
Ore and Refined Gold Purchase Commitments
ThefollowingtablesummarizesFranco-Nevada’scommitmentstopayforgold,silverandPGMstowhichithasthecontractual right pursuant to the associated precious metals agreements:
Attributable Payable Production to be Purchased Per Ounce Cash Payment 1,2
Term of Date of Interest gold Silver PgM gold Silver PgM Agreement 3 Contract
Antamina 0% 22.5% 4 0% n/a 5% 5 n/a 40 years 7-Oct-15Candelaria 68% 6 68% 6 0% $ 400 $ 4.00 n/a 40 years 6-Oct-14Cobre Panama –% 7 –% 8 0% $ 406 $ 6.09 n/a 45 years 2-Nov-15Karma 4.875% 9 0% 0% 20% 10 n/a n/a 40 years 11-Aug-14Palmarejo 50% 0% 0% $ 400 n/a n/a Life-of-Mine 11 20-Jan-09Guadalupe 50% 0% 0% $ 800 n/a n/a 40 years 2-Oct-14Sabodala 6% 12 0% 0% 20% 13 n/a n/a 40 years 12-Dec-13MWS 25% 0% 0% $ 400 n/a n/a 40 years 14 2-Mar-12Cooke 4 7% 0% 0% $ 400 n/a n/a 40 years 5-Nov-09Sudbury15 50% 0% 50% $ 400 n/a $ 400 40 years 15-Jul-08Antapaccay –% 16 –% 17 0% 20% 18 20% 19 n/a 40 years 10-Feb-16 1 Subject to an annual inflationary adjustment except for Antamina, Karma, Guadalupe, Sabodala and Antapaccay.2 Should the prevailing market price for gold be lower than this amount, the per ounce cash payment will be reduced to the prevailing market price, with the exception of Palmarejo.3 Subject to successive extensions.4 Subject to a fixed payability of 90%. Percentage decreases to 15.0% after 86,000,000 ounces of silver has been delivered under the agreement.5 Purchase price is 5% of the average silver price at the time of delivery.6 Percentage decreases to 40% after 720,000 ounces of gold and 12.0 million ounces of silver have been delivered under the agreement. 7 Gold deliveries are indexed to copper in concentrate produced from the project. 120 ounces of gold per every 1 million pounds of copper produced until 808,000 ounces of gold
delivered. Thereafter 81 ounces of gold per 1 million pounds of copper produced to 1,716,188 ounces of gold delivered, thereafter 63.4% of the gold in concentrate.8 Silver deliveries are indexed to copper in concentrate produced from the project. 1,376 ounces of silver per every 1 million pounds of copper produced until 9,842,000 ounces
of silver delivered. Thereafter 1,776 ounces of silver per 1 million pounds of copper produced to 29,731,000 ounces of silver delivered, thereafter 62.1% of the silver.9 Gold deliveries are fixed at 15,000 ounces per annum from June 30, 2016 until February 28, 2021. Thereafter, percentage is 4.875%.10 Purchase price is 20% of the average gold price at the time of delivery.11 Agreement is capped at 400,000 ounces of gold.12 Gold deliveries are fixed at 1,875 ounces per month until December 31, 2019. Thereafter, percentage is 6% of gold produced.13 Purchase price is 20% of prevailing market price at the time of delivery.14 Agreement is capped at 312,500 ounces of gold.15 The Company is committed to purchase 50% of the precious metals contained in ore from the properties. Cash payment is based on gold equivalent ounces.16 Gold deliveries are referenced to copper in concentrate shipped with 300 ounces of gold delivered for each 1,000 tonnes of copper in concentrate shipped, until 630,000 ounces
of gold has been delivered. Thereafter, percentage is 30% of gold shipped.17 Silver deliveries are referenced to copper in concentrate shipped with 4,700 ounces of silver delivered for each 1,000 tonnes of copper in concentrate shipped, until 10.0 million
ounces of silver has been delivered. Thereafter, percentage is 30% of silver shipped.18 Purchase price is 20% of the spot price of gold until 750,000 ounces of gold has been delivered, thereafter the purchase price is 30% of the spot price of gold.19 Purchase price is 20% of the spot price of silver until 12.8 million ounces of silver has been delivered, thereafter the purchase price is 30% of the spot price of silver.
Cobre Panama Stream Agreement
TheCompanyhasfundingcommitmentsundertheCobrePanamastreamagreementasdescribedintheGuidancesectionabove.
CAPITALRESOURCESAsofAugust8,2016,anamountof$1.0billion,oritsCanadiandollarequivalent,isavailableunderourunsecuredcreditfacility.Advancesunderthefacilitybearinterestdependinguponthecurrencyoftheadvanceandleverageratio.In2015,Franco-Nevadaincreaseditscreditfacilityfrom$500.0millionto$1.0billionandextendedthematuritytoNovember12,2020.AsofAugust8,2016,U.S.andCanadiandollaradvancesunderthefacilitywouldbearinterestratesof3.95%and2.90%,respectively.WecanalsodrawfundsusingLIBOR30-dayratesplus120basispointsunderourcreditfacility.
Standbyfeesof$1.0million(2015-$0.7million),interestof$0.8million(2015-$Nil)andamortizationofissuancecosts of$0.3million(2015-$0.2million)wereincurredandpaidforthesixmonthsendedJune30,2016.
Franco-Nevada Corporation 2016 Second Quarter Report 33
CRITICALACCOUNTINgESTIMATESThepreparationofconsolidatedfinancialstatementsinaccordancewithIFRSrequirestheCompanytomakejudgments,estimatesandassumptionsthataffectthereportedamountsofassetsandliabilitiesanddisclosuresofcontingentassetsandliabilitiesatthedateoftheconsolidatedfinancialstatementsandthereportedamountsofrevenuesandexpensesduringthereportingperiod.Estimatesandassumptionsarecontinuouslyevaluatedandarebasedonmanagement’sbestknowledgeoftherelevantfactsandcircumstances,havingregardtopreviousexperience.However,actualoutcomesmaydifferfromtheamounts included in the consolidated financial statements.
Oursignificantaccountingpoliciesandestimatesaredisclosedinnotes2and3ofourmostrecentannualconsolidatedfinancial statements.
NEWACCOUNTINgSTANDARDSISSUEDBUTNOTyETEFFECTIvE
IAS 12 Income Taxes
IAS12,“Incometaxes”(“IAS12”)providesguidanceontherecognitionofdeferredtaxassets.InJanuary2016,theInternationalAccountingStandardsboardissuedamendmentstoclarifytherequirementsforrecognizingdeferredtaxassetsonunrealizedlosses.Theamendmentsclarifytheaccountingfordeferredtaxwhereanassetismeasuredatfairvalueandthatfairvalueisbelowtheasset’staxbase.Theyalsoclarifycertainotheraspectsofaccountingfordeferredtaxassets.TheamendmentsareeffectiveforannualperiodsbeginningonorafterJanuary1,2017.
TheCompanyiscurrentlyassessingtheimpactofIAS12ontheconsolidatedfinancialstatements.
OUTSTANDINgSHAREDATAFranco-Nevadaisauthorizedtoissueanunlimitednumberofcommonandpreferredshares.Adetaileddescriptionofthe rights, privileges, restrictions and conditions attached to each class of authorized shares is included in our Annual InformationFormfortheyearendedDecember31,2015,acopyofwhichcanbefoundonSEDARatwww.sedar.comand inour40-F,acopyofwhichcanbefoundonEDGARatwww.sec.gov.
