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Franco-Nevada Corporation (NYSE:FNV)

Investor Day

March 20, 2013 10:00 am ET

Executives

David Harquail - Chief Executive Officer, President and Director

Sandip Rana - Chief Financial Officer

Paul Brink - Senior Vice President of Business Development

Philip Wilson

H. Geoffrey Waterman - Chief Operating Officer

Lloyd Hyunsoo Hong - Chief Legal Officer and Corporate Secretary

Analysts

Cosmos Chiu - CIBC World Markets Inc., Research Division

David Haughton - BMO Capital Markets Canada

Greg Barnes - TD Securities Equity Research

Brian MacArthur - UBS Investment Bank, Research Division

David Harquail

Good morning. Welcome. So 7:05 this morning with the official start of spring, so Franco-Nevada's proud to be the first Investor Day of the season. So for those of you on the conference call, which is being broadcasted from here, Franco management is doing this from the St. Andrews Conference Center here in Toronto. We have an audience of a little over 50 investors, analysts and management who are here in person for this presentation.

We've provided everybody in this room with an Investor Day handbook that includes some background material, but also the PowerPoint slides covering today's presentations. For those of you online, you can find the same materials on our website.

You might be wondering about the 5 Star logo that we have in our materials. It's our modest way of commemorating that it's now been 5 full years since the new Franco-Nevada did its IPO in December of 2007. It's hard to believe that times gone by so quickly, and if you don't get the feeling from our presentations, we're actually -- absolutely proud and delighted with the performance we've had in the last 5 years.

All these materials contain cautionary language referring to our use of forward-looking statements. For this presentation, you'll find it on Slide #2 of the PowerPoint and on Page 9 of the book. We ask you that you keep that cautionary language in mind as we present today.

With me here today at the St. Andrews Club are the executives and most of the management team for Franco-Nevada. I want to express my appreciation to the team. Most of them had to work through the March break with their kids to get our year-end filings done, and so it's a bit of a sacrifice. And that's the one disadvantage of being a royalty company. We do need to wait for the operators to get most of their disclosure out, but we feel squeezing our results in during March break actually gives us the benefit of reporting on the same fiscal and calendar years as our operators, so we think that makes it easier. There's advantage involved in that. So it's worth the effort.

In terms of what we're going to present today, we're going to have our 2012 numbers that were released yesterday, and Sandip will review those with you today. And we'll also put in context the 5 years of financial performance and our track record. We're also going to, when we start -- stop -- finish looking with the past 5 years, we're also going to look at the future in the next 5 years and give you some of our outlook that we see going forward.

You're going to be -- in terms of the management team that you have here presenting today, you're familiar with most of them. You've seen -- I think the only new face is Lloyd Hong, he's our new Chief Legal Officer. He'll be presenting a few slides today, and I ask you take it easy on him. It's his inaugural presentation.

Most of the agenda's self-explanatory. We're spending a little more time on oil and gas today, not because that's our big strategic aim. But when we look at some of the Street projections, that was the area that seemed to be the least understood among our asset base. And so Geoff Waterman will be spending some time on that today.

We expect our presentations are going to take a bit over an hour. And for those of you that managed to stick with us after the Q&A that will follow, we'll also be providing some sandwiches for those of you here.

And so with that, I'm going ask Sandip to talk about our 2012 results.

Sandip Rana

Thanks, David. Good morning, everyone. As you all seen from the press release we issued after market close yesterday, the company had another stellar quarter and fiscal year 2012. Overall, our assets, our royalty and stream portfolio continued to perform well.

If you turn to Slide 6, we have a comparison here of each of the 4 quarters for 2012, and it's evident that fourth quarter was our best quarter from a revenue standpoint along with the other financial metrics that we use to evaluate performance, being adjusted EBITDA, adjusted net income and cash operating margin percentage.

Obviously, we did benefit from higher gold price in fourth quarter. It averaged at $1,719 per ounce for the quarter. And in fact, gold was somewhat volatile in 2012. It hit a low of $1,540 in May with a high of $1,787 in October. So there was a wide range, but as mentioned, we did benefit in Q4. On a full year basis, fiscal year 2012 surpassed 2011 on all fronts from revenue, adjusted EBITDA and adjusted net income. So as mentioned, a very solid, stellar year for Franco-Nevada financially.

Turning to Slide 7, a bit more detail. We show our IFRS measures as well as our non-IFRS measures, and comparing Q4 2012 to Q4 2011 and full year 2012 to full year 2011. On a revenue basis, we were down slightly in the quarter, approximately $4.4 million. But on a full year basis, we did surpass revenue generated in 2011.

On a net income basis, we did book a loss in the quarter, and that was predominantly due to booking and impairment on our Arctic Gas assets, which I will touch on shortly. So because of that, we do focus on these non-IFRS measures, adjusted EBITDA and adjusted net income.

Just talking a bit about revenue for the year and for the quarter. I would like to point out that in 2011, we did have a minimum at Cooke 4, which was formerly called Ezulwini. And so we did have this minimum in place in 2011, and we don't have it in place in 2012. And as a result, our revenue from that asset was down significantly, which impacted Q4. In addition, in Q4 last year in 2011, we booked a lump sum payment related to our Musselwhite NPI, and that was about $5.2 million versus in 2012. We've booked that each quarter. So there was a slight variance there. In particular for Q4 2012, Palmarejo did deliver less ounces to us than it did in the prior year, so that was a negative on revenue for us. As well, you had the labor disruption in South Africa, which did affect Cooke 4 and Mine Waste Solutions. So those factors together did result in lower revenue in Q4, partially offset by higher oil and gas revenue.

But on a full year basis, we were up $427 million versus $411 million in 2011. And basically, as mentioned, our portfolio continues to perform well. We had additions with acquisitions with Timmins West; we also had new royalties through organic growth with Subika and our Hemlo NPI come into play; as well, we had better production and performance at Goldstrike, Bald Mountain and Golden Highway assets. So those offset the downturn at Palmarejo as well as Mine Waste and Cooke 4. In addition, we did benefit from a higher gold price, but it was up 6.4% in the year.

On an adjusted EBITDA basis, for the quarter, we did $93.7 million versus $94.2 million, so basically flat Q4 2012 versus Q4 2011. Even though revenue was down, EBITDA was basically flat, which is due to less stream ounces and less cost of sales due to the $400 per ounce that we didn't have to pay for those ounces. On a net income basis -- on adjusted net income basis for the quarter, we did $47 million versus $40.8 million. On a full year basis, adjusted EBITDA was $347.8 million versus $327.3 million, and adjusted net income, $171 million versus $136 million. So again, stellar results.

Turning to Slide 8, I would like to talk about the guidance that we did issue last year. Last year, we did give a range of $430 million to $460 million in revenue to be generated in 2012. At that time, we had to basically place a bet on what we thought commodity prices would do. And as you're aware, we had forecast gold to be $1,700 an ounce; platinum, $1,700; palladium, $750; and WTI oil price at $95. While those prices did not -- were not realized, average prices for the year for those commodities were lower across all fronts, which did affect our revenue. But if you look at the production on our properties, they were all in line with expectation, other than obviously Mine Waste Solutions and Cooke 4, where we had labor disruption in Q4. So if you were to -- if average prices had been realized than what we had forecast for 2012, our revenue would have been in excess of $440 million and well within the range that we did provide last year for 2012.

Over the last 5 years, our revenue continues to grow, particularly precious metals revenue, and within that, gold. In 2008, our gold revenue was approximately $70 million. In 2012, it was over $320 million. That's a 350% increase. It's a combination of a number of factors, including commodity price appreciation, organic growth and the acquisitions that we've made over the last 5 years. For 2012, precious metals revenue is 89% of our overall revenue.

In terms of revenue sources, as mentioned, 89% of our revenue for 2012 is from precious metals, with other being 11%. From a geographic standpoint, 83% of our revenue is from North America, with Canada generating 31% of that total, a safe, secure, low-risk jurisdiction. Our other category's at 14%, and that has grown slightly over the last couple of years due to the acquisitions of Mine Waste, Cooke 4 and Subika, Edikan, those royalties coming into play. But still, 83% of our revenue is from North America.

Slide 11 provides a reconciliation of our adjusted net income from 2011 to 2012. The key highlights here is revenue is up from last year for the reasons mentioned previously, with better performance from Goldstrike, Bald Mountain, Golden Highway. New assets coming into play, such as Subika, the Hemlo NPI, acquisition of Timmins West, as well as gold price appreciation. Our finance items have increased as well, $6.5 million, and that is just due to having a larger cash balance on hand, which has been invested and earning a return on those funds. Cost of sales was lower versus last year, again due to lower stream ounces due to Palmarejo, Mine Waste Solutions and Cooke 4, so we had less $400 per ounce to pay. Lower decreasing effective tax rate, which was approximately 28% in 2012, and then lower depletion and depreciation, which is a factor of the assets generating revenue. So overall, our adjusted net income increased from $136 million to $171 million for the year.

