TORONTO, Oct. 25 /CNW/ - Franco-Nevada (TSE:FN) reports record earnings
from continuing operations despite lower commodity prices and updates
activities for the quarter and six months ended September 30, 2001.
<<
Financial Highlights (unaudited)
Financial results are restated to reflect the disposal of the Ken Snyder
Mine and the Australian Division, which are reported as discontinued
operations. (millions of Canadian dollars except per share data)
For the three months ended September 30 2001 2000
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Revenues $45.2 $42.1 +7%
Cash flow from operations 20.7 15.8 +31%
Earnings from continuing operations 30.2 22.3 +35%
Total earnings 30.2 31.8 (5%)
Earnings per share from continuing operations 0.19 0.14 +36%
Total earnings per share 0.19 0.20 (5%)
Working capital and pro forma market value
of investments 1,770 1,079 +64%
Debt nil nil -
For the six months ended September 30
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Revenues $85.4 $80.1 +7%
Cash flow from operations 48.2 35.9 +34%
Earnings from continuing operations 55.1 44.2 +25%
Total earnings 77.0 61.1 +26%
Earnings per share from continuing operations 0.35 0.28 +25%
Total earnings per share 0.49 0.39 +26%
Other Highlights
- Franco-Nevada's new 19.99% investment in Normandy Mining is subject to
a premium takeover.
- Franco-Nevada enters into an agreement, which will result in Franco-
Nevada holding 49.5% of the common equity of Echo Bay Mines Ltd.
- Continued strong performance from Franco-Nevada's diversified base of
gold, platinum metals and oil and gas royalties.
- Working capital and pro forma fair market value of investments exceed
$1.7 billion. Debt is nil.
- Franco-Nevada, as always, remains 100% unhedged.
Financial Summary
Franco-Nevada continues to produce strong earnings and cash flows despite
depressed commodity prices.
For the quarter ended September 30, 2001, earnings from continuing
operations rose 35% to a record $30.2 million or $0.19 per share compared to
$22.3 million or $0.14 per share in the same period last year. For the six
months ending September 30, 2001, earnings from continuing operations
increased to $55.1 million or $0.35 per share compared to $44.2 million or
$0.28 per share in the prior year. Earnings from discontinued operations were
$21.9 million or $0.14 per share for the six months, comprising the after tax
gain on the Normandy 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
$9.5 million or $0.06 per share for the second quarter and $16.9 million or
$0.11 per share for the six months. Total revenue for the six months ended
September 30, 2001 was up 7% to $85.4 million. 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 93% from 79% for the second
quarter compared to the same period last year. The increase is due to the
strong performance of diversified royalty portfolio, Oil and Gas Division and
the equity interest in Normandy all of which continue to generate high
operating margins. Franco-Nevada's 19.99% stake in Normandy benefited from
record quarterly production of 637,579 ounces of gold versus 543,969 ounces
for the same period a year ago. Total cash costs during the quarter were
US$157. Management expects Franco-Nevada's margins to remain stable for the
remainder of the fiscal year.
Revenues
Resource revenues increased 26% to $25.0 million for the quarter ended
September 30, 2001 from $19.8 million in the prior year's quarter. For the six
months ended September 30, 2001 resource revenues are up 25%. The increase is
net of discontinued operations and is due to the addition of the new royalty
on the Ken Snyder Mine and continued growth in the Stillwater
platinum/palladium and Oil and Gas royalties. Franco-Nevada received over
2,000 gold equivalent ounces during the second quarter from the Ken Snyder
Mine royalty. Management expects the amount of gold equivalent ounces to
increase during the upcoming quarters as Normandy continues to make
improvements at the mine. The Company realized a price of US$278 per ounce of
gold during the first six months of the fiscal year compared to an average
spot of US$271 per ounce. 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. Revenue from the
Stillwater royalty has increased 6% quarter-over-quarter and 13% year-over-
year due to higher production. The royalties on the Goldstrike property have
increased 17% year-over-year due to higher production at the Goldstrike
property. These increases in revenue in Franco-Nevada's major royalty
interests have more than offset the loss of revenue from mine closures at Dee
and Rosebud.