AsofAugust8,2016,thenumberofcommonsharesoutstandingorissuablepursuanttootheroutstandingsecuritiesisasfollows:
CommonShares Number
Outstanding 178,099,774Issuable upon exercise of Franco-Nevada warrants1 6,510,538Issuable upon exercise of Franco-Nevada options2 1,071,131Issuable upon exercise of special warrant3 2,000,000Issuable upon vesting of Franco-Nevada RSUs 154,013
Diluted common shares 187,835,456
1 The warrants have an exercise price of C$75.00 per share and an expiry date of June 16, 2017.2 There were 1,071,131 stock options under our share compensation plan outstanding to directors, officers, employees and others with exercise prices ranging from C$15.20
to C$65.76 per share.3 In connection with the transaction with Taseko Mines Limited, one special warrant was granted to Taseko which will be exchangeable into 2,000,000 purchase share warrants
once Taseko’s New Prosperity project gets fully permitted and financed. Each purchase share warrant will entitle Taseko to purchase one Franco-Nevada common share at a price of C$75.00 per share before June 16, 2017. New Prosperity’s most recent permit application was denied in 2014.
Franco-Nevada has not issued any preferred shares.
The Gold Investment thatWORKS FNV TSX NYSE34
INTERNALCONTROLOvERFINANCIALREPORTINgANDDISCLOSURECONTROLSANDPROCEDURESOurChiefExecutiveOfficerandChiefFinancialOfficerareresponsibleforestablishingandmaintainingFranco-Nevada’sinternal control over financial reporting and other financial disclosure and our disclosure controls and procedures.
InternalcontroloverfinancialreportingisaprocessdesignedtoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationoffinancialstatementsforexternalpurposesinaccordancewithIFRS.Franco-Nevada’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenanceofrecordsthat,inreasonabledetail,accuratelyandfairlyreflectthetransactionsanddispositionsoftheassetsofFranco-Nevada;(ii)providereasonableassurancethattransactionsarerecordedasnecessarytopermitpreparationoffinancialstatementsinaccordancewithIFRS,andthatreceiptsandexpendituresofFranco-NevadaarebeingmadeonlyinaccordancewithauthorizationsofmanagementanddirectorsofFranco-Nevada;and(iii)providereasonableassuranceregarding prevention or timely detection of unauthorized acquisition, use or disposition of Franco-Nevada’s assets that could haveamaterialeffectonFranco-Nevada’sfinancialstatements.InternalcontroloverotherfinancialdisclosureisaprocessdesignedtoensurethatotherfinancialinformationincludedinthisMD&A,fairlyrepresentsinallmaterialrespectsthefinancialcondition,resultsofoperationsandcashflowsofFranco-NevadafortheperiodspresentedinthisMD&A.
Franco-Nevada’sdisclosurecontrolsandproceduresaredesignedtoprovidereasonableassurancethatmaterialinformationrelatingtoFranco-Nevada,includingitsconsolidatedsubsidiaries,ismadeknowntomanagementbyotherswithinthoseentities,particularlyduringtheperiodinwhichthisreportispreparedandthatinformationrequiredtobedisclosedbyFranco-Nevadainitsannualfilings,interimfilingsorotherreportsfiledorsubmittedbyitundersecuritieslegislationisrecorded,processed,summarizedandreportedwithinthetimeperiodsspecifiedinsecuritieslegislation.
Duetoitsinherentlimitations,internalcontroloverfinancialreportinganddisclosuremaynotpreventordetectallmisstatements.Also,projectionsofanyevaluationofeffectivenesstofutureperiodsaresubjecttotheriskthatcontrolsmaybecomeinadequatebecauseofchangesinconditions,orthatthedegreeofcompliancewiththepoliciesorproceduresmay change.
ForthesixmonthsendedJune30,2016,therehasbeennochangeinFranco-Nevada’sinternalcontroloverfinancialreportingthathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,Franco-Nevada’sinternalcontroloverfinancial reporting.
NON-IFRSFINANCIALMEASURESAdjustedEBITDAandAdjustedEBITDApershare
AdjustedEBITDAandAdjustedEBITDApersharearenon-IFRSfinancialmeasures,whichexcludethefollowingfromnetincomeandearningspershare(“EPS”):
• Incometaxexpense/recovery;• Financeexpenses;• Financeincome;• Depletionanddepreciation;• Non-cashcostsofsales• Impairmentchargesrelatedtoroyalty,streamandworkinginterestsandinvestments;• Gains/lossesonthesaleofinvestmentsand;• Foreignexchangegains/lossesandotherincome/expenses;
ManagementusesAdjustedEBITDAandAdjustedEBITDApersharetoevaluatetheunderlyingoperatingperformanceoftheCompanyasawholeforthereportingperiodspresented,andtoassistwiththeplanningandforecastingoffutureoperatingresults.ManagementbelievesthatAdjustedEBITDAandAdjustedEBITDApershareallowinvestorsandanalyststobetterevaluatetheresultsoftheunderlyingbusinessoftheCompany.WhiletheadjustmentstonetincomeandEPSinthesemeasuresincludeitemsthatarebothrecurringandnon-recurring,managementbelievesthatAdjustedEBITDAandAdjustedEBITDApershareareusefulmeasuresoftheCompany’sperformancebecauseforeignexchange,gains/lossesonsaleofinvestmentsandimpairmentchargesdonotreflecttheunderlyingoperatingperformanceofourbusinessandarenotnecessarilyindicativeoffutureoperatingresults.AdjustedEBITDAandAdjustedEBITDApershareareintendedtoprovideadditionalinformationtoinvestorsandanalysts,donothaveanystandardizedmeaningunderIFRSandshouldnotbeconsideredinisolationorasasubstituteformeasuresofperformancepreparedinaccordancewithIFRS.
Franco-Nevada Corporation 2016 Second Quarter Report 35
ReconciliationofNetIncometoAdjustedEBITDA:
ThreemonthsendedJune30, SixmonthsendedJune30,expressed in millions, except per share amounts) 2016 2015 2016 2015
NetIncome(Loss) $ 42.3 $ 21.6 $ 72.3 $ 40.8Income tax expense (recovery) 11.3 11.3 19.4 20.3Finance expenses 0.8 0.5 2.1 0.9Finance income (1.0) (1.1 ) (2.1) (1.9 )Depletion and depreciation 68.2 49.1 133.7 100.8Non-cash costs of sales 1.7 2.2 3.5 3.3Impairment charges – – – 0.1
Gains/losses on sale of investments (2.8) (0.9 ) (4.3) (0.9 )Foreign exchange (gains)/losses and other (income)/expenses (1.6) (0.5 ) (2.0) 2.1
AdjustedEBITDA $ 118.9 $ 82.2 $ 222.6 $ 165.5Basic Weighted Average Shares Outstanding 177.8 156.7 175.2 156.7
BasicEPS $ 0.24 $ 0.14 $ 0.41 0.26Income tax expense (recovery) 0.07 0.07 0.11 0.13Finance expenses – – 0.01 0.01Finance income – – (0.01) (0.01 )Depletion and depreciation 0.38 0.31 0.76 0.64Non-cash costs of sales 0.01 0.01 0.02 0.02Impairment charges – – – –
Gain/Losses on sale of investments (0.02) – (0.03) –Foreign exchange (gains)/losses and other (income)/expenses (0.01) – – 0.01
AdjustedEBITDApershare $ 0.67 $ 0.53 $ 1.27 $ 1.06
Margin
Marginisanon-IFRSfinancialmeasurewhichisdefinedbytheCompanyasAdjustedEBITDAdividedbyrevenue.ManagementusesMargintoevaluatetheperformanceoftheCompany’sportfolioandwebelieveMarginprovidesameaningfulmeasureforinvestorsandanalyststoevaluateouroverallabilitytogeneratecashflowfromourroyalty,streamandworkinginterests.Marginisintendedtoprovideadditionalinformation,doesnothaveanystandardizeddefinitionunderIFRSandshouldnotbeconsideredinisolationorasasubstituteforameasureofperformanceinaccordancewithIFRS.