Now I did mention we did record some impairments in 2012. Our largest impairment was in Arctic Gas of $74.1 million. When the company went public back in 2007, we did value our Arctic Gas assets at natural gas prices at that time, as well as comparable transactions that had occurred in the market at the time. And based upon that, we had put a value of approximately $77 million on this asset. And over the last 5 years, natural gas prices have decreased significantly, and -- well, that is the commodity cycle. Prices go up, prices go down. But in 2012, the largest interest holder in these assets booked an impairment. And as a result, we reviewed the asset ourselves. And accordingly, based upon current commodity prices and factors as to when the development of these assets will occur, we have booked an impairment as well, as I mentioned, $74.1 million. It is a noncash charge. We still have a long-term option on natural gas in the Arctic of net 428 billion cubic feet of natural gas. In addition in the quarter, we did book an impairment on some of our investments. As you are aware the last year or so, the equity markets have not been kind to resource companies. And accordingly, a number of our investments have decreased in value, and we have booked an impairment of $8.6 million related to those.

We have had a credit facility in place of $175 million. But in January, we had an opportunity to upsize our facility, and we did. We've entered into a new facility for $500 million. It's unsecured, it's a 4-year term, it provides increased flexibility as the covenants are much more flexible, less stringent. In addition, the definitions of debt and other items in the credit facility are much more favorable to us, and so it does increase our flexibility. We do have an option to increase this facility by another $250 million to $750 million. Obviously, that $250 million is subject to banker approval, but the option is there. So it could be upsized to $750 million. As well, the rates that we were achieving in January were very attractive on a LIBOR loan. It would be LIBOR plus 125 basis points, so very attractive pricing. So when you take this credit facility, this new credit facility of $500 million, and you add to our working capital at December 31, 2012, of $822 million and our liquid marketable securities of $74 million, we have approximately $1.4 billion of available capital, and that doesn't include the upsize potential of $250 million on the credit facility.

So 2012 in perspective. As I've mentioned, our revenue over the last 5 years has increased significantly from $150 million to $427 million over those 5 years. Commodity price appreciation, organic growth and acquisitions, it's filtered down to our adjusted net income per share. So we do benefit from gold price appreciation, revenue accretion, it does filter down to a per share basis for our shareholders. And during this time, we have generated significant cash, which we have given back to shareholders. We've raised our dividend every single year. And in 2012, we paid approximately $78 million in dividends. So over the 5 years, we performed very well, as David had mentioned.

I would like to point out that in the appendices to the presentation, we do have schedules detailing our non-IFRS measures, as well as updates to our tax basis on our assets and our net book values for our key assets.

And with that, I will turn it over to Paul.

Paul Brink

Thanks, Sandip. And I'll start out just by introducing some of the members of business development team. Geoff Waterman, you're all familiar with Geoff, that's all of our oil and gas investing. Phil Wilson is our Senior Technical Lead. Phil will be speaking later on, so I won't have him stand up. But 2 other members, Jason O'Connell, maybe if you could stand, Jason? And a new addition to the team, John Graham. Jason has been with a team since shortly after the IPO. John is a new addition to the team. John is most recently from Salida and also has worked in Macquarie prior to that.

The bugbear of this bull cycle in and commodities really has been cost inflation, and we've seen a lot of dollars, about $130 billion in total move into the ETF because it's not exposed to that cost inflation. But there's a segment that outperformed the ETF through the cycle, and that has been the royalty and the streaming segment, albeit a much smaller segment. And one of the reasons for that, it's really twofold: the first is exploration. If you buy an ETF an ounce, an ounce and an ounce, you buy a royalty of streaming company, you're exposed to the potential exploration success on the properties that you hold. And over time, that provides incremental value.

The second area is yield. To hold an ETF, typically you're paying about 40 basis points. With a royalty of streaming company, you get the benefit of a dividend. If it's Franco, that's about a 1.3% yield. So net-net, if you hold a Franco rather than an ETF, you're really getting paid about a 1.7% yield differential, plus you get that exposure to the upside. So we feel over time, there's a lot of potential. Some of those dollars that are sitting in the ETF to move into the royalty and the streaming sector in order to get a better return through the cycle.

Our business in the old Franco was very much investing in royalties. In the new Franco, that business has grown. We still buy royalties from third parties. But more and more, we're helping finance new assets into production through streaming transactions, and there we really are competing with the equity and the debt capital markets and doing that. An advantage that we have, particularly over the debt placers, that we can be a lot more flexible in terms of the structures that we put together, we got some players who got their equity in place and can't get the debt, and they're looking to fill that with the stream. Other people the other way around. They've got some debt, but they don't want to raise equity because they're valuations are too low.

Our advantage is we just have core principles that we stick to and then how we structure the deal can vary. So what are those core principles? The first is, anytime we look into the deposit, we pay top dollar for what's there today and we're confident what will get mined. Where we get a return, and hopefully an above-average return, is we look to participate in the success of the operator. If they are able to add more resource ounces at the property, we look to share in that success.

Second important thing is tenure. Because we're getting a return over a long period of time, we need to make sure we got a secured tenure, and that means being in good countries. Good countries means politically stable countries, countries with a good system of law and countries where you've got an established mining culture and people are welcoming to mining investments.

The next is priority of payment, and we're used to coming from a royalty background that we do get a stream that is a priority payment coming out of the asset. Whenever we're structuring a stream deal, that really is what we're trying to achieve is just to make sure that the payment that we're getting is coming off the top from the revenue stream. Our first dollar is our last in any investment. Really, that means we're not taking the risk on capital costs inflation. Again, another big bugbear in the industry.

And lastly, we have the benefit of a diversified portfolio, with many operators operating our assets. So we -- sales aren't involved in operations. We actively try not to get involved in operations. We are a passive investor. Because we've got a diversified portfolio, we can do that. What it gives us is the luxury that we can spend all out time looking to see where we should invest our dollars, trying to maximize future optionality.

We all understand in the resource sector that real value is created by big discoveries. We also know those big discoveries are extremely hard to come by. In Franco's history, both the old Franco and that new Franco, we've really had 3 big discoveries on our grounds. So if you look at our portfolio, we've got about 200 different mineral interests. So our success rate is about 1 in 70 across our properties. But when you get those big hits, they can be substantial, and that really is what has driven the outperformance of our company. Those examples you know well. The Goldstrike investment, Detour, Tasiast, all of those are investments. Those royalties in each case were created for less than $3 million a piece at the time. For Goldstrike, we've been paid out over $700 million. This year, our revenues coming out of Goldstrike were $55 million. I think the reserve life that we have on the asset is 12 years plus. So you can see that easily, we could get more than $1 billion coming out of that asset.

Looking at Detour there, 23 million ounces in resources. If you just took what is the in-situ value, that's 500,000 ounces to our account on the NSR, $1,500 gold, you're looking at about $0.75 billion in-situ value. Add Tasiast, on top of that, again, the 2 of them is more than $1 billion of in-situ value that's being created.

The one that we don't have in here and it will play out over time really is Cobre Panama. At the time we invested in Cobre Panama, the total resource there was based on 2.3 billion tonnes. Since that investment, they've added the Balboa zone into the reserves, so that has increased them. And then as they've been -- as Inmet has been through the process with First Quantum here, they ran some -- put sensitivities at higher prices. The reserves, when invested were done at $2.25 copper prices, they ran -- put sensitivities up to $3 copper prices. On $3 copper, that resource base goes up to 4.3 billion tonnes. The total in-situ gold and the deposit goes up by 80% from when we invested the total, in-situ copper is up by more than 50%. So there's an asset where, ultimately, the in-situ value that is attributable to us and the increment in that value will probably bigger than Goldstrike, Detour and Subika combined.

It hasn't just been the big wins on those assets. I mean, our story, in a sense, really is a brownfields exploration driven model. So if you think about all those Goldstrike, Detour and Tasiast, all of them, the big discovery wasn't made as a greenfield discovery. Goldstrike was Western States. It was really only after we'd invested that Barrick did the deep drilling that really was a brownfield's big discovery. Similar for Detour. It was an underground mine mined out. The big increase in resources has really been the brownfields. And Tasiast as well. It was a small operation really when the green shifts zone was found. And that brownfield success is something that plays out across our portfolio. So if you look at the assets that we have just at the time that we did the IPO and say, "What's the increase in the reserves and resources been across those assets?" And we're doing -- this is just the total reserves and resource of the 4 property. It's not -- this is not just what's applicable to our royalty. But it gives you a sense for what the quantum is. From the time we invested, reserves have moved up 128%. Now in the meantime, we've also received $750 million in royalty proceeds. So that 128% increase is really net of $750 million that's been produced.

