Franco-Nevada earnings increase in first quarter
Franco-Nevada Mining Corp Ltd FN
Shares issued 158,630,670 Aug 15 close $20.29
Thu 16 Aug 2001 News Release
Mr. Seymour Schulich reports
Franco-Nevada has achieved strong financial results and updates activities
for its first quarter ended June 30, 2001.
Highlights:
Normandy transaction successfully completed on May 30 and accounted as
being effective beginning April 1, 2001;
Franco-Nevada's new 19.99-per-cent investment in Normandy Mining during the
quarter delivered record gold production and good financial results;
cContinued strong performance from the company's diversified base of gold,
platinum metals, and oil and gas royalties;
Anglo Platinum resumes royalty payments on the Pandora platinum property;
decision to change the financial year-end to Dec. 31;
working capital and fair market value of investments exceed $1.5-billion.
Debt is nil; and
Franco-Nevada, as always, remains 100-per-cent unhedged.
Normandy transaction
On May 30, Franco-Nevada successfully completed its transaction with
Normandy Mining Limited, Australia's largest gold producer. Franco-Nevada
has transferred to Normandy, 100-per-cent ownership of its Ken Snyder mine
and Midas exploration properties in Nevada, its Australian interests, and
$48-million (U.S.). In return, Franco-Nevada received 446.1 million new
ordinary shares of Normandy representing a 19.99-per-cent interest in
Normandy, postissuance. Franco-Nevada also retains a minimum 5-per-cent net
smelter return royalty on the Ken Snyder mine and Midas exploration
properties, which escalates to 10 per cent at gold prices over $400 (U.S.)
per ounce. Pierre Lassonde has joined Normandy's board of directors. This
transaction increases Franco-Nevada's leverage to gold through its share in
a larger production, reserve and resource base. The transaction has an
effective date of April 1 so this is Franco-Nevada's first quarter
reflecting the transfer of interests. The results of the Ken Snyder mine
and the Australian division are now reported as discontinued operations,
and previously reported financial statements have been restated. Restated
numbers for the past 10 quarters and 10 years on a calendar-year basis can
be found on Franco-Nevada's Web site.
Financial summary
For the quarter ending June 30, 2001, earnings from continuing operations
totalled $25-million or 16 cents per share compared with $21.9-million or
14 cents per share a year ago. Earnings from discontinued operations were
$21.9-million or 14 cents per share during the current quarter, consisting
of the after-tax gain on the transaction and a provision for the diminution
in other non-core assets. The earnings from discontinued operations last
year consists of the Ken Snyder mine and Australian division operations and
total $7.4-million or five cents per share. The external economic and
industry factors, and risks, discussed in Franco-Nevada's annual report for
the year ended March 31, 2001, remain substantially unchanged.
Operations
Franco-Nevada's operating margin increased to 91 per cent from 86 per cent
last year. The diversified royalty portfolio, oil and gas division, and the
equity interest in Normandy, all performed well during the quarter,
generating high operating margins. Franco-Nevada's new 19.99-per-cent stake
in Normandy benefited from record quarterly production of 634,843 ounces of
gold versus 557,521 ounces for the same period a year ago with total cash
costs during the current quarter of only $153 (U.S.) per ounce. Management
expects Franco-Nevada's margins will remain stable for the remainder of the
fiscal year.
Revenues
Resource revenues increased 24 per cent to $26.4-million from $21.3-million
in the prior year's quarter. The increase is net of results of discontinued
operations and is due to the addition of the new royalty on the Ken Snyder
mine and continued strength in the Stillwater, and oil and gas royalties.
The company realized a price of $275 (U.S.) per ounce of gold compared with
the average spot price of $267 (U.S.). Franco-Nevada does not hedge its
gold production. Rather, the company sells its gold at spot plus a modest
premium. It has always been management's philosophy to remain unhedged so
as to provide shareholders the upside that higher gold prices will bring.
Oil and gas revenues increased 16 per cent year over year due to higher
production volumes while the Stillwater royalty increased 19 per cent
because of higher commodity prices and higher production. Operators
continue to develop Franco-Nevada's oil and gas royalty lands with over 40
new wells licensed during the first quarter. Investment income decreased 46
per cent to $9.1-million from $16.6-million. The decrease is due to a
$5.1-million gain in June, 2000, from the sale of marketable securities
versus a loss in the current quarter of $3.6-million. Interest income
increased during the quarter as average interest-bearing balances rose
$185-million, more than offsetting a 0.7-per-cent decrease in interest
rates.