ReconciliationofNetIncometoMargin:
ThreemonthsendedJune30, SixmonthsendedJune30,(expressed in millions, except Margin) 2016 2015 2016 2015
NetIncome(Loss) $ 42.3 $ 21.6 $ 72.3 $ 40.8Income tax expense (recovery) 11.3 11.3 19.4 20.3Finance expenses 0.8 0.5 2.1 0.9Finance income (1.0) (1.1 ) (2.1) (1.9 )Depletion and depreciation 68.2 49.1 133.7 100.8Non-cash costs of sales 1.7 2.2 3.5 3.3Impairment charges – – – 0.1
Gains/losses on sale of investments (2.8) (0.9 ) (4.3) (0.9 )Foreign exchange (gains)/losses and other (income)/expenses (1.6) (0.5 ) (2.0) $ 2.1
AdjustedEBITDA $ 118.9 $ 82.2 $ 222.6 $ 165.5Revenue 150.9 109.4 282.9 218.6Margin 78.8% 75.1% 78.7% 75.9%
The Gold Investment thatWORKS FNV TSX NYSE36
AdjustedNetIncomeandAdjustedNetIncomepershare
AdjustedNetIncomeandAdjustedNetIncomepersharearenon-IFRSfinancialmeasures,whichexcludethefollowingfrom net income and EPS:
• Foreignexchangegains/lossesandotherincome/expenses;• Gains/lossesonthesaleofinvestments;• Impairmentchargesrelatedtoroyalty,streamandworkinginterestsandinvestments;• Unusualnon-recurringitems;• Impactofincometaxesontheseitems.
ManagementusesAdjustedNetIncomeandAdjustedNetIncomepersharetoevaluatetheunderlyingoperatingperformanceoftheCompanyasawholeforthereportingperiodspresented,andtoassistwiththeplanningandforecastingoffutureoperatingresults.ManagementbelievesthatAdjustedNetIncomeandAdjustedNetIncomepershareallowinvestorsandanalyststobetterevaluatetheresultsoftheunderlyingbusinessoftheCompany.WhiletheadjustmentstonetincomeandEPSinthesemeasuresincludeitemsthatarebothrecurringandnon-recurring,managementbelievesthatAdjustedNetIncomeandAdjustedNetIncomepershareareusefulmeasuresoftheCompany’sperformancebecauseforeignexchange,gains/lossesonsaleofinvestmentsandimpairmentchargesdonotreflecttheunderlyingoperatingperformanceofourbusinessandarenotnecessarilyindicativeoffutureoperatingresults.AdjustedNetIncomeandAdjustedNetIncomepershare are intended to provide additional information to investors and analysts, do not have any standardized meaning under IFRSandshouldnotbeconsideredinisolationorasasubstituteformeasuresofperformancepreparedinaccordancewithIFRS.
ReconciliationofNetIncometoAdjustedNetIncome:
ThreemonthsendedJune30, SixmonthsendedJune30,expressed in millions, except per share amounts) 2016 2015 2016 2015
NetIncome(Loss) $ 42.3 $ 21.6 $ 72.3 $ 40.8Foreign exchange (gains)/losses and other (Income)/expenses, net of income tax 0.5 (0.4 ) – –Mark to market change on derivatives, net of income tax – 0.1 0.1 2.7Gain on sale of investments, net of income tax (2.5) (0.6 ) (3.7) 0.2 Impairment charges, net of income tax – – – (0.6 )
Indexation adjustment – – – (0.4 )Valuation allowance (0.6) – (0.7) 0.9Impact of tax increases 0.3 2.2 – 2.2
AdjustedNetIncome $ 40.0 $ 22.9 $ 68.0 $ 45.8Basic Weighted Average Shares Outstanding 177.8 156.7 175.2 156.7
BasicEPS $ 0.24 $ 0.14 $ 0.41 $ 0.26Foreign exchange(gains)/losses and other (income)/expenses, net of income tax – – – 0.02Mark to market change on derivatives, net of income tax – – – –Gain on sale of investments, net of income tax (0.01) (0.01 ) (0.02) (0.01 )
Impairment charges, net of income tax – – – –Indexation adjustment – – – –Valuation allowance (0.01) – – 0.01Impact of tax increases – 0.02 – 0.02
AdjustedNetIncomepershare $ 0.22 $ 0.15 $ 0.39 $ 0.30
Franco-Nevada Corporation 2016 Second Quarter Report 37
CAUTIONARySTATEMENTONFORWARD-LOOKINgINFORMATIONThisMD&Acontains“forward-lookinginformation”and“forward-lookingstatements”withinthemeaningofapplicableCanadiansecuritieslawsandtheUnitedStatesPrivateSecuritiesLitigationReformActof1995,respectively,whichmayinclude,butarenotlimitedto,statementswithrespecttofutureeventsorfutureperformance,management’sexpectationsregardingFranco-Nevada’sgrowth,resultsofoperations,estimatedfuturerevenues,carryingvalueofassets,futuredividends and requirements for additional capital, mineral reserve and mineral resource estimates, production estimates, productioncostsandrevenue,futuredemandforandpricesofcommodities,expectedminingsequences,businessprospectsandopportunities.Inaddition,statements(includingdataintables)relatingtoreservesandresourcesandgoldequivalentouncesareforward-lookingstatements,astheyinvolveimpliedassessment,basedoncertainestimatesandassumptions,andnoassurancecanbegiventhattheestimatesandassumptionsareaccurateandthatsuchreservesandresourcesandgoldequivalentounces(“GEOs”)willberealized.Suchforward-lookingstatementsreflectmanagement’scurrentbeliefsandarebasedoninformationcurrentlyavailabletomanagement.Often,butnotalways,forward-lookingstatementscanbeidentifiedbytheuseofwordssuchas“plans”,“expects”,“isexpected”,“budgets”,“scheduled”,“estimates”,“forecasts”,“predicts”,“projects”,“intends”,“targets”,“aims”,“anticipates”or“believes”orvariations(includingnegativevariations)ofsuchwordsandphrasesormaybeidentifiedbystatementstotheeffectthatcertainactions“may”,“could”,“should”,“would”,“might”or“will”betaken,occurorbeachieved.Forward-lookingstatementsinvolveknownandunknownrisks,uncertaintiesandotherfactors,whichmaycausetheactualresults,performanceorachievementsofFranco-Nevadatobemateriallydifferentfromanyfutureresults,performanceorachievementsexpressedorimpliedbytheforward-lookingstatements.Anumberoffactorscouldcauseactualeventsorresultstodiffermateriallyfromanyforward-lookingstatements,including,withoutlimitation:fluctuationsinthepricesoftheprimarycommoditiesthatdriveroyaltyandstreamrevenue(gold,platinumgroupmetals,copper,nickel,uranium,silver,iron-oreandoil&gas);fluctuationsinthevalueoftheCanadianandAustraliandollarandanyothercurrencyinwhichrevenueisgenerated,relativetotheU.S.dollar; changes