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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934
For the month of April 2018
Commission File Number 001-35286
FRANCO-NEVADA CORPORATION
(Translation of registrant’s name into English)
199 Bay Street, Suite 2000, P.O. Box 285, Commerce Court Postal Station, Toronto, Ontario, Canada M5L 1G9
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F
Form 20-F ☐ |
Form 40-F ☒ |
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.
NOTE
Exhibit 99.2 of this Form 6-K is incorporated by reference into Franco-Nevada Corporation’s registration statements on Form F-3 (No. 333-210295), on Form S-8 (No. 333-176856) and on Form F-10 (No. 333-210878).
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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FRANCO-NEVADA CORPORATION |
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/s/ Lloyd Hong |
Date: April 6, 2018 |
Lloyd Hong |
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Chief Legal Officer & Corporate Secretary |
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INDEX TO EXHIBITS
99.1 |
Annual Report for the year ended December 31, 2017 |
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99.2 |
Notice and Management Information Circular for the 2018 Annual and Special Meeting of Shareholders |
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99.3 |
Form of Proxy |
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Exhibit 99.1
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NEWS RELEASE Toronto, March 7, 2018 (in U.S. dollars unless otherwise noted) |
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Franco-Nevada Reports Record Results for 2017
“I am pleased that Franco-Nevada's 10th full year since its IPO was its best year ever” stated David Harquail, CEO. “We achieved record results that were at the high end of our guidance for 2017. We are now looking forward to another phase of growth through 2022 with the ramp-up of Cobre Panama over 2019‑2022, the first phase expansion of Tasiast later this year and the second phase in 2020, the expansion or start-up of a number of smaller mines over 2018 and 2019 and the 50% expansion of Stillwater by 2021. The on-going full-field development of our U.S. oil & gas royalties is tracking ahead of our original expectations. On top of that, our business development team has been very active adding new investments in precious metals, oil & gas and other minerals. Franco-Nevada remains debt free and is well positioned for another 10 years of success.”
2017 Financial Highlights
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497,745 Gold Equivalent Ounces1 (GEOs) sold – a new record and a 7.2% increase year-over-year |
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$675.0 million in revenue — a new record and a 10.6% increase year-over-year |
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$516.1 million of Adjusted EBITDA2 or $2.82 per share — a new record |
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$194.7 million of net income, or $1.06 per share — a new record |
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$198.3 million of Adjusted Net Income3 or $1.08 per share |
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$167.9 million of cash and DRIP dividends paid — a new record |
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$511.1 million in cash and cash equivalents at year-end and no debt |
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$356.4 million from the exercise of warrants at C$75 per share |
Q4/2017 Financial Highlights
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119,839 GEOs sold |
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$167.2 million in revenue – a 7.7% increase over Q4/2016 |
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$128.0 million of Adjusted EBITDA 2 or $0.69 per share |
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$43.5 million of net income, or $0.23 per share |
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$52.1 million of Adjusted Net Income 3 or $0.28 per share |
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Revenue and GEOs by Asset Categories |
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Q4/2017 |
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Q4/2016 |
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GEOs |
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Revenue |
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GEOs |
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Revenue |
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(in millions) |
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(in millions) |
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Precious Metals |
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Gold |
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$ |
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$ |
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Silver |
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PGMs |
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Precious Metals - Total |
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$ |
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$ |
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Other Minerals |
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Oil & Gas |
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$ |
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$ |
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2 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
For Q4/2017, revenue was sourced 89.2% from precious metals (67.8% gold, 14.4% silver and 7.0% PGM) and 82.1% from the Americas (46.3% Latin America, 16.1% U.S. and 19.7% Canada). Operating costs and expenses increased year-over-year, reflecting increased stream ounce deliveries. Oil & gas revenue increased 34.6%, reflecting both higher prices and production levels year-over-year. Cash provided by operating activities was $126.3 million, an increase of 3.6% compared to Q4/2016.
Corporate Updates
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Cobre Panama: In September 2017, Franco-Nevada agreed to terms with First Quantum to purchase an additional precious metals stream on the Cobre Panama project for $178.0 million. This agreement was expanded to $356.0 million on January 22, 2018 to also include a precious metals stream on the 10% indirect interest held by Korea Resources Corp. The purchase price will be paid as a one-time advance payment expected to be made before the end of March, 2018. Franco-Nevada now has exposure to the precious metals produced from 100% of the ownership of the Cobre Panama project. |
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Delaware Oil & Gas Royalties: Franco-Nevada finalized the purchase of a royalty portfolio in the Delaware Basin, which represents the western portion of the larger Permian Basin in Texas for $101.3 million on February 20, 2018. The royalties are derived principally from mineral title which provides a perpetual interest in royalty lands. The transaction has an effective date of October 1, 2017. |
2018 Guidance
In 2018, Franco-Nevada expects attributable royalty and stream production to total 460,000 to 490,000 GEOs from its mineral assets and revenue of $50 million to $60 million from its oil & gas assets. Of the royalty and stream production, 310,000 to 330,000 GEOs are expected from Franco-Nevada's various stream agreements with no GEOs assumed from Cobre Panama in 2018. For 2018 guidance, silver, platinum and palladium metals have been converted to GEOs using assumed commodity prices of $1,300/oz Au, $17.00/oz Ag, $950/oz Pt and $1,050/oz Pd. The WTI oil price is assumed to average $55 per barrel with a $4.80 per barrel price differential between the Edmonton Light and realized prices for Canadian oil. The Company estimates depletion expense of $250 million to $280 million. 2018 guidance and 5‑year outlook below is based on public forecasts and other disclosures by the third-party owners and operators of our assets or our assessment thereof.
5‑Year Outlook
Our outlook to 2022 assumes that the Cobre Panama project will be fully ramped-up by 2022. From 2019‑2021, scheduled fixed ounce payments from Midas/Fire Creek, Karma and Sabodala are expected to step down to longer-term royalty payments or stream deliveries. Using the same commodity price assumptions as were used for our 2018 guidance (see above) and assuming no other acquisitions, Franco-Nevada expects its existing portfolio to generate between 565,000 to 595,000 GEOs by 2022. Oil & gas revenues at the same $55 per barrel WTI oil price assumption are expected to range between $80 million and $90 million.
Q4/2017 Portfolio Updates
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Precious Metals — Latin America: GEOs from Latin American precious metals assets were consistent year-over-year. Precious metal GEOs earned from Latin America were 60,568 GEOs compared with 60,808 GEOs in Q4/2016. |
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Cobre Panama (gold and silver stream) – During Q4/2017, Franco-Nevada contributed $89.4 million of its share of construction capital for the Cobre Panama project. Franco-Nevada at year-end has contributed $726.6 million of its total $1 billion commitment for the construction of Cobre Panama. Franco-Nevada expects to fund between $230 and $250 million in 2018 towards the $1 billion deposit. Recently, First Quantum announced expansion plans for the Cobre Panama throughput capacity to 85 million tonnes per annum and potential to accommodate a further increase to 100 million tonnes per annum after 2022. First Quantum reported that the project was 70% complete as of year-end with phased commissioning expected during 2018 and continued ramp-up during 2019. |
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Candelaria (gold and silver stream) – GEOs earned from Candelaria were 14,185, compared to 19,698 GEOs in the prior year quarter, in line with expectations. Lundin Mining provided a Mineral Reserve update for the project which included a net increase to both Proven & Probable and Measured & Indicated estimates despite mining depletion. The substantial increase to the underground reserve will allow Lundin to optimize the mine plan as well as extend the mine life at Candelaria. |
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Antapaccay (gold and silver stream) – Antapaccay delivered 19,430 GEOs in Q4/2017, for a total of 71,183 GEOs in 2017. |
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Antamina (22.5% silver stream) – GEOs earned from Antamina were 12,870 during the quarter compared to 10,619 GEOs in Q4/2016. For the full year 2017, Antamina sales were 49,656 GEOs. |
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Guadalupe-Palmarejo (50% gold stream) – During Q4/2017, Franco-Nevada sold 13,741 GEOs under the Guadalupe agreement and 52,124 GEOs for the full year. Coeur Mining, Inc. provided a new Mineral Resource estimate for the project in February 2018 following a strong exploration campaign in 2017. Gold Mineral Reserves increased by 19% while gold |
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Measured & Indicated Mineral Resources increased by 56%. Franco-Nevada estimates that the majority of the Mineral Reserves & Resources are covered by the gold stream. |
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Cerro Moro (2% royalty) – Yamana reports that Cerro Moro construction is progressing and is expected to be completed by the end of Q1/2018 with ramp-up of operations expected in Q2/2018. |
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Precious Metals — U.S.: GEOs from U.S. precious metals assets decreased by 16.1% year-over-year mainly due to the completion of Phase 2 mining at South Arturo. GEOs received from the U.S. precious metal assets were 19,284 GEOs. |
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Goldstrike (2‑4% royalty & 2.4‑6% NPI) – Successful exploration at Goldstrike increased the Mineral Reserve. Barrick is expected to continue to target areas below the Betze-Post open pit and below the current workings at the Meikle underground which are subject to Franco-Nevada royalties. |
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Stillwater (5% royalty) –The Blitz project achieved first production in September 2017 and is expected to reach full production by late 2021 or early 2022. Blitz is anticipated to increase total PGM production from Stillwater by more than 50% to approximately 850,000 ounces per year. |
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Bald Mountain (0.875‑5% royalty) – Kinross successfully doubled production from the operation in 2017. Kinross has started construction of new process facilities in the South Zone and expects commissioning in Q1/2019. |
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Fire Creek (fixed gold deliveries and stream) – Klondex provided an initial open pit Mineral Resource at what has historically been an underground operation in December 2017. |
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Hollister (3‑5% royalty) – Klondex began processing Hollister ore at the Midas mill which included the commissioning of a new CIL circuit in order to optimize recovery. |
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South Arturo (4‑9% royalty) – Joint Venture operators Barrick and Premier Gold announced a significant increase to Mineral Reserves and Mineral Resources for the South Arturo operation. Phase 2 mining was completed in 2017 and the Joint Venture now expects to start development of the Phase 1 open pit in mid‑2018. |
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Precious Metals — Canada: GEOs from Canadian precious metals assets decreased by approximately 31.6% to 14,262 GEOs compared with Q4/2016 mainly due to reduced NPI payments from Hemlo and Musselwhite. |
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Brucejack (1.2% royalty) – Brucejack poured first gold on June 20, 2017, declared commercial production on July 3, 2017 and produced a total of 152,484 ounces of gold in 2017. Franco-Nevada's royalty begins after approximately 500,000 ounces have been produced. Pretium submitted an application to increase production from 2,700 tonnes per day to 3,800 tonnes per day with a decision expected before the end of 2018. |
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Hemlo ( 3% royalty & 50% NPI) – Barrick had another successful exploration campaign at Hemlo in 2017 and added 397,000 ounces of Mineral Reserves (before mining depletion). Barrick has indicated that exploration will focus on the expansion potential of the underground operation. |
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Musselwhite (5% NPI) – Goldcorp estimates that the Materials Handling project is 53% complete and is tracking 10% below the capital cost estimate. The project is expected to reach commercial production in Q1/2019. |
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Kirkland Lake (1.5‑5.5% royalty & 20% NPI) – Kirkland Lake Gold announced plans for a new shaft at the Macassa mine which would support higher levels of production and offer more effective underground exploration. The two phase project is expected to be completed by the end of 2023. |
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Canadian Malartic (1.5% royalty) – Canadian Malartic reported an updated Mineral Resource estimate for the Odyssey deposit and a new Mineral Resource at East Malartic. Both of these deposits are located east of the currently planned open pit and may partially be covered by the Franco-Nevada royalty. |
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Precious Metals — Rest of World: GEOs from Rest of World precious metals assets were 22,660 GEOs during the quarter. This represented the largest year-over-year increase at 47.1% as increased sales from MWS, Sabodala and Karma positively impacted the quarter. |
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Tasiast (2% royalty) – Kinross announced plans to proceed with the Phase Two expansion at Tasiast. Phase Two is expected to increase mill capacity to 30,000 tonnes per day and produce an average of approximately 812,000 gold ounces per year for the first five years. The Phase One expansion remains on schedule for full production in Q2/2018 with Phase Two commercial production expected in Q3/2020. |
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Subika (2% royalty) – Newmont has begun underground mining at Subika with commercial production expected in H2/2018. The Ahafo mill expansion is expected to be in commercial production in H2/2019 . Together, the Ahafo expansion projects (Subika underground and mill expansion) are expected to increase Ahafo's production to 550,000 - 650,000 ounces per year for the first five full years of production (2020–2024). Franco-Nevada estimates that the majority of underground reserves are covered by its royalty. |
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Karma (fixed gold deliveries and stream) – 4,453 GEOs were delivered and sold in Q4/2017. In Q4/2016, 3,750 GEOs were delivered of which 2,500 GEOs were sold. |
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Sabodala (fixed gold deliveries and stream) – 5,625 GEOs were delivered and sold in Q4/2017 compared with 3,750 GEOs sold in Q4/2016. |
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4 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
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Sissingué (0.5% royalty) – Perseus Mining poured first gold from Sissingué on January 26, 2018 and expects to ramp-up to full scale commercial production by the end of Q1/2018. |
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Oil & Gas: Revenue from oil & gas assets increased to $14.0 million in Q4/2017 compared to $10.4 million in Q4/2016, reflecting both higher prices and production levels year-over-year. |
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Weyburn (NRI, ORR, WI) – Whitecap Resources Inc. are the new operators of the asset having acquired operatorship from Cenovus Energy Inc. Weyburn generated $8.8 million in the quarter versus $7.9 million in the previous year capping off a strong year overall. |
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Orion (GORR) – Osum Oil Sands Corp. announced plans to double production by accelerating the expansion of Phase 2C, which will now be constructed concurrently with the Phase 2B expansion. Together, the two phases are expected to increase production capacity to over 18,000 barrels per day. |
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Anadarko (STACK/SCOOP) (various royalty rates) – Higher production and new mineral royalty purchases increased revenue year-over-year. Rig activity is, on average, at or ahead of our original expectations and royalty revenue is expected to increase. |
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Permian (Midland/Delaware) (various royalty rates) – A second transaction on the Delaware side of the Permian Basin was closed in February 2018. Rig activity is ahead of original expectations and royalty revenue is expected to increase. |
Shareholder Information
The complete Consolidated Annual Financial Statements and Management's Discussion and Analysis can be found today on Franco‑Nevada's website at www.franco-nevada.com, on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. The 2018 Asset Handbook will be released at the beginning of April 2018.
