Management’s Report On Internal Control Over Financial Reporting
Franco-Nevada Corporation’s (“Franco-Nevada”) management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in rules 13a-15(f) and 15d-15(f) under the United States Securities Exchange Act of 1934, as amended.
Franco-Nevada’s management, with the participation of its President & Chief Executive Officer and its Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as at December 31, 2022. Franco-Nevada’s management conducted an evaluation of the Company’s internal control over financial reporting based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management, including the President & Chief Executive Officer and the Chief Financial Officer, concluded that the Company's internal control over financial reporting is effective as of December 31, 2022.
The effectiveness of the Company’s internal control over financial reporting as at December 31, 2022 has been audited by PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm, as stated in their report appearing herein.
/s/Paul Brink | /s/Sandip Rana | ||
Paul Brink | Sandip Rana | ||
President & Chief Executive Officer | Chief Financial Officer | ||
March 15, 2023
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Franco-Nevada Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial position of Franco-Nevada Corporation and its subsidiaries (together, the Company) as of December 31, 2022 and 2021, and the related consolidated statements of income and comprehensive income, of changes in shareholders’ equity and of cash flows for the years then ended, including the related notes (collectively referred to as the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and its financial performance and its cash flows for the years then ended in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
PricewaterhouseCoopers LLP
PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J 0B2
T: +1 416 863 1133, F: +1 416 365 8215
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
2022 Financial Statements | 3 |
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit and risk committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Assessment of indicators of impairment or impairment reversal of royalty, stream and working interests
As described in Notes 2, 3 and 8 to the consolidated financial statements, the Company’s royalty, stream and working interests carrying value was $4,927.5 million as of December 31, 2022. Management assesses at the end of each reporting period whether there are any indicators that the carrying value may not be recoverable or that an impairment loss previously recognized may no longer exist that give rise to the requirement to conduct an impairment or impairment reversal analysis. Impairment or impairment reversal is assessed at the cash-generating unit (CGU) level, which is usually at the individual royalty, stream or working interest level for each property from which independent cash inflows are generated. Management uses significant judgment when assessing whether there are indicators of impairment or impairment reversal, including significant changes in operator reserve and resource estimates, industry or economic trends, current or forecast commodity prices and other relevant operator information. For certain energy interests, management uses reserve reports prepared by independent reserve engineers or other qualified parties engaged by the Company (management’s specialists).
2022 Financial Statements | 4 |
The principal considerations for our determination that performing procedures relating to the assessment of indicators of impairment or impairment reversal of royalty, stream and working interests is a critical audit matter are (i) the significant judgment by management when assessing whether there were indicators of impairment or impairment reversal which would require an impairment or impairment reversal analysis to be performed, and (ii) a high degree of auditor judgment, subjectivity and effort in evaluating management’s assessment of indicators of impairment or impairment reversal related to significant changes in operator reserve and resource estimates, industry or economic trends, current or forecast commodity prices and other relevant operator information.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s assessment of indicators of impairment or impairment reversal of royalty, stream and working interests. These procedures also included, among others, evaluating the reasonableness of management’s assessment of indicators of impairment or impairment reversal for a sample of royalty, stream and working interests, related to significant changes in operator reserve and resource estimates, industry or economic trends, current or forecast commodity prices and other relevant operator information by considering (i) current and past performance of royalty, stream and working interests; (ii) consistency with external market and industry data; (iii) publicly disclosed or other relevant information by operators of royalty, stream and working interests; and (iv) consistency with evidence obtained in other areas of the audit. For certain energy interests, the work of management’s specialists was used in performing the procedures to evaluate the reasonableness of management’s assessment of indicators of impairment or impairment reversal related to significant changes in reserve estimates. As a basis for using this work, management’s specialists’ qualifications were understood and the Company’s relationship with management’s specialists was assessed. The procedures performed also included evaluation of the methods and assumptions used by management’s specialists, tests of the data used by management’s specialists, and an evaluation of management’s specialists’ findings.
/s/
Chartered Professional Accountants, Licensed Public Accountants
March 15, 2023
We have served as the Company’s auditor since 2007.
2022 Financial Statements | 5 |
Franco-Nevada Corporation
Consolidated Statements of Financial Position |
(in millions of U.S. dollars)
At December 31, | At December 31, | |||||||
2022 |
|
| 2021 |
| ||||
ASSETS | ||||||||
Cash and cash equivalents (Note 5) | $ | | $ | | ||||
Receivables |
| |
| | ||||
Loan receivable (Note 6) |
| — |
| | ||||
Prepaid expenses and other (Note 7) |
| |
| | ||||
Current assets | $ | | $ | | ||||
Royalty, stream and working interests, net (Note 8) | $ | | $ | | ||||
Investments (Note 6) |
| |
| | ||||
Deferred income tax assets (Note 17) |
| |
| | ||||
Other assets (Note 9) |
| |
| | ||||
Total assets | $ | | $ | | ||||
LIABILITIES | ||||||||
Accounts payable and accrued liabilities (Note 10) | $ | | $ | | ||||
Current income tax liabilities |
| |
| | ||||
Current liabilities | $ | | $ | | ||||
Deferred income tax liabilities (Note 17) | $ | | $ | | ||||
Other liabilities | | | ||||||
Total liabilities | $ | | $ | | ||||
SHAREHOLDERS’ EQUITY | ||||||||
Share capital (Note 18) | $ | | $ | | ||||
Contributed surplus |
| |
| | ||||
Retained earnings |
| |
| | ||||
Accumulated other comprehensive loss |
| ( |
| ( | ||||
Total shareholders’ equity | $ | | $ | | ||||
Total liabilities and shareholders’ equity | $ | | $ | | ||||
Commitments and contingencies (Notes 23 and 24) | ||||||||
Subsequent events (Note 25) |
The accompanying notes are an integral part of these consolidated financial statements.
Approved by the Board of Directors and authorized for issue on March 15, 2023.
/s/David Harquail | /s/Jennifer Maki | ||
David Harquail | Jennifer Maki | ||
Director | Director |
2022 Financial Statements | 6 |
Franco-Nevada Corporation
Consolidated Statements of Income and Comprehensive Income |
(in millions of U.S. dollars and shares, except per share amounts)
2022 |
|
| 2021 | |||||
Revenue (Note 12) | $ | | $ | | ||||
Costs of sales | ||||||||
Costs of sales (Note 13) |
| $ | | $ | | |||
Depletion and depreciation |
| |
| | ||||
Total costs of sales | $ | | $ | | ||||
Gross profit | $ | | $ | | ||||
Other operating expenses (income) | ||||||||
General and administrative expenses |
| $ | | $ | | |||
Share-based compensation expenses (Note 14) | | | ||||||
Impairment reversals (Note 8) |
| — | ( | |||||
Gain on sale of gold bullion |
| ( | ( | |||||
Total other operating expenses (income) |
| $ | | $ | ( | |||
Operating income |
| $ | | $ | | |||
Foreign exchange gain (loss) and other income (expenses) |
| $ | | $ | ( | |||
Income before finance items and income taxes |
| $ | | $ | | |||
Finance items (Note 16) | ||||||||
Finance income |
| $ | | $ | | |||
Finance expenses |
| ( |
| ( | ||||
Net income before income taxes |
| $ | | $ | | |||
Income tax expense (Note 17) |
| |
| | ||||
Net income | $ | | $ | | ||||
Other comprehensive (loss) income, net of taxes | ||||||||
Items that may be reclassified subsequently to profit and loss: | ||||||||
Currency translation adjustment |
| $ | ( | $ | ( | |||
Items that will not be reclassified subsequently to profit and loss: | ||||||||
(Loss) gain on changes in the fair value of equity investments |
|
| ||||||
at fair value through other comprehensive income ("FVTOCI"), | ||||||||
net of income tax (Note 6) | ( | | ||||||
Other comprehensive (loss) income, net of taxes |
| $ | ( | $ | | |||
Comprehensive income | $ | | $ | | ||||
Earnings per share (Note 19) | ||||||||
Basic | $ | | $ | | ||||
Diluted | $ | | $ | | ||||
Weighted average number of shares outstanding (Note 19) | ||||||||
Basic | | | ||||||
Diluted | | | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
2022 Financial Statements | 7 |
Franco-Nevada Corporation
Consolidated Statements of Cash Flows |
(in millions of U.S. dollars)
| 2022 |
|
| 2021 |
| |||
Cash flows from operating activities | ||||||||
Net income | $ | | $ | | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depletion and depreciation |
| |
| | ||||
Share-based compensation expenses |
| |
| | ||||
Impairment reversals |
| — |
| ( | ||||
Unrealized foreign exchange loss |
| |
| | ||||
Deferred income tax expense | |
| | |||||
Other non-cash items |
| ( |
| ( | ||||
Acquisition of gold bullion | ( | ( | ||||||
Proceeds from sale of gold bullion |
| |
| | ||||
Changes in other assets |
| ( |
| ( | ||||
Operating cash flows before changes in non-cash working capital | $ | | $ | | ||||
Changes in non-cash working capital: | ||||||||
Increase in receivables | $ | ( | $ | ( | ||||
Increase in prepaid expenses and other |
| ( |
| ( | ||||
Increase (decrease) in current liabilities |
| |
| ( | ||||
Net cash provided by operating activities | $ | | $ | | ||||
Cash flows used in investing activities | ||||||||
Acquisition of royalty, stream and working interests | $ | ( | $ | ( | ||||
Acquisition of investments |
| ( |
| ( | ||||
Acquisition of energy well equipment |
| ( |
| ( | ||||
Proceeds from settlement of loan receivable | | — | ||||||
Proceeds from sale of investments |
| |
| | ||||
Net cash used in investing activities | $ | ( | $ | ( | ||||
Cash flows used in financing activities | ||||||||
Payment of dividends | $ | ( | $ | ( | ||||
Proceeds from draw of revolving credit facilities | — | | ||||||
Repayment of revolving credit facilities | — | ( | ||||||
Credit facility amendment costs |
| ( | ( | |||||
Proceeds from exercise of stock options |
| |
| | ||||
Net cash used in financing activities | $ | ( | $ | ( | ||||
Effect of exchange rate changes on cash and cash equivalents | $ | ( | $ | ( | ||||
Net change in cash and cash equivalents | $ | | $ | | ||||
Cash and cash equivalents at beginning of year | $ | | $ | | ||||
Cash and cash equivalents at end of year | $ | | $ | | ||||
Supplemental cash flow information: | ||||||||
Dividend income received | $ | | $ | | ||||
Interest and standby fees paid | $ | | $ | | ||||
Income taxes paid | $ | | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
2022 Financial Statements | 8 |
Franco-Nevada Corporation
Consolidated Statements of Changes in Shareholders’ Equity |
(in millions of U.S. dollars)
|
|
| Accumulated |
|
| |||||||||||
other | Retained | |||||||||||||||
Share capital | Contributed | comprehensive | earnings | |||||||||||||
(Note 18) | surplus | loss | (deficit) | Total equity | ||||||||||||
Balance at January 1, 2021 | $ | | $ | | $ | ( | $ | ( | $ | | ||||||
Net income |
| — |
| — |
| — |
| |
| | ||||||
Other comprehensive income, net of taxes |
| — |
| — |
| |
| — |
| | ||||||
Total comprehensive income | $ | | ||||||||||||||
Exercise of stock options | $ | | $ | ( | $ | — | $ | — | $ | | ||||||
Share-based payments | — | | — | — | | |||||||||||
Vesting of restricted share units | | ( | — | — | — | |||||||||||
Transfer of gain on disposal of equity investments at FVTOCI | — |
| — |
| ( |
| | — | ||||||||
Dividend reinvestment plan |
| |
| — |
| — |
| — |
| | ||||||
Dividends declared |
| — |
| — |
| — |
| ( |
| ( | ||||||
Balance at December 31, 2021 | $ | | $ | | $ | ( | $ | | $ | | ||||||
Balance at January 1, 2022 | $ | | $ | | $ | ( | $ | | $ | | ||||||
Net income |
| — |
| — |
| — |
| |
| | ||||||
Other comprehensive loss, net of taxes |
| — |
| — |
| ( |
| — |
| ( | ||||||
Total comprehensive income | $ | | ||||||||||||||
Exercise of stock options | $ | | $ | ( | $ | — | $ | — | $ | | ||||||
Share-based payments | — | | — | — | | |||||||||||
Vesting of restricted share units | | ( | — | — | — | |||||||||||
Transfer of gain on disposal of equity investments at FVTOCI |
| — |
| — |
| ( |
| |
| — | ||||||
Dividend reinvestment plan |
| |
| — |
| — |
| — |
| | ||||||
Dividends declared |
| — |
| — |
| — |
| ( |
| ( | ||||||
Balance at December 31, 2022 | $ | | $ | | $ | ( | $ | | $ | | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
2022 Financial Statements | 9 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
Note 1 – Corporate Information
Franco-Nevada Corporation (“Franco-Nevada” or the “Company”) is incorporated under the Canada Business Corporations Act. The Company is a royalty and stream company principally focused on precious metals (gold, silver, and platinum group metals) and has a diversity of revenue sources. The Company owns a portfolio of royalty, stream and working interests, covering properties at various stages, from production to early exploration located in South America, Central America & Mexico, United States, Canada, Australia, Europe and Africa.