in national and local government legislation, including permitting and licensing regimes and taxation policiesandtheenforcementthereof;regulatory,politicaloreconomicdevelopmentsinanyofthecountrieswherepropertiesinwhichFranco-Nevadaholdsaroyalty,streamorotherinterestarelocatedorthroughwhichtheyareheld;risksrelatedtotheoperatorsofthepropertiesinwhichFranco-Nevadaholdsaroyalty,streamorotherinterest,includingchangesintheownershipandcontrolofsuchoperators;influenceofmacroeconomicdevelopments;businessopportunitiesthatbecomeavailableto,orarepursuedbyFranco-Nevada;reducedaccesstodebtandequitycapital;litigation;title,permitorlicensedisputesrelatedtointerestsonanyofthepropertiesinwhichFranco-Nevadaholdsaroyalty,streamorotherinterest;whetherornottheCompanyisdeterminedtohave“passiveforeigninvestmentcompany”(“PFIC”)statusasdefinedinSection1297oftheUnitedStatesInternalRevenueCodeof1986,asamended;potentialchangesinCanadiantaxtreatmentofoffshorestreams;excessivecostescalationaswellasdevelopment,permitting,infrastructure,operatingortechnicaldifficultiesonanyofthepropertiesinwhichFranco-Nevadaholdsaroyalty,streamorotherinterest;actualmineral content may differ from the reserves and resources contained in technical reports; rate and timing of production differencesfromresourceestimates,othertechnicalreportsandmineplans;risksandhazardsassociatedwiththebusinessofdevelopmentandminingonanyofthepropertiesinwhichFranco-Nevadaholdsaroyalty,streamorotherinterest,including,butnotlimitedtounusualorunexpectedgeologicalandmetallurgicalconditions,slopefailuresorcave-ins,floodingandothernaturaldisasters,terrorism,civilunrestoranoutbreakofcontagiousdiseases;andtheintegrationofacquiredassets.Theforward-lookingstatementscontainedinthisMD&Aarebaseduponassumptionsmanagementbelievestobereasonable,including,withoutlimitation:theongoingoperationofthepropertiesinwhichFranco-Nevadaholdsaroyalty,streamorotherinterestbytheownersoroperatorsofsuchpropertiesinamannerconsistentwithpastpractice;theaccuracyofpublicstatementsanddisclosuresmadebytheownersoroperatorsofsuchunderlyingproperties;nomaterialadversechangeinthemarketpriceofthecommoditiesthatunderlietheassetportfolio;theCompany’songoingincomeandassetsrelatingtodeterminationofitsPFICstatus;nomaterialchangestoexistingtaxtreatment;noadversedevelopmentinrespectofanysignificantpropertyinwhichFranco-Nevadaholdsaroyalty,streamorotherinterest;theaccuracyofpubliclydisclosedexpectationsforthedevelopmentofunderlyingpropertiesthatarenotyetinproduction;integrationofacquiredassets;andtheabsenceofanyotherfactorsthatcouldcauseactions,eventsorresultstodifferfromthoseanticipated,estimatedorintended.However,therecanbenoassurancethatforward-lookingstatementswillprovetobeaccurate,asactualresultsandfutureeventscoulddiffermateriallyfromthoseanticipatedinsuchstatements.Investorsarecautionedthatforward-lookingstatementsarenotguaranteesoffutureperformance.Franco-Nevadacannotassureinvestorsthatactualresultswillbeconsistentwiththeseforward-lookingstatementsandinvestorsshouldnotplaceunduerelianceonforward-lookingstatementsduetotheinherentuncertaintytherein.Foradditionalinformationwithrespecttorisks,uncertaintiesandassumptions,pleaserefertoFranco-Nevada’smostrecentAnnualInformationFormfiledwiththeCanadiansecuritiesregulatoryauthoritiesonwww.sedar.comandFranco-Nevada’smostrecentAnnualReportfiledonForm40-FfiledwiththeSEConwww.sec.gov.Theforward-lookingstatementshereinaremadeasofthedateofthisMD&AonlyandFranco-Nevadadoesnotassumeanyobligationtoupdateorrevisethemtoreflectnewinformation,estimatesoropinions,futureeventsorresultsorotherwise,exceptasrequiredbyapplicablelaw.reflectnewinformation,estimatesoropinions,futureeventsorresultsorotherwise,exceptasrequiredbyapplicablelaw.
The Gold Investment thatWORKS FNV TSX NYSE38
Financial StatementsFranco-Nevada Corporation
ConsolidatedStatementsofFinancialPosition(unaudited, in millions of U.S. dollars)
June 30, December 31, 2016 2015
ASSETS Cash and cash equivalents (Note 4) $ 225.8 $ 149.2 Short-term investments (Notes 5 & 8) – 18.8 Receivables (Note 8) 56.4 65.1 Prepaid expenses and other (Note 6) 36.2 41.6
Current assets 318.4 274.7 Royalty, stream and working interests, net 3,720.0 3,257.5 Investments (Notes 5 & 8) 123.4 94.8 Deferred income tax assets 18.8 16.1 Other assets (Note 7) 29.3 31.2
Total assets $ 4,209.9 $ 3,674.3
LIABILITIES Accounts payable and accrued liabilities $ 19.3 $ 18.0 Current income tax liabilities 2.9 2.8
Current liabilities 22.2 20.8 Debt (Note 13) – 457.3 Deferred income tax liabilities 29.8 33.2
Total liabilities 52.0 511.3
SHAREHOLDERS’EQUITy (Note 14) Common shares 4,643.9 3,709.0 Contributed surplus 42.0 44.3 Deficit (307.7) (302.2 )Accumulated other comprehensive loss (220.3) (288.1 )
Total shareholders’ equity 4,157.9 3,163.0
Total liabilities and shareholders’ equity $ 4,209.9 $ 3,674.3
The accompanying notes are an integral part of these interim consolidated financial statements.
