Franco-Nevada (TSX: FNV) reported its second-quarter results for 2024, revealing a notable decline in revenue and earnings compared to the same period in 2023. The company’s performance was significantly impacted by the absence of contributions from its Cobre Panama asset, lower production from key mines, and the imposition of new global tax measures.
The firm’s revenue for Q2 2024 stood at $260.1 million, marking a sharp 21% decrease from $329.9 million in Q2 2023. The decline in revenue is primarily attributed to the loss of production from the Cobre Panama mine, which contributed significantly to the company’s income in the previous year but remained in preservation and safe management during the current period.
Paul Brink, CEO of Franco-Nevada, acknowledged the challenges faced during the quarter, noting that while the company benefited from record gold prices, this was not sufficient to offset the lower production from other assets. “Our year-over-year results were lower without the contribution from Cobre Panama and due to lower production at Candelaria and Antapaccay,” Brink stated.
The company’s net income for the quarter was reported at $79.5 million, a steep 57% decline from the $184.5 million reported in Q2 2023. This decrease in net income reflects the overall reduction in revenue, compounded by increased tax expenses resulting from recently enacted global minimum tax measures.
A significant factor affecting Franco-Nevada’s financial performance was the impact of new global tax regulations. The Canadian government, as part of the OECD’s Global Minimum Tax (GMT) initiative, introduced a 15% minimum tax on large multinational enterprises, effective from June 20, 2024. This move, along with similar legislation enacted by the Government of Barbados in May 2024, led to an additional $69.8 million in income tax expenses for the company. Of this amount, $23.9 million was recognized as current tax expense, while $45.9 million was deferred tax expense.
Franco-Nevada continues to derive the majority of its revenue from precious metals, particularly gold. In Q2 2024, gold contributed $156.9 million to the company’s revenue, a decrease from $213.9 million in the same period last year. The total gold equivalent ounces (GEOs) sold for the quarter were 110,264, down 35% year-over-year, with gold accounting for 66,999 GEOs. Other precious metals, including silver and platinum group metals (PGM), also saw declines in both sales volume and revenue.
Despite the decline, Brink expressed optimism about the future, citing the expected ramp-up of production from new mines such as Tocantinzinho, Greenstone, and Salares Norte in the latter half of the year.
“We expect to be at the lower end of our GEO guidance range, taking into account lower relative prices from our other commodities. However, we anticipate stronger contributions from Candelaria and new operations coming online,” Brink explained.
Franco-Nevada’s diversified assets, which include iron ore, oil, gas, and other mining interests, contributed $64.6 million to the company’s revenue, down from $70.7 million in Q2 2023. The oil segment, which is traditionally a strong performer, reported a decrease in revenue to $35.9 million from $36.9 million last year, reflecting lower production volumes.
The company also saw a drop in revenue from gas and natural gas liquids (NGLs), with these segments collectively generating $15 million in Q2 2024, compared to $18.6 million in the previous year.
Yanacocha mine royalty
Despite the challenges, Franco-Nevada continues to expand its portfolio. On August 13, 2024, the company announced the acquisition of a 1.8% net smelter return royalty on Newmont’s Yanacocha mine in Peru. The deal, valued at $210 million in cash plus a contingent payment of $15 million in common shares, is expected to provide immediate GEOs, as Newmont has guided for production of 290,000 gold ounces at Yanacocha in 2024.
Franco-Nevada’s financial position remains robust, with $1.4 billion in cash and cash equivalents as of June 30, 2024, and no debt. The company declared a quarterly dividend of $0.36 per share, reflecting a 5.88% increase.
Looking ahead, Brink highlighted the company’s strategic focus on enhancing production from its existing assets while integrating new acquisitions. However, he also cautioned that revenue from diversified assets may remain below expectations due to revised commodity price assumptions for the remainder of the year.
Franco-Nevada last traded at $171.31 on the TSX.
Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