The Company’s shares are listed on the Toronto Stock Exchange and the New York Stock Exchange and the Company is domiciled in Canada. The Company’s head and registered office is located at 199 Bay Street, Suite 2000, Toronto, Ontario, Canada.
Note 2 – Significant Accounting Policies
(a) | Statement of Compliance |
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) under the historical cost convention, except for equity investments, warrants and receivables from provisionally priced concentrate sales which are measured at fair value. These consolidated financial statements were authorized for issuance by the Board of Directors on March 15, 2023.
(b) | Principles of Consolidation |
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries (its “subsidiaries”) (together the “Company”).
(i) | Subsidiaries |
These consolidated financial statements include the accounts of Franco-Nevada and its subsidiaries. All intercompany accounts, transactions, income and expenses, and profits or losses have been eliminated on consolidation. The Company consolidates subsidiaries where it has the ability to exercise control. Control of an investee is defined to exist when the Company is exposed to variable returns from its involvement in the investee and has the ability to affect those returns through its power over the investee. Specifically, the Company controls an investee if, and only if, it has all of the following: power over the investee (i.e. existing rights that give the Company the current ability to direct the relevant activities of the investee); exposure, or rights, to variable returns from its involvement with the investee; and the ability to use its power over the investee to affect its returns. Control is presumed to exist where the Company owns more than one half of the voting rights unless it can be demonstrated that ownership does not constitute control. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are de-consolidated from the date that control ceases.
The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. The consolidated financial statements include all assets, liabilities, revenues, expenses and cash flows of the Company and its subsidiaries after eliminating intercompany transactions.
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
The principal subsidiaries of the Company and their geographic locations at December 31, 2022 were as follows:
Entity | Jurisdiction | Economic |
Franco-Nevada U.S. Corporation | Delaware | |
Franco-Nevada (Barbados) Corporation | Barbados | |
Franco-Nevada Australia Pty Ltd. | Australia | |
Franco-Nevada Delaware LLC | Delaware | |
Franco-Nevada Texas LP | Texas | |
Minera Global Copper Chile S.A. | Chile |
All the above entities are classified as subsidiaries of the Company. There are no significant restrictions on the Company’s ability to access or use assets or settle liabilities of its subsidiaries.
(ii) | Joint Arrangements |
A joint arrangement is defined as an arrangement over which two or more parties have joint control, which is the contractually agreed sharing of control over an arrangement. This exists only when the decisions about relevant activities (being those that significantly affect the returns of the arrangement) require unanimous consent of the parties sharing control. There are two types of joint arrangement, joint operations (“JO”) and joint ventures (“JV”).
A JO is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities, relating to the arrangement. In relation to the Company’s interests in any JO, the Company recognizes its share of any assets, liabilities, revenues and expenses of the JO.
The Company’s JO arrangements are as follows:
● | The Company participates in a strategic relationship with Continental Resources, Inc. (“Continental”), to jointly acquire mineral rights within Continental’s areas of operation. The mineral interests are acquired through a royalty acquisition entity, The Mineral Resource Company II, LLC (“TMRC II”), in which the Company holds an economic interest of |
● | The Company also participates in joint operations with respect to energy working interests but does not have joint control. A working interest is an ownership position in the energy property and related operating assets, whereby the Company is liable for its proportionate share of gross costs of capital and operations based on information received from the operator. |
A JV is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. The assets, liabilities, revenues and expenses of a JV are accounted for using the equity method. The Company does not have any JV arrangements.
(c) | Business Combinations |
On the acquisition of a business, the acquisition method of accounting is used whereby the purchase consideration is allocated to the identifiable assets, liabilities and contingent liabilities (identifiable net assets) of the business on the basis of the fair value at the date of acquisition. Provisional fair values allocated at a reporting date are finalized as soon as the relevant information is available, which period shall not exceed twelve months from the acquisition date and are adjusted to reflect the transaction as of the acquisition date.
The results of businesses acquired during the period are consolidated into the consolidated financial statements from the date on which control commences at the date of acquisition and taken out of the consolidated financial statements from the date on which control ceases.
2022 Financial Statements | 11 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
When all or part of the purchase consideration is contingent on future events, the cost of the acquisition initially recorded includes an estimate of the fair value of the contingent liability amounts expected to be payable in the future. The cost of acquisition is adjusted when revised estimates are made, with corresponding adjustments made to the consolidated statement of income and comprehensive income.
When a business is acquired in a number of stages, the cost of each stage is compared with the fair value of the identifiable net assets at the date of that purchase. When the cost of the acquisition exceeds the fair values of the identifiable net assets acquired, the difference is recorded as goodwill. If the fair value attributable to the Company’s share of the identifiable net assets exceeds the cost of acquisition, the difference is recognized as a gain in the consolidated statement of income and comprehensive income. Acquisition costs are expensed.
(d) | Currency Translation |
(i) | Functional and Presentation Currency |
The functional currency for each entity within the Franco-Nevada group is the currency of the primary economic environment in which it operates.
These consolidated financial statements are expressed in United States dollars, which is the functional currency of the majority of the subsidiaries. The parent Company’s functional currency is the Canadian dollar. The U.S. dollar is used as the presentation currency of the Company to ensure comparability with the Company’s peers. References herein to C$ are to Canadian dollars.
(ii) | Foreign Currency Transactions and Balances |
Foreign currency transactions are translated into the functional currency of the respective subsidiary, using the exchange rate prevailing at the dates of the transaction (spot exchange rates). Foreign exchange gains and losses resulting from the settlement of such transactions and the re-measurement of monetary items at the date of the consolidated statements of financial position are recognized in net income. Non-monetary items measured at historical cost are translated into the functional currency using the exchange rate at the date of the transaction.
The results and financial position of the subsidiaries that have a functional currency different from the presentation currency are translated into U.S. dollars, the group’s presentation currency, as follows:
● | assets and liabilities for each subsidiary are translated at the closing exchange rate at the date of the balance sheet; |
● | income and expenses for each subsidiary are translated at the average exchange rates during the period; and |
● | all resulting exchange differences are charged/credited to the currency translation adjustment in other comprehensive income. |
(e) | Royalty, Stream and Working Interests |
Royalty, stream and working interests consist of acquired royalty interests, stream metal purchase agreements, and working interests in producing, advanced/development and exploration stage properties. Royalty, stream and working interests are recorded at cost and capitalized as tangible assets with finite lives. They are subsequently measured at cost less accumulated depletion and accumulated impairment losses and reversals. The cost of royalty, stream and working interests is determined by reference to the cost model under IAS 16 Property, Plant and Equipment (“IAS 16”). The major categories of the Company’s interests are producing, advanced and exploration. Producing assets are those that have generated revenue from steady-state operations for the Company or are expected to in the next year. Advanced assets are interests on projects which are not yet producing, but where in management’s view, the technical feasibility and commercial viability of extracting a mineral resource are demonstrable. Exploration assets represent interests on projects where technical feasibility and commercial viability of extracting a mineral resource are not demonstrable. Royalty, stream and working interests for producing and advanced assets are recorded at cost and capitalized in accordance with IAS 16, while exploration assets are recorded and capitalized in accordance with IFRS 6 Exploration for and Evaluation of Mineral Resources (“IFRS 6”).
2022 Financial Statements | 12 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
Management uses the following criteria in its assessment of technical feasibility and commercial viability:
(i) | Geology: there is a known mineral deposit which contains mineral reserves or resources; or the project is adjacent to a mineral deposit that is already being mined or developed and there is sufficient geologic certainty of converting the deposit into mineral reserves or resources. |
(ii) | Accessibility and authorization: there are no significant unresolved issues impacting the accessibility and authorization to develop or mine the mineral deposit, and social, environmental and governmental permits and approvals to develop or mine the mineral deposit appear obtainable. |
Producing mineral royalty and stream interests are depleted using the units-of-production method over the life of the property to which the interest relates. The life of the property is estimated using life of mine models specifically associated with the mineral royalty or stream properties which include proven and probable reserves and may include a portion of resources expected to be converted into reserves. Where life of mine models are not available, the Company uses publicly available statements of reserves and resources for the mineral royalty or stream properties to estimate the life of the property and portion of resources that the Company expects to be converted into reserves covered by the agreement. Where life of mine models and publicly available reserve and resource statements are not available, depletion is based on the Company’s best estimate of the volumes to be produced and delivered under the contract. The Company relies on information available to it under contracts with operators and/or public disclosures for information on reserves and resources from the operators of the producing mineral and stream interests.
Producing energy interests are depleted using the units-of-production method over the life of the property to which the interest relates, which is estimated using available estimated proved and probable reserves specifically associated with the energy properties. For energy interests, management uses reserve reports prepared by independent reserve engineers or other qualified parties engaged by the Company.
On acquisition of a producing royalty, stream or working interest, an allocation of its fair value is attributed to the exploration potential of the interest. The estimated fair value of this acquired exploration potential is recorded as an asset (non-depletable interest) on the acquisition date. Updated reserve and resource information obtained from the operators of the royalty, stream or working interest properties is used to determine the amount to be converted from non-depletable interest to depletable interest. If the cost of a royalty, stream or working interest includes contingent consideration, the contingent consideration is capitalized as part of the cost of the interest when the underlying obligating event has occurred.
Acquisition costs of advanced and exploration stage royalty, stream and working interests are capitalized and are not depleted until such time as revenue-generating activities begin. The Company may receive advance minimum payments prior to the commencement of production on some of its interests. In these circumstances, the Company would record the advance minimum payments as revenue from contracts with customers and depletion expense as described above, up to a maximum of the total of the advance minimum payment received.
(f) | Working Interests in Energy Properties |
Acquired energy working interests are accounted for at cost and capitalized as tangible assets of developing or operating properties, or in accordance with IFRS 6 for exploration properties. For each energy property on which the Company has a working interest, the Company bears its proportionate share of the gross costs of capital and operations based on information received from the operator. Such capital costs are capitalized to energy well equipment which is a component of other assets on the statement of financial position.
Capitalized costs, other than those related to energy well equipment, are depreciated when the asset is available for its intended use on a units-of-production basis, whereby the denominator is the proven and probable reserves associated with the energy properties. For energy well equipment, capitalized costs are depreciated by application of a
(g) | Impairment of Non-Financial Assets |
Producing and advanced mineral, stream and working interests are reviewed for impairment if there is any indication that the carrying amount may not be recoverable. Impairment is assessed at the level of cash-generating units (“CGUs”) which, in accordance with IAS 36 Impairment of Assets (“IAS 36”), are identified as the smallest identifiable group of assets from which independent cash flows are generated. This is usually at the individual royalty, stream, or working interest level for each property from which independent cash inflows are generated.