Franco-Nevada Corporation 2016 Second Quarter Report 39
Franco-Nevada Corporation
ConsolidatedStatementsofIncomeandComprehensiveIncome(Loss)(unaudited, in millions of U.S. dollars, except per share amounts)
Forthethreemonths Forthesixmonths ended June 30 ended June 30 2016 2015 2016 2015
Revenue (Note 9) $ 150.9 $ 109.4 $ 282.9 $ 218.6
Costsandexpenses Costs of sales (Note 10) 27.7 24.0 52.1 46.4 Depletion and depreciation 68.2 49.1 133.7 100.8 Impairment of royalty, stream and working interests – – – 0.1 Corporate administration (Notes 11 & 14(c)) 5.7 4.1 11.1 8.2 Business development 0.3 1.3 0.6 1.8
101.9 78.5 197.5 157.3
Operating income 49.0 30.9 85.4 61.3
Foreign exchange gain (loss) and other income (expenses) (Note 5) 4.4 1.4 6.3 (1.2 )
Income before finance items and income taxes 53.4 32.3 91.7 60.1
Finance items Finance income 1.0 1.1 2.1 1.9 Finance expenses (0.8) (0.5 ) (2.1) (0.9 )
Netincomebeforeincometaxes 53.6 32.9 91.7 61.1
Income tax expense (Note 12) 11.3 11.3 19.4 20.3
Net income $ 42.3 $ 21.6 $ 72.3 $ 40.8
Othercomprehensiveincome(loss): Itemsthatmaybereclassifiedsubsequentlytoprofitandloss: Unrealized gain (loss) in the market value of available-for-sale investments, net of income tax expense of $0.3 (2015 - income tax expense of $0.4), income tax expense of $0.5 (2015 - income tax recovery of $0.7) (Note 5) 10.8 2.3 26.6 (4.4 ) Realized change in market value of available-for-sale investments (2.8) (0.9 ) (4.3) (0.9 ) Currency translation adjustment (4.0) 14.7 45.5 (74.5 )
Other comprehensive income (loss) 4.0 16.1 67.8 (79.8 )
Totalcomprehensiveincome(loss) $ 46.3 $ 37.7 $ 140.1 $ (39.0 )
Basic earnings per share (Note 15) $ 0.24 $ 0.14 $ 0.41 $ 0.26 Diluted earnings per share (Note 15) $ 0.24 $ 0.14 $ 0.41 $ 0.26 The accompanying notes are an integral part of these interim consolidated financial statements.
The Gold Investment thatWORKS FNV TSX NYSE40
Franco-Nevada Corporation
ConsolidatedStatementsofCashFlows(unaudited, in millions of U.S. dollars)
Forthesixmonthsended June 30 2016 2015 Cashflowsfromoperatingactivities Net income $ 72.3 $ 40.8 Adjustments to reconcile net income to net cash provided by operating activities: Depletion and depreciation 133.7 100.8 Other non-cash items (0.8) 0.2 Gain on sale of investments (Note 5) (4.3) (0.9 ) Non-cash costs of sales (Note 10) 3.5 3.3 Deferred income tax expense (Note 12) 2.3 6.9 Share-based payments (Note 14(c)) 2.4 2.7 Unrealized foreign exchange loss 0.2 1.8 Mark-to-market on warrants (Note 5) – 0.3
209.3 155.9 Changes in non-cash assets and liabilities: Decrease in receivables 8.7 20.9 Increase in prepaid expenses and other (38.0) (43.0 ) Increase (decrease) in current liabilities 1.4 (4.3 )
Net cash provided by operating activities 181.4 129.5
Cashflowsfrominvestingactivities Proceeds from sale of investments 23.6 24.7 Acquisition of investments (1.6) (76.3 ) Proceeds from sale of gold bullion 46.1 26.9 Acquisition of royalty, stream and working interests (555.7) (20.7 ) Purchase of oil & gas well equipment (1.3) (1.5 )
Net cash used in investing activities (488.9) (46.9 )
Cashflowsfromfinancingactivities Net proceeds from issuance of common shares (Note 14) 883.5 – Repayment of Credit Facility (Note 13) (460.0) – Credit facility amendment costs – (1.2 ) Payment of dividends (Note 14(b)) (57.5) (47.2 ) Proceeds from exercise of stock options (Note 14(a)) 15.6 0.5
Net cash provided by (used in) financing activities 381.6 (47.9 )
Effect of exchange rate changes on cash and cash equivalents 2.5 (16.4 )
Net change in cash and cash equivalents 76.6 18.3
Cash and cash equivalents at beginning of period 149.2 592.5
Cash and cash equivalents at end of period $ 225.8 $ 610.8
Supplementalcashflowinformation: Cash paid for interest expense and loan standby fees during the period $ 1.8 $ 0.7 Income taxes paid during the period $ 21.4 $ 20.9
The accompanying notes are an integral part of these interim consolidated financial statements.
Franco-Nevada Corporation 2016 Second Quarter Report 41
Franco-Nevada Corporation
ConsolidatedStatementsofChangesinShareholders’Equity(in millions of U.S. dollars)
Accumulated other Sharecapital Contributed comprehensive Total (Note 14) Surplus income(loss) Deficit Equity
Balance at January 1, 2016 $ 3,709.0 $ 44.3 $ (288.1 ) $ (302.2 ) $ 3,163.0 Net income – – – 72.3 72.3 Other comprehensive income – – 67.8 – 67.8 Total comprehensive income – – – – 140.1 Equity offering 893.9 – – – 893.9 Exercise of stock options 20.7 (5.1 ) – – 15.6 Share-based payments – 2.8 – – 2.8 Dividend reinvestment plan 20.3 – – – 20.3 Dividends declared – – – (77.8 ) (77.8 ) BalanceatJune30,2016 $ 4,643.9 $ 42.0 $ (220.3) $ (307.7) $ 4,157.9
Balance at January 1, 2015 $ 3,656.6 $ 45.5 $ (98.8 ) $ (197.8 ) $ 3,405.5 Net income – – – 40.8 40.8 Other comprehensive loss – – (79.8 ) – (79.8 ) Total comprehensive loss – – – – (39.0 ) Exercise of stock options 1.0 (0.5 ) – – 0.5 Share-based payments – 2.7 – – 2.7 Dividend reinvestment plan 16.5 – – – 16.5 Adjustment to finance costs 0.3 – – – 0.3 Dividends declared – – – (63.6 ) (63.6 ) Balance at June 30, 2015 $ 3,674.4 $ 47.7 $ (178.6 ) $ (220.6 ) $ 3,322.9 The accompanying notes are an integral part of these interim consolidated financial statements.
The Gold Investment thatWORKS FNV TSX NYSE42
Notes to Financial Statements
Note1-CorporateInformation
Franco-NevadaCorporation(“Franco-Nevada”orthe“Company”)isincorporatedundertheCanadaBusinessCorporationsAct.TheCompanyisagold-focusedroyaltyandstreamcompanywithadditionalinterestsinsilver,platinumgroupmetals,oil&gasandotherresourceassets.ThemajorityofrevenuesaregeneratedfromadiversifiedportfolioofpropertiesintheUnitedStates,Canada,Mexico,Peru,ChileandAfrica.Theportfolioincludesapproximately340assetscoveringproperties at various stages from production to early stage exploration.
TheCompany’ssharesarelistedontheTorontoStockExchangeandtheNewYorkStockExchangeandtheCompanyisdomiciledinCanada.TheCompany’sheadandregisteredofficeislocatedat199BayStreet,Suite2000,Toronto,Ontario,Canada.
Note2-SignificantAccountingPolicies
(a) Basis of presentation
ThesecondensedinterimconsolidatedfinancialstatementshavebeenpreparedinaccordancewithInternationalFinancialReportingStandards(“IFRS”)asissuedbytheInternationalAccountingStandardsBoard(“IASB”)applicabletothepreparationofinterimfinancialstatements,includingIAS34“InterimFinancialReporting”.ThesecondensedinterimconsolidatedfinancialstatementsshouldbereadinconjunctionwiththeCompany’sannualfinancialstatementsfortheyearendedDecember31,2015andwerepreparedusingthesameaccountingpolicies,methodofcomputationandpresentationaswereappliedintheannualfinancialstatementsfortheyearendedDecember31,2015.ThesecondensedinterimconsolidatedfinancialstatementswereauthorizedforissuancebytheBoardofDirectorson August8,2016.