Management will host a conference call tomorrow, Thursday, March 8, 2018 at 10:00 a.m. Eastern Time to review Franco‑Nevada's 2017 results, as well as discuss the 2018 and five-year outlook.
Interested investors are invited to participate as follows:
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Via Conference Call: Toll-Free: (888) 231‑8191; International: (647) 427‑7450 |
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Conference Call Replay until March 15: Toll-Free (855) 859‑2056; Toronto (416) 849‑0833; Pass code 9393915 |
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Webcast: A live audio webcast will be accessible at www.franco-nevada.com |
Corporate Summary
Franco-Nevada Corporation is the leading gold-focused royalty and stream company with the largest and most diversified portfolio of cash-flow producing assets. Its business model provides investors with gold price and exploration optionality while limiting exposure to many of the risks of operating companies. Franco-Nevada is debt free and uses its free cash flow to expand its portfolio and pay dividends. It trades under the symbol FNV on both the Toronto and New York stock exchanges. Franco-Nevada is the gold investment that works.
For more information, please go to our website at www.franco-nevada.com or contact:
Stefan Axell |
Sandip Rana |
Director, Corporate Affairs |
Chief Financial Officer |
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(416) 306‑6328 |
(416) 306‑6303 |
info@franco-nevada.com |
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NON-IFRS MEASURES: Adjusted Net Income and Adjusted EBITDA are intended to provide additional information only and do not have any standardized meaning prescribed under IFRS and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures are not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate these measures differently. For a reconciliation of these measures to various IFRS measures, please refer to pages 39 to 41 of the Company's current MD&A disclosure found in this Annual Report and on the Company's website, on SEDAR and on EDGAR. Comparative information has been recalculated to conform to current presentation.
1 GEOs include our gold, silver, platinum, palladium and other mineral assets. GEOs are estimated on a gross basis for NSR royalties and, in the case of stream ounces, before the payment of the per ounce contractual price paid by the Company. For NPI royalties, GEOs are calculated taking into account the NPI economics. Platinum, palladium, silver and other minerals are converted to GEOs by dividing associated revenue, which includes settlement adjustments, by the relevant gold price. The gold price used in the computation of GEOs earned from a particular asset varies depending on the royalty or stream agreement, which may make reference to the market price realized by the operator, or the average for the month, quarter, or year in which the mineral was produced or sold. For Q4/2017, the average commodity prices were as follows: $1,274 gold (2016 - $1,218), $16.70 silver (2016 - $17.18), $920 platinum (2016 - $944) and $993 palladium (2016 - $684). For 2017, the average commodity prices were as follows: $1,257 gold (2016 - $1,248), $17.05 silver (2016 - $17.20), $948 platinum (2016 - $987) and $870 palladium (2016 - $613).
2 Adjusted EBITDA and Adjusted EBITDA per share are non-IFRS financial measures, which exclude the following from net income and EPS: income tax expense/recovery; finance expenses; finance income; depletion and depreciation; non-cash costs of sales; impairment charges related to royalty, stream and working interests and investments; gains/losses on sale of royalty interests; gains/losses on investments; and foreign exchange gains/losses and other income/expenses.
3 Adjusted Net Income and Adjusted Net Income per share are non-IFRS financial measures, which exclude the following from net income and earnings per share (“EPS”): foreign exchange gains/losses and other income/expenses; impairment charges related to royalty, stream and working interests and investments; gains/losses on sale of royalty interests; gains/losses on investments; unusual non-recurring items; and the impact of income taxes on these items.
Please refer to Cautionary Statement on Forward-Looking Information on page 42 of this Annual Report.
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Management's Discussion and Analysis
This Management's Discussion and Analysis (“MD&A”) of financial position and results of operations of Franco-Nevada Corporation (“Franco-Nevada”, the “Company”, “we” or “our”) has been prepared based upon information available to Franco-Nevada as at March 7, 2018 and should be read in conjunction with Franco-Nevada's audited consolidated financial statements and related notes as at and for the year ended December 31, 2017 and 2016. The audited consolidated financial statements and MD&A are presented in U.S. dollars and have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
Readers are cautioned that the MD&A contains forward-looking statements and that actual events may vary from management's expectations. Readers are encouraged to read the “Cautionary Statement on Forward-Looking Information” at the end of this MD&A and to consult Franco-Nevada's audited consolidated financial statements for the years ended December 31, 2017 and 2016 and the corresponding notes to the financial statements which are available on our website at www.franco-nevada.com , on SEDAR at www.sedar.com and in our most recent Form 40‑F filed with the Securities and Exchange Commission on EDGAR at www.sec.gov.
Additional information related to Franco-Nevada, including our Annual Information Form, is available on SEDAR at www.sedar.com , and our Form 40‑F is available on EDGAR at www.sec.gov. These documents contain descriptions of certain of Franco-Nevada's producing and advanced royalty and stream assets, as well as a description of risk factors affecting the Company. For additional information, our website can be found at www.franco-nevada.com.
Table Of Contents
7 |
BUSINESS OVERVIEW AND STRATEGY |
8 |
HIGHLIGHTS |
11 |
GUIDANCE |
12 |
MARKET OVERVIEW |
13 |
SELECTED FINANCIAL INFORMATION |
14 |
REVENUE BY ASSET |
17 |
OVERVIEW OF FINANCIAL PERFORMANCE – Q4/2017 TO Q4/2016 |
24 |
OVERVIEW OF FINANCIAL PERFORMANCE – 2017 TO 2016 |
30 |
SUMMARY OF QUARTERLY INFORMATION |
31 |
BALANCE SHEET REVIEW |
32 |
LIQUIDITY AND CAPITAL RESOURCES |
35 |
CRITICAL ACCOUNTING ESTIMATES |
38 |
OUTSTANDING SHARE DATA |
38 |
INTERNAL CONTROL OVER FINANCIAL REPORTING AND DISCLOSURE CONTROLS AND PROCEDURES |
39 |
NON-IFRS FINANCIAL MEASURES |
42 |
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION |
Abbreviations used in this report
The following abbreviations may be used throughout this MD&A:
Abbreviated Definitions
Periods under review |
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Interest types |
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Measurement |
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"YTD/2017" |
The twelve-month period ended December 31, 2017 |
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"NSR" |
Net smelter return royalty |
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"GEO" |
Gold equivalent ounces |
"Q4/2017" |
The three-month period ended December 31, 2017 |
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"GR" |
Gross royalty |
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"oz" |
Ounce |
"Q3/2017" |
The three-month period ended September 30, 2017 |
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"ORR" |
Overriding royalty |
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"oz Au" |
Ounce of gold |
"Q2/2017" |
The three-month period ended June 30, 2017 |
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"GORR" |
Gross overriding royalty |
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"oz Ag" |
Ounce of silver |
"Q1/2017" |
The three-month period ended March 31, 2017 |
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"FH" |
Freehold or lessor royalty |
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"oz Pt" |
Ounce of platinum |
"Q4/2016" |
The three-month period ended December 31, 2016 |
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"NPI" |
Net profits interest |
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"oz Pd" |
Ounce of palladium |
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"NRI" |
Net royalty interest |
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"LBMA" |
London Bullion Market Association |
Places and currencies |
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"WI" |
Working interest |
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"bbl" |
Barrel |
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"U.S." |
United States |
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"boe" |
Barrels of oil equivalent |
"$" or "USD" |
United States dollars |
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"WTI" |
West Texas Intermediate |
"C$" or "CAD" |
Canadian dollars |
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6 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
Business Overview and Strategy
Franco-Nevada is the leading gold-focused royalty and stream company by both gold revenue and number of gold assets. The Company has the largest and most diversified portfolio of royalties and streams by commodity, geography, revenue type and stage of project. The portfolio is actively managed with the aim to maintain over 80% of revenue from precious metals (gold, silver & PGM).
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Franco-Nevada Asset Count at March 7th, 2018 |
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Precious Metals |
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Other Minerals |
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Oil & Gas |
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TOTAL |
Producing |
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Advanced |
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Exploration |
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TOTAL |
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The Company does not operate mines, develop projects or conduct exploration. Franco-Nevada's business model is focused on managing and growing its portfolio of royalties and streams. The advantages of this business model are:
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Exposure to precious metals price optionality; |
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A perpetual discovery option over large areas of geologically prospective lands with no additional cost other than the initial investment; |
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Limited exposure to many of the risks associated with operating companies; |
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A free cash-flow business with limited cash calls; |
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A high-margin business that can generate cash through the entire commodity cycle; |
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A scalable and diversified business in which a large number of assets can be managed with a small stable overhead; and |
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· |
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A forward-looking business in which management focuses on growth opportunities rather than operational or development issues. |
Franco-Nevada's financial results in the short-term are primarily tied to the price of commodities and the amount of production from its portfolio of producing assets. Financial results have also been supplemented by acquisitions of new producing assets. Over the longer-term, results are impacted by the availability of exploration and development capital applied by other companies to expand or extend Franco-Nevada's producing assets or to advance Franco-Nevada's advanced and exploration assets into production.
Franco-Nevada has a long-term investment outlook and recognizes the cyclical nature of the industry. Franco-Nevada has historically operated by maintaining a strong balance sheet so that it can make investments during commodity cycle downturns.
Franco-Nevada's shares are listed on the Toronto and New York stock exchanges under the symbol FNV. An investment in Franco-Nevada's shares is expected to provide investors with yield and exposure to gold price and exploration optionality while limiting exposure to many of the risks of operating companies. Since its Initial Public Offering (“IPO”) ten years ago, Franco-Nevada has increased its dividend annually and its share price has outperformed the gold price and all relevant gold equity benchmarks.
Franco-Nevada's revenue is generated from various forms of agreements, ranging from net smelter return royalties, streams, net profits interests, net royalty interests, working interests and other. For definitions of the various types of agreements, please refer to our most recent Annual Information Form filed on SEDAR at www.sedar.com or our Form 40‑F filed on EDGAR at www.sec.gov.
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7 |
Financial Update – Q4/2017
|
· |
|
119,839 GEOs (1) recognized in revenue in Q4/2017, a decrease of 1.7% from 121,910 GEOs in Q4/2016; |
|
· |
|
$167.2 million in revenue , an increase of 7.7% from revenue of $155.3 million in Q4/2016; |
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· |
|
$128.0 million, or $0.69 per share, of Adjusted EBITDA (2) in Q4/2017, an increase of 4.7% from $122.2 million or $0.69 per share, in Q4/2016; |
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· |
|
76.6% in Margin (2) , compared to 78.7% in Q4/2016; |
|
· |
|
$43.5 million, or $0.23 per share, in net income for Q4/2017, compared to a loss of $4.5 million, or $0.03 per share, in Q4/2016. The Q4/2016 net loss includes an impairment of $67.4 million on the Company's Cooke 4 stream; |
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· |
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$52.1 million, or $0.28 per share, in Adjusted Net Income (2) in Q4/2017, an increase of 21.4% compared to $42.9 million, or $0.24 per share, in Q4/2016; |
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· |
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$126.3 million in net cash provided by operating activities in Q4/2017, an increase of 3.6% compared to $121.9 million in Q4/2016; |
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· |
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$43.2 million in dividends paid in Q4/201 7 , of which $31.8 million was paid in cash and $11.4 million was paid in common shares issued under the Company's Dividend Reinvestment Plan (“DRIP”), compared to $39.7 million in dividends paid in Q4/2016; and |
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· |
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$1.9 billion in available capital at December 31, 2017, comprising of $593.8 million of working capital, $168.1 million in marketable equity securities, and $1.1 billion available under the Company's credit facility. |
|
1 |
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GEOs include our gold, silver, platinum, palladium and other mineral assets, and do not include Oil & Gas assets. GEOs are estimated on a gross basis for NSR royalties and, in the case of stream ounces, before the payment of the per ounce contractual price paid by the Company. For NPI royalties, GEOs are calculated taking into account the NPI economics. Silver, platinum, palladium and other minerals are converted to GEOs by dividing associated revenue, which includes settlement adjustments, by the relevant gold price. The gold price used in the computation of GEOs earned from a particular asset varies depending on the royalty or stream agreement, which may make reference to the market price realized by the operator, or the average for the month, quarter, or year in which the mineral was produced or sold. For illustrative purposes, please refer to average commodity price tables on pages 17 and 24 of this MD&A for indicative prices which may be used in the calculation of GEOs. |
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2 |
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Adjusted Net Income, Adjusted EBITDA and Margin are non-IFRS financial measures with no standardized meaning under IFRS. For further information and a detailed reconciliation, please see pages 39‑41 of this MD&A. |
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8 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
Financial Update – 2017
|
· |
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497,745 GEOs recognized in revenue in 2017, an increase of 7.2% from 464,383 GEOs in 2016; |
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· |
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$675.0 million in revenue in 2017, an increase of 10.6% from revenue of $610.2 million in 2016; |
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· |
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$516.1 million, or $2.82 per share, in Adjusted EBITDA in 2017, an increase of 5.5% from $489.1 million, or $2.79 per share, in 2016; |
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· |
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76.5% in Margin in 2017, compared to 80.2% in 2016; |
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· |
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$194.7 million, or $1.06 per share, in net income in 2017, an increase of 59.3% compared to net income of $122.2 million, or $0.70 per share, in 2016; |
|
· |
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$198.3 million, or $1.08 per share, in Adjusted Net Income in 2017, an increase of 20.6% compared to $164.4 million, or $0.94 per share, in 2016; |
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· |
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$488.6 million in net cash provided by operating activities in 2017, compared to $471.0 million in 2016; and |
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· |
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$167.9 million in dividends paid in 2017, which included cash dividends of $125.6 million and $42.1 million in issued common shares under the Company's DRIP, compared to $156.8 million in dividends paid in 2016. |
Corporate Development
Acquisition of Bowen Basin Coal Royalties, Australia
Subsequent to year-end, on February 28, 2018, Franco-Nevada, through a wholly-owned subsidiary, acquired a portfolio of metallurgical coal royalties located in the Bowen Basin of Queensland, Australia for a cash consideration of $A4.2 million. The portfolio includes certain claims that comprise the producing Moorvale mine, Olive Downs project which had filed permitting applications, and another 33 exploration tenements. The Bowen Basin Coal royalty is a production payment of $A0.10 per tonne, adjusted for consumer price index changes since December 31, 1997.