2022 Financial Statements | 13 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
An impairment loss is recognized for the amount by which the asset’s carrying value exceeds its recoverable amount, which is the higher of fair value less costs of disposal (“FVLCD”) and value-in-use (“VIU”). The future cash flow expected is derived using estimates of proven and probable reserves, a portion of resources that is expected to be converted into reserves and information regarding the mineral, stream and energy properties, respectively, that could affect the future recoverability of the Company’s interests. Discount factors are determined individually for each asset and reflect their respective risk profiles. In certain circumstances, the Company may use a market approach in determining the recoverable amount which may include an estimate of (i) net present value of estimated future cash flows; (ii) dollar value per ounce or pound of reserve/resource; (iii) cash-flow multiples; and/or (iv) market capitalization of comparable assets. Impairment losses are charged to the royalty, stream or working interest and any associated energy well equipment in the case of working interests. Assets are subsequently reassessed for indications that an impairment loss previously recognized may no longer exist. An impairment charge is reversed if the conditions that gave rise to the recognition of an impairment loss are subsequently reversed and the asset’s recoverable amount exceeds its carrying amount. Impairment losses can be reversed only to the extent that the recoverable amount does not exceed the carrying value that would have been determined had no impairment been recognized previously.
Gold bullion and prepaid expenses are similarly assessed for impairment whenever indicators of impairment exist in accordance with IAS 36. An impairment loss is recognized for the amount by which the asset’s carrying value exceeds its recoverable amount, which is the higher of FVLCD and VIU.
Interests classified as exploration are assessed for impairment whenever indicators of impairment exist in accordance with IFRS 6. An impairment loss is recognized for the amount by which the asset’s carrying value exceeds its recoverable amount, which is the higher of FVLCD and VIU. An interest that has previously been classified as exploration is also assessed for impairment before reclassification to either advanced or producing, and the impairment loss, if any, is recognized in net income.
(h) | Financial Instruments |
Financial assets and financial liabilities are recognized on the Company’s statement of financial position when the Company has become a party to the contractual provisions of the instrument. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. The Company’s financial instruments consist of cash and cash equivalents, receivables, accounts payable, accrued liabilities, debt, and investments, including equity investments, loans receivable, and warrants. Financial instruments are recognized initially at fair value.
Under the IFRS 9 Financial Instruments (“IFRS 9”) model for classification the Company has classified its financial assets as described below.
(i) | Cash and Cash Equivalents |
Cash and cash equivalents comprise cash on hand, deposits held with banks and other short-term highly liquid investments with original maturities of three months or less. Cash and cash equivalents are recorded at amortized cost using the effective interest method.
(ii) | Receivables |
Receivables, other than those related to stream agreements with provisional pricing mechanisms, are classified as financial assets at amortized cost and measured using the effective interest method less any impairment loss allowance. The loss allowance for receivables is measured based on lifetime expected credit losses.
(iii) | Investments |
Investments comprise equity interests in publicly-traded and privately-held entities, warrants, marketable securities with original maturities at the date of the purchase of more than three months and a loan receivable.
The Company’s equity investments are held for strategic purposes and not for trading. The Company made an irrevocable election to designate these investments in common shares at fair value through other comprehensive income (“FVTOCI”). FVTOCI investments are recognized initially at fair value plus transaction costs. Subsequent to initial recognition, FVTOCI investments are measured at fair value and changes in the fair value are recognized directly in other comprehensive income (loss). When an equity investment at FVTOCI is sold, the accumulated gains or losses are reclassified from accumulated other comprehensive income (loss) directly to retained earnings.
Translation differences on equity securities classified as FVTOCI are included in other comprehensive income (loss).
2022 Financial Statements | 14 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
Derivative instruments, such as warrants and receivables related to stream agreements with provisional pricing mechanisms, are classified as fair value through profit and loss (“FVTPL”) and are recognized initially at fair value. Subsequent to initial recognition, derivatives are measured at fair value. In the case of receivables related to stream agreements with provisional pricing, once the final settlement price is determined the financial instrument is no longer a derivative and is classified as a financial asset at amortized cost. Changes in the fair value of receivables related to stream agreements with provisional pricing mechanisms are recognized in revenue in the statement of income and other comprehensive income. Changes in fair value of warrants are recognized as other income (expenses) in the statement of income and comprehensive income.
Loans receivable are classified as financial assets at amortized cost because these instruments are held for collection of contractual cash flows and those cash flows represent solely payments of principal and interest. Loans are measured at amortized cost using the effective interest method, less any impairment loss allowance. The impairment loss allowance for the loan receivable is measured based on expected credit losses under the general approach. Interest income is recognized by applying the effective interest rate method and presented as finance income in the statement of income and comprehensive income.
(iv) | Financial Liabilities |
Financial liabilities, including accounts payable, accrued liabilities and debt, are classified as financial liabilities to be subsequently measured at amortized cost using the effective interest method.
(i) | Revenue Recognition |
The Company generates revenue from contracts with customers under each of its royalty, stream and working interests. The Company has determined that each unit of a commodity that is delivered to a customer under a royalty, stream, or working interest arrangement is a performance obligation for the delivery of a good that is separate from each other unit of the commodity to be delivered under the same arrangement.
(i) | Stream Arrangements |
Under its stream arrangements, the Company acquires commodities from operators of mining properties on which the Company has stream interests. The Company sells the commodities received under these arrangements to its customers under separate sales contracts.
For those stream arrangements where the Company acquires refined metal from the operator, the Company sells the refined metal to third party financial institutions or brokers. The Company transfers control over the commodity on the date the commodity is delivered to the customer’s metal account, which is the date that title to the commodity and the risks and rewards of ownership transfer to the customer and the customer is able to direct the use of and obtain substantially all of the benefits from the commodity. The transaction price for these sales is fixed at the delivery date based on the spot price for the commodity and payment of the transaction price is generally due immediately when control has been transferred.
For those stream arrangements where the Company acquires the commodities in concentrate form from the operator, the Company sells the concentrate under sales contracts with independent smelting companies. The Company transfers control over the concentrate at the time of shipment, which is when the risks and rewards of ownership and title pass to the independent smelting company. The final prices for metals contained in the concentrate are determined based on the market price for the metals on a specified future date after shipment. Upon transfer of control at shipment, the Company records revenue and a corresponding receivable from these sales based on forward commodity prices at the time of shipment.
Variations between the price recorded at the transfer of control and the actual final price set under the contracts with the smelting companies are caused by changes in market commodity prices, and result in an embedded derivative in the receivable. The embedded derivative is recorded at fair value each period until final settlement occurs, with changes in fair value classified as provisional price adjustments and included as a component of stream revenue. These provisional price adjustments associated with concentrate sales are not considered to be revenue from contracts with customers as they arise from changes in market commodity prices.
2022 Financial Statements | 15 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
(ii) | Royalty Arrangements |
For royalty interests, the Company sells commodities to customers under contracts that are established by the operator of each mining or energy property on which the royalty interest is held. The Company recognizes revenue from these sales when control over the commodity transfers to the customer. This transfer of control generally occurs when the operator of the mining or energy property on which the royalty interest is held physically delivers the commodity to the customer. At this point in time, the risks and rewards of ownership have transferred to the customer and the Company has an unconditional right to payment.
Revenue from royalty arrangements is measured at the transaction price agreed in the royalty arrangement with the operator of each mining or energy property. The transaction price will reflect the gross value of the commodity sold less deductions that vary based on the terms of the royalty arrangement.
(iii) | Working Interest Arrangements |
The Company sells its proportionate share of the crude oil, natural gas and natural gas liquids to third-party customers using the services of a third-party marketing agent. The Company transfers control over the oil and gas at the time it enters the pipeline system, which is when title and the risks and rewards of ownership are transferred to customers and the Company has an unconditional right to payment. Revenue is measured at the transaction price set by reference to monthly market commodity prices plus certain price adjustments. Price adjustments include product quality and transportation adjustments and market differentials.
(j) | Costs of Sales |
Costs of sales includes various production taxes that are recognized with the related revenues and the Company’s share of the gross operating costs for the working interests in the energy properties.
For stream agreements, the Company purchases gold, silver or platinum group metals for a cash payment of the lesser of a set contractual price, subject to annual inflationary adjustments, and the prevailing market price per ounce of gold and/or silver when purchased. Under certain stream agreements, the Company purchases gold and/or silver for a cash payment that is a fixed percentage of the prevailing market price per ounce of gold and/or silver when purchased.
In certain instances, the Company purchases a fixed amount of gold by providing an initial deposit. The initial deposit is recorded as a prepaid gold asset and classified within current prepaid expenses and other assets or non-current other assets dependent on whether delivery will occur within 12 months of the reporting date. When gold is delivered to the Company it is recorded as inventory until such time as it is sold and the cost of the gold is recorded as a cost of sale.
(k) | Income Taxes |
The income tax expense or recovery represents the sum of current and deferred income taxes.
Current income tax payable is based on taxable profit for the year. Taxable profit differs from net income as reported in the consolidated statement of income and other comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated by using tax rates and laws that have been enacted or substantively enacted at the statement of financial position date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the statement of financial position liability method. Deferred tax liabilities are recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary differences arise from initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit.
Deferred tax liabilities are recognized for taxable temporary differences arising on investments in subsidiaries, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
2022 Financial Statements | 16 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
Deferred tax is calculated at the tax rates that are enacted or substantively enacted at the statement of financial position date and are expected to apply to the period when the deferred tax asset is realized or the liability is settled. Deferred tax is charged or credited in the consolidated statement of income and other comprehensive income, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also accounted for within equity.
The Company is subject to assessments by various taxation authorities, who may interpret tax legislation differently than the Company. The Company evaluates its exposure to uncertain tax positions and where it is probable that such exposure will materialize, recognizes a provision. Tax liabilities for uncertain tax positions are adjusted by the Company to reflect its best estimate of the probable outcome of assessments and in light of changing facts and circumstances, such as the completion of a tax audit, expiration of a statute of limitations, the refinement of an estimate, and interest accruals associated with the tax uncertain tax positions until they are resolved. Some of these adjustments require significant judgment in estimating the timing and amount of any additional tax expense.
(l) | Stock Options |
The Company may issue equity-settled share-based payments to directors, officers, employees and consultants under the terms of its share compensation plan. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the date of grant of equity-settled share-based payments is expensed over the expected service period with a corresponding change to contributed surplus and is based on the Company’s estimate of shares that will ultimately vest.
Fair value is measured by use of the Black-Scholes option pricing valuation model. The expected life used in the model is adjusted, based on management’s best estimate, for the effect of non-transferability, exercise restrictions and behavioural considerations. Expected volatility is estimated by considering historic average share price volatility. Any consideration paid or received upon the exercise of the stock options or purchase of shares is credited to share capital.
(m) | Restricted Share Units |
The Company may grant performance-based or time-based restricted share units (“RSUs”) to officers and employees under the terms of its share compensation plan. When each RSU vests, the Company plans to settle every RSU with
(n) | Deferred Share Units |
Non-executive directors may choose to convert their directors’ fees into deferred share units (“DSUs”) under the terms of the Company’s deferred share unit plan (the “DSU Plan”). Directors must elect to convert their fees prior to January 1 of each year. The Company may also award DSUs to non-executive directors under the DSU Plan as compensation. When dividends are declared by the Company, directors are also credited with dividend equivalents in the form of additional DSUs based on the number of vested DSUs each director holds on the record date for the payment of a dividend. Retainer, conversion and dividend equivalent DSUs vest immediately. The fair value of DSUs at the time of conversion or award, as applicable, is determined with reference to the weighted average trading price of the Company’s common shares over the
trading days immediately preceding the date of conversion or award, as applicable. The fair value of the DSUs, which are settled in cash, is recognized as a share-based compensation expense with a corresponding increase in liabilities, over the service period. The fair value of the DSUs is marked to the quoted market price of the Company’s common shares at each reporting date with a corresponding change in the consolidated statement of income and comprehensive income. Participants are not allowed to redeem their DSUs until retirement or termination of directorship. The cash value of the DSUs at the time of redemption is equivalent to the market value of the Company’s common shares when redemption takes place.2022 Financial Statements | 17 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
(o) | Segment Reporting |
The Company is engaged in the management and acquisition of royalties, streams and working interests in the mining and energy sectors. Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Executive Officer (“CEO”) who fulfills the role of the chief operating decision-maker. The CEO is responsible for allocating resources and assessing performance of the Company’s operating segments.
(p) | Earnings per Share |
Basic earnings per share is computed by dividing the net income or loss by the weighted average number of common shares outstanding during each period. Diluted earnings per share reflects the effect of all potentially dilutive common share equivalents, which includes dilutive share options and restricted share units granted to employees and warrants computed using the treasury stock method.