Thefinancialinformationincludedhereinreflectsalladjustments,consistingonlyofnormalrecurringadjustmentswhich,intheopinionofmanagement,arenecessaryforafairpresentationoftheresultsfortheinterimperiodspresented. The results of operations for the three and six months ended June 30, 2016 are not necessarily indicative of theresultstobeexpectedforthefullyear.Seasonalityisnotconsideredtohaveasignificantimpactoverthecondensedinterimconsolidatedfinancialstatements.Taxesonincomeintheinterimperiodhavebeenaccruedusingthetaxratesthatwouldbeapplicabletoexpectedtotalannualincome.
(b) New Accounting Standards Issued But Not Yet Effective
IAS12,“Incometaxes”(“IAS12”)providesguidanceontherecognitionofdeferredtaxassets.InJanuary2016theInternationalAccountingStandardsboardissuedamendmentstoclarifytherequirementsforrecognizingdeferredtaxassetsonunrealizedlosses.Theamendmentsclarifytheaccountingfordeferredtaxwhereanassetismeasuredatfairvalueandthatfairvalueisbelowtheasset’staxbase.Theyalsoclarifycertainotheraspectsofaccountingfordeferred taxassets.TheamendmentsareeffectiveforannualperiodsbeginningonorafterJanuary1,2017.
TheCompanyiscurrentlyassessingtheimpactoftheamendmenttoIAS12ontheconsolidatedfinancialstatements.
Franco-Nevada Corporation
CondensedNotestoConsolidatedFinancialStatementsForthethreeandsixmonthsendedJune30,2016and2015(unaudited, expressed in millions of U.S. dollars except share and per share amounts)
Franco-Nevada Corporation 2016 Second Quarter Report 43
Note 3 - Acquisitions
(a) Castle Mountain
OnJune16,2016,Franco-NevadaandNewCastleGoldLtd.completedtherestructuringofFranco-Nevada’sexistingroyaltiesattheCastleMountaingoldprojectinCalifornia,U.S.intoasingle2.65%royaltycoveringalargerpropertyforC$2.2millionincash.
InadditiontheCompanypurchased3,636,364commonsharesofNewCastleand1,818,182commonsharepurchasewarrantsforC$1.2million.EachcommonsharepurchasewarrantisexercisabletoacquireonecommonshareatapriceofC$0.64foraperiodoffiveyears,expiringonMay9,2021.
(b) Antapaccay
OnFebruary26,2016,theCompanyacquireda$500.0millionpreciousmetalsstreamfromGlencoreplcwithreferenceto production from the Antapaccay mine located in Peru. Under the stream agreement, gold and silver deliveries are initiallyreferencedtocopperinconcentrateshipped.TheCompanywillreceive300ouncesofgoldand4,700ounces of silver for each 1,000 tonnes of copper in concentrate shipped, until 630,000 ounces of gold and 10.0 million ounces ofsilverhavebeendelivered.Thereafter,theCompanywillreceive30%ofthegoldandsilvershipped.TheCompanywillpayanon-goingpriceof20%ofthespotpriceofgoldandsilveruntil750,000ouncesofrefinedgoldand12.8millionouncesofrefinedsilverhavebeendelivered.Thereafter,theon-goingpricewillincreaseto30%ofthespotpriceof gold and silver.
Alloftheaboveacquisitionshavebeenclassifiedasassetacquisitions.
Note 4 - Cash and Cash Equivalents
AsatJune30,2016andDecember31,2015,cashandcashequivalentswereprimarilyheldininterest-bearingdeposits
At June 30, At December 31, 2016 2015 Cash deposits $ 194.7 $ 137.9 Term deposits 31.1 11.3
$ 225.8 $ 149.2
Note5-Investments
At June 30, At December 31, 2016 2015 Short-term investments Term deposits $ – $ 18.8 Total short-term investments $ – $ 18.8 Non-current investments Equity investments $ 95.4 $ 68.3 Warrants 0.5 0.1 Loan Receivable 27.5 26.4 Total Investments $ 123.4 $ 94.8
The Gold Investment thatWORKS FNV TSX NYSE44
Non-current investments
Theseinvestmentscomprise:(i)equityinterestsinvariouspublicandnon-publicentitieswhichtheCompanyacquiredthroughtheopenmarketorthroughtransactions;(ii)warrantsinvariouspublicly-listedcompanies;and(iii)aloanreceivablefromNorontacquiredthroughtheRingofFiretransactionin2015.Equityinvestmentshavebeendesignatedasavailable-for-saleand,asaresult,havebeenrecordedatfairvalue.Oneequityinvestmentofanon-publicentity,havingacarryingvalueof$4.0million,hasbeendesignatedasanequityinvestmentheldatcostasnoreliableestimateoffairvaluecanbedeterminedbecausethereisnopubliclyavailableinformationwithwhichtoestimatefuturecashflows,associatedoperatingcostsorcapitalexpendituresandnoalternativeactivemarket.Managementdoesnotintendtodisposeoftheinvestment and expects to recover the carrying value through the payment of dividends.
TheloanreceivablehasbeendesignatedasloansandreceivablesunderIFRSandiscarriedatamortizedcostusingtheeffective interest rate method.
Theunrealizedgains(losses)onavailable-for-saleinvestmentsrecognizedinothercomprehensiveincome(loss)forthe threemonthsandsixmonthsendingJune30,2016and2015wereasfollows:
Threemonthsended Sixmonthsended June 30, June 30, 2016 2015 2016 2015
Mark-to market gain (loss) on equity investments $ 11.1 $ 2.7 $ 27.1 $ (5.1 ) Deferred tax recovery (expense) in other
comprehensive income (loss) (0.3) (0.4 ) (0.5) 0.7
Unrealized gain (loss) on available-for-sale securities, net of tax 10.8 2.3 26.6 (4.4 ) Reclassification for realized gain recognized
in net income (2.8) (0.9 ) (4.3) (0.9 )
$ 8.0 $ 1.4 $ 22.3 $ (5.3 )
TheincreaseinthemarketvalueofthewarrantsasatJune30,2016comparedtotheirvaluesatMarch31,2016andDecember31,2015wasaresultofanacquisitionofnewwarrantsof$0.4million(2015$Nil).
Note6-PrepaidExpensesandOther
Prepaidexpensesandothercomprisethefollowing:
At June 30, At December 31, 2016 2015 Gold bullion $ 10.7 $ 21.0 Prepaid gold 7.0 7.0 Prepaid expenses 17.9 13.6 Debt issue costs 0.6 – $ 36.2 $ 41.6
Note 7 - Other Assets
Otherassetscomprisethefollowing:
At June 30, At December 31, 2016 2015 Prepaid gold $ 10.6 $ 14.1 Oil & gas well equipment, net 16.0 16.4 Furniture and fixtures, net 0.7 0.7 Debt issue costs 2.0 – $ 29.3 $ 31.2
Franco-Nevada Corporation 2016 Second Quarter Report 45
Note8-FairvalueMeasurements
TherewerenotransfersbetweenthelevelsofthefairvaluehierarchyinthesixmonthstoJune30,2016.TherewerealsonochangesmadetoanyofthevaluationtechniquesappliedasofDecember31,2015.Fairvalueisamarket-basedmeasurement,notanentity-specificmeasurement.Forsomeassetsandliabilities,observablemarkettransactionsormarketinformationmightbeavailable.Forotherassetsandliabilities,observablemarkettransactionsandmarketinformationmightnotbeavailable.However,theobjectiveofafairvaluemeasurementinbothcasesisthesame–toestimatetheprice atwhichanorderlytransactiontoselltheassetortotransfertheliabilitywouldtakeplacebetweenmarketparticipantsatthemeasurementdateundercurrentmarketconditions(i.e.anexitpriceatthemeasurementdatefromtheperspective ofamarketparticipantthatholdstheassetorowestheliability).