Investment income has decreased 38% to $13.9 million in the quarter from
$22.3 million in fiscal 2001. Year-to-date investment income has decreased 41%
to $22.9 million. The decrease is due to a $15.1 million gain on the sale of
marketable securities recognized last year versus a year-to-date loss of
$3.5 million. Interest income has remained relatively stable year-over-year.
Expenses
Depletion and depreciation has decreased 74% to $1.4 million in the
quarter compared to $5.3 million in the prior year's quarter. In the quarter
ended September 2000, the Company had written off its net investment of
$3 million in Canyon Resources Corporation's MacDonald Gold Project. Year-to-
date depletion and depreciation has decreased 64%. The decrease is due to the
aforementioned provision for MacDonald Gold and last year's write-down of
certain marginal properties. Management expects depletion and depreciation
expense to continue at current levels.
Operating and Administrative expenses have decreased 53% from
$3.6 million to $1.7 million in the quarter ending September 30, 2001 and have
decreased from $5.3 million to $3.5 million for the six months ended September
30, 2001. During the quarter ended September 30, 2000 the Company expensed
costs associated with the proposed Gold Fields Ltd. merger. No such charges
were levied during the current year.
Franco-Nevada's largest expense is its tax. For the six months, Franco-
Nevada's tax rate decreased to 30% of pre-tax earnings compared to 33% the
previous year. The lower tax rate emanates from a 6% drop in the tax rate on
investment income.
Liquidity
Franco-Nevada maintains a strong balance sheet with no debt and working
capital plus pro forma market value of investments totaling $1.8 billion,
including cash and short-term investments of $864 million.
Cash flow from operations for the quarter ended September 30, 2001 was
$20.7 million compared to $15.8 million in the prior year's quarter. Year-over-
year cash flow from operations has increased 34% from $35.9 million to
$48.2 million.
Normandy Mining Limited
Normandy is Australia's largest gold producer with annual gold production
of 2.3 million ounces and reserves of 26.4 million ounces. On May 30th, Franco-
Nevada completed the exchange of its Midas operation and other interests for a
strategic 19.99% equity interest in Normandy. On September 5th, AngloGold Ltd.
made a US$1.7 billion unsolicited bid to acquire Normandy at a significant
premium to Franco-Nevada's cost. Franco-Nevada has not made a decision
regarding its investment.
Echo Bay Mines Ltd.
On September 5th, Franco-Nevada entered into an agreement to convert
US$72.4 million principal amount (US$115.3 million with accrued interest as at
September 30th) of the capital securities of Echo Bay Mines Ltd. ("Echo Bay")
into common shares of Echo Bay. Echo Bay is a substantial gold company which,
last year, produced 695,000 ounces from four mines in the United States and
Canada. Pending shareholder approval, Franco-Nevada expects to maintain a
49.5% interest in Echo Bay following conversion.
Corporate
During the quarter, Franco-Nevada agreed to exchange its 2% NSR royalty
on the Briggs Mine in California for a 7.3% equity position in Canyon
Resources Corporation and a 3% NSR royalty on production in excess of 175,000
ounces from April 1, 2001.
Franco-Nevada has announced its intention to change its financial year-
end from March 31st to December 31st. This aligns the Company with other
international gold companies and reduces confusion over calendar versus fiscal
years. Franco-Nevada's website provides restated numbers on a calendar year
basis for the past 10 years.
Management remains optimistic regarding the future price of gold. Franco-
Nevada will pursue royalties on precious minerals and intends to use its
strong balance sheet to further increase its leverage to gold with additional
strategic transactions. Franco-Nevada is an "owner-operated" company dedicated
to the maximization of our share price.