New Accounting Standards Issued But Not Yet Effective
Certain new accounting standards and interpretations have been published that are not mandatory for the current period and have not been early adopted. The amendments are effective for annual reporting periods beginning on or after January 1, 2023, with earlier application permitted.
Amendments to IAS 1 – Classification of Liabilities as Current or Non-current
The IASB issued amendments to IAS 1 Presentation of Financial Statements (“IAS 1”). The amendments clarify that the classification of liabilities as current or non-current is based on rights that are in existence at the end of the reporting period. The amendments are not expected to have a significant impact on the Company's consolidated financial statements.
Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors – Definition of Accounting Estimates
The IASB issued amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (“IAS 8”). The amendments replace the definition of a change in accounting estimates with a definition of accounting estimates. Under the new definition, accounting estimates are “monetary amounts in financial statements that are subject to measurement uncertainty”. The Company will apply the amendments to changes in accounting estimates and errors, if any, as they arise in future periods.
Amendments to IAS 12 Income Taxes – Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction
The IASB issued amendments to IAS 12 Income Taxes (“IAS 12”). The amendments introduce a further exception from the initial recognition exemption. Under the amendments, an entity does not apply the initial recognition exemption for transactions that give rise to equal taxable and deductible temporary differences. The amendments are not expected to have a significant impact on the Company's consolidated financial statements.
Note 3 – Significant Judgments, Estimates and Assumptions
The preparation of consolidated financial statements in accordance with IFRS requires the Company to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on management’s best knowledge of the relevant facts and circumstances, having regard to previous experience. However, actual outcomes may differ from the amounts included in the consolidated financial statements.
In particular, the areas which require management to make significant judgments, estimates and assumptions in determining carrying values are:
Proposed Concession Contract for Cobre Panama Mine
First Quantum Minerals Ltd. (“First Quantum”), Minera Panama, S.A. (“MPSA”) and the Government of Panama (the “GOP”) are engaged in discussions regarding a refreshed concession contract to secure the long-term future of the Cobre Panama mine. On February 23, 2023, ore processing operations were suspended as a result of the Panama Maritime Authority (“AMP”) issuing a resolution requiring the suspension of concentrate loading operations at the Cobre Panama port, Punta Rincón. On March 8, 2023, MPSA agreed and finalized the draft of a concession contract (the “Proposed Concession Contract”) with the GOP. The Proposed Concession Contract is subject to a 30-day public consultation process and approvals by the Panamanian Cabinet, Comptroller General of the Republic and the National Assembly. MPSA has received authorization from the AMP and concentrate loading operations at the Punta Rincón port have resumed. Cobre Panama processing operations have resumed to normal levels with all three trains operating. MPSA continues to remobilize the workforce to full staffing levels.
2022 Financial Statements | 18 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
Pending the outcome of these proceedings, there is a risk that operations at Cobre Panama may be suspended again. An extended suspension of operations at Cobre Panama may significantly impact Franco-Nevada’s results of operations and the valuation of Franco-Nevada’s stream interest in Cobre Panama. As at December 31, 2022, the carrying value of the Company’s stream interest in Cobre Panama was $
Volatility in Commodity Prices
A number of geopolitical and market factors impacting global energy markets have contributed to extreme volatility in the price of gold, oil and gas. Assumptions about future commodity prices, interest rates and levels of supply and demand of commodities continue to be subject to greater variability than normal and there is heightened potential for impairments or reversals of impairments with respect to the Company’s interests. The continuation of volatile commodity prices for a prolonged period may significantly affect the valuation of the Company’s financial and non-financial assets and have a material adverse impact on Franco-Nevada’s results of operations and financial condition.
Reserves and Resources
Royalty, stream and working interests comprise a large component of the Company’s assets and, as such, the reserves and resources of the properties to which the interests relate have a significant effect on the Company’s financial statements. These estimates are applied in determining the depletion of and assessing the recoverability of the carrying value of royalty, stream and working interests. For mineral royalty and stream interests, the public disclosures of reserves and resources that are released by the operators of the interests involve assessments of geological and geophysical studies and economic data and the reliance on a number of assumptions, including commodity prices and production costs. For energy interests, the estimated reserves in reserve reports prepared by independent reserve engineers or other qualified parties engaged by the Company reflect similar assessments of geological and geophysical studies and economic data and reliance on assumptions. These assumptions are, by their very nature, subject to interpretation and uncertainty.
The estimates of reserves and resources may change based on additional knowledge gained subsequent to the initial assessment. Changes in the estimates of reserves and resources may materially affect the recorded amounts of depletion and the assessed recoverability of the carrying value of royalty, stream and working interests.
Impairment and Reversal of Impairment of Royalty, Stream and Working Interests
Assessment of impairment and reversal of impairment of royalty, stream, working interests and energy well equipment at the end of each reporting period requires the use of judgments, assumptions and estimates when assessing whether there are any indicators that give rise to the requirement to conduct an impairment or impairment reversal analysis on the Company’s royalty, stream and working interests, and/or energy equipment. Indicators which could trigger an impairment or impairment reversal analysis include, but are not limited to, a significant change in operator reserve and resource estimates, industry or economic trends, current or forecast commodity prices, and other relevant operator information. The assessment of fair values requires the use of estimates and assumptions for recoverable production, long-term commodity prices, discount rates, reserve/resource conversion, foreign exchange rates, future capital expansion plans and the associated attributable production implications. In addition, the Company may use other approaches in determining fair value which may include judgment and estimates related to (i) dollar value per ounce or pound of reserve/resource; (ii) cash-flow multiples; and (iii) market capitalization of comparable assets. Changes in any of the assumptions and estimates used in determining the fair value of the royalty, stream or working interests, or energy well equipment could impact the impairment or impairment reversal analysis.
Asset Acquisitions and Business Combinations
The assessment of whether an acquisition meets the definition of a business, or whether assets are acquired is an area of key judgment. If deemed to be a business combination, applying the acquisition method to business combinations requires each identifiable asset and liability to be measured at its acquisition-date fair value. The excess, if any, of the fair value of consideration over the fair value of the net identifiable assets acquired is recognized as goodwill. The determination of the acquisition-date fair values often requires management to make assumptions and estimates about future events. The assumptions and estimates with respect to determining the fair value of royalty, stream or working interests generally require a high degree of judgment, and include estimates of mineral reserves and resources acquired, future metal prices, discount rates and reserve/resource conversion. Changes in any of the assumptions or estimates used in determining the fair value of acquired assets and liabilities could impact the amounts assigned to assets and liabilities.
Joint Arrangements
Judgment is required to determine whether the Company has joint control of a contractual arrangement, which requires continuous assessment of the relevant activities and whether the decisions in relation to those activities require unanimous consent. Judgment is also continually required to classify a joint arrangement as either a joint operation or a joint venture when the arrangement has been structured through a separate vehicle. Classifying the arrangement requires the Company to assess its rights and obligations arising from the arrangement. Specifically, the Company considers the legal form of the separate vehicle, the terms of the contractual arrangement and other relevant facts and circumstances.
2022 Financial Statements | 19 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
This assessment often requires significant judgment, and a different conclusion on joint control, or whether the arrangement is a joint operation or a joint venture, may have a material impact on the accounting treatment.
The Company evaluated its joint arrangement with Continental, whereby the Company acquired a
Income Taxes
The interpretation and application of existing tax laws, regulations or rules in Canada, Barbados, the United States, Australia or any of the countries in which the mining operations are located or to which shipments of gold, silver or platinum group metals are made requires the use of judgment. The likelihood that tax positions taken will be sustained upon examination by applicable tax authorities is assessed based on facts and circumstances of the relevant tax position considering all available evidence. Differing interpretation of these laws, regulations or rules could result in an increase in the Company’s taxes, or other governmental charges, duties or impositions.
In assessing the probability of realizing deferred income tax assets, the Company makes estimates related to expectations of future taxable income and expected timing of reversals of existing temporary differences. Such estimates are based on forecasted cash flows from operations which require the use of estimates and assumptions such as long-term commodity prices and recoverable ounces of gold, silver and platinum group metals. Therefore, the amount of deferred income tax assets recognized on the balance sheet could be reduced if the actual results differ significantly from forecast. The Company reassesses its deferred income tax assets at the end of each reporting period.
Functional Currency
The functional currency for each of the Company’s subsidiaries is the currency of the primary economic environment in which the entity operates. Determination of functional currency may involve certain judgments to determine the primary economic environment and the Company reconsiders the functional currency of its entities if there is a change in events and conditions which determined the primary economic environment.
Note 4 – Acquisitions and Other Transactions
(a) | Acquisition of Gold Royalties – Australia |
Subsequent to year-end, on February 22, 2023, Franco-Nevada acquired a portfolio of
(b) | Receipt of Valentine Gold Royalty Buy-back – Newfoundland & Labrador, Canada |
Subsequent to year-end, on February 22, 2023, Marathon Gold Corporation (“Marathon”) exercised its option to buy back
(c) | Acquisition of Additional Royalty on Eskay Creek – British Columbia, Canada |
On December 30, 2022, Franco-Nevada acquired an additional
With the acquisition of this royalty, Franco-Nevada now has a
The transaction has been accounted for as an acquisition of a mineral royalty interest. The contingent payment will be capitalized as part of the cost of the royalty when the underlying obligating event has occurred.
2022 Financial Statements | 20 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
(d) | Acquisition of Royalty on Magino Gold Project – Ontario, Canada |
On October 27, 2022, Franco-Nevada acquired a
The Company also completed a private placement with Argonaut, acquiring
The transaction has been accounted for as an acquisition of a mineral royalty interest. The Argonaut common shares are accounted for as equity investments designated at FVTOCI.
(e) | Acquisition of Royalties on Spences Bridge Gold Belt Claims – British Columbia, Canada |
On October 6, 2022, Franco-Nevada acquired a
In addition, Franco-Nevada also subscribed for
The transaction has been accounted for as an acquisition of a mineral royalty interest. The Westhaven common shares are accounted for as equity investments designated at FVTOCI.
(f) | Acquisition of Royalties – Chile |
On July 25, 2022, the Company acquired, through a wholly-owned subsidiary, a portfolio of
The transaction has been accounted for as an acquisition of a mineral royalty interest.
(g) | Financing Package with G Mining Ventures on the Tocantinzinho Gold Project – Brazil |
On July 18, 2022, the Company’s wholly-owned subsidiary, Franco-Nevada (Barbados) Corporation (“FNBC”), acquired a gold stream with reference to production from the Tocantinzinho project, owned by G Mining Ventures Corp. (“G Mining Ventures”) and located in Pará State, Brazil (the “Stream”). FNBC will provide a deposit of $
Stream deliveries to FNBC are based on gold production from the Tocantinzinho property, according to the following schedule: (i)
The Term Loan is a $
As at December 31, 2022,
Franco-Nevada also subscribed for
2022 Financial Statements | 21 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
(h) | Acquisition of Additional Royalty on Castle Mountain – California, U.S. |
On May 2, 2022, the Company, through a wholly-owned subsidiary, acquired an existing
The transaction has been accounted for as an acquisition of a mineral royalty interest.
(i) | Acquisition of Royalty on Caserones (Chile) and Private Placement with EMX Royalty Corporation |
On April 14, 2022, the Company agreed to acquire, through a wholly-owned subsidiary, an effective
Franco-Nevada has accounted for the transaction as an acquisition of a mineral royalty interest.
The Company also completed a private placement with EMX Royalty Corporation (“EMX”), acquiring
The EMX common shares are accounted for as equity investments designated at FVTOCI.
(j) | Acquisition of Mineral Rights with Continental Resources, Inc. – U.S. |
The Company, through a wholly-owned subsidiary, has a strategic relationship with Continental to acquire, through a jointly-owned entity (the “Royalty Acquisition Venture”), royalty rights within Continental’s areas of operation.
Franco-Nevada recorded contributions to the Royalty Acquisition Venture of $
The Royalty Acquisition Venture is accounted for as a joint operation in accordance with IFRS 11.
(k) | Investment in Skeena Resources Limited (Eskay Creek) – Canada |
On December 23, 2021, for the aggregate purchase price of $
The transaction has been accounted for as an acquisition of a mineral royalty interest. The Skeena common shares are accounted for as equity investments designated at FVTOCI.