Similarly on the resource, the M&I resource and the inferred resource, strong increases. I actually find this eye-popping when we put the numbers together to realize that we have royalties on total resources. At the time of the IPO, it was 85 million ounces. If you total that, P&P, M&I and inferred, 145 billion ounces of the total resources contained in the properties that we have royalties on. And those are just the assets that we held at IPO, so total properties is way more than that.

That really is speaking much to the operating assets that we have. Again, when you of that exploration success and the chance of exploration success, none of us can really predict where is that future, where is the next big hit going to come from? When we look at the land position that we've got royalties on, for the producing assets, 2.8 million acres is what's covered; advance assets, those looking to come into production the next few years, 700,000. But really, the number that stands out is we've got another 137 royalties on land that cover in total 4.8 million acres. So really, the greatest amount of ground that we cover is really still in those exploration royalties, and that's a huge driver of the optionality that's in our firm. And if you total that up, you add the oil and gas, total acreage that we cover, 9.942 million acres. So we're just 58,000 acres short of being at 10 million. So anybody knows a property that's about 58,000 acres that's willing to sell a royalty, we're very interested.

I made a point before, the -- we have a great latitude and it really comes because we've got a diverse portfolio. And there is a trade-off being a royalty company that you don't control your own destiny. Somebody else is operating those assets. But if you've got a diverse portfolio, if you've got top quality operators operating those assets, you end off being in a far better position that we have the industry's top operators operating the assets for us, it creates a very diverse portfolio. Mining is a tough industry. We know every operator, every asset has its ups and downs. If you can spread your risk across the operators, across the assets, you can end up with a portfolio that year in, year out performs very consistently.

The last 2 acquisitions we did, Cobre Panama and Weyburn, both of those assets will keep producing for more than 40 years, so we've extended the reserve life of our assets. What we've shown here is the reserve life of the assets that's published by the operators. The -- you can see on average, therefore, the gold assets, the average life -- the average mine life there is 23 years; for the oil and gas assets, that's 20 years. And that's as stated today. So I'd reiterate on top of that, with these assets that you've seen in the past, inevitably, these mine lives get extended as more reserves and resources are incorporated into those mine plans.

At the time that we completed our IPO, one of the questions that we had from a lot of investors was to say, "How are you going to replicate what the old Franco did now that there's more competition?" And at the time, Silver Wheaton, Royal Gold competing in our market. Really, that hasn't been an issue. If you look at what we've been able to achieve in the last 2 years, 21 new assets we've added to our portfolio. We've been able to add substantial growth. The other players in the sector been able to add substantial assets. The royalty and streaming business really is one of the fastest-growing areas within the gold equity business, and we expect that to continue.

In total, we've got about $1.4 billion in available capital to spend in new opportunities. The -- and when we look after the environment, what do we see? I guess there are a couple of things, and one is -- and you would have witnessed over the last year, the amount of transactions that have done in the streaming space, the size of transactions that are done in the space, but also the companies that have started to avail themselves of streaming. More and more senior companies have looked at this as a form of financing themselves and recognizing that it is a low-cost way for companies to finance themselves. It is a more flexible way for companies to finance themselves certainly compared with doing debt financing.

So what we see is increased demand for royalty and streaming capital, and that's driven -- part of it is the demand side, part of it is supply side. The supply that we're competing against are the equity capital markets and the debt capital markets. You don't need to tell anybody that the equity markets are tight. The debt markets are tight, too. You do see some banks still participating. But you see them, typically a bank hold positions in facilities that are being put out there are $50 million a piece. Companies are having to do group deals where they're dealing with 4 or 5 banks to put a deal together. Covenant packages are very tight. The banks are not being flexible. People are having issues with restrictive covenants not allowing them to do what they want with their business. So we are getting a lot of interest from CFOs saying can they build themselves off a form of financing that is more flexible than what's available to them.

So the net-net of that is the amount of capital that's being pulled out of the market, and the demand for capital is much more than the total capital that the royalty and streaming companies have to invest in the sector. So the issue we face in the current environment is really not what do we do. It really is what are the opportunities we don't do. So this is a very good environment for us.

With that, I'll hand it over to Phil.

Philip Wilson

Right. Thank you very much, Paul. So to touch on goods and resources, the accretion on the reserve and the resource count is something that we keep an eye on during the course of the year. And we're looking at both in absolute terms, which is just the ounces, then also on a per share basis. So what I'm going to do over the next 4 to 5 slides, I'm just going to give you an update on developments in this area.

So there's 1 or 2 measures that we use to look at the reserves and the resources. That's what we would refer to as a traditional reserve and resource methodology, which essentially is just reporting on a 100% basis the reserves and the resources on the properties in which we have a royalty interest. Now it obviously got some advantages as well as it's disadvantages. The advantages being that it's fairly simple and it's completely transparent. We would only use public data for that thing.

The disadvantage, of course, being that it doesn't really give you a reflection of the attributable share of those ounces to Franco. So that's influenced by factors such as the type of the royalty and the coverage and so on. So the alternative methodology that we look at from time to time is the royalty equivalent units. This concept is something that we introduced last year. It's explained in the asset handbook that we published. So it addresses such factors as the type of the royalty, whether it's an NSR or NPI or whatever. And also the coverage of the royalty on the properties as well, right? And we use that to generate our best estimates of the attributable ounces to Franco's account.

Now this is a -- the asset handbook is being updated as we speak. It's a work in progress. It's quite time-consuming, so it's not available to us at the moment. So what we -- and what we're going to have to do today is look at the alternative methodology, which is the traditional 100% basis reporting. So the following slides are used in these things. Everything that we're going to see now is on a 100% basis.

So if you turn to Slide #27, so what we're seeing here is a comparison of 2011 versus 2012 by category. So we've got -- we can see that the proven and probable, we're looking at an increase of 17% compared with this time last year. On the measured and indicated, which is obviously exclusive of the proven and probable, in this slide is pretty well the same, and we see the more modest increase on the inferred resource there of 6%.

Just a couple of points I want to emphasize on this chart. This is gold only. We're not showing gold equivalents. There's no PGMs in there or anything like that. And the tables were cut off as of the 15th of March, so there's still a couple of operators that haven't declared their resources at this stage. So this -- just a glance at this chart shows that compared with last year, we definitely demonstrated accretion on this measure.

We turn then to Slide 28, we'll just look at some of the drivers behind this one. So Cobre Panama, we've discussed already, but there are some others in there which are quite interesting. Then in Australia, we have Duketon. They've added just over 1 million ounces across all categories this year -- last year, rather. But more importantly, we've announced during 2013, they're going to build that third mine in the property, which is the Rosemont mine.

A little closer to home, we've got Marigold and Hemlo, both mature operations, with both adding quite substantial ounces to the account this year. Marigold is over 2.5 million ounces from a year ago across all the categories, and at Hemlo is just under 1.5 million ounces but mainly in the resources. Then in Argentina, Taca Taca, the guys that are working on that project and there's over 3 million ounces added on the resource base from a year ago.

And then the last one there on the list is Pandora. It's not included in any of the charts that we'll discuss because it's platinum, but they're doing a fantastic job there. There's more than 7 million ounces added to the resources from a year ago. So it's certainly worth a mention on this forum.

So that's it on 2011 versus 2012. But if we look at Slide 29, right, we've got a -- having a look at the history back to 2007, right, where the IPO was, and you can see that the growth in all categories has been quite pleasing. If you were to look into that in a little bit more detail, you'd see that roughly 50% of that growth is through acquisitions and roughly 50% of it is through generic growth, which is exploration success and a little bit of price effect and so forth. A couple of notes on this one, again, it's gold only. There's no gold equivalents in this, no PGMs on this one. And there's 2 sizable exclusions from this. We're not including Gold Quarry in this count and we're not including New Prosperity in this count. So again, we've demonstrated that we are achieving accretion on an absolute ounce count measure from -- sustainable from 2007 right through 2012.

We turn then to Slide #30. We're looking at the accretion on a per share basis because obviously, we've issued additional shares since 2007. The Y axis on this slide now is percentage growth per share rather on the previous slide, where we're just looking at the total ounces in millions. And you can see that on the proven and probable, we've had over 113% increase in the per share basis. And on the oil resources, again, it's almost 80% increase on a per share basis. The numbers behind that, proven and probable, were sitting at roughly 0.78 ounces of gold per share. And on the measured and indicated and inferred, it's about 1.81 ounces per share of gold. So on a per share basis again, we're pleased that we're able to demonstrate accretion.