Additional Acquisition and Funding of Cobre Panama, Panama
The Company has a precious metals stream agreement for First Quantum Minerals Ltd.'s (“First Quantum”) Cobre Panama project (“Cobre Panama”). Cobre Panama, which is located in Panama, is in the construction phase. Under the terms of the agreement, Franco-Nevada is funding a deposit of $1.0 billion against future deliveries of gold and silver from Cobre Panama. The deposit is funded on a pro-rata basis of 1:3 with First Quantum's 80% share of the capital costs in excess of $1.0 billion. During the quarter, the Company funded an additional $89.4 million of its share of construction capital, for a total of $264.4 million in 2017, with respect to its initial $1.0 billion commitment. As at December 31, 2017, the Company had funded a cumulative total of $726.6 million. Franco-Nevada expects to contribute between $230 million and $250 million of the $1.0 billion deposit in 2018.
On September 7, 2017, the Company agreed to terms with First Quantum to purchase an additional precious metals stream from Cobre Panama for a purchase price of $178.0 million. This agreement was expanded to $356.0 million and signed on January 22, 2018 to also include a precious stream on the 10% indirect interest held by Korea Resources Corp. (“KORES”). The purchase price of $356.0 million is payable as a one-time advance payment upon closing of the transaction which is expected to occur before the end of March. No additional pro-rata funding commitments will apply to the additional stream. The terms of the additional stream, other than the ongoing price, will be similar to the existing stream on Cobre Panama, including initially linking precious metals deliveries to copper in concentrate shipped for approximately the first 25 years of production. The ongoing price payable by the Company, during the currently planned mine life will be 20% of the LBMA gold and silver price for each ounce of gold and silver.
First Quantum reported that as of the end of Q4/2017, Cobre Panama is 70% complete and an initial 15% expansion to the throughput capacity has been approved. Additionally, Cobre Panama remains scheduled for phased commissioning during 2018, with continued ramp-up over 2019. Estimated total capital costs were revised to $6.3 billion. Estimated capital expenditures for 2018 are $1.18 billion.
Acquisition of U.S. Oil & Gas Royalties – Delaware, Texas
Subsequent to year-end, on February 20, 2018, the Company purchased a royalty portfolio in the Delaware Basin, which represents the western portion of the Permian Basin for $101.3 million. The royalties are derived principally from mineral title which provides a perpetual interest in royalty lands. The transaction entitles the Company to royalties effective October 1, 2017. No amounts have been recorded in the statement of income and comprehensive income as of December 31, 2017. Prior to year-end, the Company advanced $11.0 million into escrow in respect of this transaction which was included in Royalty, stream and working interests, net on the statements of financial position as at December 31, 2017.
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9 |
Acquisition of U.S. Oil & Gas Royalties – STACK, Oklahoma
On November 1, 2017, the Company, through a wholly-owned U.S. subsidiary, purchased for $27.6 million, a second package of mineral titles and royalty rights in the core of the Sooner Trend, Anadarko Basin, Canadian and Kingfisher counties (“STACK”) shale play in Oklahoma from a private company. This transaction complements our existing position acquired in late 2016 in one of the leading shale plays in the U.S. Franco-Nevada has the right to royalties on production beginning from June 1, 2017. Revenue from the royalties attributable to the mineral title is expected to grow with further development of the play.
On December 19, 2016, Franco-Nevada, through a wholly-owned U.S. subsidiary, acquired its initial package of mineral title and royalty rights in STACK for a price of $100.0 million. The two primary operators of the lands are Newfield Exploration Company and Devon Energy Corporation. The royalties consist of mineral title rights and GORRs which apply to approximately 1,200 acres (net after royalties) that, with pooling, provides exposure to an estimated gross acreage of 74,880 acres with an estimated average royalty rate of 1.61%.
Acquisition of Canadian Oil & Gas Royalties – Orion Thermal Project, Alberta
On September 29, 2017, Franco-Nevada acquired a 4% GORR on the Clearwater formation within the Orion Thermal project (“Orion”) in the Cold Lake region of Alberta from Osum Oil Sands Corp. (“Osum”) for a cash consideration of $74.1 million (C$92.5 million).
Acquisition of Railroad Royalty – Carlin Trend, Nevada
On May 26, 2017, Franco-Nevada, through a wholly-owned U.S. subsidiary, acquired an existing 1% NSR on certain claims that comprise the Railroad deposit located on the Carlin Trend in north-central Nevada for a cash consideration of $0.9 million.
Acquisition of U.S. Oil & Gas Royalties – Midland Basin, Texas
On March 13, 2017, Franco-Nevada, through a wholly-owned U.S. subsidiary, entered into an agreement to purchase a royalty portfolio in the Midland Basin of West Texas for $110.0 million. Following completion of due diligence, the first part of the portfolio was acquired for $89.8 million and closed on May 24, 2017. The second part of the portfolio closed on August 8, 2017. The total purchase price was $114.6 million including adjustments for title due diligence and the acquisition of the second part of the portfolio.
The Midland Basin forms the eastern portion of the broader Permian Basin and represents one of the most active and profitable oil plays in North America. The royalties consist of approximately 97% mineral title rights, along with some GORRs, which apply to approximately 908 acres (net after royalties) that, with pooling, provides exposure to an estimated gross acreage of 675,000 acres (a significant portion of the overall Midland Basin) at an estimated average royalty rate of 0.14%. The royalties are subject to a diverse operator base, which is anchored by Pioneer Natural Resources. Royalty revenue is expected to grow in future years as horizontal drilling activity in the area continues to ramp up.
Buy-Back of Kirkland Lake Gold Royalty
In October 2016, Kirkland Lake Gold Inc. (“Kirkland Lake”) exercised its option to buy back 1.0% of an overlying 2.5% NSR for aggregate cash consideration of $30.3 million ($36.0 million less royalty proceeds previously received attributable to the buy-back portion of the NSR). The Company recognized a gain on disposal of $14.1 million in the consolidated statement of income and comprehensive income (loss) for the year ended December 31, 2016.
Restructuring of Existing Royalties and Acquisition of Shares - Castle Mountain, California
On June 16, 2016, Franco-Nevada and NewCastle Gold Ltd. (“NewCastle”) completed the restructuring of Franco-Nevada's existing royalties at the Castle Mountain gold project in California, U.S., into a single 2.65% royalty covering a larger property for C$2.2 million in cash.
In addition the Company purchased 3,636,364 common shares of NewCastle and 1,818,182 common share purchase warrants for C$1.2 million. Each common share purchase warrant is exercisable to acquire one common share at a price of C$0.64 for a period of five years, expiring on May 9, 2021.
On December 22, 2017, NewCastle, Anfield Gold Corp. and Trek Mining Inc. combined their business to create Equinox Gold Corp. (“Equinox Gold”). The Company received 0.873 Equinox Gold common shares and warrants for each NewCastle common share and warrant held, respectively. The Company recorded a gain on the consolidated statements of income and comprehensive income for the year ended December 31, 2017 of $1.5 million, net of tax, in respect to the exchange of the shares. The Company currently holds 3,174,545 common shares and 1,587,272 warrants in Equinox Gold.
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10 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
Impairment of Cooke 4
On October 27, 2016, Sibanye Gold Limited (“Sibanye”) announced that it had ceased production at the Cooke 4 underground operation. Management assessed the cessation of operations as an indicator of impairment, and accordingly, performed an impairment assessment. The Company recorded an impairment charge of $67.4 million in its statement of income and comprehensive income (loss) for the year ended December 31, 2016.
Termination of Palmarejo Gold Stream and Commencement of Guadalupe-Palmarejo Gold Stream
In October 2014, Franco-Nevada agreed with Coeur Mining Inc. (“Coeur”) to terminate the Palmarejo gold stream agreement following the completion of the 400,000 ounce minimum obligation in exchange for a cash payment to Franco-Nevada of $2.0 million. In July 2016, Coeur met the minimum ounce obligation and the Palmarejo agreement was terminated. Deliveries of gold ounces from the Palmarejo project have started under a new agreement with Coeur, the Guadalupe-Palmarejo gold stream agreement, pursuant to which Coeur delivers 50% of its gold production from the Palmarejo project at an ongoing cost of $800 per ounce (no inflation adjustment). As part of the Guadalupe-Palmarejo agreement, Franco-Nevada provided an upfront deposit of $22.0 million to partially fund the development of the Guadalupe underground mine.
Acquisition of Antapaccay Precious Metals Stream
On February 26, 2016, the Company acquired a $500.0 million precious metal stream from Glencore plc with reference to production from the Antapaccay mine located in Peru. Under the stream agreement, gold and silver deliveries are initially referenced to copper in concentrate shipped. The Company will receive 300 ounces of gold and 4,700 ounces of silver for each 1,000 tonnes of copper in concentrate shipped, until 630,000 ounces of gold and 10.0 million ounces of silver have been delivered. Thereafter, the Company will receive 30% of the gold and silver shipped. The Company pays an on-going price of 20% of the spot price of gold and silver until 750,000 ounces of refined gold and 12.8 million ounces of refined silver have been delivered. Thereafter, the on-going price will increase to 30% of the spot price of gold and silver.
Financing
On March 22, 2017, the Company extended the maturity term of its existing $1 billion credit facility, from November 12, 2020 to March 22, 2022. Subsequent to year-end, on March 7, 2018, the Company further extended the maturity term of its credit facility from March 22, 2022 to March 22, 2023.
On March 20, 2017, Franco-Nevada's subsidiary, Franco-Nevada (Barbados) Corporation, entered into an unsecured revolving credit facility (the “FNBC Credit Facility”). The FNBC Credit Facility provides for the availability over a one-year period of up to $100.0 million in borrowings. Refer to “Liquidity and Capital Resources” for details. Subsequent to year-end, on February 21, 2018, the FNBC Credit Facility's maturity term was extended by one year from March 20, 2018 to March 20, 2019.
On February 19, 2016, the Company completed a bought-deal financing with a syndicate of underwriters for 19.2 million common shares at $47.85 per common share. The net proceeds to the Company were $883.5 million after deducting share issue costs and expenses of $36.6 million.
The following contains forward-looking statements. Reference should be made to the “Cautionary Statement on Forward-Looking Information” section at the end of this MD&A. For a description of material factors that could cause our actual results to differ materially from the forward-looking statements below, please see the “Cautionary Statement” and the “Risk Factors” section of our most recent Annual Information Form filed with the Canadian securities regulatory authorities on www.sedar.com and our most recent Form 40‑F filed with the Securities and Exchange Commission on www.sec.gov. 2018 guidance is based on assumptions including the forecasted state of operations from our assets based on the public statements and other disclosures by the third-party owners and operators of the underlying properties (subject to our assessment thereof).
For 2018, the Company is pleased to provide the following guidance:
|
|
2018 Guidance |
|
2017 Actual |
|
2016 Actual |
Mineral assets - GEO production (1),(2) |
|
460,000 - 490,000 GEOs |
|
497,745 GEOs |
|
464,383 GEOs |
Oil & Gas assets - Revenue (3) |
|
$50.0 million - $60.0 million |
|
$47.0 million |
|
$30.1 million |
|
1 |
|
Of the 460,000 to 490,000 GEOs, Franco-Nevada expects to receive 305,000 to 335,000 GEOs under its various stream agreements, compared to 350,827 GEOs in 2017. |
|
2 |
|
In forecasting GEOs for 2018, gold, silver, platinum and palladium metals have been converted to GEOs using commodity prices of $1,300/oz Au, $17.00/oz Ag, $950/oz Pt and $1,050/oz Pd. |
|
3 |
|
In forecasting revenue from Oil & Gas assets for 2018, the WTI oil price is assumed to average $55 per barrel with a $4.80 per barrel price differential between the Edmonton Light and realized prices for Canadian oil. |
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11 |
More specifically, we expect the following with respect to our key asset categories for 2018:
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· |
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Precious Metals – Latin America: GEOs from Latin America are expected to decrease, reflecting decreased production from Candelaria as 2018 is a transition year as Lundin Mining implements its revised mine plan. Over the life of mine, Franco-Nevada will receive higher cumulative precious metals ounces, than previously expected based on the November 30, 2017 technical report. Less gold ounces from Guadalupe-Palmarejo are expected as 2017 was a very strong production year. These decreases in GEOs will be partially offset by a production increase from Antapaccay as the mine sequencing moves to a new phase of production with higher grades. Guidance for 2018 assumes no GEOs will be realized from Cobre Panama before year end. |
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· |
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Precious Metals – U.S .: GEOs from U.S. gold assets are expected to be slightly lower in 2018 compared to 2017. Lower production is expected at South Arturo due to the end of mining in Phase 2 and the beginning of stripping in phase 1 and El Nino. Bald Mountain's production is anticipated to be lower in 2018 due to the transitioning of mining from the Top pit to Vantage basin. This will be partly offset by higher production from Goldstrike, as a result of mine sequencing. |
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· |
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Precious Metals – Canada: GEOs earned from Canadian assets in 2018 are expected to increase, reflecting increased production from Detour, Hemlo, Sudbury and Golden Highway. |
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· |
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Precious Metals – Rest of World: GEOs from Rest of World assets are forecasted to increase compared to 2017, reflecting production increases from Tasiast and Subika due to recently completed expansions partially being offset by a production decrease from Mine Waste Solutions (“MWS”) as 2017 was an exceptionally strong year. |
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· |
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Other Minerals: GEOs from other minerals are expected to be slightly lower in 2018. |
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Oil & Gas: Oil & gas revenues are expected to increase in 2018 compared to 2017, as a result of an increase in revenue primarily from Weyburn and Orion Thermal Project. |
We expect to fund between $230 to $250 million of the Cobre Panama precious metals stream deposit in 2018, exclusive of the $356.0 million to be funded pursuant to the closing of the additional stream. In 2017, the Company funded a total of $264.4 million, for a total of $726.6 million of its $1 billion commitment.