(l) | Acquisition of Additional Royalty on Rosemont/Copper World – U.S. |
On November 26, 2021, the Company, through a wholly-owned subsidiary, acquired from certain private sellers an existing
The total consideration for the
The transaction has been accounted for as an acquisition of a mineral royalty interest. The contingent payments will be capitalized as part of the cost of the royalty interest if and when the underlying obligating events have occurred.
2022 Financial Statements | 22 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
(m) | Acquisition of Royalty on Vale’s Northern and Southeastern Iron Ore Systems – Brazil |
On April 16, 2021, the Company acquired
Franco-Nevada has determined that the Royalty is economically equivalent to royalty interests with no maturity until the underlying mining rights are extinguished, and has accounted for the transaction as an acquisition of a mineral royalty interest.
(n) | Acquisition of Royalty on Séguéla – Côte d'Ivoire |
On March 30, 2021, the Company acquired a
The transaction has been accounted for as an acquisition of a mineral royalty interest.
(o) | Acquisition of Stream on Condestable– Peru |
On March 8, 2021, the Company, through a wholly-owned subsidiary, closed a precious metals stream agreement with reference to the gold and silver production from the Condestable mine in Peru, for an up-front deposit of $
Commencing on January 1, 2021 and ending December 31, 2025, Franco-Nevada will receive
Until March 8, 2025, subject to certain restrictions, a subsidiary of SPM may, at its option, make a one-time special delivery comprising the number of ounces of refined gold equal to $
The transaction has been accounted for as an acquisition of a stream interest.
Note 5 – Cash and Cash Equivalents
Cash and cash equivalents comprised the following:
At December 31, | At December 31, |
| |||||||
|
| 2022 |
|
| 2021 |
| |||
Cash deposits | $ | | $ | | |||||
Term deposits |
| |
| | |||||
$ | | $ | |
As at December 31, 2022 and 2021, cash and cash equivalents were primarily held in interest-bearing deposits.
2022 Financial Statements | 23 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
Note 6 – Investments and Loan Receivable
Investments and loan receivable comprised the following:
At December 31, | At December 31, |
| |||||||
|
| 2022 |
|
| 2021 |
| |||
Loan receivable | $ | — | $ | | |||||
$ | — | $ | | ||||||
Equity investments | $ | | $ | | |||||
Warrants |
| |
| | |||||
$ | | $ | |
(a) | Equity Investments |
Equity investments comprised the following:
At December 31, | At December 31, |
| |||||||
|
| 2022 |
|
| 2021 |
| |||
Labrador Iron Ore Royalty Corporation ("LIORC") | $ | | $ | | |||||
Other |
| |
| | |||||
$ | | $ | |
During the year ended December 31, 2022, the Company disposed of equity investments with a cost of $
The change in the fair value of equity investments recognized in other comprehensive income (loss) for the periods ended December 31, 2022 and 2021 were as follows:
|
| 2022 |
|
| 2021 |
| |||
(Loss) gain on changes in the fair value of equity investments at FVTOCI | $ | ( | $ | | |||||
Income tax recovery (expense) in other comprehensive income |
| |
| ( | |||||
(Loss) gain on changes in the fair value of equity investments at FVTOCI, net of income tax |
| $ | ( | $ | |
(b) | Loan Receivable |
The loan receivable was extended to Noront Resources Ltd. (“Noront”) as part of the Company’s acquisition of royalty rights in the Ring of Fire mining district of Ontario, Canada, in April 2015. On May 4, 2022, following the acquisition of Noront by Wyloo Metals Pty Ltd., the Company received $
Note 7 – Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets comprised the following:
At December 31, | At December 31, | ||||||||
|
| 2022 |
|
| 2021 |
| |||
Gold bullion | $ | | $ | | |||||
Prepaid expenses |
| |
| | |||||
Stream ounces inventory | | | |||||||
Debt issue costs |
| |
| | |||||
$ | | $ | |
2022 Financial Statements | 24 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
Note 8 – Royalty, Stream and Working Interests
(a) | Royalties, Streams and Working Interests |
Royalty, stream and working interests, net of accumulated depletion and impairment charges and reversals, comprised the following:
Impairment | ||||||||||||||
Accumulated | (charges) | |||||||||||||
As at December 31, 2022 |
| Cost |
| depletion(1) |
| reversals |
|
| Carrying value |
| ||||
Mining royalties | $ | | $ | ( | $ | — | $ | | ||||||
Streams | | ( | — | | ||||||||||
Energy | | ( | — | | ||||||||||
Advanced | | ( | — | | ||||||||||
Exploration | | ( | — | | ||||||||||
$ | | $ | ( | $ | — | $ | |
1. | Accumulated depletion includes previously recognized impairment charges. |
Impairments | ||||||||||||||
Accumulated | (charges) | |||||||||||||
As at December 31, 2021 |
| Cost |
| depletion(1) |
| reversals |
|
| Carrying value |
| ||||
Mining royalties | $ | | $ | ( | $ | — | $ | | ||||||
Streams | | ( | — |
| | |||||||||
Energy | | ( | |
| | |||||||||
Advanced | | ( | ( | | ||||||||||
Exploration | | ( | — | | ||||||||||
$ | | $ | ( | $ | | $ | |
1. | Accumulated depletion includes previously recognized impairment charges. |
Changes in royalty, stream and working interests for the periods ended December 31, 2022 and December 31, 2021 were as follows:
Mining | |||||||||||||||||||
| royalties |
| Streams |
| Energy |
| Advanced |
| Exploration |
| Total |
| |||||||
Balance at January 1, 2021 | $ | | $ | | $ | | $ | | $ | | $ | | |||||||
Additions |
| | | | | — |
| | |||||||||||
Transfers |
| |
| — |
| — |
| — |
| ( |
| — | |||||||
Impairment (charges) and reversals |
| — | — |
| |
| ( |
| — |
| | ||||||||
Depletion |
| ( |
| ( |
| ( |
| ( |
| — |
| ( | |||||||
Impact of foreign exchange |
| ( |
| — |
| |
| |
| ( |
| ( | |||||||
Balance at December 31, 2021 | $ | | $ | | $ | | $ | | $ | | $ | | |||||||
Balance at January 1, 2022 | $ | | $ | | $ | | $ | | $ | | $ | | |||||||
Additions | | | | | | | |||||||||||||
Depletion |
| ( |
| ( |
| ( |
| ( |
| — |
| ( | |||||||
Impact of foreign exchange |
| ( |
| — |
| ( |
| ( |
| ( |
| ( | |||||||
Balance at December 31, 2022 | $ | | $ | | $ | | $ | | $ | | $ | |
Of the total net book value as at December 31, 2022, $
2022 Financial Statements | 25 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
(b) | Impairments of Royalties, Streams and Working Interests |
The Company has
2021 Indicators of Impairments and Reversals
The Company recorded impairment (reversals) and charges for the year ended December 31, 2021 as follows:
2021 | |||||
Royalty, stream and working interests, net | |||||
Weyburn | $ | ( | |||
Aği Daği | | ||||
$ | ( |
Energy Interests
As at December 31, 2021, as a result of an increase in forecasted benchmark oil and gas prices relative to the lows of April 2020, the Company assessed whether there were indicators that impairment losses previously recorded in relation to its Energy interests may no longer exist or may have decreased.
With respect to its Weyburn interests, the Company determined that there were indicators of impairment reversal and carried out an asset impairment reversal assessment. The recoverable amount, based on the FVLCD model, was estimated to be $
Key assumptions and estimates used in determining the recoverable amount of the Weyburn interests are related to oil price and discount rates. The future cash flows expected from the Weyburn CGU were prepared by an independent reserve engineer and based on long-term West Texas Intermediate (“WTI”) price forecasts from a sample of independent reserve evaluators. The Company assumed the differential to Edmonton Light prices to be $
Forecasted WTI prices as at December 31, 2021 used to determine the future cash flows were as follows:
| Average | ||||||||||||||||||
annual | |||||||||||||||||||
|
|
| increase |
| |||||||||||||||
| 2022 |
| 2023 |
| 2024 |
| 2025 |
| 2026 |
| thereafter |
| |||||||
WTI oil price (US$/barrel) | $ | | $ | | $ | | $ | | $ | | | % |
A sensitivity analysis showing the impact of a change, in isolation, in the forecasted WTI price and discount rate is shown below:
Increase (decrease) to impairment reversal | |||||||||||||
1% increase | 1% decrease | 10% decrease | 10% increase |
| |||||||||
in the | in the | in WTI oil | in WTI oil |
| |||||||||
discount rate | discount rate | price | price |
| |||||||||
Weyburn |
| ( | | ( | | ||||||||
$ | ( | $ | | $ | ( | $ | |
2022 Financial Statements | 26 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
Aği Daği
On April 20, 2021, Alamos Gold Inc. (“Alamos”) announced its filing of an investment treaty claim against Türkiye for failing to grant routine renewals of key licenses and permits for its Kirazlı gold mine. Though Franco-Nevada does not have a royalty on the Kirazlı mine, cessation of development activities at Kirazlı are expected to negatively impact the advancement of the Aği Daği project. As such, Franco-Nevada considered this event an indicator of impairment and wrote-off the entire carrying value of its Aği Daği royalty of $
Sudbury (McCreedy West)
In early 2021, KGHM International Ltd. (“KGHM”), approved an extension of mining operations at the McCreedy West mine in the Sudbury basin of Ontario. The Company had recorded an impairment charge of $
Note 9 – Other Assets
Other assets comprised the following:
At December 31, | At December 31, | ||||||||
|
| 2022 |
|
| 2021 |
| |||
Deposits related to Canada Revenue Agency ("CRA") audits | $ | | $ | | |||||
Energy well equipment, net | | | |||||||
Right-of-use assets, net |
| |
| | |||||
Debt issue costs | | | |||||||
Furniture and fixtures, net |
| |
| | |||||
$ | | $ | |
Deposits related to CRA audits represent security paid in cash by the Company in connection with an audit by the CRA of its 2016-2017 taxation years, as referenced in Note 24.
Note 10 – Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities comprise the following:
At December 31, | At December 31, | ||||||||
|
| 2022 |
|
| 2021 |
| |||
Accounts payable | $ | | $ | | |||||
Accrued liabilities |
| |
| | |||||
$ | | $ | |
2022 Financial Statements | 27 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
Note 11 – Debt
Changes in obligations related to the Company’s credit facilities were as follows:
Corporate | |||
| revolver | ||
Size of facility | $ | | |
Balance at January 1, 2021 | $ | — | |
Drawdowns | | ||
Repayment | ( | ||
Balance at December 31, 2021 | $ | — | |
Balance at January 1, 2022 | $ | — | |
Drawdowns | — | ||
Repayment | — | ||
Balance at December 31, 2022 | $ | — |
(a) | Corporate Revolver |
The Company has a $
On April 12, 2021, the Company drew down $
Advances under the Corporate Revolver can be drawn as follows:
U.S. dollars
· | Base rate advances with interest payable monthly at the Canadian Imperial Bank of Commerce (“CIBC”) base rate, plus between |
· | Secured Overnight Financing Rate (“SOFR”) as administered by the Federal Reserve Bank of New York loans for periods of 1, 3 or 6 months with interest payable at a rate of SOFR, plus between |
Canadian dollars
· | Prime rate advances with interest payable monthly at the CIBC prime rate, plus between |
· | Bankers’ acceptances for a period of |
All loans are readily convertible into loans of other types, described above, on customary terms and upon provision of appropriate notice. Borrowings under the Corporate Revolver are guaranteed by certain of the Company’s subsidiaries and are unsecured.