The final slide here is just a reminder that we do have the asset handbook, which gives quite a lot of information about the properties with which we're involved, and there's an update expected in the second quarter this year. And also just a comment on optionality really. The numbers in the tables we've been looking at are based on a 52 or 53 gold assets only. In addition to that, we have something like 115 gold exploration projects, 5 platinum plays , there's nearly 30 base metal and iron projects, there's several hundred oil and gas things, which Geoff will touch on later, and then obviously, there's what we're going to achieve from the deployment of the $1.4 billion of capital available to us.

So with that, I'll hand you over to Geoff Waterman to talk about oil and gas.

H. Geoffrey Waterman

Thank you, Phil, and good morning, everyone. Let's talk about oil and gas. Our oil and gas portfolio is a very diversified portfolio with a long reserve life. We have exposure to oil, dry gas, gas with liquids, but all located in Canada. We have 137 royalty and working interests, and we receive production from over 5,000 wells. We have a good quality of assets in the portfolio, and we feel that's indicated by the reserves that are added on an annual basis, and I'll address that in a couple of slides.

In 2012, our revenue was 95% from oil and the balance from gas. We have optionality in this portfolio. With technology advances, we see increases in recoveries; and with increases in recoveries, we see reserve additions. We have a large land base. We have approximately 100,000 acres of undeveloped land that's available for farm out. And we also have our interest in Arctic Gas assets, which we see as a long-term option on gas. And in 2012, we invested $446 million into the division, the first investment in the division since the formation of the new Franco.

To give you a little history here on Slide 34. Prior to our acquisitions in 2012, all of the producing assets within Franco were acquired between 1992 and 1998 under the old Franco. We acquired the bulk of our Alberta assets in an acquisition from Shell in 1993, bulk of our Saskatchewan and Manitoba assets from Norse in 1995 and we now have producing assets in Alberta, British Columbia, Manitoba and Saskatchewan, although the bulk is in Alberta and Saskatchewan. No new investments were made prior to 2012. And if we look at the revenue that was generated in 2012, if we exclude the contribution from our acquisitions made in 2012, 71% of that revenue would have come from Weyburn, Midale and Edson.

let's look at our reserves on Slide 35. Now the reserves I'm showing on this slide do not include our 2012 acquisitions, and this is to show the quality of the underlying assets. So in 1999, these assets had 2P reserves of just over 6 million BOEs. From 1999 through the end of 2012, these assets produced 9.7 million barrels. But the quality of that underlying resource and with the technology advancements that have been made in that time, we have added more than 100% of those produced reserves back into the portfolio. We added over 11 million barrels so that at the end of 2012, those assets had 2P reserves of 7.5 million barrels.

Now let's talk about our 2012 acquisitions. The beginning of 2012, we spent $55 million to add to our existing working interest in the Weyburn unit. Later in the year, we spent $400 million to acquire a net royalty interest in the Weyburn unit. This adds to our existing royalties in the unit. We already had a working interest of 1.11% and royalty interest of 0.44%. The operators stated that they expect this unit to produce oil for over 40 years. This is a long-life asset. Profit margins have been 40% to 50% historically, and with the current technologies, we can expect increases in recoveries.

On Slide 37, let's see how those 2 acquisitions have now impacted our reserves. So we had 7.5 million barrels. Now at the end of 2012, with the reserves associated with our addition -- additional working interest and with our net royalty interest acquisition, our 2P reserves now stand at over 35 million barrels. Now the split on that is 95% of that is oil and liquids, 5% gas. With the 7.5 million barrels, the split would have been 76% oil and liquids, 24% gas. It's a tremendous growth in our 2P reserves.

Turning to Slide 38, this is showing production, historical production from 2008 through to 2012 and what we expect going forward. We've converted gas here at the 6:1 conversion ratio. And you can see the impact that Weyburn is now having on the portfolio. In 2012, we only had 3 months of production from our NRI, so the big jump in 2013 is due to a full year of production from the Weyburn NRI. Gas seems to be a considerable component of 2013. It makes up about 23% of our production, but with the current fast-paced environment, it's going to be 5% or less of our revenue stream in 2013. Going forward, 2013 on, before, I had said that 71% of our revenue had come from Weyburn, Midale and Edson, 2013, we expect Weyburn to account for about 71% of our revenue in the oil and gas division. Prior to the acquisitions, the reserve life index of the portfolio was 12 years. With the addition to Weyburn, it is now 20 years.

Now let's talk about the Weyburn unit for a bit. This unit is operated by Cenovus. It encompasses over 53,000 acres, southeast of Regina, and it's right near the town of Weyburn, Saskatchewan right there. Here's the actual unit here. Each one of these blocks here is 36 square miles. And here, we've blown it up, so you can see underlying is the unit, and you can see all the wells that are in the unit. Any of these black dots, which represent wells outside the unit, are not unit wells. Unit produces a medium sour crude. It's about 28 to 31-degree API, and it contains about 2% sulfur. A CO2 Enhanced Oil Recovery program was initiated in the unit back in 2000, and it has been very successful. Right now, after our acquisitions, we have an 11.7% net royalty interest in the unit, 0.44% of royalty interest and a 2.2% non-operated working interest in this unit.

Slide 40, I just want to give you kind of a simplistic idea on how CO2 works. In here, we have water well injectors. We have horizontal injectors injecting our CO2. We have horizontal producers. We also have vertical producers. CO2 is injected into the ground at high pressure, about 2,200 PSI. When it comes into contact with the oil, it mixes with the oil, causes the oil to swell, swell out of the pore spaces, also lowers the viscosity of the oil. This makes the oil flow easy -- more easily through the reservoir to the producing wells.

And on Slide 41, we can show the impact of this EOR program. So right here, this line here would have been our oil production. This line here is the oil cut. These dash lines are what the proposed declines look like -- would look like prior to CO2 injection. So we started the CO2 program here. You can see the response in oil production. You can also see the response in the oil cut. It's come off a bit. We're currently running at about 12% oil cut, so it means we're getting an 88% water cut. So currently, we're producing 26,000 barrels a day of oil, but with the water cut, we're actually producing over -- about 220,000 barrels a day of fluids. So you can almost think of this as a water well that produces oil as a by-product. The current EOR plan has only been rolled out over about 60% of the unit, and the impact has been that it's increased daily production by about 40%.

Slide 42, just to give you some facts about the program, we're currently injecting about 13.2 tonnes of CO2 a day. That's made up of fresh CO2 delivered daily and recycled CO2. We've sequestered about 19 million tonnes to date, and we estimate that the storage capacity of the reservoir is 55 million tonnes. Under the current EOR project, the initial oil recoverable is estimated to be 678 million barrels, and we've produced about 460 million barrels to date. Based on an original oil in place estimate of 1.4 billion barrels, this will leave 722 million barrels left in the reservoir. That's a lot of oil that's going to be left there to go after.

Slide here, 43, gives you a 50-year-plus production history of this unit. Now this field was discovered in the mid-'50s. It was unitized in 1963. So we can see we have primary waterflood production here just over 45,000 barrels, then we started to decline off. Then looks like it grew in the late '80s. We started some vertical infill wells. Then early '90s, started putting some horizontals, and then we put, mid-'90s, more horizontals. Then we see the CO2 program. And you can see it keeps adding these wedges of production. We feel that this is a very long-duration asset. As I said before, we're expecting another 40 years of life out of this, the current EOR program. So we feel that this deserves higher multiples, valuations than the industry standard.

On Slide 44, I just want to show historical production in solely attributed to the Weyburn unit and what we expect going forward. So you can see from 2008 to 2010, pretty flat before acquisitions. Now we have our acquisitions, and here's the profile that we expect going forward. Now the reason that the NRI is increasing is because it is a net royalty interest. There are capital costs and operating costs associated with it. As we progress under the current EOR program, we would see capital tailing off, and therefore, we'd see more revenue barrels attributable to Franco.

As I mentioned a couple of slides ago, there's 722 million barrels of oil left in the ground left to go after. The current EOR program is only extended over 60% of the unit. The plan is to extend that, if you want to call it EOR 2, over the balance of the unit. And with each 1% recovery increase, we would, as Franco, realize 2 million barrels added to our reserve base. And we would also expect the peaks that are occurring here around 2020 in production, we expect those to flatten out. So they'd flatten out past 2024. This working interest wouldn't start declining until maybe 2024, 2025. You don't know until you see the response from the rollout over the balance of the unit.