In addition, the Company estimates depletion and depreciation expense to be $250.0 million to $280.0 million for 2018.
Franco-Nevada strives to generate greater than 80% of revenue from precious metals over a long-term horizon which includes gold, silver and PGM. In the short-term, we may diverge from the long-term target based on opportunities available. With 90.3% of revenue earned from precious metals in 2017, the Company has the flexibility to consider diversification opportunities outside of the precious metals' space and increase its exposure to other commodities.
The prices of precious metals, gold in particular, are the largest factors in determining profitability and cash-flow from operations for Franco-Nevada. Historically, the price of gold has been subject to volatile price movements and is affected by numerous macroeconomic and industry factors that are beyond the Company's control. Major influences on the gold price include macroeconomic factors such as the level of interest rates, inflation expectations, currency exchange rate fluctuations including the relative strength of the U.S. dollar, and the supply of and demand for gold.
Commodity price volatility also impacts the number of GEOs contributed by non-gold mineral assets when converting silver, platinum, palladium and other minerals to GEOs. Silver, platinum, palladium and other minerals are converted to GEOs by dividing associated revenue, which includes settlement adjustments, by the relevant gold price. The gold price used in the computation of GEOs earned from a particular asset varies depending on the royalty or stream agreement, which may make reference to the market price realized by the operator, or the average for the month, quarter, or year in which the mineral was produced or sold.
The gold price ended the year 2017 at $1,291/oz, approximately 12.7% higher than at the end of 2016. During Q4/2017, gold traded between $1,151/oz and $1,346/oz with an average price of $1,274/oz. This compares to an average gold price of $1,218/oz for Q4/2016, an increase of 4.6%. For the year 2017, average gold prices traded between $1,077/oz and $1,366/oz with an average price of $1,257/oz. This compares to an average gold price of $1,248/oz for the year ended December 31, 2016, an increase of 0.7%.
Silver prices averaged $17.05/oz in 2017 compared to $17.20/oz in 2016, a decrease of less than 1%. Silver prices averaged $16.70/oz in Q4/2017, compared to $17.18/oz in Q4/2016, a decrease of 2.8%.
Platinum and palladium prices averaged $920/oz and $993/oz, respectively in Q4/2017, compared to $944/oz and $684/oz, respectively, for Q4/2016, a decrease of 2.5% and an increase of 45.2% year-over-year, respectively. Platinum prices averaged $948/oz compared to $987/oz in 2016, a decrease 3.9% year-over-year. Palladium prices averaged $870/oz compared to $613/oz in 2016, an increase of 41.9% year-over-year.
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12 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
The Company continued to deliver strong results reflecting the performance of our mineral assets. One of the strengths of the Franco-Nevada business model is that our business is not impacted when producer costs increase as long as the producer continues to operate. Royalty and stream payments/deliveries are based on production levels of the underlying operations with no adjustments for the operator's operating costs, with the exception of NPI and NRI royalties, which are based on the profit of the underlying mining operation. Profit-based royalties accounted for approximately 5.6% of total revenues in Q4/2017, and 5.5% for full year 2017.
Selected Financial Information
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For the year ended |
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(in millions, except Average Gold Price, |
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December 31, |
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GEOs, Margin and per share amounts) |
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2017 |
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2016 |
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2015 |
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Statistical Measures |
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Average Gold Price |
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$ |
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$ |
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$ |
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GEOs sold (1) |
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Statement of Income and Other Comprehensive Income |
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Revenue |
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$ |
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$ |
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$ |
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Depletion and depreciation |
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Cost of sales |
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Operating income |
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Net income |
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Basic earnings per share |
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$ |
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$ |
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$ |
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Diluted earnings per share |
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$ |
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$ |
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$ |
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Dividends declared per share |
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$ |
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$ |
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$ |
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Dividends declared (including DRIP) |
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$ |
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$ |
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$ |
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Weighted average shares outstanding |
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Non-IFRS Measures |
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Adjusted EBITDA (2) |
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$ |
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$ |
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$ |
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|
Adjusted EBITDA (2) per share |
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|
$ |
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|
|
$ |
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|
$ |
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|
Margin (2) |
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|
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Adjusted Net Income (2) |
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|
$ |
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|
$ |
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|
$ |
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|
Adjusted Net Income per share |
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$ |
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$ |
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$ |
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Statement of Cash Flows |
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Net cash provided by operating activities |
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$ |
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$ |
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$ |
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Net cash used in investing activities |
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$ |
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$ |
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$ |
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Net cash (used in) provided by financing activities |
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$ |
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$ |
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$ |
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As at |
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As at |
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As at |
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December 31, |
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December 31, |
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December 31, |
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Statement of Financial Position |
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Cash and cash equivalents |
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$ |
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$ |
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$ |
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Total assets |
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|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders' equity |
|
|
|
|
|
|
|
|
|
|
|
|
Working capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Refer to Note 1 at the bottom of page 8 of this MD&A for the methodology for calculating GEOs, and, f or illustrative purposes, to the average commodity price table on pages 17 and 24 of this MD&A for indicative prices which may be used in the calculations of GEOs. |
|
2 |
|
Adjusted EBITDA, Margin and Adjusted Net Income are non-IFRS financial measures with no standardized meaning under IFRS. For further information and a detailed reconciliation, please see pages 39‑41 of this MD&A. |
|
|
|
13 |
Our portfolio is well-diversified with GEOs and revenue being earned from 48 mineral assets and 63 oil & gas interests in various jurisdictions. The following table details revenue earned from our various royalty, stream and working interests for the three months and year ended December 31, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months |
|
|
For the year ended |
|
||||||||||
(expressed in millions) |
|
|
|
|
ended December 31, |
|
|
December 31, |
|
||||||||||
Property |
|
Interest |
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
||||
PRECIOUS METALS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Candelaria |
|
Stream 68% |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Antapa ccay |
|
Stream (indexed) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antamina |
|
Stream 22.5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guadalupe-Palmarejo (2) |
|
Stream 50% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goldstrike |
|
NSR 2‑4%, NPI 2.4‑6% |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Stillwater |
|
NSR 5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold Quarry |
|
NSR 7.29% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marigold |
|
NSR 1.75‑5%, GR 0.5‑4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fire Creek/Midas |
|
Fixed to 2018 / NSR 2.5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bald Mountain |
|
NSR/GR 0.875‑5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Arturo |
|
GR 4‑9% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sudbury |
|
Stream 50% |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
Detour Lake |
|
NSR 2% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Golden Highway |
|
NSR 2‑15% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hemlo |
|
NSR 3%, NPI 50% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Musselwhite |
|
NPI 5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kirkland Lake (1) |
|
NSR 1.5‑5.5%, NPI 20% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timmins West |
|
NSR 2.25% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian Malartic |
|
GR 1.5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of World |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MWS |
|
Stream 25% |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Sabodala |
|
Stream 6%, Fixed to 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Karma |
|
Stream 4.875%, Fixed to 75koz |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tasiast |
|
NSR 2% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subika |
|
NSR 2% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Duketon |
|
NSR 2% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edikan |
|
NSR 1.5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Other Minerals |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Oil & Gas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weyburn |
|
NRI 11.71%, ORR 0.44%, WI 2.56% |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Orion |
|
GORR 4% |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Anadarko (STACK/SCOOP) |
|
Various Royalty Rates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permian (Midland/Delaware) |
|
Various Royalty Rates |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Revenue |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
1 |
|
In October 2016, the overlying NSR on the Kirkland Lake Gold properties was reduced from 2.5% to 1.5% pursuant to Kirkland Lake's buy-back of 1% of the NSR. |
|
2 |
|
In July 2016, Coeur met its obligation to deliver 400,000 ounces under the Palmarejo agreement. Deliveries under the new Guadalupe-Palmarejo agreement commenced in Q4/2017. |
|
|
|
|
14 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
Franco-Nevada realized record growth from its mineral assets in 2017, both in revenue and GEOs, reflecting the performance of our mineral asset portfolio as well as accretion from recent acquisitions.
Significant Mineral Interests
The most significant mineral assets which contributed to our 2017 performance included the following:
Antapaccay
The Company owns a gold and silver stream with reference to production from the Antapaccay mine, located in Peru. Under the stream agreement, gold and silver deliveries are initially referenced to copper in concentrate shipped. Franco-Nevada will receive 300 ounces of gold and 4,700 ounces of silver for each 1,000 tonnes of copper in concentrate shipped, until 630,000 ounces of gold and 10 million ounces of silver have been delivered. Thereafter, Franco-Nevada will receive 30% of the gold and silver in concentrate shipped. Franco-Nevada will initially pay an on-going price of 20% of the spot price of gold and silver until 750,000 ounces of refined gold and 12.8 million ounces of refined silver have been delivered. Thereafter, the on-going price will increase to 30% of the spot price of gold and silver. As at December 31, 2017, Antapaccay has delivered 119,420 ounces of gold, and 1.9 million ounces of silver since the stream was acquired in February 2016. These deliveries converted to 71,183 (2016 – 73,612) GEOs for 2017.
Candelaria
The Company owns a 68% gold and silver stream on Lundin Mining Corporation's Candelaria mine in Chile. The stream will reduce to 40% after 720,000 ounces of gold and 12 million ounces of silver have been delivered to Franco-Nevada. Franco-Nevada will pay an ongoing price equal to the lesser of $400 per ounce of gold and $4.00 per ounce of silver or the then prevailing spot price for gold and silver for each ounce delivered under the stream. This price will escalate by 1% per annum following the third anniversary of the closing. As at December 31, 2017, Candelaria has delivered 212,043 ounces of gold and 3.7 million ounces of silver since the stream was acquired in November 2014. Deliveries received in 2017 converted to 81,578 (2016 - 73,410) GEOs and 83,610 (2016 - 71,378) GEOs were sold in 2017.
Antamina
The Company owns a silver stream on Teck Resources Limited's 22.5% interest in the Antamina mine located in Peru, subject to a fixed silver payability of 90%. Franco-Nevada pays 5% of the spot silver price for each ounce of silver delivered under the stream. The stream will reduce by one-third after 86 million ounces have been delivered under the stream agreement. As at December 31, 2017, Antamina has delivered 9.1 million ounces of silver since the stream was acquired in October 2015. Deliveries in 2017 converted to 49,656 (2016 – 60,273) GEOs.
|
|
|
15 |
Guadalupe-Palmarejo
Until July 2016, the Company owned a 50% gold stream on the Palmarejo silver and gold project. The Palmarejo stream covered 50% of the gold production from the Palmarejo project, included a monthly minimum of 4,167 ounces and was capped at 400,000 ounces. The Company paid Coeur the lesser of $400 per ounce, subject to an annual 1% inflation adjustment commencing in January 2013, and the prevailing spot price, for each ounce of gold delivered under the stream agreement. In July 2016, the 400,000 minimum ounce obligation was met at which point the Palmarejo stream was terminated and the Guadalupe-Palmarejo stream became effective. Franco-Nevada believes the new agreement improves mine economics for Coeur and extends the mine life of the entire Palmarejo operation. The $22.0 million deposit provided by Franco-Nevada was used to partially fund the development of the Guadalupe underground mine on the Palmarejo property. Ongoing payments will be equal to the lesser of $800 per ounce (no inflation adjustment) and the then prevailing spot price for gold for each ounce delivered under the new stream agreement. In 2017, the Company received 52,124 (2016 - 36,386) GEOs from the Guadalupe-Palmarejo stream. In Q4 2017, 13,741 (2016‑7,058) GEOs were delivered as part of the Guadalupe-Palmarejo agreement .
Mine Waste Solutions
The Company has an agreement to purchase 25% of gold produced from the project at $400 per ounce. In 2017, the Company received 27,094 (2016 – 22,919) ounces of gold and sold 28,397 (2016 – 21,616) under the MWS gold stream. The stream is capped at 312,500 gold ounces.
Sabodala
The Company owns a gold stream with fixed gold deliveries of 1,875 ounces per month until December 31, 2019. Thereafter, deliveries are 6% of gold produced. Franco-Nevada pays 20% of the prevailing market price at the time of delivery for every ounce of gold. In 2017, the Company received 22,500 (2016 – 22,500) GEOs and sold 24,375 (2016 – 20,625) GEOs under the Sabodala stream agreement.
Sudbury Basin
The Company has an agreement to purchase 50% of the gold equivalent ounces of the gold, platinum and palladium contained in ore mined and shipped from the KGHM International Ltd. operations in Sudbury, Ontario. The Company will pay for each gold equivalent ounce delivered, a cash payment of the lesser of $400 per ounce (subject to a 1% annual inflationary adjustment starting in July 2011) or the then prevailing market price per ounce of gold. In 2017, the Company received 23,123 (2016 – 23,539) GEOs from its Sudbury Basin assets.