Thefairvaluehierarchyestablishesthreelevelstoclassifytheinputstovaluationtechniquesusedtomeasurefairvalue.Level1inputsarequotedprices(unadjusted)inactivemarketsforidenticalassetsorliabilities.
Level2inputsarequotedpricesinmarketsthatarenotactive,quotedpricesforsimilarassetsorliabilitiesinactivemarkets,inputsotherthanquotedpricesobservablefortheassetorliability(forexample,interestrateandyieldcurvesobservableatcommonlyquotedintervals,forwardpricingcurvesusedtovaluecurrencyandcommoditycontractsandvolatilitymeasurementsusedtovalueoptioncontracts),orinputsthatarederivedprincipallyfromorcorroboratedbyobservablemarketdataorothermeans.
Level3inputsareunobservable(supportedbylittleornomarketactivity).ThefairvaluehierarchygivesthehighestprioritytoLevel1inputsandthelowestprioritytoLevel3inputs.
Assets and Liabilities Measured at Fair Value on a Recurring Basis:
QuotedPrices Significant inActive Other Significant Marketsfor Observable Unobservable IdenticalAssets Inputs Inputs Aggregate
AsatJune30,2016 (Level1) (Level2) (Level3) Fairvalue
Cash and cash equivalents $ 225.8 $ – $ – $ 225.8 Receivables from provisional gold equivalent sales – 9.3 – 9.3 Available-for-sale equity investments 91.4 – – 91.4 Warrants – 0.5 – 0.5
$ 317.2 $ 9.8 $ – $ 327.0
Quoted Prices Significant in Active Other Significant Markets for Observable Unobservable Identical Assets Inputs Inputs Aggregate
As at December 31, 2015 (Level 1) (Level 2) (Level 3) Fair Value
Cash and cash equivalents $ 149.2 $ – $ – $ 149.2 Short-term investments 18.8 – – 18.8 Receivables from provisional gold equivalent sales – 9.3 – 9.3 Available-for-sale equity investments 64.5 – – 64.5 Warrants – 0.1 – 0.1
$ 232.5 $ 9.4 $ – $ 241.9
The Gold Investment thatWORKS FNV TSX NYSE46
Fair Values of Financial Assets and Liabilities
ThefairvaluesoftheCompany’sremainingfinancialassetsandliabilitieswhichincludereceivables,loanreceivables,accountspayableandaccruedliabilitiesapproximatetheircarryingvaluesduetotheirshort-termnatureandhistoricallynegligiblecreditlossesand/orfairvalueofcollateral.
TheCompanyhasnotoffsetfinancialassetswithfinancialliabilities.
Assets Measured at Fair Value on a Non-Recurring Basis:
Quoted Prices Significant in Active Other Significant Markets for Observable Unobservable Identical Assets Inputs Inputs Aggregate
As at December 31, 2015 (Level 1) (Level 2) (Level 3) Fair Value
Royalty, stream and working interests $ – $ – $ 302.0 $ 302.0 Oil well equipment – – 16.3 16.3
$ – $ – $ 318.3 $ 318.3
Thevaluationtechniquesthatareusedtomeasurefairvalueareasfollows:
(a) Cash and cash equivalents
Thefairvaluesofcashandcashequivalents,includinginterestbearingdeposits,areclassifiedwithinLevel1ofthe fairvaluehierarchybecausetheyarevaluedusingquotedmarketpricesinactivemarkets.
(b) Receivables
Thefairvaluesofreceivablesarisingfromgoldandplatinumgroupmetalsalescontractsthatcontainprovisionalpricingmechanismsaredeterminedusingtheappropriatequotedforwardpricesfromtheexchangethatistheprincipalactivemarketfortheparticularmetal.Assuch,thesereceivablesareclassifiedwithinLevel2ofthefairvaluehierarchy.
(c) Investments
Thefairvaluesofpublicly-tradedinvestments,includingavailable-for-saleequityinvestments,aredeterminedbasedon amarketapproachreflectingtheclosingpricesofeachparticularsecurityatthestatementoffinancialpositiondate. Theclosingpricesarequotedmarketpricesobtainedfromtheexchangethatistheprincipalactivemarketfortheparticularsecurity,andthereforeareclassifiedwithinLevel1ofthefairvaluehierarchy.Warrantsareclassifiedas Level2ofthefairvaluehierarchy.
(d) Royalty, stream, working interests and oil well equipment
Thefairvaluesofroyalty,stream,workinginterestsandoilwellequipmentaredeterminedprimarilyusingamarketapproachusingunobservablediscountedfuturecash-flowsandcash-flowandrevenuemultiples.Asaresult,thefair valuesareclassifiedwithinLevel3ofthefairvaluehierarchy.
Franco-Nevada Corporation 2016 Second Quarter Report 47
Note 9 - Revenue
Revenueiscomprisedofthefollowing:
Threemonthsended Sixmonthsended June 30, June 30, 2016 2015 2016 2015
Mineral royalties $ 37.3 $ 33.1 $ 71.9 $ 69.2 Mineral streams 103.2 63.1 194.6 129.1 Sale of prepaid gold 2.6 2.9 5.0 4.5 Oil & gas interests 7.8 10.3 11.4 15.8
Total $ 150.9 $ 109.4 $ 282.9 $ 218.6
Note10-CostsofSales
Costs of sales comprise:
Threemonthsended Sixmonthsended June 30, June 30, 2016 2015 2016 2015
Per ounce stream purchase cost $ 24.5 $ 20.0 $ 46.2 $ 40.2 Cost of prepaid ounces 1.7 2.2 3.5 3.3
Oil & gas operating costs 0.8 1.3 1.1 1.8 Mineral production taxes 0.7 0.5 1.3 1.1
Total $ 27.7 $ 24.0 $ 52.1 $ 46.4
Note 11 - Related Party Disclosures
KeymanagementpersonnelincludetheBoardofDirectorsandexecutivemanagementteam.CompensationforkeymanagementpersonneloftheCompanywasasfollows:
Threemonthsended Sixmonthsended June 30, June 30, 2016 2015 2016 2015
Short-term benefits1 $ 0.7 $ 0.9 $ 1.4 $ 1.7 Share-based payments2 2.1 0.8 3.8 1.8
Total $ 2.8 $ 1.7 $ 5.2 $ 3.5
1 Includes salary, benefits and short-term accrued incentives/other bonuses earned in the period. 2 Represents the expense of stock options, restricted share units earned and mark-to-market charges on deferred share units during the period.