Now I want to talk about oil prices. Historically, Canadian 40-degree low-sulfur oil has tracked WTI, and we can see that in the graph here, going back to 2002, steady even all the way along, pretty close. Then we get to 2012, and you start to see a price differential develop between the price of WTI and the price of Canadian. What's the reason for that? The reason for that is tremendous increases in U.S. oil production and downstream infrastructure issues. This peaked in 2012, in the first quarter. There's about a $20 price differential between U.S. and Canadian prices. The average for the year was just over $8, and we see it this year running around $8. We also expect it to narrow by 2015, and that is industry consensus. When looking at the oil and gas division and trying to run your revenue numbers, you have to take this price differential into account. You also have to take in the quality differential. Because Weyburn produces this medium sour crude, there is always going to be a quality differential, and it's currently running about CAD 8 a barrel.

Slide 46. I just wanted to show you the impact that this price differential is having on our Weyburn unit revenue and what we expect to receive. So if we didn't have the price differential, this is the projected revenue we'd expect from the Weyburn unit. But because of the price differential, we could see it's about a $5 million difference in 2013, eventually narrowing out by the time we get to 2015.

Now I want to just say a couple of words on our Arctic Gas optionality. We have various working interests in 4 gas fields up in Canada's Arctic: Drake Point, Hecla, King Christian, Roche Point. Hecla and Drake are the main fields. Roche Point is located just to the north of Hecla, and King Christian is up over here, just up in the said map. This is a known resource. There's no exploration risk here. Panarctic drilled this up between '69 and '86, spent $250 million. Suncor is the largest interest holder here. We have exposure to 428 Bcf of dry gas. There's no annual cost to -- of ownership of this, and as I said, there's no exploration risk. All that's required is the right market conditions to build this project.

That concludes my remarks on oil and gas. I'd like to turn it over to Lloyd Hong.

Lloyd Hyunsoo Hong

Thanks, Geoff. I just have a few slides to go over today, where I'd like to cover our corporate history or corporate structure, dividend history and also highlight informational resources available to investors. I promise I'll be the shortest presenter by far. I know you guys don't come here hoping to hear from the lawyers.

So in terms of corporate structure, we often get asked a question as to whether we have any significant tax risk due to the use of offshore structures. We do have a Barbados subsidiary, as you can see by this slide, but I think this should help put things into context. So you'll see out of our entire portfolio, we hold 3 assets in our Barbados subsidiary. These assets are not significant, and they currently account for less than 10% of our EBITDA. This is compared to the rest of our portfolio, where our assets are held in more traditional structures through Canadian, U.S., Australian and Mexican subsidiaries. For these assets, we pay tax at domestic rates. So in light of this, we believe that to the extent any offshore structures may be challenged, the impact to us would not be significant. Ultimately, the key focus of our business remains on the core principles that Paul set out earlier.

This next slide sets out our dividend history. As you'll see, over the past 5 years, the company has steadily increased dividend payments. We're also one of the only few companies to pay dividends on a monthly basis. Historically, dividend payments have been in the range of 20% to 25% of EBITDA. This means we have some cushion to continue dividend payments even if commodity prices decline, and we also have some runway for the board to consider increased dividends. We've just declared our monthly dividend for Q2 of $0.06 per share per month, and at this level, we will be paying over $100 million in dividends this year.

The company is also actively looking at a dividend reinvestment plan, which will provide investors with a cost-effective and convenient way to increase their exposure to the company. One of the nice features of the plan will be the ability to acquire fractional shares with dividend payments. We should be able to give you an update on this at the next call.

Turning to the next slide, this is a good one as it summarizes the breadth of our portfolio. As you see, we have over 340 assets, with 46 producing assets and 28 advanced assets. This portfolio has been assembled over decades, starting from the original Franco to where we are today. It would be extremely difficult to replicate this pipeline of producing assets, advanced assets and exploration optionality, which is further diversified through numerous operations, geography and multiple commodities. As Paul mentioned, by having such an extensive portfolio, we're able to benefit from exploration and expansion upside without having to pay anything further. As well, by not being an operator, we're able to focus on future investments rather than operations.

Having said that, with these many assets, obviously, there's an enormous amount of information to absorb, and we've put a ton of work into compiling this information for you. I don't want to get into all the details, but what I would like to do is just highlight that we have filed our updated Annual Information Form and Form 40-F, both of which are available on our website. As well, our asset handbook, as mentioned, is in the process of being updated and will be available in Q2. It's a great resource, and I'd highly recommend everyone to get a copy once it's available.

I'll now turn the presentation back to Sandip to discuss our outlook.

Sandip Rana

Thanks, Lloyd. So as you will have seen from yesterday's press release, we did put out our 2013 guidance and from a snapshot, talk about the big movers that will happen in 2013 -- at least expect to happen in 2013. Detour Gold, that mine started production in 2013, poured its first gold in February. As Paul mentioned, we have a 2% NSR on this property. The operator's current guidance is to produce between 350,000 to 400,000 ounces this year, and this will be one royalty where we will be receiving gold in kind, so we won't be getting cash payments, which we do for the majority of our royalties. We'll actually be receiving physical gold on this royalty.

Gold Quarry, we do have a minimum in place in Gold Quarry. So in 2012, we received 11,250 ounces. We do expect an increase this year. It's a complicated calculation, but we are expecting a higher minimum in 2013 from this property. As mentioned, we have the Hemlo NPI. We have a 50% NPI on the down dip extension extension of this mine. In mid-2012, we -- it reached payout. Basically, the capital to develop this property was recovered, and the NPI began being paid out. So in 2013, we're going to benefit from a full year of this NPI payout.

And Duketon, which is one of our -- I also like to call one of our big wins. This property started with Moolart Well a couple of years ago, and then in 2012 midyear, Garden Well started production, so we benefited from a partial year from Garden Well. In 2013, we're going to benefit from a full year from that property, and then towards the end of the year, another property called -- a mine called Rosemont is going to start production. So we will also benefit from that mine. So there'll be 3 mines operating on this property by the end of this year. We have a 2% NSR on all of it.

Oil and gas, as Geoff has explained through his update on oil and gas, we will benefit from a full year from the Weyburn NRI, which was acquired in Q4 2012. So on the downside, Goldstrike, you've probably seen from Barrick's public disclosure, they plan on doing a capital-intensive program at Goldstrike, where they're implementing some new technology at the autoclave. As a result from this spend, which is, I believe, between $350 million to $450 million in 2013, it does impact our NPI because our NPI is net of capital cost. So we are expecting a drop in our NPI ounces. We're also expecting a drop in our -- a reduction in our NSR ounces but very minimal. The bulk of the decrease for Goldstrike will be through the NPI.

Also Palmarejo, we're expecting to receive 50,000 ounces of gold from that property in 2013. The operator, Coeur d'Alene, has given guidance of between 98,000 to 105,000 ounces of gold being produced. And in our guidance, we've assumed 50,000 being paid to Franco-Nevada.

And finally, one of the big ones along with the rest is Sudbury, where the operator, KGHM International, had provided guidance previously that they would be shutting down Podolsky. We did benefit from a full year of Podolsky in 2012, but now it is -- it will go on care and maintenance in Q1 2013.

So what does this all mean in summary? Historically, we've given revenue guidance, and I have explained earlier, I said it's a bet on commodity prices. We have a pretty good idea on what our properties are going to do and what our royalty and stream interests are going to do from a production standpoint. So for 2013, we are providing somewhat production guidance. Based upon all those factors I discussed on the previous slide, we're expecting gold equivalent in royalty and stream ounces of between 215,000 to 235,000 ounces. And within that number, that includes the stream ounces. We are expecting between 100,000 to 110,000 stream ounces from our stream assets. In addition to that, we have oil and gas revenue projected at between $55 million to $65 million for 2013.

And the prices -- so we've done conversions on the PGMs and the other minerals, and prices we've used are $1,600 gold, $1,600 platinum and $725 per ounce palladium in our conversions. I would like to point out that the stream ounces are gross of the $400 per ounce, so that has not been netted. That would have to be deducted.

So looking forward, 2017 is the first time we are giving a 5-year outlook. And our biggest acquisition last year, Cobre Panama, the mine will start production in 2016. This is -- all these points are based upon current operator guidance and what has been publicly disclosed. So Cobre Panama is expected to start production in 2016. 2017 will be the full first year of production. As Paul mentioned, the reserve life has gone from 31 years to 40 years. And it's important to note that with this mine, our stream is indexed to the copper production, so we do get paid in gold and silver, but it is indexed to copper.

