Franco-Nevada Corporation 2026 Q2 Earnings Call

Please go ahead. Thank you, Anis.

Good morning, everyone. Thank you for joining us today to discuss Franco-Nevada's second quarter 2026 results. Accompanying this call is a presentation which is available on our website at franco-nevada.com, where you will also find our full financial results. The presentation is also available to view on the webcast. During our call this morning, Paul Brink, President and CEO of Franco-Nevada, will provide introductory remarks followed by Sandip Rana, Chief Financial Officer, who will provide a brief review of our results. This will be followed by a Q&A period. Our executive team is available to answer any questions. Participants may submit questions by telephone or via the webcast. We would like to remind participants that some of today's commentary may contain forward-looking information, and we refer you to our detailed cautionary note on slide 2 of this presentation.

I will now turn over the call to Paul Brink, President and CEO of Franco-Nevada.

Thank you, Bonavie, and good morning. We had a strong second quarter with GEO sold up 18% year-over-year due to higher production at Antamina and South Arturo, new contributions from the recently acquired Côté Gold and Casa Berardi interests, and start production at Valentine Gold. In addition to record gold prices in the quarter, we saw strong oil prices. With the higher energy contribution and the processing of stockpiles at Cobre Panama, we are tracking towards the upper half of our annual guidance range for 2026. At Cobre Panama, the environmental audit was completed, indicating no major findings and an overall compliance rate by the operation of 87.7%. The government then established a commission of senior ministers to evaluate both the environmental aspects and the economic contribution of a potential mine restart.

Simply put, in our business, you want to grow through acquisition in the bear market and organically in a bull market. In particular, with our deep royalty portfolio, that organic growth can be very powerful. Q2 is the spring quarter, and we saw green shoots across the portfolio. We received good news on future mine expansions at Côté, Detour, Magino, Valentine, Condé Star Lake, Caserones, and Séguéla. At Candelaria, we had news of a potential pit pushback. At Porcupine, we had the Kidd acquisition that may ultimately allow a doubling of output. Guadalupe, Hemlo, Bullabulling, and AurMac all announced resource expansions. There was positive progress on mine development at Copper World and Stibnite Gold. Crawford Nickel received its federal approval, and PSJ Cobre Mendocino, previously San Jorge, its Argentinian RIGI approval. Lastly, success at the drill bit.

Great exploration results in the Porcupine Camp, Borden, Hoyle, Owl Creek, and others. Midas, where Hecla are considering a restart, Stibnite, where they started drilling again after more than a decade, and at AurMac and Bullabulling, where we have new interests. Energy revenue was up on stronger oil prices. While operator capital discipline prevails, there has been a pickup in U.S. oil rig rates, 450 rigs now up from 420 three months ago in the lower 48. Also, reinvestment rates amongst the U.S. producers are moving up, 55% now on average versus 51% earlier in the year, both of which bode well for higher future production rates. The leverage on the API at our Weyburn interest in Canada gave a nice boost to our Canadian energy segment. On the sustainability front, we continue to expand our engagement with and contributions to communities at mine sites.

Franco-Nevada was recognized as one of Corporate Knights' best 50 corporate citizens in Canada for 2026 and achieved an A rating from CDP. We are in the progress of evaluating candidates for our expanded scholarship program and are delighted with a bumper crop of excellent applicants this year. Ian and the business development team have a strong pipeline of opportunities. Fortunately, our total available capital stands at $4.3 billion, so we are well-positioned to add attractive new assets to the portfolio. With that, I will hand the call over to Sandeep.

Thanks, Paul. Good morning, everyone. Franco-Nevada reported another quarter of solid financial results as our portfolio of royalty and stream assets continued to perform well and in line with our expectations. The performance during the quarter continues the very strong start to the year with record financial results achieved for revenue, adjusted EBITDA, adjusted net income, and operating cash flow for the first six months of 2026. On slide four, you will see a summary of commodity prices for second quarter 2026 and 2025. Precious metal prices have increased significantly year-over-year, with the average gold price higher by 38% and silver by 118% in the quarter. However, both gold and silver prices have retreated from the highs reached during first quarter. For the diversified commodities, with the continued conflict in the Middle East, oil price has seen a sharp increase over prior year.

The WTI price has been volatile over the last few months, but remains above $80 a barrel. Energy revenues did benefit from the higher price in the quarter, and we expect this to carry through to the third quarter. Slide five provides an overview of our key financial results. The performance from our assets, combined with stronger commodity prices, resulted in an increase in revenue of 57%, adjusted EBITDA of 45%, and adjusted net income of 46%. Total GEOs sold for the quarter increased by 18% to 132,405, compared to just over 112,000 in second quarter of 2025. Precious metal GEOs sold in the quarter were 114,111, higher by 23% compared to prior year. Fifty-six percent of total GEOs sold during the quarter were sourced directly from mines where precious metals are the primary commodity. For the quarter, we received strong contributions from several assets.

At Antamina, we benefited from both higher deliveries, but also benefited from the higher silver price, resulting in an increase in revenue from $23.3 million in Q2 2025 to $57.4 million this quarter. For Antamina, we benefited from the processing of higher grade ore, which we expect to continue in the second half of 2026. At South Arturo, we had a significant increase in GEOs as we benefited from the phase 1 production of the open pit. Please note this strong performance was always weighted towards the first half of the year. At Candelaria, production at the mine was lower compared to prior year, as last year the mine had the benefit of higher grade ore from Phase 11.

Lundin Mining expects production to be weighted towards the second half of 2026 due to increased availability of higher grade Phase 12 ore, combined with increased underground mining rates as the underground insourcing initiative nears completion. Diversified GEOs sold were 18,209 for the quarter, compared to 19,644 for prior year, despite diversified revenue being 31% higher at $82.2 million. The decrease in GEOs is the result of converting revenue to GEOs at a higher gold price. As you know, we are converting GEOs to using a fixed gold price of $4,500 per ounce. With respect to cost, we did have an increase in cost of sales compared to Q2 2025 due to higher fixed costs paid for stream ounces, as a portion of our streams have a fixed cost based on a percentage of the gold price. Cost of sales was $45.9 million versus $32.5 million last year.

Depletion increased to $84 million versus $64 million a year ago, the increase being due to depletion being recorded on some of our recent transactions, Yanacocha, Casa Berardi, Porcupine, and Côté. These assets are higher per ounce depletion assets. We expect the depletion rate to decrease over time as the reserves on the properties grow. Adjusted net income was $349.2 million, or $1.81 per share for the quarter, both higher by 46% year-over-year. Slide six highlights the continued diversification of the portfolio. Eighty-six percent of our second quarter revenue was generated by precious metals, with revenue being sourced 88% from the Americas, and no one asset generated more than 10% of revenue, as we have one of the most diverse portfolios in the industry. The model continues to be a very high margin business, as shown on slide seven.

The margin per GEO is increased from $1,559 per GEO in 2022 to $4,352 per GEO in 2026, a 179% increase, while during this time the gold price has increased 160%. As we turn to dividends on slide 8, the company continues to pay a quarterly dividend, with $84 million being paid to shareholders during the quarter. With respect to our guidance summarized on slide 9, we have guided to 510,000 to 570,000 total GEOs sold for the full year 2026. With the strong performance of our portfolio for the first six months of 2026, with approximately 269,000 GEOs sold and an expected stronger second half of the year, we are tracking towards the upper half of the annual guidance range. We expect stronger second half performance from several assets, including Candelaria, Tocantinzinho, Côté, and Valentine.