Significant Mineral Interests – 2016
The most significant mineral assets which contributed to our 2016 performance were our Antapaccay stream (73,612 GEOs), Candelaria stream (71,378 GEOs), Antamina stream (60,273 GEOs), Guadalupe-Palmarejo stream (36,386 GEOs), and Sudbury Basin stream (23,539 GEOs).
Significant Oil & Gas Interests
The most significant Oil & Gas asset which contributed to our 2017 performance was the following:
Weyburn
The Weyburn Unit is located in Saskatchewan, Canada and is now operated by Whitecap Resources Inc. (previously operated by Cenovus Energy Inc.) The Company holds an 11.71% NRI, a 0.44% royalty interest and a 2.56% working interest in the Weyburn Unit. The Company takes product-in-kind for the working interest and NRI portions of this production and markets it through a third-party. An NRI is a royalty interest that is paid net of operating and capital costs. In 2017, the Company recognized $32.2 million in revenue from its Weyburn interest.
Significant Oil & Gas Interests – 2016
In 2016, the Weyburn interest was also our most significant Oil & Gas asset, contributing $23.6 million in revenue.
Significant Projects Under Development
The Company's most significant mineral asset under development is the Cobre Panama gold and silver stream. Under its agreement with First Quantum, which owns 90% of the project, Franco-Nevada will provide a maximum of $1 billion in deposit pro-rata on a 1:3 ratio of First Quantum's share of the capital costs. According to First Quantum, the project was 70% complete with an initial 15% expansion to the throughput capacity approved as of year-end. Total estimated capital costs were revised to $6.3 billion. Cobre Panama is scheduled for a phased commissioning in late 2018 and continued ramp-up in 2019. At December 31, 2017, the Company has funded a total of $726.6 million of its $1 billion commitment.
|
|
|
|
16 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
Overview of Financial Performance – Q4/2017 to Q4/2016
The prices of precious metals, oil and gas and the actual production from mineral and oil & gas assets are the largest factors in determining profitability and cash flow from operations for Franco-Nevada. The following table summarizes average commodity prices and average exchange rate during the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QOQ |
|
YOY |
|||
Quarterly average prices and rates |
|
|
|
|
Q4/2017 |
|
|
Q3/2017 |
|
Q4/2016 |
|
(Q4/17‑Q3/17) |
|
(Q4/17‑Q4/16) |
|||
Gold (1) |
|
($/oz) |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
Silver (2) |
|
($/oz) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Platinum (3) |
|
($/oz) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Palladium (3) |
|
($/oz) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edmonton Light |
|
(C$/bbl) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quality Differential |
|
(C$/bbl) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized oil price |
|
(C$/bbl) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAD/USD exchan ge rate (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Based on LBMA Gold Price PM Fix. |
|
2 |
|
Based on LBMA Silver Price. |
|
3 |
|
Based on London PM Fix. |
|
4 |
|
Based on Bank of Canada daily exchange rates (2016 – Bank of Canada noon rates). |
Revenue and Gold Equivalent Ounces
Revenue for Q4/2017 was $167.2 million compared with $155.3 million for Q4/2016, an increase of 7.7%. The increase year-over-year is due to higher average gold and palladium prices offset by a 1.7% decrease in GEOs sold and a decline in the average silver and platinum prices in Q4/2017. A total of 119,839 GEOs were sold in Q4/2017 compared to 121,910 GEOs sold in Q4/2016. Of this $167.2 million in revenue, precious metals revenue comprised 89.2%, compared to 91.9% in Q4/2016, while revenue from the Americas was 82.1%, compared to 87.2% in Q4/2016.
|
|
|
17 |
The following table outlines GEOs and revenue attributable to Franco-Nevada for the three months ended December 31, 2017 and 2016 by commodity, geographical location and type of interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold Equivalent Ounces (1) |
|
|
Revenue (in millions) |
|
|||||||||||||
For the three months ended December 31, |
|
|
2017 |
|
|
2016 |
|
Variance |
|
|
2017 |
|
|
2016 |
|
Variance |
|
|||
Commodity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Precious Metals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Silver |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PGM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Precious Metals - Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Minerals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil & Gas |
|
|
— |
|
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Geography |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Canada |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of World |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Type |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue-based |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Streams |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit-based |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
|
1 |
|
Refer to Note 1 at the bottom of page 8 of this MD&A for the methodology for calculating GEOs, and, f or illustrative purposes, to the average commodity price table on page 17 of this MD&A for indicative prices which may be used in the calculations of GEOs. |
GEOs and revenue were earned from the following geographical locations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold Equivalent Ounces (1) |
|
|
Revenue (in millions) |
|
|||||||||||||
For the three months ended December 31, |
|
|
2017 |
|
|
2016 |
|
Variance |
|
|
2017 |
|
|
2016 |
|
Variance |
|
|||
Geography for Precious Metals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Precious Metals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Canada |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of World |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Precious Metals - Total |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Other Minerals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil & Gas |
|
|
— |
|
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
|
1 |
|
Refer to Note 1 at the bottom of page 8 of this MD&A for the methodology for calculating GEOs, and, f or illustrative purposes, to the average commodity price table on page 17 of this MD&A for indicative prices which may be used in the calculations of GEOs. |
|
|
|
|
18 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
Revenue from precious metals assets was $149.2 million in Q4/2017 compared to $142.7 million in Q4/2016. Revenue reflects 116,774 GEOs from precious metals assets, a decrease of 2.7% from 120,036 GEOs in Q4/2016. The largest component of this decrease in GEOs was contributed by our Canadian assets which realized a decrease of 31.6% in GEOs, and 23% in revenue compared to the prior year.
GEOs and revenue increases for the quarter are attributable to the following:
|
· |
|
The Company received 95% more GEOs under its Guadalupe-Palmarejo stream. GEO deliveries for Q4/2017 were 13,741 compared to 7,058 GEOs in Q4/2016. |
|
· |
|
GEOs sold under the Company's MWS stream were 58% higher at 7,167 GEOs for Q4/2017 compared to 4,528 GEOs in Q4/2016. |
|
· |
|
The Company received 12,870 GEOs under its Antamina stream, an increase of 21% from Q4/2016. |
The above increases in GEOs were offset by decreases in GEO deliveries compared to Q4/2016 from the following assets:
|
· |
|
The Company received 14,185 GEOs under its Candelaria stream compared to 19,698 GEOs in Q4/2016, a decrease of 28%. |
|
· |
|
Fewer GEOs received under the Hemlo NSR and NPI at 683 GEOs in Q4/2017 compared to 5,649 GEOs in Q4/2016, a decrease of 88%. |
|
· |
|
Fewer GEOs received under the South Arturo GR at 684 GEOs in Q4/2017 compared to 8,808 GEOs in Q4/2016, a decrease of 92%. |
|
· |
|
Antapaccay GEOs delivered were 19,430 in Q4/2017 compared to 22,927 GEOs in Q4/2016, a decrease of 15%. |
During Q4/2017, 1,476,179 ounces of silver (2016 – 1,310,124 ounces of silver) were delivered from our Candelaria, Antapaccay, Antamina and Cerro San Pedro interests which were converted to 18,843 GEOs (2016 – 18,650 GEOs).
During Q4/2017, Other Minerals generated 3,065 GEOs (2016 – 1,874 GEOs) and $4.0 million (2016 - $2.2 million) in revenue.
At December 31, 2017, there remained $7.1 million in inventory for 8,000 gold ounces which were delivered under our Klondex agreement that had not been sold at year-end.
Oil & Gas assets generated revenue of $14.0 million for the quarter (95% oil and 5% gas), compared to $10.4 million for the same period of 2016 (96% oil and 4% gas), an increase of 34.6%. Revenue for the quarter benefited from 13.3% higher production and higher oil prices compared to Q4/2016. Higher production for the quarter reflects the impact of certain newly acquired oil and gas assets including Orion and the second package of mineral rights and royalty rights in STACK.
Revenue from the Weyburn Unit for the quarter increased to $8.8 million (2016 - $7.9 million) with $5.6 million earned from the NRI (2016 - $5.1 million), $2.8 million earned from the WI (2016 - $2.4 million) and $0.4 million earned from the overriding royalties (2016 - $0.4 million). Revenue from the Weyburn NRI was higher due to lower capital costs. Capital expenses were 3% lower in Q4/2017 but partially offset by 4% higher operating costs compared to Q4/2016. The actual realized price from the NRI was 14.5% higher in Q4/2017, at C$63.65/boe compared to C$55.57/boe for Q4/2016.
Oil & Gas revenue also included $1.4 million from STACK, $1.2 million from Orion and $0.8 million from Midland.
|
|
|
19 |
Operating Costs and Expenses
The following table provides a list of operating costs and expenses incurred in the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended December 31, |
|
||||||||
(expressed in millions) |
|
|
|
|
|
|
|
Variance |
|
|||
Costs of sales |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Depletion and depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate administration |
|
|
|
|
|
|
|
|
|
|
|
|
Business development |
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charges |
|
|
|
— |
|
|
|
|
|
|
|
|
Gain on sale of royalty interest |
|
|
|
— |
|
|
|
|
|
|
|
|
(Gain) loss on sale of gold bullion |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Costs of Sales
The following table provides a breakdown of cost of sales incurred in the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended December 31, |
|
||||||||
(expressed in millions) |
|
|
|
|
|
|
|
Variance |
|
|||
Cost of stream sales |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Cost of prepaid ounces |
|
|
|
|
|
|
|
|
|
|
|
|
Mineral production taxes |
|
|
|
|
|
|
|
|
|
|
|
|
Oil & Gas operating costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
The increase of $9.5 million is primarily attributable to more stream ounces delivered pursuant to the various stream agreements and sold in Q4/2017 when compared to Q4/2016. The ongoing stream cost per ounce is either a fixed amount per ounce delivered (adjusted for inflation each year) or an amount based as a percentage of spot price of gold or silver. During Q4/2017, 83,390 GEOs were delivered pursuant to stream agreements and sold compared to 77,197 GEOs sold in Q4/2016.
The increase in the cost of prepaid ounces recognized in Q4/2017 compared to Q4/2016 is due to more ounces sold. A total of 3,333 GEOs were sold compared to 1,334 GEOs in prior year. Included in inventory as at December 31, 2017 is the cost of the 8,000 prepaid ounces that remain unsold of $7.1 million (2016 – 667 unsold prepaid gold ounces and 6,459 unsold stream GEOs; $2.7 million). The mineral production taxes in Q4/2016 reflects a refund of withholding taxes from an operator as a result of changes in the Nevada net proceeds tax legislature.
|
|
|
|
20 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
Depletion and Depreciation
Depletion and depreciation totaled $63.8 million for the quarter compared to $67.2 million in Q4/2016. The majority of the decrease of $3.4 million is due to lower depletion expense of $4.2 million associated with Antapaccay, $2.0 million in relation to Candelaria and $6.7 million in relation to South Arturo. These decreases were partially offset by higher depletion on MWS, Karma and Antamina reflecting higher production in Q4/2017 compared to Q4/2016.
Corporate Administration
The following table provides a breakdown of corporate administration expenses incurred for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended December 31, |
|
||||||||
(expressed in millions) |
|
|
|
|
|
|
|
Variance |
|
|||
Salaries and benefits |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Professional fees |
|
|
|
|
|
|
|
|
|
|
|
|
Office costs |
|
|
|
|
|
|
|
|
|
|
— |
|
Board of Directors' cost |
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Corporate administration expenses, representing 3.5% of revenue for Q4/2017, were $5.9 million in the quarter, consistent with $5.8 million in the same period in 2016. A decrease in salaries and benefits and share-based compensation was offset by an increase in costs related to the Company's Board of Directors, which includes the mark-to-market of the value of deferred share units that are granted to directors of the Company. As the Company's share price increased from September 30, 2017 to December 31, 2017, the Company recognized an increase in the value of the deferred share unit liability.
Business Development Expenses
Business development expenses totaled $1.1 million in Q4/2017 compared to $2.3 million in Q4/2016. Timing and amount of these costs typically vary depending upon the level of business development related activity, and the timing of completing transactions. Business development expenses related to completed transactions are capitalized to the relevant mineral interest asset following the closing of transactions.
|
|
|
21 |
Impairment Charges
Impairments of royalty, stream and working interests were $Nil for Q4/2017, compared to $67.5 million in Q4/2016.
Impairment charges in Q4/2016 related to the Cooke 4 underground mine, on which the Company holds a 7% gold stream. The impairment was a result of the announcement in October 2016 from Sibanye that it had ceased operations at Cooke 4 due to continued operational losses. The Company conducted an impairment analysis and estimated the net present value of the estimated future cash-flows expected to be generated by the mining of the Cooke 4 tailings. Key assumptions used in the impairment testing included timing of the expected future cash flows, long-term forecasted gold prices, which the Company estimated at $1,321/oz, and the discount rate of 8%. As a result of this analysis, the Company estimated the recoverable amount of its Cooke 4 asset to be $2.1 million.
Gain on Disposal of Royalty Interest
In October 2016, Kirkland Lake exercised its option to buy back 1% of an overlying 2.5% NSR for aggregate cash consideration of $30.3 million ($36.0 million less royalty proceeds previously received attributable to the buy-back portion of the NSR). The Company recognized a gain on disposal of $14.1 million in the consolidated statement of income and comprehensive income (loss) for the year ended December 31, 2016.
Gain or Loss on Sale of Gold Bullion
The Company recognized a gain on the sale of gold bullion of $Nil in Q4/2017, compared to a loss of $0.5 million in Q4/2016. Gold bullion is physical ounces of gold which Company receives as settlement from certain of the Company's royalty interests, and is presented as other current assets on the statement of financial position.