Detour Gold in their mine plan, they, over the first 5 years, they should average 657,000 ounces per year, so that mine should be ramped up by 2017. And we should be receiving royalties and streams from a bunch of other smaller mines, Augusta's Rosemont, Rubicon Minerals, Phoenix property in Northern Ontario, Alamos Gold's Agi Dagi property in Turkey, Perama Hill owned by Eldorado Gold in Greece. As mentioned, Regis' Rosemont and a fourth mine on that property Duketon called Erlistoun should also be in production by 2017, and then Peculiar Knob, which is an iron ore royalty in Australia.

As Geoff also outlined in his oil and gas update, the production profile for Weyburn includes an uptrend in production over the next number of years, so we will benefit from increased production from Weyburn in 2017. There's planned expansions in production increases at Subika and Holt, which will also come into play.

With respect to Tasiast, Kinross has not provided any update as to what their plans are for expansion at that property. So currently, we've -- in our outlook, we've just assumed current state of just over 200,000 ounces per year of production.

And then with respect to Palmarejo, as you know, we do have a 50,000-ounce-per-year minimum on Palmarejo. 2016 will be our last year for receiving that minimum. So 2017, we will receive 50% of whatever the gold production is mined at that property in 2017, so we would expect, perhaps, a drop at Palmarejo.

And then Goldstrike, based on the planned reduction in ounces at Goldstrike but with this new technology that is -- thiosulfate being implemented at the autoclave, there has been discussion that the stockpile ounces might be mined sooner, in which case, we might get some upside there. And with respect to one mine, Holloway, it will be the end of mine life.

So grabbing all that information together, turning to Slide 57, shows the increase in ounces, the gold equivalent ounces from our mineral assets that we are expecting. So in 2012, we received approximately 230,000 gold equivalent ounces from our mineral assets. We're expecting 37% growth to a range of 300,000 to 325,000 gold equivalent ounces in 2017.

Now if you add the one property that we have not talked about, which New Prosperity, if that property is permitted and built, based on our outlook, by 2017, that would add approximately another 65,000 ounces gold equivalent ounces to us, which would just get us shy of 400,000 gold equivalent ounces to the company in 2017.

With respect to the oil and gas division, in 2012, we did book revenue of $40.9 million from that division. With Weyburn, the acquisitions of Weyburn in 2012 and the uptrend in production expected from that asset by 2017, we are expecting a range of $70 million to $80 million in oil and gas revenue, the bulk of which will be Weyburn. And this is at a $90 per barrel WTI price, with the price differential going back to historical norms.

One other thing I would like to mention by 2017, our effective tax rate has been decreasing. It was just over 28% in 2012 as a large amount of our revenue does come from the U.S., which is a high tax jurisdiction currently. As other properties come online, our effective tax rate will be decreasing. And by the time Cobre Panama does come on in play, if the properties do come in line as we're expecting, our effective tax rate will drop over the next 5 years, and in 2017, we would expect it to be 22%. So we do have a declining effective tax rate. As well, in terms of our precious metals content percentage of our revenue, by 2017, it will still be in the mid-80% range.

So beyond 2017, what are we expecting or what do we think could happen? Well, Tasiast, as I said, we've assumed a steady state at that property until Kinross releases its updates. So there's a potential expansion at that property, which we will benefit from as we do have a 2% NSR. Detour, there has been talks about a potential expansion at Detour down the road, so we have upside there. And Cobre Panama, another line being added, and in our deal, at year 10, we will be paid regardless of whether the expansion occurs or not. So if the expansion does happen earlier, we have additional upside there. Obviously, New Prosperity, which I mentioned earlier, and our lottery tickets, which is what I'd like to call these exploration assets. There's 137 in our portfolio in very good mineral jurisdictions and mineral trends, and there's potentially some that will come out of there that will move to advance and eventually producing.

But finally is our $1.4 billion of available capital that we can deploy in this market. And as Paul mentioned, it's a very attractive market, where we have to decide where we don't want to invest. And so we do have that $1.4 billion to add to the portfolio and add to this outlook.

And with that, I will turn it over to David for the conclusion.

David Harquail

Thank you, Sandip. I like it when I don't have to do all the talking. So these are all great presentations today. We've looked at the last 5 years and we've looked forward at the next 5 years, and I think in terms of my key takeaway on the last 5 years is that we've had a great run for a couple of reasons. One is gold prices. This company's actually working the way gold companies are supposed to. We're getting the benefit of higher gold prices in terms of results. We've been able to protect the margins in our business, and so we benefited from that.

The other thing is, as Paul has demonstrated, the optionality. A lot of our assets have really kicked in. We believe it's something that's inherent in our business model, and we designed to be exposed to those upsides.

And then we've just -- I guess third is, I give credit to Paul and his team, is good acquisitions. If you look at the deals we did in late '08, early '09 with Palmarejo and Gold Quarry, they've been absolutely proven big winners for our company. The more recent deals, we just got to give them more time, the Cobre, the Gold Wheaton, et cetera. We're confident over time, we are going to see that these things are going to be big winners for our company. It's just that it takes some time to prove these out.

So going forward, in the next 5 years, why am I confident we can continue this track record is we've got a lot of ingredients in place. And first, we've now locked in, and Sandip has been showing you, a low-risk growth over the next 5 years. Most of this growth is coming from a range of projects, many of which are just expansions of already proven existing mines.

And second is we really have no open-ended cash calls, and so we can grow our business while not -- and focusing on our management overheads and our new deals and not worry about challenges from any of our existing operations.

And the third, as Sandip was mentioning on our effective declining tax rates, is we've avoided most of the resource nationals and issues in this business. We are unique property owners -- unique interest on properties. We've not been a focus for governments. We don't expect to be. We've not lost any of our assets to resource nationalism. We don't expect to. And so I think the best demonstration is the lower effective tax rates in this business.

And most important, we have a strong cash flow coming from our operations, and we have the cash to do deals in a liquidity-starved market. So we've never been in such a strong relative position.

In terms of where we are in the business right now, there's been a sea change in the last 5 years in terms of the gold equity space. And if you think about it, the gold ETFs didn't exist until 2004, when the GLD was listed on the New York Stock Exchange. And you can see in the last 5 years, it's been absolutely -- if you take the top 15 gold companies in the world, there's been no increase in their market cap over the last 5 years. Most of the growth has been with the gold ETFs and now the gold royalty companies. And the gold royalty companies are essentially the new kid on the block. A lot of people still are trying to understand the business, trying to see, is this really a quality investment space? We've now put in a 5-year track record. There's other companies now have demonstrated the royalty business model is just not a reflection of one particular management team. There's ingredients to it that make a lot of sense. And we believe that the success of this group -- multiple of companies is going to make it an increasingly attractive place to be.

So we listed in late 2011 on the New York Stock Exchange, and we believe that we are now a compelling alternative investment for people looking to get exposure to gold. And so we always like to point out to ETF owners is why aren't you owning a gold royalty company? You can get a return. You can get optionality and upside that you can't get with just owning a bar of gold. And so we believe that there's nothing that's going to change in our business model, that we can continue to replicate the success of the past going forward. We're going to strive to do that, and that's why we're maintaining the model that we believe Franco-Nevada's a gold investment that works.

So that's the advertisement, and I think with that, we have the entire management team here. In fact, what we'd like to do is turn it over to Q&A. We'll take whatever time you need. We have, again, besides the people that spoke today, the rest of the management team. I'm going to actually try to actually get them to answer some of these questions. And so we would like to turn it open to the floor here in the room at St. Andrews Club, and I think we're a little over 60 people now. And after we've taken some questions, we'll take any questions from our participants on the teleconference. So with that, if there's any questions, we do have microphones, I think, in the room. Candida will pass that around. And if you could just say who you are and just speak on the microphone, we'll be happy to take that question.

Question-and-Answer Session

Cosmos Chiu - CIBC World Markets Inc., Research Division

Cosmos here from CIBC. Geoff, maybe a few questions in terms of burning some of those oil and gas assets here. I guess first off, the $55 million to $65 million guidance that you've given for 2013, I want to confirm, that's net of operating cost? Is that...

H. Geoffrey Waterman

Cosmo, No. That's our revenue. That's our revenue line, so out of that is -- will be deducted from our working interest operating costs.

Cosmos Chiu - CIBC World Markets Inc., Research Division

Okay. So the $55 million to $65 million does not include the [indiscernible] 40% to 50% gross margin coming from the NRI?

H. Geoffrey Waterman

No, no. That's -- the NRI is net. Where the operating costs are associated with is with our working interest, and so we have the working interest in the Weyburn unit, and we have another small working interest in the Midale unit.

Cosmos Chiu - CIBC World Markets Inc., Research Division

Okay. So it's the cost of sales then. In the past, I've always seen a portion of operating costs for oil and gas. I still see that in working interest, on how it's booked as NRI.