The Corporate Revolver is subject to a standby fee of
The Company has
(b) | FNBC Revolver |
The Company’s subsidiary, Franco-Nevada (Barbados) Corporation (“FNBC”), had a $
2022 Financial Statements | 28 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
Note 12 – Revenue
Revenue classified by commodity, geography and type comprised the following:
| 2022 |
|
| 2021 |
| |||
Commodity | ||||||||
Gold(1) | $ | | $ | | ||||
Silver |
| | | |||||
Platinum group metals(1) |
| | | |||||
Iron ore(2) | | | ||||||
Other mining assets | | | ||||||
Mining | $ | | $ | | ||||
Oil | $ | | $ | | ||||
Gas | | | ||||||
Natural gas liquids | | | ||||||
Energy | $ | | $ | | ||||
$ | | $ | | |||||
Geography | ||||||||
South America | $ | | $ | | ||||
Central America & Mexico | | | ||||||
United States |
| | | |||||
Canada(1)(2) |
| | | |||||
Rest of World |
| | | |||||
$ | | $ | | |||||
Type | ||||||||
Revenue-based royalties | $ | | $ | | ||||
Streams(1) |
| |
| | ||||
Profit-based royalties |
| |
| | ||||
Other(2) |
| |
| | ||||
$ | | $ | |
1. | For the year ended December 31, 2022, revenue includes a loss of $ |
2. | For the year ended December 31, 2022, revenue includes dividend income of $ |
Note 13 – Costs of Sales
Costs of sales, excluding depletion and depreciation, comprised the following:
|
| 2022 |
|
| 2021 |
| |||
Costs of stream sales | $ | | $ | | |||||
Mineral production taxes |
| |
| | |||||
Mining costs of sales | $ | | $ | | |||||
Energy costs of sales |
| |
| | |||||
$ | | $ | |
2022 Financial Statements | 29 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
Note 14 – Share-Based Compensation Expense
Share-based compensation expenses comprised the following:
|
| 2022 |
|
| 2021 |
| |||
Stock options and restricted share units | $ | | $ | | |||||
Deferred share units |
| |
| | |||||
$ | | $ | |
Share-based compensation expenses include the amortization expense of equity-settled stock options and restricted share units (“RSUs”), the expense of deferred share units (“DSUs”) granted to the directors of the Company in the year, as well as the mark-to-market of the value of the DSUs.
Note 15 – Related Party Disclosures
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company. Key management personnel include the Board of Directors and the executive management team.
Compensation for key management personnel of the Company was as follows:
|
| 2022 |
|
| 2021 |
| |||
Short-term benefits(1) | $ | | $ | | |||||
Share-based payments(2) |
| |
| | |||||
$ | | $ | |
1. | Includes salary, benefits and short-term accrued incentives/other bonuses earned in the period. |
2. | Represents the expense of stock options and RSUs and mark-to-market charges on DSUs during the year. |
Note 16 – Finance Income and Expenses
Finance income and expenses for the periods ended December 31, 2022 and 2021 were as follows:
| 2022 |
|
| 2021 | |||||
Finance income |
| ||||||||
Interest | $ | | $ | | |||||
$ | | $ | | ||||||
Finance expenses |
| ||||||||
Standby charges | $ | | $ | | |||||
Amortization of debt issue costs |
| |
| | |||||
Interest |
| — | | ||||||
Accretion of lease liabilities |
| |
| | |||||
$ | | $ | |
2022 Financial Statements | 30 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
Note 17 - Income Taxes
Income tax expense for the years ended December 31, 2022 and 2021 was as follows:
|
| 2022 |
|
| 2021 |
| |||
Current income tax expense | |||||||||
Expense for the year | $ | | $ | ||||||
Adjustments in respect of prior years | ( | | |||||||
Current income tax expense | $ | | $ | | |||||
Deferred income tax expense | |||||||||
Origination and reversal of temporary differences | $ | | $ | | |||||
Impact of changes in tax rates | | ( | |||||||
Change in unrecognized deductible temporary differences | — | ( | |||||||
Adjustments in respect of prior years | | ( | |||||||
Other | ( | ( | |||||||
Deferred income tax expense | | | |||||||
Income tax expense | $ | | $ | |
A reconciliation of the product of net income before taxes multiplied by the combined Canadian federal and provincial statutory rate to the provision for income taxes as shown in the consolidated statement of income and comprehensive income for the years ended December 31, 2022 and 2021, is as follows:
| 2022 |
| 2021 |
| |||||
Net income before income taxes | $ | | $ | | |||||
Statutory tax rate | |||||||||
Tax expense at statutory rate | $ | | $ | | |||||
Reconciling items | |||||||||
Change in unrecognized deductible temporary differences | $ | — | $ | ( | |||||
Income not taxable | ( | ( | |||||||
Differences in foreign statutory tax rates | ( | ( | |||||||
Differences due to changing future tax rates | | ( | |||||||
Foreign withholding taxes | | | |||||||
Adjustments in respect of prior years | ( | ( | |||||||
Other | | ( | |||||||
Income tax expense | $ | | $ | |
Income tax recovery (expense) recognized in other comprehensive income is as follows:
2022 | 2021 |
| |||||||||||||||||||||||
|
| Loss |
|
|
| Loss |
|
| Income |
|
|
|
| Income |
| ||||||||||
before | Tax | after | before | Tax | after |
| |||||||||||||||||||
tax | recovery | tax | tax | expense | tax |
| |||||||||||||||||||
(Loss) gain on changes in the fair value of equity investments at FVTOCI |
| $ | ( | $ | |
| $ | ( |
| $ | | $ | ( |
| $ | | |||||||||
Currency translation adjustment |
| ( | — |
| ( |
| ( | — |
| ( | |||||||||||||||
Other comprehensive (loss) income |
| $ | ( |
| $ | |
| $ | ( |
| $ | |
| $ | ( |
| $ | | |||||||
Income tax recovery (expense) in other comprehensive income |
| $ | |
| $ | ( |
|
2022 Financial Statements | 31 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
The significant components of deferred income tax assets and liabilities as at December 31, 2022 and 2021 are as follows:
|
| 2022 |
| 2021 |
| ||||
Deferred income tax assets | |||||||||
Deductible temporary differences relating to | |||||||||
Royalty, stream and working interests | $ | | $ | | |||||
Non-capital loss carry-forwards | | | |||||||
Other | ( | ( | |||||||
$ | | $ | | ||||||
Deferred income tax liabilities | |||||||||
Taxable temporary differences relating to | |||||||||
Share issue and debt issue costs | $ | ( | $ | ( | |||||
Royalty, stream and working interests | | | |||||||
Non-capital loss carry-forwards | ( | ( | |||||||
Investments | | | |||||||
Other | ( | ( | |||||||
$ | | $ | | ||||||
Deferred income tax liabilities, net | $ | | $ | |
The movement in net deferred tax liabilities during the years ended December 31, 2022 and 2021 is as follows:
|
| 2022 |
|
| 2021 |
| |||
Balance, beginning of year | $ | | $ | | |||||
Recognized in net income |
| |
| | |||||
Recognized in other comprehensive income |
| ( |
| | |||||
Recognized in equity | — | ( | |||||||
Other |
| ( |
| ( | |||||
Balance, end of year | $ | | $ | |
The Company has recognized deferred tax assets in respect of the following non-capital losses as at December 31, 2022 that can be applied against future taxable profit:
Country |
| Type |
| Amount |
| Expiry date |
| |
Canada |
| Non-Capital Losses | $ | |
| 2030-2038 | ||
Chile |
| Non-Capital Losses | |
| No expiry | |||
$ | |
Unrecognized Deferred Tax Assets and Liabilities
The aggregate amount of taxable temporary differences associated with investments in subsidiaries, for which deferred tax liabilities have not been recognized as at December 31, 2022 is $
The Company is undergoing an audit by the Canada Revenue Agency of its 2012-2017 taxation years, as referenced in Note 24.
2022 Financial Statements | 32 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
Note 18 – Shareholders’ Equity
(a) | Share Capital |
The Company’s authorized capital stock includes an unlimited number of common shares (
Changes in share capital in the years ended December 31, 2022 and 2021 were as follows:
Number | |||||||
|
| of shares |
|
| Amount |
| |
Balance at January 1, 2021 |
| | $ | | |||
Exercise of stock options | | | |||||
Vesting of restricted share units | | | |||||
Dividend reinvestment plan | | | |||||
Balance at December 31, 2021 | | $ | | ||||
Balance at January 1, 2022 | | $ | | ||||
Exercise of stock options | | | |||||
Vesting of restricted share units | | | |||||
Dividend reinvestment plan | | | |||||
Balance at December 31, 2022 | | $ | |
(b) | At-the-Market Equity Program |
On May 11, 2020, the Company established an at-the-market equity program (the “ATM Program”) permitting the Company to issue up to an aggregate of $
In 2022 and 2021, the Company did not issue any common shares under its ATM program.
(c) | Dividends |
In 2022, the Company declared dividends of $
Dividends paid in cash and through the Company’s Dividend Reinvestment Plan (“DRIP”) were as follows:
|
| 2022 |
|
| 2021 |
| |||
Cash dividends | $ | | $ | | |||||
DRIP dividends |
| |
| | |||||
$ | | $ | |
(d) | Stock-Based Payments |
On March 7, 2018, the Company’s Board of Directors adopted an amended and restated share compensation plan covering both stock options and RSUs effective May 9, 2018 (the “Plan”). Pursuant to the Plan, the Company may grant incentive stock options to directors, officers, employees and consultants at the discretion of the Board of Directors. The exercise price and vesting period of any option is fixed by the Board of Directors on the date of grant. The term of options is at the sole discretion of the Board of Directors but may not exceed
2022 Financial Statements | 33 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
Options to purchase common shares of the Company granted during the years ended December 31, 2022 and 2021 were as follows:
|
|
| Weighted |
| |||
average exercise | |||||||
Number | price | ||||||
Stock options outstanding, at January 1, 2021 |
| |
| C$ | | ||
Granted |
| |
| C$ | | ||
Exercised |
| ( |
| C$ | | ||
Forfeited | — | C$ | — | ||||
Stock options outstanding, at December 31, 2021 |
| |
| C$ | | ||
Stock options outstanding, at January 1, 2022 | | C$ | | ||||
Granted | |
| C$ | | |||
Exercised | ( |
| C$ | | |||
Forfeited | ( | C$ | | ||||
Stock options outstanding, at December 31, 2022 |
| |
| C$ | | ||
Exercisable stock options, at December 31, 2021 | | C$ | | ||||
Exercisable stock options, at December 31, 2022 |
| |
| C$ | |
Options granted in 2022 and 2021 have a
2022 | 2021 | ||||||
Risk-free interest rate | | % | | % | |||
Expected dividend yield | | % | | % | |||
Expected price volatility of the Company’s common shares | | % | | % | |||
Expected life of the option |
| ||||||
Forfeiture rate | % | % |
In the year ended December 31, 2022, an expense of $
2022 Financial Statements | 34 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
Options to purchase common shares outstanding at December 31, 2022, exercise prices and weighted average lives to maturity as follows:
|
|
| Weighted |
| ||||
Exercise | Options | Options | average life |
| ||||
price | outstanding | exercisable | (years) |
| ||||
C$ |
| |
| |
| |||
C$ |
| |
| |
| |||
C$ |
| |
| |
| |||
C$ |
| |
| |
| |||
C$ |
| |
| |
| |||
C$ | | | ||||||
C$ | | | ||||||
C$ | | | ||||||
C$ | | | ||||||
C$ |
| |
| |
| |||
C$ |
| |
| |
| |||
C$ |
| |
| — |
| |||
C$ |
| |
| |
| |||
C$ |
| |
| — |
| |||
C$ |
| |
| — |
| |||
C$ |
| |
| — |
| |||
C$ |
| |
| — |
| |||
| |
| |
|
(e) | Restricted Share Units |
Changes in the number of RSUs outstanding during the years ended December 31, 2022 and 2021 were as follows:
| Performance- |
| Time-based |
| |||||
| based RSUs |
| RSUs |
| Total RSUs | ||||
Balance at January 1, 2021 | | | | ||||||
Granted | | | | ||||||
Settled | ( | ( | ( | ||||||
Balance at December 31, 2021 | | | | ||||||
Balance at January 1, 2022 | | | | ||||||
Granted | | | | ||||||
Settled | ( | ( | ( | ||||||
Balance at December 31, 2022 | | | |
The fair value of the RSUs granted in 2022 was $
2022 Financial Statements | 35 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
(f) | Deferred Share Unit Plan |
Changes in the number of DSUs outstanding during the years ended December 31, 2022 and 2021 were as follows:
|
| 2022 |
|
| 2021 |
| |
Balance at beginning of year |
| | | ||||
Granted | | | |||||
Settled | ( | ( | |||||
Balance at end of year | | |
The value of the DSU liability as at December 31, 2022 was $
(g) | Outstanding Stock Options and Restricted Share Units |
The following table sets out the maximum shares that would be outstanding if all of the stock options and RSUs at December 31, 2022 and 2021 were exercised:
|
| 2022 |
|
| 2021 |
| |
Common shares outstanding |
| | | ||||
Stock options | | | |||||
Restricted Share Units | | | |||||
| |
Note 19 – Earnings per Share (“EPS”)
2022 | 2021 |
| |||||||||||||||||||
|
| Shares |
| Per Share |
|
| Shares |
| Per Share |
| |||||||||||
Net income | (in millions) | Amount |
| Net income | (in millions) | Amount |
| ||||||||||||||
Basic earnings per share | $ | |
| | $ | | $ | |
| | $ | | |||||||||
Effect of dilutive securities |
| — |
| |
| ( |
| — |
| |
| ( | |||||||||
Diluted earnings per share | $ | |
| | $ | | $ | |
| | $ | |
For the year ended December 31, 2022, a weighted average of
2022 Financial Statements | 36 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
Note 20 – Segment Reporting
The chief operating decision-maker organizes and manages the business under
The Company’s reportable segments for purposes of assessing performance are presented as follows:
2022 | 2021 | |||||||||||||||||||
| Mining |
| Energy |
| Total |
| Mining |
| Energy |
| Total |
| ||||||||
Revenue | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Expenses | ||||||||||||||||||||
Costs of sales | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Depletion and depreciation | | | | | | | ||||||||||||||
Segment gross profit | $ | | $ | | $ | | $ | | $ | | $ | |
A reconciliation of total segment gross profit to consolidated net income before income taxes is presented below:
2022 | 2021 | ||||||||
Total segment gross profit | $ | $ | |||||||
Other operating expenses (income) | |||||||||
General and administrative expenses | $ | | $ | | |||||
Share-based compensation expense | | | |||||||
Impairment reversals | - | ( | |||||||
Gain on sale of gold bullion | ( | ( | |||||||
Depreciation | | | |||||||
Foreign exchange (gain) loss and other (income) expenses | ( | | |||||||
Income before finance items and income taxes | $ | | $ | | |||||
Finance items | |||||||||
Finance income | $ | | $ | | |||||
Finance expenses | ( | ( | |||||||
Net income before income taxes | $ | | $ | |
Revenues earned during the years ended December 31, 2022 and 2021 are presented by geographic area based on the location of the mining operations giving rise to the royalty, stream or working interest:
| 2022 |
| 2021 |
| ||||
Latin America | ||||||||
Peru | $ | | $ | | ||||
Chile | | | ||||||
Panama | | | ||||||
Brazil | | | ||||||
Other | | | ||||||
United States |
| | | |||||
Canada | | | ||||||
Rest of World | | | ||||||
$ | | $ | |
For the year ended December 31, 2022,
2022 Financial Statements | 37 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
Royalty, stream and working interests as at December 31, 2022 and 2021 are presented by geographic area based on the location of the mining operations giving rise to the royalty, stream or working interest.