Foreign Exchange and Other Income/Expenses
The following table provides a list of foreign exchange and other income/expenses incurred for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended December 31, |
|
||||||||
(expressed in millions) |
|
|
|
|
|
|
|
Variance |
|
|||
Foreign exchange gain (loss) |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Other income |
|
|
|
|
|
|
|
|
|
|
|
|
Mark-to-market (loss) gain on warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Foreign exchange losses and other income/expenses were comprised of a foreign exchange gain of $0.5 million, compared to a loss of $0.3 million in Q4/2016, reflecting a weakening of the U.S. dollar relative to the Canadian dollar. Under IFRS, all foreign exchange gains or losses related to monetary assets and liabilities held in a currency other than the functional currency are recorded in net income as opposed to other comprehensive income. The parent company's functional currency is the Canadian dollar, while the functional currency of certain of the Company's subsidiaries is the U.S. dollar.
Other items included a mark-to-market loss of $0.2 million (2016 – gain of $0.5 million) on warrants of various publicly-listed companies.
Gain on Investments
Gain on investments in Q4/2017 was $2.0 million on the share exchange of one of the Company's available-for-sale securities. In Q4/2016, the Company recorded a gain on the sale of available-for-sale securities of $1.2 million and a $6.7 million gain realized on the share exchange of certain of the Company's available-for-sale securities in Q4/2016. Under IFRS, share exchanges are considered a disposal at fair market value. Any unrealized gain or loss is deducted from comprehensive income (loss) and recognized in the statement of income (loss).
|
|
|
|
22 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
Finance Income and Finance Expenses
The following table provides a breakdown of finance income and expenses incurred for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended December 31, |
|
||||||||
(expressed in millions) |
|
|
|
|
|
|
|
Variance |
|
|||
Finance Income |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Finance Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Standby Charges |
|
|
$ |
|
|
|
$ |
|
|
$ |
— |
|
Interest |
|
|
|
— |
|
|
|
— |
|
|
— |
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Finance income was $1.8 million (2016 - $0.9 million) for the quarter while finance expenses were $1.0 million (2016 - $0.8 million). Finance income is earned on our cash equivalents and/or short-term investments. Finance income also includes interest income in the amount of $0.5 million accrued on the Noront Resources Ltd. (“Noront”) loan during Q4/2017. Finance expenses consist of the costs of standby charges, which represent the costs of maintaining our credit facility and amortization of the costs incurred with respect to the initial set-up or subsequent amendments of the facility. In Q4/2017, the Company incurred no interest expense as it had not drawn on its credit facility.
Income Taxes
Franco-Nevada had an income tax expense of $16.9 million (2016 – $13.4 million) for the quarter comprised of a current income tax expense of $5.3 million (2016 - $11.2 million) and a deferred income tax expense of $11.6 million (2016 - $2.2 million). The increase in income tax expense year-over-year was due mainly to a one-time adjustment as a result of the United States enacting Tax Reform legislation on December 22, 2017. The significant changes in the legislation include a reduction in the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018, which resulted in a deferred tax expense of $7.1 million on the re-measurement of the Company's deferred tax assets in the U.S. This was offset by tax benefits realized from deductible permanent differences.
Net Income
Net income for Q4/2017 was $43.5 million, or $0.23 per share, compared to a net loss of $4.5 million, or $0.03 per share, for the same period in 2016. Adjusted Net Income was $52.1 million, or $0.28 per share, compared to $42.9 million, or $0.24 per share, earned in Q4/2016. In Q4/2016, an impairment charge was recorded in the amount $67.5 million resulting in a net loss for the quarter. The net loss in Q4/2016 was partly reduced by the gain of $14.1 million realized on the Kirkland Lake buy-back. The increase in net income was driven primarily by higher revenue due to asset acquisitions completed in 2017, higher gold and palladium prices and higher Oil & Gas revenues.
|
|
|
23 |
Overview of Financial Performance – 2017 to 2016
The prices of precious metals, oil and gas and the actual production from mineral and oil & gas assets are the largest factors in determining profitability and cash flow from operations for Franco-Nevada. The following table summarizes average commodity prices and average exchange rates during the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual average prices and rates |
|
|
|
|
|
|
|
|
|
Variance % |
|
||
Gold (1) |
|
($/oz) |
|
|
$ |
|
|
|
$ |
|
|
|
|
Silver (2) |
|
($/oz) |
|
|
|
|
|
|
|
|
|
|
|
Platinum (3) |
|
($/oz) |
|
|
|
|
|
|
|
|
|
|
|
Palladium (3) |
|
($/oz) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edmonton Light |
|
C$/bbl |
|
|
|
|
|
|
|
|
|
|
|
Quality Differential |
|
C$/bbl |
|
|
|
|
|
|
|
|
|
|
|
Realized oil price |
|
C$/bbl |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAD/USD exchange rate (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Based on LBMA Gold Price PM Fix. |
|
2 |
|
Based on LBMA Silver Price. |
|
3 |
|
Based on London PM Fix. |
|
4 |
|
Based on Bank of Canada daily exchange rates (2016 – Bank of Canada noon rates). |
Gold Equivalent Ounces and Revenue
In 2017, Franco-Nevada generated revenue of $675.0 million compared with $610.2 million in 2016, an increase of 10.6%. The increase year-over-year is due to 497,745 GEOs sold, an increase of 7.2% over the 464,383 GEOs in 2016, coupled with stronger gold and palladium prices. For the year ended December 31, 2017, precious metals revenue accounted for 90.3% of total revenue compared to 93.7% in 2016, while revenue generated from the Americas represented 81.7% of revenue compared to 84.1% in 2016.
|
|
|
|
24 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
The following table outlines GEOs and revenue attributable to Franco-Nevada for the year ended December 31, 2017 and 2016 by commodity, geographical location and type of interest:
|
|
|
Gold Equivalent Ounces(1) |
|
|
Revenue (in millions) |
|
|||||||||||||
For the year ended December 31, |
|
|
|
|
|
|
|
Variance |
|
|
|
|
|
|
|
Variance |
|
|||
Commodity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Precious Metals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Silver |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PGM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Precious Metals - Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Minerals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil & Gas |
|
|
— |
|
|
— |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Geography |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Canada |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rest of World |
|
|
|
|
|
|
|
|
|
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|
$ |
|
|
|
$ |
|
|
$ |
|
|
Type |
|
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|
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|
|
|
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|
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|
|
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|
Revenue-based |
|
|
|
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|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Streams |
|
|
|
|
|
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|
|
|
|
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|
|
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|
Profit-based |
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|
Other |
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|
$ |
|
|
|
$ |
|
|
$ |
|
|
|
1 |
|
Refer to Note 1 at the bottom of page 8 of this MD&A for the methodology for calculating GEOs, and, f or illustrative purposes, to the average commodity price table on page 24 of this MD&A for indicative prices which may be used in the calculations of GEOs. |
GEOs and revenue were earned from the following geographical locations:
|
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|
|
Gold Equivalent Ounces(1) |
|
|
Revenue (in millions) |
|
|||||||||||||
For the year ended December 31, |
|
|
|
|
|
|
|
Variance |
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|
|
|
|
Variance |
|
|||
Geography for Precious Metals |
|
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|
Precious Metals |
|
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|
|
|
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|
|
|
|
|
|
|
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|
Latin America |
|
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|
|
|
|
|
|
|
|
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|
|
|
|
United States |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Canada |
|
|
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|
|
|
|
|
|
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|
|
|
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|
Rest of World |
|
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|
|
|
Precious Metals - Total |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Other Minerals |
|
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|
|
|
|
|
|
|
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|
|
Oil & Gas |
|
|
— |
|
|
— |
|
— |
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
|
1 |
|
Refer to Note 1 at the bottom of page 8 of this MD&A for the methodology for calculating GEOs, and, f or illustrative purposes, to the average commodity price table on page 24 of this MD&A for indicative prices which may be used in the calculations of GEOs. |
|
|
|
25 |
Revenue from precious metals assets was $609.8 million in 2017 compared with $571.5 million in 2016. GEOs sold which were earned from precious metals assets increased by 5.7% to 483,386 GEOs in 2017 from 457,474 GEOs in 2016. The largest increase came from our Latin American assets.
GEOs and revenue increases for 2017 are attributable to the following:
|
· |
|
Deliveries from the Palmarejo agreement ended in July 2016 when Coeur reached the minimum obligation of 400,000 ounces. Deliveries from the Palmarejo operations under the new Guadalupe-Palmarejo agreement started in October 2016. In 2017, a total of 52,124 GEOs were delivered compared to a combined 36,386 GEOs in 2016, an increase of 43%. |
|
· |
|
GEOs sold from Candelaria were 83,610 in 2017, an increase of 17% compared to 2016. |
|
· |
|
Karma, a stream asset which started deliveries of 1,250 fixed gold ounces per month in March 2016, delivered 17,109 GEOs and sold 18,359 GEOs in 2017. |
|
· |
|
GEOs sold from MWS were 28,397 GEOs in 2017, an increase of 31% compared to 2016. |
The above increases were partly offset by the following:
|
· |
|
The Company received 49,656 GEO deliveries from Antamina in 2017 compared to 60,273 GEOs in 2016, a decrease of 18%. |
|
· |
|
Hemlo delivered 3,549 GEOs in 2017, down from 9,972 GEOs delivered in 2016. |
|
· |
|
The Company received 13,349 GEOs from Goldstrike in 2017 compared to 18,081 GEOs in 2016, a decrease of 26%. |
Other minerals generated 14,359 GEOs and $18.2 million in revenue.
At December 31, 2017, there remains $7.1 million in inventory for 8,000 gold ounces which were delivered under our Klondex agreement that had not been sold at year-end.
Oil & Gas assets generated revenue of $47.0 million in 2017 (95% oil and 5% gas), compared to $30.1 million for 2016 (97% oil and 3% gas), an increase of 56.1%. The increase is due to a higher oil price and 12.1% higher production including the impact of newly acquired oil and gas assets during the year.
Revenue from the Weyburn Unit for the period increased to $32.2 million (2016 - $ 23.6 million) with $20.5 million earned from the NRI (2016 - $14.5 million), $9.9 million earned from the WI (2016 - $7.8 million) and $1.8 million earned from the overriding royalties (2016 - $1.3 million). Revenue from the Weyburn NRI was higher due to lower capital costs. Capital costs decreased by 9% and were partially offset by a 27% increase in operating costs compared to 2016. Actual realized price from the NRI was C$57.85/boe for the period, up 23% from the realized price of C$46.91/boe for 2016.
|
|
|
|
26 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
Operating Costs and Expenses
The following table provides a list of operating costs and expenses incurred for the year ended December 31, 2017 and 2016.
|
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|
|
For the year ended December 31, |
|
||||||||
(expressed in millions) |
|
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|
|
|
|
|
Variance |
|
|||
Costs of sales |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Depletion and depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate administration |
|
|
|
|
|
|
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|
|
|
|
Business development |
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charges |
|
|
|
— |
|
|
|
|
|
|
|
|
Gain on sale of royalty interest |
|
|
|
— |
|
|
|
|
|
|
|
|
(Gain) loss on sale of gold bullion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Costs of Sales
The following table provides a breakdown of cost of sales incurred for 2017 and 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
||||||||
(expressed in millions) |
|
|
|
|
|
|
|
Variance |
|
|||
Cost of stream sales |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Cost of prepaid ounces |
|
|
|
|
|
|
|
|
|
|
|
|
Mineral production taxes |
|
|
|
|
|
|
|
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|
|
|
Oil & Gas operating costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
The increase of $36.2 million reflects the increase in the number of stream ounces sold in 2017 compared to 2016. In 2017, 350,827 GEOs were sold including 6,459 GEOs delivered under stream agreements and inventory held at the end of last year, compared to 321,093 GEOs in 2016. The year-over-year increase primarily reflects increased deliveries from Guadalupe-Palmarejo.
|
|
|
27 |
Depletion and Depreciation
Depletion and depreciation totaled $273.0 million for 2017 consistent with $273.8 million in 2016.
Corporate Administration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
||||||||
(expressed in millions) |
|
|
|
|
|
|
|
Variance |
|
|||
Salaries and benefits |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Professional fees |
|
|
|
|
|
|
|
|
|
|
|
|
Office costs |
|
|
|
|
|
|
|
|
|
|
— |
|
Board of Directors' costs |
|
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|
|
|
|
|
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|
|
|
|
Share-based compensation |
|
|
|
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|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Corporate administration expenses increased to $21.3 million in 2017, from $20.7 million in 2016. Lower salaries and benefits in 2017 were offset by an increase in costs related to the Company's Board of Directors. Board of Directors' cost include the mark-to-market of the value of deferred share units that are granted to directors of the Company. As the Company's share price increased from December 31, 2016 to December 31, 2017, the Company recognized a higher deferred share unit liability.
Business Development Expenses
Business development expenses for 2017 were $3.6 million, compared to $3.4 million in the same period in 2016. Timing and amount of these costs typically vary based on the business development related activities and the timing of completing transactions.
Impairment Charges
Impairments of royalty, stream and working interests were $Nil for 2017, compared to $67.5 million in 2016. Impairment charges in 2016 related to the Cooke 4 underground mine.
Gain on Disposal of Royalty Interest
In October 2016, Kirkland Lake exercised its option to buy back 1% of an overlying 2.5% NSR for aggregate cash consideration of $30.3 million. The Company recognized a gain on disposal of $14.1 million in the consolidated statement of income and comprehensive income (loss) for the year ended December 31, 2016.