H. Geoffrey Waterman

Correct. The NRI is booked as net, yes. So there'll be no change, really, to our working cost, except we just added a bit more working interest. But what do we think, it's about 4 million or 5 million? Annually now, our working cost, what is that? Yes, $4 million or $5 million. So gross, deduct $4 million or $5 million from the rest of our portfolio, then you have a net from our oil and gas.

Cosmos Chiu - CIBC World Markets Inc., Research Division

And in terms of Slide 45, you talked about the oil price or the differential for Canadian par. If I take a look at that to look at the -- get to realized price or prices [indiscernible], I still need to subtract, though, the $8 differential, right, beyond what you've been showing here in this...

H. Geoffrey Waterman

Correct. So there's 2 differentials you can think of. There's a price differential. It's running about $8, and a quality differential, running about $8. So your differential is now going to be $16.

Cosmos Chiu - CIBC World Markets Inc., Research Division

Okay. And then the -- I guess the other part when you've made the acquisition for Weyburn, you talked about net barrels with an NRI of 1,400 barrels per day. Is that still a pretty valid way to look at it?

H. Geoffrey Waterman

That's pretty valid. So we're taking what's our net revenue, what was the oil price of the day, what are those equivalent net barrels. That's why we're coming up with that 1,400.

Cosmos Chiu - CIBC World Markets Inc., Research Division

Okay. Maybe switching gears a little bit. I don't want to hold the mic too much. You haven't talked about New Prosperity for a long time, and certainly, you brought up this once again with the Investor Day today. When that was first acquired more than 2 years ago, there was that [indiscernible] to get something done within 2 years. If they do get the permitting soon or if that happens, have the terms changed? Has Franco-Nevada have the ability to [indiscernible] at that point in time? The market conditions were different. Certainly, a lot of the other factors were different.

H. Geoffrey Waterman

Paul, I'll let you address that.

Paul Brink

Cosmos, so no. The way the agreement is written is to say that we have the option to invest on the terms that we agreed at the time that we've done the deal. So if the project was to come back again, that's the starting basis. It would obviously -- a lot of water's flown under the bridge, and things have changed in the sector. So we'd obviously work with the company to make sure that we've got something that works and we want to see the asset. It does get a bit -- so we'll do what it takes to be fundamentally on the deal. If the asset gets built, we can invest on the terms that were agreed at that time.

Cosmos Chiu - CIBC World Markets Inc., Research Division

Are you still comfortable with those terms?

Paul Brink

That would be fantastically attractive terms for us. The deal was struck in a much lower gold price environment, so it would be a phenomenal return.

H. Geoffrey Waterman

So Cosmos, yes, in terms of -- just on Prosperity, it's at our option entirely. And then I appreciate very much your oil and gas questions. I think it's partly why we spent so much time on it today, and we actually struggled. We were looking to say whether we should give guidance as we've done on gold on a production basis, but it's so darn confusing in the oil and gas business because they do all that gas-to-oil conversion, at a very unrealistic price, so that production number wouldn't have been an effective way to give you guidance. So that's why we've taken the step of actually still staying on a revenue basis on oil and gas to make sure we get the street fully in line in terms of what we really think these assets will do.

Paul Brink

We have David Haughton there at the at the back of the room. So we'll collect his questions in 1 minute.

David Haughton - BMO Capital Markets Canada

David Haughton, BMO. In Cobre Panama, you still got $1 billion to pay out there. Guidance was provided for 2013 of $270 million. Can you give us an expectation as to what the balance payments might be, the timing?

Paul Brink

I'll let Sandip speak to that.

Sandip Rana

Sure. So $270 million based our discussions with Inmet for 2013. At this stage, it would just probably be about $400 million in 2014, with the balance in 2015.

David Haughton - BMO Capital Markets Canada

Okay, subject to the spending requirements?

Sandip Rana

Yes, exactly.

David Haughton - BMO Capital Markets Canada

Okay. Detour, Sandip. You'd mentioned that you're getting metal?

Sandip Rana

Yes.

David Haughton - BMO Capital Markets Canada

How are you going to account for that? Will just take it -- book it as the revenue? Or do you intend to hold that metal for some other purpose or what...

Sandip Rana

We are having a discussion of what we're going to do. We do receive metal currently. Actually Tasiast pays us in kind right now, as well as Pomerleau and then obviously our streams down in South Africa. Right now, the tendency is to sell it quickly, 1-day turnaround. But if we were to hold it, we would book that as revenue. And any change in the gold price would be booked in other income.

David Haughton - BMO Capital Markets Canada

Okay. And at some stage, there have been an idea of maybe even a gold dividend, is that still something you think you about?

David Harquail

In terms of the gold accumulation account you're talking about or paying a gold dividend? We don't -- haven't given that any thought yet. I think our main focus right now is whether we start accumulating gold from some of our gold in-kind payments that we're getting. We haven't started doing that. And in terms of a gold dividend, I can't even think what the complications are involved in that. So we're not -- we won't be talking about gold dividends this year. The most adventurous thing we might do this year is the DRIP program in a couple of -- maybe the next quarter. But I'll think about the gold dividend for next year.

David Haughton - BMO Capital Markets Canada

On the topic of Detour, just for clarification, they pulled their first bar of gold already. Do you get a royalty from the very first bar or is there a hurdle rate that they need to achieve first?

David Harquail

No, we get the -- on the very first bar, actually we're having a very interesting discussion with Gerard right now because he's minting commemorative coins. About 2% of those commemorative coins are ours. So we're just trying to figure how to take delivery of those and how to account for them. So it's one of our most tough negotiations right now.

David Harquail

Any others -- another question back here.

Greg Barnes - TD Securities Equity Research

Greg Barnes from TD. The recent deal done by Silver Wheaton with Vale had some interesting terms in it I think and a relatively low IRR. Do you think that's the new hurdle rate required? Or is that specific to a Vale-type deal that you would have to do if you did a similar stream deal with a Rio or a BHP?

David Harquail

Greg, the question is talking about the large streaming deals with the majors, and are those terms representative I think of the overall market. And I'd say there's no -- you have to look out look out and what the sets of assets are. And I think in most traditional mines, you're looking at 15, maybe 20-year life operation run by mid-tier companies. And I think that type of market, if anything, has become even more favorable for us. We can get higher returns on those particular deals using what our historic metrics are in those types of transactions. What we've never had before though is when we get the world-class operators coming up offering 40-year plus type assets in a run -- so essentially we're dealing with a world-class property. And I think when you're discussing with those companies, and you're doing a DCF as we do in a traditional operation. I think they're smart enough to recognize there's a value for that other 20 years that's not captured when you do a DCF back at say, 8% on those assets. And they would like to get some value for that particular optionality. We've done a bit of that already in our Cobre Panama transaction, where we recognize we're getting a 40-year-plus asset. And so we do have a reset after certain number of ounces are delivered to us where we share whatever the gold price improvement is at that particular point. And I think what's happened on some of these other negotiations that are being -- had been out there and shopped is that most of the companies or even the brokers that are involved in offering these assets you're seeing. We've got to do something in terms of the share that value of that optionality for that 20-plus years out there. So I think it's unique because these assets have got such long lives, and I think it's reasonable to expect that on those types of transactions. So it's not surprising the side of that particular transaction has a very long life and an expansion potential to it. It's appropriate to share that somehow with the seller.

Greg Barnes - TD Securities Equity Research

[indiscernible] license revenue?

David Harquail

Yes, yes, yes.

Greg Barnes - TD Securities Equity Research

[inaudible]

David Harquail

Yes, I would agree. And if you look at our transaction principles, it's to get some exploration optionality on top. And definitely, when you take a cap on the existing mine life and you're paying for that 20 years, you're more into a financial transaction rather than an optionality transaction. So definitely our focus is to try to get as much optionality as we can for free. Or if we do get -- have to be limited on it. Try to share it actually with the seller. But we've not entered any transaction, where we've capped our upside on volume or our current period, but we are willing to share it. And so to us, that's actually a transaction principle our company.

Unknown Analyst

What are the pluses and minuses to you from First Quantum's takeover of Inmet?