|
| 2022 |
|
| 2021 |
| ||
Latin America | ||||||||
Panama | $ | | $ | | ||||
Peru | | | ||||||
Brazil | | | ||||||
Chile | | | ||||||
Other | | | ||||||
United States |
| | | |||||
Canada | | | ||||||
Rest of World | | | ||||||
$ | | $ | |
Investments of $
Note 21 - Fair Value Measurements
Fair value is a market-based measurement, not an entity-specific measurement. For some assets and liabilities, observable market transactions or market information might be available. For other assets and liabilities, observable market transactions and market information might not be available. However, the objective of a fair value measurement in both cases is the same - to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions (i.e. an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability).
The fair value hierarchy establishes three levels to classify the inputs to valuation techniques used to measure fair value.
● | Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. |
● | Level 2 inputs are quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices observable for the asset or liability (for example, interest rate and yield curves observable at commonly quoted intervals, forward pricing curves used to value currency and commodity contracts and volatility measurements used to value option contracts), or inputs that are derived principally from or corroborated by observable market data or other means. |
● | Level 3 inputs are unobservable (supported by little or no market activity). |
The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs.
There were
Assets and Liabilities Measured at Fair Value on a Recurring Basis:
| Quoted prices in |
| Significant other |
| Significant |
|
|
| ||||||
active markets for | observable | unobservable |
| |||||||||||
identical assets | inputs | inputs | Aggregate |
| ||||||||||
As at December 31, 2022 | (Level 1) | (Level 2) | (Level 3) | fair value |
| |||||||||
Receivables from provisional concentrate sales | $ | — | $ | | $ | — | $ | | ||||||
Equity investments |
| |
| — |
| |
| | ||||||
Warrants |
| — |
| |
| — |
| | ||||||
$ | | $ | | $ | | $ | |
| Quoted prices in |
| Significant other |
| Significant |
|
|
| ||||||
active markets for | observable | unobservable |
| |||||||||||
| identical assets | inputs | inputs | Aggregate |
| |||||||||
As at December 31, 2021 | (Level 1) | (Level 2) | (Level 3) | fair value |
| |||||||||
Receivables from provisional concentrate sales | $ | — | $ | | $ | — | $ | | ||||||
Equity investments |
| |
| — |
| |
| | ||||||
Warrants |
| — |
| |
| — |
| | ||||||
$ | | $ | | $ | | $ | |
2022 Financial Statements | 38 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
The valuation techniques that are used to measure fair value are as follows:
(a) | Receivables |
The fair values of receivables arising from gold and platinum group metal concentrate sales contracts that contain provisional pricing mechanisms are determined using the appropriate quoted forward prices from the exchange that is the principal active market for the particular metal. As such, these receivables are classified within Level 2 of the fair value hierarchy.
(b) | Investments |
The fair values of publicly-traded investments are determined based on a market approach reflecting the closing prices of each particular security at the statement of financial position date. The closing prices are quoted market prices obtained from the exchange that is the principal active market for the particular security, and therefore are classified within Level 1 of the fair value hierarchy.
The Company holds
The fair values of warrants are estimated using the Black-Scholes pricing model which requires the use of inputs that are observable in the market. As such, these investments are classified within Level 2 of the fair value hierarchy.
The fair values of the Company’s remaining financial assets and liabilities, which include cash and cash equivalents, receivables, loan receivables, accounts payable and accrued liabilities, and debt approximate their carrying values due to their short-term nature, historically negligible credit losses, fair value of collateral, or floating interest rate.
The Company has not offset financial assets with financial liabilities.
Assets Measured at Fair Value on a Non-Recurring Basis:
| Quoted prices in |
| Significant other |
| Significant |
|
|
| ||||||
active markets for | observable | unobservable |
| |||||||||||
identical assets | inputs | inputs | Aggregate |
| ||||||||||
As at December 31, 2021 | (Level 1) | (Level 2) | (Level 3) | fair value |
| |||||||||
Weyburn | $ | — | $ | — | $ | | $ | | ||||||
$ | — | $ | — | $ | | $ | |
The fair values of royalty, stream, and working interests are determined primarily using an income approach using unobservable discounted future cash-flows. As a result, the fair values are classified within Level 3 of the fair value hierarchy.
2022 Financial Statements | 39 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
Note 22 – Financial Risk Management
The Company’s financial instruments are comprised of financial assets and liabilities. The Company’s principal financial liabilities comprise accounts payable, accrued liabilities and debt. The Company’s principal financial assets are cash and cash equivalents, receivables, loan receivables, and investments. The main purpose of these financial instruments is to manage short-term cash flow and working capital requirements and fund future acquisitions.
The Company is engaged in the business of acquiring, managing and creating resource royalties and streams. Royalties and streams are interests that provide the right to revenue or production from the various properties, after deducting specified costs, if any. These activities expose the Company to a variety of financial risks, which include direct exposure to market risks (which includes commodity price risk, foreign exchange risk and interest rate risk), credit risk, liquidity risk and capital risk management.
Management designs strategies for managing some of these risks, which are summarized below. The Company’s executive management oversees the management of financial risks. The Company’s executive management ensures that financial risk-taking activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Company’s policies and risk appetite.
The Company’s overall objective from a risk management perspective is to safeguard its assets and mitigate risk exposure by focusing on security rather than yield.
(a)Market Risks
Market risks are the risks that change in market factors, such as commodity prices, foreign exchange rates or interest rates, will affect the value of the Company’s financial instruments. The Company manages market risks by either accepting it or mitigating it through the use of economic strategies.
Commodity Price Risk
The Company’s royalties, working interests and streams are subject to fluctuations from changes in market prices of the underlying commodities. The market prices of gold, silver, platinum, palladium, iron ore, oil and gas are the primary drivers of the Company’s profitability and ability to generate free cash flow. All of the Company’s future revenue is not hedged in order to provide shareholders with full exposure to changes in the market prices of these commodities.
Foreign Exchange Risk
The functional currencies of the Company’s entities include the Canadian, U.S. and Australian dollars with the reporting currency of the Company being the U.S. dollar. The Company is primarily exposed to currency fluctuations relative to the U.S. dollar on balances and transactions that are denominated and settled in Canadian dollars and Australian dollars. The Company has exposure to the Canadian dollar through its Canadian energy activities and corporate administration costs. Consequently, fluctuations in the U.S. dollar exchange rate against these currencies increase the volatility of depletion, corporate administration costs and overall net earnings, when translated into U.S. dollars.
The Company records currency translation adjustment gains or losses primarily due to the fluctuation of the U.S. dollar in relation to its Canadian assets and liabilities. During the year ended December 31, 2022, the U.S. dollar strengthened in relation to the Canadian dollar. As a result, the Company recorded a currency translation adjustment loss of $
Interest Rate Risk
Interest rate risk refers to the risk that the value of a financial instrument or cash flows associated with the instrument will fluctuate due to changes in market interest rates. The Company’s interest rate exposure arises mainly from the interest receipts on cash and cash equivalents. The Company may also be exposed to interest rate risk when it has borrowed amounts under its revolving credit facilities.
2022 Financial Statements | 40 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
The following table shows the approximate interest rate sensitivities of the Company’s financial assets and liabilities as at December 31, 2022 and 2021:
Effect on net income | Effect on equity |
| |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| |||||
$ | | $ | | $ | | $ | | ||||||||||
| ( |
| ( |
| ( |
| ( |
(b)Credit Risk
Credit risk is the risk that a third party might fail to fulfill its performance obligations under the terms of a financial instrument. Credit risk arises from cash and cash equivalents, receivables and loan receivables. The Company closely monitors its financial assets and maintains its cash deposits in several high-quality financial institutions and as such does not have any significant concentration of credit risk.
As at December 31, 2022, the Company is unaware of any information which would cause it to believe that these financial assets are not fully recoverable.
(c)Liquidity Risk
Liquidity risk is the risk of loss from not having access to sufficient funds to meet both expected and unexpected cash demands. The Company manages its exposure to liquidity risk through prudent management of its statement of financial position, including maintaining sufficient cash balances and access to credit facilities. The Company has in place a planning and budgeting process to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis. Management continuously monitors and reviews both actual and forecasted cash flows, including acquisition activities.
As at December 31, 2022, the Company held $
(d)Capital Risk Management
The Company’s primary objective when managing capital is to provide a sustainable return to shareholders through managing and growing the Company’s resource asset portfolio while ensuring capital protection. The Company defines capital as its cash, cash equivalents, short-term investments and long-term investments which is managed by the Company’s management subject to approved policies and limits by the Board of Directors.
There were no changes in the Company’s approach to capital management during the year ended December 31, 2022 compared to the prior year. The Company is not subject to material externally imposed capital requirements or significant financial covenants or capital requirements with our lenders. The Company is in compliance with all its covenants under its credit facilities as at December 31, 2022.