Expenses
Depletion and depreciation has decreased 49 per cent to $1.8-million
compared with $3.5-million in June, 2000. The decrease is due to last
year's writedown of certain marginal royalty properties. Operating and
administration expenses have increased from $1.7-million last year to
$1.9-million in the current quarter. Lower payroll costs have been more
then offset by higher business development activities. Taxes,
Franco-Nevada's largest expense at 32 per cent of pretax earnings, are down
1 per cent from 33 per cent. The lower tax rate emanates from a 6-per-cent
drop in the tax rate on investment income.
Liquidity
Franco-Nevada maintains a strong balance sheet with no debt and working
capital plus market value of investments totalling $1.5-billion, including
cash of $848-million. Cash flow from operations for the quarter ended June,
2001, was $27.5-million compared with $20.1-million in June, 2000.
Corporate
Franco-Nevada's annual general meeting of shareholders was held on June 27
and was well attended. At the meeting, management reaffirmed its commitment
to royalties on precious minerals such as gold, silver, platinum, palladium
and diamonds. Management also outlined its vision to further increase its
leverage to gold with strategic investments such as the recent Normandy
transaction with several new initiatives under way. Franco-Nevada remains
optimistic as to the longer-term outlook for the gold price.
In Franco-Nevada's previous financial results, it was reported that Anglo
Platinum and Lonmin PLC had announced plans to develop the Pandora property
in South Africa into a significant platinum, palladium and gold producer.
Franco-Nevada has a 5-per-cent net profits royalty on the Pandora property
and has been receiving advance minimum royalty payments for the past six
years. Subsequent to its development announcement, Anglo Platinum served
notice that it no longer intended to make royalty payments to
Franco-Nevada. Following discussions, Anglo Platinum has resumed paying the
advance royalty payments, effectively acknowledging the validity of the
royalty.
During the quarter, Franco-Nevada announced its intention to change its
financial year-end from March 31 to Dec. 31 effective immediately. This
puts Franco-Nevada in line with other international gold companies and
reduces confusion over calendar versus fiscal years. Franco-Nevada's Web
site provides restated numbers on a calendar-year basis for the past 10
years. Also during the quarter, Franco-Nevada increased its position in
Metallica Resources Inc. to 12.8 per cent for investment purposes.
In the process of transferring the Ken Snyder mine and the Australian
division to Normandy, Franco-Nevada has reduced its staff in Nevada and
closed its office in Australia. Franco-Nevada's employee count has fallen
from 46 to 23 employees. Many of the employees have been transferred to the
Normandy team or have taken termination packages. All of these people have
made enormous contributions over the four-year period of building and
operating the Ken Snyder mine. Worthy of special recognition are Fred
Bauchrowitz, general mine manager, and Andre J. Douchane, vice-president,
operations. These men were the builders and operators of the Ken Snyder
mine. They are exceptional people! The company is proud to have had them on
the Franco-Nevada team!
WARNING: The company relies upon litigation protection for
"forward-looking" statements.
CONSOLIDATED STATEMENT OF EARNINGS
Three months ended June 30
(in thousands of dollars)
2001 2000
Revenues
Resource $26,365 $21,322
Equity earnings in
Normandy Mining 4,787 -
Investment 9,052 16,639
------- -------
40,204 37,961
------- -------
Expenses
Operating and admin 1,882 1,718
Depletion and
depreciation 1,791 3,539
------- -------
3,673 5,257
------- -------
Earnings before
taxes 36,531 32,704
------- -------
Tax provision
Current 9,600 11,008
Future 1,976 (240)
------- -------
11,576 10,768
------- -------
Earnings from
continuing
operations 24,955 21,936
Gain on sale of
discontinued
operations 21,902 -
Income from
discontinued
operations - 7,426
------- -------
Net earnings $46,857 $29,362
======= =======
Earnings per share
Continuing
operations 0.16 0.14
Discontinued
operations 0.14 0.05
------- -------
Total earnings
per share 0.30 0.19
CONSOLIDATED STATEMENT OF
RETAINED EARNINGS
Three months ended June 30
(in thousands of dollars)
2001 2000
Beginning of
period $344,516 $303,601
Change in accounting
for income taxes - (17,009)
Earnings 46,857 29,362
-------- --------
End of period $391,373 $315,954
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