Gain or Loss on Sale of Gold Bullion
The Company recognized a gain on the sale of gold bullion of $0.3 million in 2017, compared to a gain of $2.3 million in 2016. Gold bullion is physical ounces of gold received as settlement from certain of the Company's royalty interests.
|
|
|
|
28 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
Foreign Exchange and Other Income/Expenses
The following table provides a breakdown of items included in foreign exchange income/losses and other expenses for the year ended December 31, 2017 and 2016.
|
|
|
For the year ended December 31, |
|
||||||||
(expressed in millions) |
|
|
|
|
|
|
|
Variance |
|
|||
Foreign exchange gain (loss) |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Other income |
|
|
|
|
|
|
|
|
|
|
|
|
Mark-to-market (loss) gain on warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Foreign exchange gains and losses include foreign exchange movements related to cash and cash equivalents and investments in debt securities, such as treasury bills and intercompany loans, held in a denomination that differs from the functional currency of the entity in which those balances are held. The parent company's functional currency is the Canadian dollar, while the functional currency of certain of the Company's subsidiaries is the U.S. dollar. Under IFRS, all foreign exchange changes related to monetary assets denominated in a currency other than the functional currency are recorded in net income as opposed to other comprehensive income.
Gain on Investments
Gain on investments in 2017 was $2.0 million on the share of one of the Company's available for sale securities compared to $12.4 million in 2016. Gain on investments in 2016 includes a gain on sale of available-for-sale securities of $5.7 million and a $6.7 million gain realized on the share exchange of certain of the Company's available-for-sale securities. Under IFRS, share exchanges are considered a disposal at fair market value. Any unrealized gain or loss is deducted from comprehensive income (loss) and recognized in the statement of income (loss).
Finance Income and Finance Expenses
The following table provides a breakdown of finance income and expenses recognized in 2017 and 2016:
|
|
|
For the year ended December 31, |
|
||||||||
(expressed in millions) |
|
|
|
|
|
|
|
Variance |
|
|||
Finance Income |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Finance Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Standby Charges |
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Interest |
|
|
|
— |
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
Finance income includes interest earned on our cash equivalents and/or short-term investments, as well as interest accrued on the Noront loan receivable. Interest on the Noront loan for 2017 was $2.0 million (2016 - $1.7 million). Finance income increased reflecting higher cash balances.
Total finance expenses in 2017 were consistent with 2016. However, amortization of deferred financing fees increased in 2017, as a result of additional financing costs incurred when the Company amended the Credit Facility by extending the term from November 12, 2020 to March 22, 2022. Additionally, the Company's subsidiary, Franco-Nevada (Barbados) Corporation, entered into an unsecured revolving term credit facility during the year.
Income Taxes
Franco-Nevada had an income tax expense of $41.3 million (2016 – $45.7 million) for the year ended December 31, 2017 comprised of a current income tax expense of $19.5 million (2016 - $40.9 million) and a deferred income tax expense of $21.8 million (2016 - $4.8 million). The decrease in income tax expense year-over-year was due to tax benefits realized from deductible permanent differences and the utilization of tax attributes for which no deferred tax asset was previously recognized. This was offset by a one-time adjustment as a result of the United States enacting Tax Reform legislation on December 22, 2017. The significant changes in the legislation include a reduction in the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018, which resulted in a deferred tax expense of $7.1 million on the re-measurement of the Company's deferred tax assets in the U.S.
|
|
|
29 |
Net Income
Net income in 2017 was $194.7 million, or $1.06 per share, compared to $122.2 million, or $0.70 per share, in 2016. Adjusted Net Income was $198.3 million, or $1.08 per share, compared to $164.4 million, or $0.94 per share, for 2016. The increase in net income and Adjusted Net Income was driven primarily by higher gross profit due to asset acquisitions, higher gold and palladium prices and higher Oil & Gas revenues. Net income for 2016 was also impacted by an impairment charge of $67.5 million recognized during the year in respect to the Company's Cooke 4 asset.
Summary of Quarterly Information
Selected quarterly financial and statistical information for the previous eight quarters (1) is set out below:
(in millions, except Margin, GEOs, |
|
|
Q4 |
|
|
Q3 |
|
|
Q2 |
|
|
Q1 |
|
|
Q4 |
|
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|
Q3 |
|
|
|
Q2 |
|
|
|
Q1 |
|
|||||
per share amounts and average gold price) |
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Revenue |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Costs and expenses (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
Other income (expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (recovery) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Diluted earnings (loss) per share |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net cash provided by operating activities |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Net cash used in investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Gold Price (3) |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
GEOs sold (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (5) |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Adjusted EBITDA (5) per share |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Margin (5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Net Income (5) |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Adjusted Net Income (5) per share |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
1 |
|
Sum of the quarters may not add up to yearly total due to rounding. |
|
2 |
|
Includes impairment charges on royalty, stream and working interests. |
|
3 |
|
Based on LBMA Gold Price PM Fix. |
|
4 |
|
GEOs include our gold, silver, platinum, palladium and other mineral assets, and do not include Oil & Gas assets. GEOs are estimated on a gross basis for NSR royalties and, in the case of stream ounces, before the payment of the per ounce contractual price paid by the Company. For NPI royalties, GEOs are calculated taking into account the NPI economics. Silver, platinum, palladium and other minerals are converted to GEOs by dividing associated revenue, which includes settlement adjustments, by the relevant gold price. The gold price used in the computation of GEOs earned from a particular asset varies depending on the royalty or stream agreement, which may make reference to the market price realized by the operator, or the average for the month, quarter, or year in which the mineral was produced or sold. For illustrative purposes, please refer to average commodity price tables on pages 17 and 24 of this MD&A for indicative prices which may be used in the calculation of GEOs. |
|
5 |
|
Adjusted EBITDA, Margin and Adjusted Net Income are non-IFRS measures with no standardized meaning under IFRS. For further information and a detailed reconciliation, please refer to pages 39‑41 of this MD&A. |
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30 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
Summary Balance Sheet and Key Financial Metrics
Summary Balance Sheet and Key Financial Metrics |
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(expressed in millions, except debt to equity ratio) |
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At
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At
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Cash and cash equivalents |
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$ |
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$ |
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Current assets |
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Non-current assets |
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Total assets |
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$ |
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$ |
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Current liabilities |
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Non-current liabilities |
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Total liabilities |
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$ |
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$ |
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Total shareholders' equity |
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$ |
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$ |
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Debt |
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$ |
— |
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$ |
— |
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Total common shares outstanding |
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Key Financial Ratios |
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Working Capital |
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$ |
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$ |
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Debt to equity |
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— |
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— |
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Assets
Total assets were $4,788.4 million as at December 31, 2017 compared to $4,221.6 million at December 31, 2016. Our asset base is primarily comprised of non-current assets such as our royalty, stream and working interests, and current assets of cash and cash equivalents. This reflects our business strategy of growing a diversified portfolio and ensuring cash is available for future acquisitions and dividends. The increase of $566.8 million in total assets as at December 31, 2017 compared to December 31, 2016 reflects the acquisitions completed in 2017 including the funding of the Cobre Panama precious metals stream deposit and certain Oil & Gas interests. Oil & Gas interests acquired during 2017 included the STACK, Orion Thermal Project and Midland acquisitions. Additionally, total assets as at December 31, 2017 reflect $356.4 million brought into the treasury of the Company upon the exercise of share purchase warrants on June 30, 2017.
Liabilities
Total liabilities as at December 31, 2017 were $82.9 million including current and deferred income tax liabilities, an increase of $7.8 million compared to December 31, 2016, reflecting an increase in deferred income tax liabilities.
Shareholders' Equity
Shareholders' equity increased by $559.0 million as at December 31, 2017 compared to December 31, 2016 reflecting proceeds from the exercise of share purchase warrants of $356.4 million and net income of $194.7 million for the year ended December 31, 2017. The increase in shareholders' equity was partly offset by declared dividends of $167.9 million, of which $42.1 million were settled through the issuance of common shares pursuant to the Company's DRIP. In February 2016, an equity offering was completed for gross proceeds of $920.1 million.
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31 |
Liquidity and Capital Resources
Cash flow generated for the year ended December 31, 2017 and 2016 was as follows:
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For the three months ended |
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For the year ended |
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December 31, |
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December 31, |
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(expressed in millions) |
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Cash provided by operating activities |
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$ |
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$ |
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$ |
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$ |
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Cash used in investing activities |
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Cash provided by (used in) financing activities |
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Effect of exchange rate changes on cash and cash equivalents |
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Change in cash and cash equivalents |
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$ |
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$ |
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$ |
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$ |
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Operating Cash Flow
Cash generated by operating activities was $126.3 million and $121.9 million for Q4/2017 and Q4/2016, respectively. Cash generated by operating activities was $488.6 million and $471.0 million for the year ended December 31, 2017 and 2016, respectively. The increases are primarily attributable to higher revenues.
Investing Activities
Cash used in investing activities was $116.2 million for Q4/2017 compared to $113.3 million in Q4/2016. Investing activities in Q4/2017 include funding of the Cobre Panama stream of $89.4 million (2016 - $46.6 million). At December 31, 2017, the Company has funded $264.4 million in 2017 (2016 – $124.3 million), for a total of $726.6 million of its total $1 billion commitment to the construction of Cobre Panama.
Cash used in investing activities was $500.9 million for the year ended December 31, 2017 compared to $689.8 million in 2016. In addition to the above noted capital expenditures, 2017 capital expenditures also included the STACK, Orion Thermal Project and Midland acquisitions.
Financing Activities
Net cash used in financing activities was $32.0 million for Q4/2017 reflecting payments of cash dividends in Q4/2017. This compares to net cash used in financing activities of $30.5 million for Q4/2016
Net cash provided by financing activities was $239.7 million for 2017 compared to $321.7 million for 2016. Net cash provided by financing activities for 2017 includes proceeds of $356.4 million from the exercise of share purchase warrants which had an exercise price of C$75.00 per warrant and expired in June 2017. Net cash provided by financing activities in 2016 includes funds raised from the equity issuance of 19.2 million common shares resulting in $883.5 million net proceeds to the Company. The inflow from the equity offering was partially used to repay the $460.0 million drawn on the credit facility as at December 31, 2015. The Company also paid $125.8 million in cash dividends in 2017, compared to $118.1 million in 2016.
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32 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
Capital Resources
As at December 31, 2017, our cash, cash equivalents and short-term investments totaled $511.1 million (December 31, 2016 - $253.0 million). In addition, we held investments at December 31, 2017 with a combined value of $203.1 million (December 31, 2016 - $147.4 million), of which $168.1 million was held in publicly-traded equity instruments (December 31, 2016 - $114.6 million).
Further, an amount of $1.0 billion, or its Canadian dollar equivalent, is available under the Company's unsecured credit facility. Advances under the facility bear interest depending upon the currency of the advance and the Company's leverage ratio. As at March 7, 2018, the full amount of $1.0 billion is available as the Company has not drawn on the Credit Facility. U.S. and Canadian dollar advances would bear interest at a rate of 4.20% and 2.90%, respectively. On March 22, 2017, Franco-Nevada extended the term of the Credit Facility from November 12, 2020 to March 22, 2022. Subsequent to year-end, on March 7, 2018, Franco-Nevada further extended the term of the Credit Facility from March 22, 2022 to March 22, 2023. Funds can also be drawn using LIBOR 30‑day rates plus 110 basis points.
On March 20, 2017, the Company's subsidiary, Franco-Nevada (Barbados) Corporation, entered into an unsecured revolving credit facility (the “FNBC Credit Facility”). The FNBC Credit Facility provides for the availability over a one-year period of up to $100.0 million in borrowings. The FNBC Credit Facility had a maturity date of March 20, 2018. The Company has the option of requesting, during a period of time surrounding each anniversary date, up to two additional one-year extensions of the maturity term. Subsequent to year end, on February 21, 2018, the FNBC Credit Facility's maturity date was further extended to March 20, 2019.
Advances under the FNBC Credit Facility can be drawn as base rate advances with interest payable monthly at the Canadian Imperial Bank of Commerce (“CIBC”) base rate, plus 0.35% per annum; or as LIBOR loans for periods of 1, 2, 3 or 6 months with interest payable at a rate of LIBOR plus 1.35% per annum.
The Credit Facility is subject to a standby fee of 0.27% per annum.
Management's objectives when managing capital are to:
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(a) |
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ensure the preservation and availability of capital not being used for long-term investments by investing in low risk investments with high liquidity; and |
|
(b) |
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ensure that adequate levels of capital are maintained to meet the Company's operating requirements and other current liabilities. |
As at December 31, 2017, the majority of funds were held in cash deposits with several financial institutions. Franco-Nevada invests its excess funds in term deposits. Certain investments with terms to maturity upon acquisition of three months, or 92 days or less, and were classified as term deposits.
Our performance is impacted by foreign currency fluctuations of the Canadian dollar and Australian dollar relative to the U.S. dollar. The largest exposure is with respect to the Canadian/U.S. dollar exchange rate as we hold a significant amount of our assets in Canada and report our results in U.S. dollars. The effect of volatility in these currencies against the U.S. dollar impacts our corporate administration, business development expenses and depletion on mineral and oil & gas interests incurred in our Canadian and Australian entities due to their respective functional currencies. During the year, the Canadian dollar traded in a range of $0.7276 to $0.8245, closing the year at $0.7829, and the Australian dollar traded between $0.7207 and $0.8080, closing the year at $0.7687.
Our near-term cash requirements include funding of the acquisition of the U.S. oil & gas royalties in the Delaware Basin, which was funded subsequent to year-end, commitments under the Cobre Panama stream agreement, corporate administration costs, certain costs of operations, payment of dividends and income taxes directly related to the recognition of royalty and stream revenues. As a royalty/stream company, there are limited requirements for capital expenditures other than for the acquisition of additional royalties/streams and working interests' capital commitments. Such acquisitions are entirely discretionary and will be consummated through the use of cash, as available, or through the issuance of common shares or other equity or debt securities or use of our credit facility. We believe that our current cash resources, our available credit facility and future cash flows will be sufficient to cover the cost of our commitments under the various stream agreements, administrative expenses, costs of operations and dividend payments for the foreseeable future.