As at December 31, 2022, the Company has cash and cash equivalents totaling $
2022 Financial Statements | 41 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
Note 23 – Commitments
(a)Commodity Purchase Commitments
The following table summarizes the Company’s commitments pursuant to the associated precious metals agreements:
Attributable payable |
| |||||||||||||||||||
production to be purchased | Per ounce cash payment (1),(2) | Term of | Date of |
| ||||||||||||||||
Interest |
| Gold |
| Silver |
| PGM |
| Gold |
| Silver |
| PGM |
| agreement(3) |
| contract |
| |||
Antamina |
| — | % | | % (4) | — | % | n/a | | % (5) | n/a |
| 7-Oct-15 | |||||||
Antapaccay |
| — | % (6) | — | % (7) | — | % |
| | % (8) | | % (9) | n/a |
| 10-Feb-16 | |||||
Candelaria |
| | % (10) | | % (10) | — | % | $ | | $ | | n/a |
| 6-Oct-14 | ||||||
Cobre Panama Fixed Payment Stream |
| — | % (11) | — | % (12) | — | % | $ | | (13) | $ | | (14) | n/a |
| 19-Jan-18 | ||||
Cobre Panama Floating Payment Stream | — | % (15) | — | % (16) | — | % | | % (17) | | % (18) | n/a |
| 19-Jan-18 | |||||||
Condestable | — | % (19) | — | % (20) | — | % | | % (21) | | % (22) | n/a |
| 8-Mar-21 | |||||||
Guadalupe-Palmarejo |
| | % | — | % | — | % | $ | | n/a | n/a |
| 2-Oct-14 | |||||||
Karma |
| | % (23) | — | % | — | % |
| | % (24) | n/a | n/a |
| 11-Aug-14 | ||||||
Sabodala |
| — | % (25) | — | % | — | % |
| | % (26) | n/a | n/a |
| 25-Sep-20 | ||||||
MWS |
| | % | — | % | — | % | $ | | n/a | n/a |
| (27) | 2-Mar-12 | ||||||
Sudbury(28) |
| | % | — | % | | % | $ | | n/a | $ | |
| 15-Jul-08 | ||||||
Tocantinzinho |
| | % (29) | — | % | — | % | | % (30) | n/a | n/a |
| 18-Jul-22 | |||||||
Cooke 4 |
| | % | — | % | — | % | $ | | n/a | n/a |
| 5-Nov-09 |
1 | Subject to an annual inflationary adjustment except for Antamina, Antapaccay, Karma, Guadalupe-Palmarejo, and Sabodala. |
2 | Should the prevailing market price for gold be lower than this amount, the per ounce cash payment will be reduced to the prevailing market price. |
3 | Subject to successive extensions. |
4 | Subject to a fixed payability of |
5 | Purchase price is |
6 | Gold deliveries are referenced to copper in concentrate shipped with |
7 | Silver deliveries are referenced to copper in concentrate shipped with |
8 | Purchase price is |
9 | Purchase price is |
10 | Percentage decreases to |
11 | Gold deliveries are indexed to copper in concentrate produced from the project. |
12 | Silver deliveries are indexed to copper in concentrate produced from the project. |
13 | After |
14 | After |
15 | Gold deliveries are indexed to copper in concentrate produced from the project. |
16 | Silver deliveries are indexed to copper in concentrate produced from the project. |
17 | After |
18 | After |
19 | Gold deliveries are fixed at |
20 | Silver deliveries are fixed at |
21 | Purchase price is |
22 | Purchase price is |
23 | Gold deliveries were fixed until February 28, 2021. Percentage is now |
24 | Purchase price is |
25 | Based on amended agreement with an effective date of September 1, 2020, gold deliveries are fixed at |
26 | Purchase price is |
27 | Agreement is capped at |
2022 Financial Statements | 42 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
28 | The Company is committed to purchase |
29 | Percentage decrease to |
30 | Purchase price is |
(b)Capital Commitments
The Company is committed to funding its acquisition of the Stream and its obligations under the Term Loan in relation to the Tocantinzinho project as described in Note 4 (g), and its share of the acquisition of mineral rights acquired through the Royalty Acquisition Venture with Continental as described in Note 4 (j).
The Company also has commitments for contingent payments in relation to various royalty agreements, as follows: (i) $
Note 24 – Contingencies
Canada Revenue Agency Audit
The CRA is conducting an audit of Franco-Nevada for the 2012-2017 taxation years.
Subsequent to year-end, on March 6, 2023, the CRA expanded its audit up to the 2019 taxation year. The Company has not received any proposal or Notices of Reassessment in connection with this.
Management believes that the Company and its subsidiaries have filed all tax returns and paid all applicable taxes in compliance with Canadian and applicable foreign tax laws and, as a result, no liabilities have been recorded in the financial statements of the Company for the Reassessments (as defined below), or for any potential tax exposure that may arise in respect of these matters. The Company does not believe that the Reassessments are supported by Canadian tax law and jurisprudence and intends to vigorously defend its tax filing positions.
2022 Financial Statements | 43 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
The following table provides a summary of the various CRA audit and reassessment matters further detailed below:
CRA Position | Taxation Years Reassessed | Potential Exposure for Tax, Interest and Penalties (in millions) | |
Canadian Domestic Tax Matters | Upfront payment made in connection with precious metal stream agreements should be deducted for income tax purposes in a similar manner to how such amount is expensed for financial statement purposes. | 2014, 2015, 2016, 2017 | For 2014-2017: Tax: $ Interest and other penalties: $ If CRA were to reassess the 2018-2022 taxation years on the same basis: Tax: $ Interest and other penalties: $ |
Transfer Pricing (Mexico) | Transfer pricing provisions in the Act (as defined below) apply such that a majority of the income earned by the Company’s Mexican subsidiary should be included in the income of the Company and subject to tax in Canada. | 2013, 2014, 2015, 2016 | For 2013-2016: Tax: $ Transfer pricing penalties: $ Interest and other penalties: $ The amounts set forth above do not include any potential relief under the Canada-Mexico tax treaty. The Company’s Mexican subsidiary ceased operations after 2016 and no reassessments for this issue are expected for subsequent years. |
Transfer Pricing (Barbados) | Transfer pricing provisions in the Act (as defined below) apply such that a majority of the income relating to certain precious metal streams earned by the Company’s Barbadian subsidiary should be included in the income of the Company and subject to tax in Canada. | 2014, 2015, 2016, 2017 | For 2014-2017: Tax: $ Transfer pricing penalties: $ Interest and other penalties: $ If CRA were to reassess the 2018-2022 taxation years on the same basis: Tax: $ Transfer pricing penalties: $ Interest and other penalties: $ |
FAPI (Barbados) | The FAPI provisions in the Act (as defined below) apply such that a majority of the income relating to precious metal streams earned by the Company’s Barbadian subsidiary, in 2012 and 2013, should be included in the income of the Company and subject to tax in Canada. | 2012, 2013 | For 2012-2013: Tax: $ Interest and other penalties: $ Based on CRA’s proposal letter, no reassessments for this issue for years after 2013 are expected. |
2022 Financial Statements | 44 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
(a) | Canadian Domestic Tax Matters (2014-2017) |
In October 2019, certain wholly-owned Canadian subsidiaries of the Company received Notices of Reassessment for the 2014 and 2015 taxation years (the “2014 and 2015 Domestic Reassessments”) in which the CRA increased income by adjusting the timing of the deduction of the upfront payments which were made in connection with precious metal stream agreements. The CRA’s position is that the upfront payment should be deducted for income tax purposes in a similar manner to how such upfront payment is expensed for financial statement purposes. Consequently, the CRA’s position results in a slower deduction of the upfront payment and an acceleration of the payment of Canadian taxes. This results in the Company being subject to an incremental payment of Federal and provincial income taxes for these years of $
On September 14, 2021, the Company received a Notice of Reassessment for the 2016 taxation year (the “2016 Domestic Reassessment”) on the same basis as the 2014 and 2015 Domestic Reassessments, resulting in an incremental payment of Federal and provincial income taxes of $
On April 1, 2022, the Company received a Notice of Reassessment for the 2017 taxation year (the “2017 Domestic Reassessment” and, collectively with the 2016 Domestic Reassessment and the 2014 and 2015 Domestic Reassessments, the “Domestic Reassessments”) on the same basis as the 2014 and 2015 Domestic Reassessments, resulting in an incremental payment of Federal and provincial income taxes of $
If the CRA were to reassess the particular Canadian subsidiaries for taxation years 2018 through 2022 on the same basis, the Company estimates that it would be subject to an incremental payment of Canadian tax (after applying available non-capital losses and other deductions) of approximately $
(b) | Mexico (2013-2016) |
In December 2018 and December 2019, the Company received Notices of Reassessment from the CRA for the 2013 taxation year (the “2013 Reassessment”) and for the 2014 and 2015 taxation years (the “2014 and 2015 Reassessments”, collectively with the 2013 Reassessment, the “2013-2015 Reassessments”) in relation to its Mexican subsidiary. The reassessments were made on the basis of the transfer pricing provisions in the Income Tax Act (Canada) (the “Act”) and asserts that a majority of the income earned by the Mexican subsidiary should have been included in the income of the Company and subject to tax in Canada. The 2013-2015 Reassessments result in additional Federal and provincial income taxes of $
In December 2020, the CRA issued revised 2013-2015 Reassessments to include transfer pricing penalties of $
2022 Financial Statements | 45 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
On December 21, 2021, the Company received a Notice of Reassessment for the 2016 taxation year (the “2016 Reassessment”) on the same basis as the 2013-2015 Reassessments, resulting in additional Federal and provincial income taxes of $
The 2016 Reassessment did not include transfer pricing penalties which are currently under review. If the CRA were to apply transfer pricing penalties, the Company estimates that the amount would be approximately $
For taxation years 2013 through 2016, the Company’s Mexican subsidiary paid a total of $
(c) | Barbados (2014-2017) |
The 2014 and 2015 Reassessments also reassess the Company in relation to its Barbadian subsidiary. The reassessments were made on the basis of the transfer pricing provisions in the Act and assert that a majority of the income relating to certain precious metal streams earned by the Barbadian subsidiary should have been included in the income of the Company and subject to tax in Canada, resulting in additional Federal and provincial income taxes of $
As noted above, in December 2020, the CRA issued revised 2014 and 2015 Reassessments to include transfer pricing penalties of $
On December 21, 2021, the Company received the 2016 Reassessment as well as a Notice of Reassessment for the 2017 taxation year (the “2017 Reassessment”, collectively with the 2016 Reassessment, the “2016 and 2017 Reassessments”) that reassess the Company in relation to its Barbadian subsidiary on the same basis as the 2014 and 2015 Reassessments, resulting in additional Federal and provincial income taxes of $
If the CRA were to reassess the Company for taxation years 2018 through 2022 on the same basis and continue to apply transfer pricing penalties, the Company estimates that it would be subject to additional Canadian tax for these years of approximately $
2022 Financial Statements | 46 |
Franco-Nevada Corporation
Notes to the Consolidated Financial Statements |
For the years ended December 31, 2022 and 2021
(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)
(d) | Barbados (2012-2013) |
In August 2020, the Company received Notices of Reassessment for the 2012 and 2013 taxation years (the “FAPI Reassessments” and, collectively with the Domestic Reassessments, the 2013 Reassessment, the 2014 and 2015 Reassessments, and the 2016 and 2017 Reassessments, the “Reassessments”) in relation to its Barbadian subsidiary. The FAPI Reassessments assert that a majority of the income relating to precious metal streams earned by the Barbadian subsidiary, in those years, should have been included in the income of its Canadian parent company and subject to tax in Canada as Foreign Accrual Property Income (“FAPI”). The CRA has noted that its position may not extend beyond the 2013 taxation year. The FAPI Reassessments result in additional Federal and provincial income taxes of $
The CRA audit is ongoing and there can be no assurance that the CRA will not further challenge the manner in which the Company or any of its subsidiaries has filed its tax returns and reported its income. In the event that the CRA successfully challenges the manner in which the Company or a subsidiary has filed its tax returns and reported its income, this could potentially result in additional income taxes, penalties and interest, which could have a material adverse effect on the Company.
Note 25 – Subsequent Events
(a) | Acquisitions and Other Transactions |
On February 22, 2023, the Company acquired a portfolio of gold royalties from Trident for proceeds of $
On February 22, 2023, Marathon exercised its option to buy back
(b) | Canada Revenue Agency Audits |
Subsequent to year-end, on March 6, 2023, the CRA expanded its audit up to the 2019 taxation year, as detailed in Note 24.
2022 Financial Statements | 47 |