Seymour Schulich Pierre Lassonde
Chairman of the Board President
and Co-Chief and Co-Chief
Executive Officer Executive Officer
October 25, 2001
Unaudited Consolidated Financial Statements for Franco-Nevada Mining
Corporation Limited are attached.
This presentation contains "Forward-looking statements" within the
meaning of U.S. Federal Securities Laws. The Company's performance is subject
to risk, uncertainties and other factors that could cause actual results to
differ materially from these statements. Such risks include, but are not
limited to the inherent risks of the mineral exploration and mining business,
commodity price volatility, currency exchange rate fluctuations, ore reserve
recoveries, production scheduling, licensing and permitting issues and changes
to mining legislation. For further details refer to Franco-Nevada's Annual
Information Form on file with securities regulatory authorities.
<<
Consolidated Balance Sheets
(thousands except share amounts) Unaudited Audited
September March
2001 2001
Assets ----------- -----------
Current assets
Cash and short-term investments $ 864,053 $ 939,011
Receivables 22,281 14,991
Precious metals 44,224 13,612
Taxes recoverable 4,790 -
----------- -----------
935,348 967,614
Investments in marketable securities 134,396 160,800
Resource and capital assets 188,327 419,336
Investment in Normandy Mining Limited 349,055 -
----------- -----------
1,607,126 1,547,750
----------- -----------
----------- -----------
Liabilities
Current liabilities
Accounts payable 2,989 9,036
Taxes payable - 17,385
----------- -----------
2,989 26,421
----------- -----------
Future income taxes 82,437 85,873
----------- -----------
Shareholders' equity
Capital stock (158,920,430 shares) 1,026,139 1,021,321
Retained earnings 421,533 344,516
Deferred foreign exchange gain 74,028 69,619
----------- -----------
1,521,700 1,435,456
----------- -----------
$1,607,126 $1,547,750
----------- -----------
----------- -----------
Consolidated Statements of Earnings (unaudited)
For the period ended September 30
(thousands except per share amounts)
Quarter Six months
Revenues 2001 2000 2001 2000
----------- ----------- ----------- -----------
Resource $ 24,958 $ 19,820 $ 51,323 $ 41,142
Equity earnings in
Normandy Mining 6,428 - 11,215 -
Investment 13,850 22,321 22,902 38,960
----------- ----------- ----------- -----------
45,236 42,141 85,440 80,102
----------- ----------- ----------- -----------
Expenses
Operating and
administration 1,653 3,603 3,535 5,321
Depletion and
depreciation 1,401 5,327 3,192 8,866
----------- ----------- ----------- -----------
3,054 8,930 6,727 14,187
----------- ----------- ----------- -----------
Earnings before taxes 42,182 33,211 78,713 65,915
----------- ----------- ----------- -----------
Tax provision - current 16,359 12,762 25,959 23,770
- future (4,337) (1,801) (2,361) (2,041)
----------- ----------- ----------- -----------
12,022 10,961 23,598 21,729
----------- ----------- ----------- -----------
Earnings from continuing
operations 30,160 22,250 55,115 44,186
Gain on sale of
discontinued operations - - 21,902 -
Income from discontinued
operations - 9,505 - 16,931
----------- ----------- ----------- -----------
Net earnings $ 30,160 $ 31,755 $ 77,017 $ 61,117
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Earnings per share
Continuing operations 0.19 0.14 0.35 0.28
Discontinued operations - 0.06 0.14 0.11
----------- ----------- ----------- -----------
Total earnings per share $ 0.19 $ 0.20 $ 0.49 $ 0.39
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Consolidated Statements of Retained Earnings (unaudited)
Beginning of period $ 344,516 $ 303,601
Change in accounting for
income taxes - (17,009)
Earnings 77,017 61,117
----------- -----------
End of period $ 421,533 $ 347,709
----------- -----------
----------- -----------
Consolidated Statements of Cash Flows (unaudited)
For the period ended September 30