David Harquail

Question is on First Quantum's takeover on Inmet. And I think what it is, we worked almost 3 years with Inmet to get to the table and finally close that transaction. Paul Brink here personally dropped 15 pounds through negotiations. So it's a very long, drawn-out process. But I think in the end, we actually ended bonding with the management. They become great partners. [indiscernible] escorted our Board of Directors on the property in November. Gave us his personal tour of what's out there. So we saw as a partnership. Also we really respected the engineering capability and just the passion that they've had this asset for over 30 years. And they were finally going to build it and they absolutely wanted to build it right. And we did our full audit on their team and even on their EPCM teams in terms of, do they how the A teams to come to bear. So absolutely comfortable. We actually see eye to eye in terms of -- with Inmet how this asset should go forward. With First Quantum, we really don't know them as well. We've had brief meetings. We've not met them out at all during this whole transaction announcement since Inmet's come. They made announcements of -- that they hope to do changes, but we don't know what those changes are. So we're comforted that we have a secured basis on this transaction, that these transactions are going to survive no matter -- our interest will survive no matter who the operator is. I did express concern that they were making statements about changes to the project, but not explaining what the details are. Some of these things could be read wrong in Panama with the local community or the government and as well as they hadn't reached out to us as well and we're significant stakeholder in the project. I will reach out to them once it's official that they are the new owners of the company. We'll work to develop a partnership there. I understand they have a terrific track record of developing projects, so we'll look forward in terms of their progress on it. We're also comforted we've built-in protection in our transaction. And as Sandip mentioned is that, even -- if they don't do an expansion by year 10 of the project, our royalty rate or stream rate resets to compensate us for that lack of expansion. So we believe we're protected in terms of -- if they change the development plans and decide not to expand as much as Inmet was planning before. So we're in a strong position. Our philosophy is usually we don't sweat changes in ownership of companies. Our experience is generally, if we've done our due diligence and we've picked a good property with good reserve production potential, and even if it's a weak manager on that particular property, it'll end up in stronger hands over time. It happened to Goldstrike. Barrick came in afterwards. It's happened in a multitude of our different operations. Remember last year, a lot of you were worried about First Uranium. But now we have Anglo Ashanti running one of the operations and Gold One running the other one, so much stronger hands. And so I'm --I believe First Quantum is going to be good steward for the assets. We just got to get to know them. So the only real disadvantage is, we don't know them as well as the Inmet management team.

Unknown Analyst

Two questions, David. First of all, what percentage of the overall revenue is silver versus gold? Is that embedded within the 75%?

Sandip Rana

Yes, it's embedded within the 75%. It's very small. We received some silver from just a couple of properties. Pedro is probably the largest, but it's very minimal.

David Harquail

I think it's about 1%, even not barely 1%. We don't want to contaminate our gold too much with silver.

Unknown Analyst

Going forward you're going to get some of that from Cobre Panama, what would the target range be? Looking out 5 years, what would you be comfortable with as far as percentage of silver?

David Harquail

We see it as gold equivalent, just like we're showing our platinum and palladium as gold equivalent. So we're not going to sweat the silver component too much. It's just that, when we've been doing investments, we've been far preferring to put money into gold assets than into silver assets. But right now, silver is not material in our revenues.

Unknown Analyst

And as a follow-up follow-up, Sandip, I'm sure it's the filing somewhere. What's the book value now of the oil and gas assets -- the total portfolio?

Sandip Rana

Book value is probably about $200 million -- no, sorry. With the Weyburn acquisition actually is about ...

David Harquail

About $640 million, something in that area. There's a table in the back that breaks it out.

Sandip Rana

Yes. There's a table in the appendix that...

David Harquail

I don't know if it's clear. We dropped the book value of our oil and gas down.

Sandip Rana

So oil and gas is for -- on the producing side, just over $600 million.

David Harquail

Right. And the Arctic Gas is just about $3 million of the nonproducing side. Is there any other questions here or -- Brian. I'll introduce Brian MacArthur from UBS.

Brian MacArthur - UBS Investment Bank, Research Division

Brian MacArthur, UBS. Just following past Page 29, you showed great a slide here since the IPO about how many ounces you've added over time. And a comment was made 50% is acquisition, 50% was exploration, but only a very small part of that was due to the gold price. Am I to infer that -- like first of all, how much of it was gold price? If you can give us that number. Or were those just all ounces that would have been economic at the same price back in 2007, sort of what you're implying by that statement?

David Harquail

Okay. If I understand you, you're wondering how much is the gold price driven -- the reserves. Actually, I think it has to be a fairly significant component. Because if you look at it, Detour at $800 gold was just a geochemical anomaly. At $1,200 gold, it's reserves. And so I think we've had a Detour conversion, the Tasiast as well. I think that the fact the exploration there really took off with the higher gold prices. I'm not sure you could have converted a lot of that low grade into reserves. So, I think the interpretation is -- 50% have come from assets we've had already, and a lot of that growth is coming from the gold price growth as well. I think people have spent more money and they were able to convert lower-grade material, and we benefited from that. But other 50%, it's acquisitions that we've added to the portfolio.

Yes? All right. That's fine. That's good.

All right since no questions in the room, can we just check -- I'm not sure how this quite work, but if there's any questions for the -- anyone online?

Operator

[Operator Instructions] And we do have a question from the line of John Tumazos with John Tumazos Very Independent.

Unknown Analyst

Could you run through a little bigger explanation of the Arctic oil and gas economics? And was the write-down because the revenues would be less or the operating cost or CapEx would be more? And what changes in future economics, how high a product price, for example, would you need to keep the project robust?

David Harquail

John, it's David here. You're breaking up so much, I only heard the words CapEx and project costs.

Unknown Analyst

I was asking about the Arctic -- the Arctic write-down, and how much the product prices have to be to keep the project robust. And if you could just run through the assumptions that changed that triggered the write-down.

David Harquail

Perfect. Okay. Arctic Gas, we have a lot of detail in that. And I'll let Sandip speak to that.

Sandip Rana

John, from an accounting standpoint, natural gas prices have come down in 5 years. But to have an impairment, you have to have a triggering event. And the fact that the largest holder, Suncor Energy, took an impairment in 2012 required us to take a look at it. And back in 2007, prices were significantly higher. So just when you factor in prices as well as development timeline, it's another 5 years later. There's been no movement on when that asset will be developed. So when you move it out further and the discount rate that you use, you end up with a very small value. And that we had a third party, GLJ out of Calgary, do a valuation for us and went through it with our auditors. And as a result, we did book the $74 million impairment. In terms of what prices are required to make that economical, I'll talk to Geoff.

H. Geoffrey Waterman

Back in 2005, the Canadian Energy Research Institute did a study of this project up there. And at that time, they -- I believe, capital costs required to develop it and there are 4 development scenarios, LNG, CNG and variations. I believe the capital costs required were between $4 billion and $6 billion, required $6 an Mcf to make it work. And that was for a project that was going to produce 1 Bcf a day for 20 years.

David Harquail

So conceptually when we put this on our books back in 2007, it seemed reasonable. There were some other trades of oil and gas assets up in the North. So we valued it -- we looked at those comparable values on a per unit basis. Also we looked at very strong demand for LNG in Asia or in Europe and they had the full potential of being done there. So we could actually run reasonable scenarios that justify the book value at that time. The real killer now is when you look at it saying, "Well, it looks like this project is not going to happen." I think our previous assumption was by 2025. And you start putting out an assumption, okay, 2035. And you start applying 10% plus discount rates, all of a sudden, your NPV really gets whacked. And so I think the #1 driver is not so much the capital costs or today's gas price, because there's actually higher markets for it, is the assumption on what's the likely timing for this relative to other projects around the world. And I think as soon as we started pushing it back to 2035, that sort of set a whole new range of discounted values for the project. And that's why we've taken the impairment today. So this is one of those things that's -- it's a long-term asset. It's going to be some future CEO of this company that's going to get the benefit of it. I don't think it's going to be me. So that -- does that help you, John?

Unknown Analyst

That's a perfect explanation.

Operator

[Operator Instructions] And we have no further questions at this time.

David Harquail

Thank you very much. And if -- one last opportunity in this room. And if not, actually, you're invited. We are bringing in a few sandwiches after this. You -- management will be here and we're happy to take any of your questions individually. On our website today, you'll find our full 2012 financials, MD&A and Annual Information Form and that AIF has technical updates on our more important assets. Our website is being also updated. And in a few days, we'll also be posting our management information circular and then annual report. In the next quarter, we'll providing our updated asset handbook that Lloyd was showing you. And with that, our calculation of royalty equivalent units that will help you in terms of understanding the value allocation of our reserves and resources.

We appreciate Franco-Nevada has a lot of assets to cover, and we are trying to go the extra mile to help you with your analysis and disclosure. If you can think of anything else that we can do to help make your jobs easier, let us know because I've exhausted all my ideas here.

On May 8 after the market close -- closes, Franco-Nevada will be releasing its Q1 results. We'll also be holding our Annual General Meeting. It will be held at the Toronto Stock Exchange media center. All of you are welcome to join us at 4:30 on May 8 for those results and hear from Pierre on his gold outlook as well. And so with that, I thank you for your continued interest, and stay -- feel free to join us for lunch. Thank you.

Operator

Ladies and gentlemen, thank if your participation in today's teleconference. You may now disconnect.

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