Note12-Incometaxes
Forthethreemonths Forthesixmonths ended June 30, ended June 30, 2016 2015 2016 2015
Current income tax expense $ 11.6 $ 6.1 $ 17.1 $ 13.4 Deferred income tax expense (recovery) (0.3) 5.2 2.3 6.9
Total $ 11.3 $ 11.3 $ 19.4 $ 20.3
The Gold Investment thatWORKS FNV TSX NYSE48
Note 13 - Revolving Term Credit Facility
TheCompanyhasafiveyear$1.0billionunsecuredrevolvingtermcreditfacility(“CreditFacility”).During2015,theCompanyamendeditsCreditFacilitybyincreasingtheavailablecreditfrom$500.0millionto$1.0billionandextendingthetermtoNovember12,2020.Thefundsweredrawnas30-dayLIBORloanswiththeassociatedinterestratebasedon30-dayLIBORratesplus1.20%.
OnMarch7,2016andMarch21,2016,theCompanyrepaid$230.0millionand$230.0million,respectively,onthecreditfacility(2015-$NIL).SinceMarch21,2016,noamountremainswithdrawnunderthecreditfacilityandtheentire $1.0billionfacilityremainsavailable.
Theunamortizeddebtissuecostsassociatedwiththecreditfacilityareshownunderprepaidexpensesandotherintheamountof$0.6millionandotherassetsintheamountof$2.0million.
Note14-Shareholders’equity
(a) Common shares
TheCompany’sauthorizedcapitalstockincludesanunlimitednumberofcommonshares(issued178,099,774commonshares)havingnoparvalueandpreferredsharesissuableinseries(issuednil).
OnFebruary19,2016,theCompanycompletedaboughtdealfinancingwithasyndicateofunderwritersfor19.2millioncommonsharesat$47.85percommonshare.ThenetproceedstotheCompanywere$883.5millionafterdeductingshareissuecostsandexpensesof$36.6million.TheCompanyrecordedadeferredtaxassetof$10.4millionrelatingtothe share issue costs.
DuringthethreeandsixmonthsendedJune30,2016,theCompanyissued205,892commonshares(2015-5,000commonshares)and517,934commonshares(2015-29,840commonshares),respectively,upontheexerciseofwarrantsandstockoptionsandthevestingofrestrictedshareunitsforproceedsof$5.4million(2015-$0.2million)and$15.6million(2015-$0.5million),respectively.Inaddition,133,416commonshares(2015-190,952)and299,491commonshares(2015-335,893)wereissuedpursuanttothetermsoftheCompany’sDividendReinvestmentPlan(“DRIP”)forthethreeandsixmonthsendedJune30,2016.
(b) Dividends TheCompanydeclareddividendsintheamountof$39.3million(2015-$32.5million),or$0.22pershare(2015-$0.21pershare)and$77.8million(2015-$63.6million),or$0.43pershare(2015-$0.41pershare),inthethree andsixmonthsendedJune30,3016,respectively.TheCompanypaidcashdividendsintheamountof$29.2million(2015-$23.3million)and$57.5million(2015-$47.2million)andissuedcommonsharespursuantititsDRIPvaluedat$10.1million(2015-$9.3million)and$20.3million(2015-$16.5million),inthethreeandsixmonthsended June 30, 2016, respectively.
(c) Stock-based payments DuringthethreeandsixmonthsendedJune30,2016,anexpenseof$1.1million(2015-$1.3million)and$2.4million(2015-$2.7million)relatedtostockoptionsandrestrictedshareunitshasbeenincludedincorporateadministration ontheconsolidatedstatementsofincome.TheCompanycapitalitalized$0.2million(2015-$NIL)and$0.4million(2015-$NIL)toroyalty,stream,andworkinginterest,net,inthethreeandsixmonthsendingJune30,2016,respectively.
2016 Second Quarter Report 49
Note15-EarningsperShare(“EPS”)
For the three months ended June 30, 2016
Earnings Shares PerShare (Numerator) (Denominator) Amount
Basic EPS $ 42.3 177.8 $ 0.24 Effect of dilutive securities – 1.5 –
Diluted EPS $ 42.3 179.3 $ 0.24
For the three months ended June 30, 2015
Earnings Shares Per Share (Numerator) (Denominator) Amount
Basic EPS $ 21.6 156.7 $ 0.14 Effect of dilutive securities – 1.1 –
Diluted EPS $ 21.6 157.8 $ 0.14
ForthesixmonthsendedJune30,2016
Earnings Shares PerShare (Numerator) (Denominator) Amount
Basic EPS $ 72.3 175.2 $ 0.41 Effect of dilutive securities – 1.1 –
Diluted EPS $ 72.3 176.3 $ 0.41
For the six months ended June 30, 2015
Earnings Shares Per Share (Numerator) (Denominator) Amount
Basic EPS $ 40.8 156.7 $ 0.26 Effect of dilutive securities – 1.1 –
Diluted EPS $ 40.8 157.8 $ 0.26
AsatJune30,2016,nostockoptions(2015-NIL)andnowarrants(2015-6,510,769)wereexcludedinthecomputation ofdilutedEPS.Restrictedshareunitstotaling93,955(2015-85,147)wereexcludedfromthecomputationofdilutedEPS for the three and six months ended June 30, 2016 due to the performance criteria for the vesting of the RSUs having not beenmeasurablepriortoJune30,2016.
The Gold Investment thatWORKS FNV TSX NYSE50
CorporateInformation
ExecutiveManagement
David Harquail, President & CEO
Sandip Rana, Chief Financial Officer
Paul Brink, Senior Vice President, Business Development
Lloyd Hong, Chief Legal Officer & Corporate Secretary
Directors
Pierre Lassonde, Chair
David Harquail, President & CEO
Tom Albanese
Derek Evans
Graham Farquharson
Dr. Catharine Farrow
Louis Gignac
Randall Oliphant
Hon. David R. Peterson
InvestorInformation
Stefan Axell, Director, Corporate Affairs
[email protected] www.franco-nevada.com
Tel:(416)306-6328 TollFree:(877)401-3833
Auditors
PricewaterhouseCoopers LLP Toronto, Canada
HeadOffice
199BayStreet,Suite2000,P.O.Box285Commerce Court Postal StationToronto,CanadaM5L1G9Tel:(416)306-6300
BarbadosOffice
GroundFloor,BalmoralHall,BalmoralGap,Hastings,ChristChurch,Barbados,BB14034Tel:(246)434-8200
U.S.Office
1745SheaCenterDrive,Suite400HighlandsRanch,Colorado,USA80129Tel:(720)344-4986
AustraliaOffice
44KingsParkRoad,Suite41WestPerth,WA6005,AustraliaTel:61-8-6263-4425
Listings
TorontoStockExchange - Common shares: FNV
2017Warrants:FNV.WT.AExerciseprice:C$75.00Expiry:June16,2017
NewYorkStockExchange - Common shares: FNV
ShareCapital
AsatAugust8,2016
Commonsharesoutstanding 178,099,774Reserved for: 2017Warrants: 8,510,538 Options&other: 1,225,144 Fullydiluted: 187,835,456
Transfer Agent
Computershare Investor Services Inc.100UniversityAvenue,8thFloorToronto,CanadaM5J2Y1
TollFree:(800)564-6253 Tel:(514)982-7555
TSX/NYSE
FNV
www.franco-nevada.com