(thousands)
Quarter Six months
Operating activities 2001 2000 2001 2000
----------- ----------- ----------- -----------
Operating Earnings $ 30,160 $ 22,250 $ 55,115 $ 44,186
----------- ----------- ----------- -----------
Non-cash items
Depletion and
depreciation 1,401 5,327 3,192 8,866
Future income taxes (4,337) (1,801) (2,361) (2,041)
Loss (Gain) on sale
of marketable
securities (132) (9,954) 3,469 (15,097)
Equity earnings in
Normandy Mining (6,428) - (11,215) -
----------- ----------- ----------- -----------
Total non-cash items (9,496) (6,428) (6,915) (8,272)
----------- ----------- ----------- -----------
Cash flow from operations 20,664 15,822 48,200 35,914
Change in non-cash
working capital (24,590) (5,820) (65,902) (12,559)
----------- ----------- ----------- -----------
(3,926) 10,002 (17,702) 23,355
----------- ----------- ----------- -----------
Financing activities
Shares issued for cash 4,669 - 4,818 -
----------- ----------- ----------- -----------
4,669 - 4,818 -
----------- ----------- ----------- -----------
Investing activities
Marketable securities 845 25,776 22,298 37,984
Short-term investments (15,238) (43,504) (101,572) (32,703)
Investment in Normandy
Mining (134) - (82,584) -
Resource properties (1,675) (221) (3,114) (1,338)
Capital assets (695) (542) (1,102) (1,149)
----------- ----------- ----------- -----------
(16,897) (18,491) (166,074) 2,794
----------- ----------- ----------- -----------
Foreign exchange gain
(loss) 5,686 1,226 198 2,886
----------- ----------- ----------- -----------
Discontinued operations - (22,303) - (43,363)
----------- ----------- ----------- -----------
Increase (Decrease) in cash
and cash equivalents (10,468) (29,566) (178,760) (14,328)
Cash & cash equivalents -
beginning of period 150,361 190,656 318,653 175,418
----------- ----------- ----------- -----------
Cash & cash equivalents -
end of period 139,893 161,090 139,893 161,090
Short-term investments 724,160 569,009 724,160 569,009
----------- ----------- ----------- -----------
Cash & short-term
investments - end of
period $ 864,053 $ 730,099 $ 864,053 $ 730,099
----------- ----------- ----------- -----------
Notes to Consolidated Financial Statements
(tabular amounts in thousands of Canadian dollars)
1. Basis of presentation
The accompanying unaudited interim financial statements are prepared
in accordance with generally accepted accounting principles ("GAAP")
in Canada. Certain information included in the Annual Financial
Statements are not included herein. In the opinion of management, all
adjustments considered necessary for fair presentation have been
included in these financial statements. Operating results for the
period ended September 30, 2001, are not necessarily indicative of the
results that may be expected for the full fiscal period ended December
31, 2001. For further information, see the Company's consolidated
financial statements, including the notes thereto, in the Annual
Report for the year ended March 31, 2001.
2. Discontinued operations
On April 2, 2001, the Company entered into an agreement with Normandy
Mining Limited (Normandy), Australia's largest gold producer, to
exchange its Ken Snyder mine, US$48 million and its Australian assets,
in return for a 19.99% equity interest in Normandy. The exchange of
assets resulted in a pre-tax gain of $38.6 million to Franco-Nevada
and has been classified as "Discontinued operations". Income taxes of
$16.7 million were recorded in connection with the exchange. The
agreement was approved by Normandy shareholders on May 23, 2001 and
closed May 30, 2001. Under the agreement, which is effective April 1,
2001, Normandy has issued Franco-Nevada 446.1 million common shares.
Franco-Nevada has retained a minimum 5% Net Smelter Return ("NSR")
royalty over the Midas property, which escalates at gold prices over
US$300 per ounce to a maximum of 10% NSR royalty at gold prices over
US$400 per ounce.
3. Capital stock
As at September 30, 2001, in addition to its 158,920,430 common
shares, the Company has two classes of warrants issued and
outstanding. There are 2,246,336 Class A warrants outstanding, each of
which entitles the holder thereof to acquire four common shares of the
Company at a price of $200 per warrant. There are 2,133,751 Class B
warrants outstanding, each of which entitles the holder thereof to
acquire 3.08 common shares of the Company at a price of $100 per
warrant. The Class A and B warrants expire on September 15, 2003 and
November 12, 2003, respectively.
4. Echo Bay Mines Ltd.
On September 5th, Franco-Nevada entered into an agreement to convert
US$72.4 million principal amount (US$115.3 million with accrued
interest as at September 30th) of the capital securities of Echo Bay
Mines Ltd. ("Echo Bay") into common shares of Echo Bay. Echo Bay is a
substantial gold company producing last year 695,000 ounces from four
mines in the United States and Canada. Franco-Nevada expects to
maintain a 49.5% interest in Echo Bay following conversion.
5. Comparative amounts
Certain comparative amounts have been reclassified to conform to the
presentation adopted in the current period.
6. Segment information
Quarter Six months
2001 2000 2001 2000
----------- ----------- ----------- -----------
Revenues
Mining $ 18,977 $ 12,966 $ 37,798 $ 27,800
Oil & Gas 5,981 6,854 13,525 13,342
----------- ----------- ----------- -----------
24,958 19,820 51,323 41,142
----------- ----------- ----------- -----------
Depletion and
depreciation
Mining 940 4,789 2,312 7,237
Oil & Gas 461 538 880 1,629
----------- ----------- ----------- -----------
1,401 5,327 3,192 8,866
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Segment earnings
before taxes
Mining 18,037 8,177 35,486 20,563
Oil & Gas 5,520 6,316 12,645 11,713
----------- ----------- ----------- -----------
23,557 14,493 48,131 32,276
Investment earnings 13,850 22,321 22,902 38,960
Equity earnings 6,428 - 11,215 -
Operating and
administration
expenses (1,653) (3,603) (3,535) (5,321)
----------- ----------- ----------- -----------
Earnings before tax 42,182 33,211 78,713 65,915
Tax (12,022) (10,961) (23,598) (21,729)
----------- ----------- ----------- -----------
Earnings from continuing
operations 30,160 22,250 55,115 44,186
Discontinued
operations - 9,505 21,902 16,931
----------- ----------- ----------- -----------
Net earnings 30,160 31,755 77,017 61,117
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Revenue by geographic
area
USA 29,241 26,327 46,975 50,209
Canada 8,992 15,051 26,054 28,499
Australia 6,428 - 11,215 -
Other 575 763 1,196 1,394
----------- ----------- ----------- -----------
45,236 42,141 85,440 80,102
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Segment capital
expenditures
Mining 1,581 178 2,602 1,271
Oil & Gas 789 585 1,614 1,216
----------- ----------- ----------- -----------
$ 2,370 $ 763 $ 4,216 $ 2,487
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Identifiable assets by
geographic area
USA 1,191,180 593,671
Canada 39,379 847,441
Australia 349,055 -
Other 27,512 73,404
----------- -----------
1,607,126 1,514,516
----------- -----------
----------- -----------
Identifiable assets by
segment
Mining 215,263 511,801
Oil & Gas 43,997 43,912
----------- -----------
Total assets for
reportable segments 259,260 555,713
Cash and investments
at cost 1,347,504 958,506
Other 362 297
----------- -----------
$1,607,126 $1,514,516
----------- -----------
----------- -----------
>>
-30-
For further information: on the financial results please contact: Ron
Binns, Chief Financial Officer, Tel: (416) 480-6490 or Sandip Rana, Treasurer,
Tel: (416) 480-6495
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