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33 |
Purchase Commitments
The following table summarizes Franco-Nevada's commitments to pay for gold, silver and PGM pursuant to the associated precious metals agreements:
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Attributable Payable |
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Production to be Purchased |
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Per Ounce Cash Payment (1),(2) |
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Term of |
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Date of |
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Interest |
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Gold |
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Silver |
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PGM |
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Gold |
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Silver |
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PGM |
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Agreement (3) |
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Contract |
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Antamina |
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(4) |
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n/a |
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(5) |
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n/a |
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40 years |
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7‑Oct‑15 |
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Antapaccay |
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—% |
(6) |
—% |
(7) |
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(8) |
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(9) |
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n/a |
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40 years |
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10‑Feb‑16 |
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Candelaria |
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(10) |
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(10) |
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$400 |
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$4.00 |
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n/a |
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40 years |
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6‑Oct‑14 |
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Cobre Panama I (25) |
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—% |
(11) |
—% |
(12) |
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$418 |
(13) |
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$6.27 |
(14) |
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n/a |
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40 years |
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22‑Jan‑18 |
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Cobre Panama II (25) |
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—% |
(15) |
—% |
(16) |
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(17) |
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(18) |
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n/a |
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40 years |
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22‑Jan‑18 |
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Karma |
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(19) |
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(20) |
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n/a |
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n/a |
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40 years |
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11‑Aug‑14 |
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Guadalupe-Palmarejo |
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$800 |
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n/a |
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n/a |
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40 years |
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2‑Oct‑14 |
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Sabodala |
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(21) |
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(22) |
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n/a |
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n/a |
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40 years |
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12‑Dec‑13 |
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MWS |
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$400 |
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n/a |
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n/a |
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40 years |
(23) |
2‑Mar‑12 |
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Cooke 4 |
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$400 |
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n/a |
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n/a |
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40 years |
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5‑Nov‑09 |
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Sudbury (24) |
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$400 |
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n/a |
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$400 |
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40 years |
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15‑Jul‑08 |
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1 |
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Subject to an annual inflationary adjustment except for Antamina, Antapaccay, Karma, Guadalupe-Palmarejo, and Sabodala. |
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2 |
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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, with the exception of Guadalupe-Palmarejo. |
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3 |
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Subject to successive extensions. |
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4 |
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Subject to a fixed payability of 90%. Percentage decreases to 15% after 86 million ounces of silver has been delivered under the agreement. |
|
5 |
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Purchase price is 5% of the average silver price at the time of delivery. |
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6 |
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Gold deliveries are referenced to copper in concentrate shipped with 300 ounces of gold delivered for each 1,000 tonnes of copper in concentrate shipped, until 630,000 ounces of gold has been delivered. Thereafter, percentage is 30% of gold shipped. |
|
7 |
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Silver deliveries are referenced to copper in concentrate shipped with 4,700 ounces of silver delivered for each 1,000 tonnes of copper in concentrate shipped, until 10.0 million ounces of silver has been delivered. Thereafter, percentage is 30% of silver shipped. |
|
8 |
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Purchase price is 20% of the spot price of gold until 750,000 ounces of gold have been delivered, thereafter the purchase price is 30% of the spot price of gold. |
|
9 |
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Purchase price is 20% of the spot price of silver until 12.8 million ounces of silver have been delivered, thereafter the purchase price is 30% of the spot price of silver. |
|
10 |
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Percentage decreases to 40% after 720,000 ounces of gold and 12.0 million ounces of silver have been delivered under the agreement. |
|
11 |
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Gold deliveries are indexed to copper in concentrate produced from the project. 120 ounces of gold per every 1 million pounds of copper produced until 808,000 ounces of gold delivered. Thereafter, 81 ounces of gold per 1 million pounds of copper produced to 1,716,188 ounces of gold delivered thereafter 63.4% of the gold in concentrate. |
|
12 |
|
Silver deliveries are indexed to copper in concentrate produced from the project. 1,376 ounces of silver per every 1 million pounds of copper produced until 9,842,000 ounces of silver delivered. Thereafter 1,776 ounces of silver per 1 million pounds of copper produced to 29,731,000 ounces of silver delivered, thereafter 62.1% of the silver. |
|
13 |
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In accordance with the terms of the agreement, the purchase price was adjusted from $406 per ounce to $418.27 per ounce after November 2018 on the initial gold deliveries. After 808,000 ounces of gold delivered, purchase price is the greater of 50% of spot and $418.27 per ounce. |
|
14 |
|
In accordance with the terms of the agreement, the purchase price was adjusted from $6.09 per ounce to $6.27 per ounce after November 2018 on the initial silver deliveries. After 9,842,000 ounces of silver delivered, purchase price is the greater of 50% of spot and $6.27 per ounce. |
|
15 |
|
Gold deliveries are indexed to copper in concentrate produced from the project. 30 ounces of gold per every 1 million pounds of copper produced until 202,000 ounces of gold delivered. Thereafter 20.25 ounces of gold per 1 million pounds of copper produced to 429,047 ounces of gold delivered thereafter 15.85% of the gold in concentrate. |
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16 |
|
Silver deliveries are indexed to copper in concentrate produced from the project. 344 ounces of silver per every 1 million pounds of copper produced until 2,460,500 ounces of silver delivered. Thereafter, 444 ounces of silver per 1 million pounds of copper produced to 7,432,750 ounces of silver delivered thereafter 15.53% of the silver in concentrate. |
|
17 |
|
Purchase price is 20% of the spot price of gold. |
|
18 |
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Purchase price is 20% of the spot price of silver. |
|
19 |
|
Gold deliveries are fixed at 15,000 ounces per annum from March 31, 2016 until February 28, 2021. Thereafter, percentage is 4.875%. |
|
20 |
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Purchase price is 20% of the average gold price at the time of delivery. |
|
21 |
|
Gold deliveries are fixed at 1,875 ounces per month until December 31, 2019. Thereafter, percentage is 6% of gold produced. |
|
22 |
|
Purchase price is 20% of prevailing market price at the time of delivery. |
|
23 |
|
Agreement is capped at 312,500 ounces of gold. |
|
24 |
|
The Company is committed to purchase 50% of the precious metals contained in ore from the properties. Cash payment is based on gold equivalent ounces. |
|
25 |
|
Agreement amended subsequent to year-end. |
Cobre Panama Stream Agreement
The Company has funding commitments under the Cobre Panama stream agreement as described in the Guidanc e section above.
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34 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
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 are the following:
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 oil & gas interests, the estimated reserves in reserve reports prepared by previous independent petroleum consultants engaged by the Company 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 of Royalty, Stream and Working Interests
Assessment of impairment of royalty, stream, working interests and oil & gas well equipment requires the use of judgments, assumptions and estimates when assessing whether there are any indicators that could give rise to the requirement to conduct a formal impairment test on the Company's royalty, stream and working interests, investments measured at cost and/or oil & gas equipment. 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 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, investments measured at cost, or oil & gas well equipment could impact the impairment analysis.
Asset Acquisition
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 requires 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.
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 silver or gold 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.
|
|
|
35 |
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. 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.
The Canada Revenue Agency (“CRA”) is currently conducting an audit of Franco-Nevada's 2012, 2013 and 2014 taxation years. The audit is in its preliminary stages and the Company has not been informed of any issues by the CRA. Management believes that Franco-Nevada and its foreign subsidiaries are in full compliance with Canadian and foreign tax laws. However, there can be no assurance that the CRA will not challenge the manner in which Franco-Nevada and its foreign subsidiaries has filed its income tax returns and reported its income. In the event that the CRA successfully challenges the manner in which Franco-Nevada 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 Franco-Nevada.
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.
New and Amended Standards Adopted by the Company
The following standard was effective and implemented for the annual period as of January 1, 2017.
IAS 12 Income Taxes
IAS 12 Income Taxes provides guidance on the recognition of deferred tax assets. In January 2016, the IASB issued amendments to clarify the requirements for recognizing deferred tax assets on unrealized losses. The amendments clarify the accounting for deferred tax where an asset is measured at fair value and that fair value is below the asset's tax base. They also clarify certain other aspects of accounting for deferred tax assets. The amendments are effective for annual periods beginning on or after January 1, 2017. The Company has adopted the amendments to IAS 12 in its financial statements for the annual period beginning on January 1, 2017. The adoption of the amendments did not have a material impact on the consolidated financial statements.
IFRS Interpretations Committee on interest and penalties related to income taxes
In September 2017, the IFRS Interpretation Committee (IC) issued an agenda decision on interest and penalties related to income taxes. The agenda decision clarifies that if an entity considers that a particular amount payable or receivable for interest and penalties is an income tax, IAS 12 Income Taxes is applied to that amount. If an entity does not apply IAS 12 to an amount payable or receivable for interest and penalties, it applies IAS 37 Provisions, Contingent Liabilities and Contingent Assets to that amount. The agenda decision was effective immediately and did not have a material impact on the consolidated financial statements.
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|
|
|
36 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
New Accounting Standards Issued But Not Yet Effective
IFRS 9 Financial Instruments
On July 24, 2014, the IASB published the final version IFRS 9 Financial Instruments which brings together the classification, measurement, impairment and hedge accounting phases of the IASB's project to replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes a loss impairment model, amends the classification and measurement model for financial assets by adding a new fair value through comprehensive income category for certain debt instruments and provides additional guidance on how to apply the business model and contractual cash flow characteristics test. This final version of IFRS 9 supersedes all previous versions of IFRS 9 and is effective for periods beginning on or after January 1, 2018. The Company has completed its assessment of the impact of IFRS 9 and expects the following impacts upon adoption:
|
· |
|
The Company will make an irrevocable election available under IFRS 9 to continue to measure its currently held long-term investment in equity securities at fair value through other comprehensive income (“OCI”). This election is available on an instrument–by-instrument basis. Under the new standard, all changes in the fair value will be recognized permanently in OCI with no subsequent transfer into earnings (loss), including upon derecognition. On adoption of IFRS 9, the Company expects to make an insignificant adjustment to opening retained earnings with a corresponding adjustment to accumulated other comprehensive income to retroactively adjust for historical gains (losses) previously recognized through earnings (loss). The new classification and measurement requirements under IFRS 9 are not expected to have a material impact on the Company's other financial assets and financial liabilities. |
|
· |
|
Under IAS 39, investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured can currently be measured at cost. This cost exemption is not available under IFRS 9. The Company holds one equity investment at cost, with a carrying value of $4.1 million as at December 31, 2017. The Company has assessed the fair value of the instrument based on valuation techniques that include inputs that are not based on observable market data and has concluded that the carrying value of the instrument approximates its fair value. |
|
· |
|
The introduction of the new expected credit loss model required to evaluate financial assets for impairment, rather than an incurred loss model currently being applied under IAS 39 does not have a significant impact on the Company's financial assets. The Company's financial assets which are currently subject to credit risk include cash and cash equivalents, short-term investments, receivables and loan receivables. The Company holds one loan receivable from Noront Resources Ltd. The loan receivable is carried at amortized cost and has a carrying value of $30.1 million as at December 31, 2017. |
|
· |
|
The reformed approach to hedge accounting will not have a significant impact on the Company. |
IFRS 15 Revenue from Contracts with Customers
In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers. The new standard provides a comprehensive framework for recognition, measurement and disclosure of revenue from contracts with customers, excluding contracts within the scope of the standards on leases, insurance contracts and financial instruments. IFRS 15 becomes effective for annual periods beginning on or after January 1, 2018 and is to be applied retrospectively with early adoption permitted. The Company has completed its assessment of the impact of IFRS 15, including a review of its material contracts for each of its material revenue categories, and does not expect the new standard to have a material impact on the consolidated financial statements. The Company will adopt IFRS 15 for the annual period beginning January 1, 2018.
IFRS 16 Leases
In January 2016, the IASB issued IFRS 16 Leases, which requires lessees to recognize assets and liabilities for most leases. IFRS 16 becomes effective for annual periods beginning on or after January 1, 2019 and is to be applied retrospectively with early adoption permitted, provided IFRS 15 has been applied or is applied at the same date as IFRS 16. The Company does not anticipate early adoption and is assessing the impact of adoption of this new standard on the consolidated financial statements.
IFRIC 23 Uncertainty over Income Tax Treatments
In June 2017, the IFRS Interpretation Committee issued IFRIC 23, which clarifies how the recognition and measurement requirements of IAS 12 Income Taxes are applied where there is uncertainty over income tax treatments. IFRIC 23 becomes effective for annual periods beginning on or after January 1, 2019 and is to be applied retrospectively with early adoption permitted. The Company is in the process of assessing the impact of IFRIC 23 on the consolidated financial statements.
|
|
|
37 |
Franco-Nevada is authorized to issue an unlimited number of common and preferred shares. A detailed description of the rights, privileges, restrictions and conditions attached to each class of authorized shares is included in our most recent Annual Information Form, a copy of which can be found on SEDAR at www.sedar.com and in our Form 40‑F, a copy of which can be found on EDGAR at www.sec.gov.
As of March 6, 2018, the number of common shares outstanding or issuable pursuant to other outstanding securities is as follows:
Common Shares |
|
Number |
|
Outstanding |
|
|
|
Issuable upon exercise of Franco-Nevada options (1) |
|
|
|
Issuable upon vesting of Franco-Nevada RSUs |
|
|
|
Diluted common shares |
|
|
|
|
1 |
|
There were 955,603 stock options under our share compensation plan outstanding to directors, officers, employees and others with exercise prices ranging from C$15.41 to C$100.10 per share. |
Franco-Nevada has not issued any preferred shares.
Internal Control Over Financial Reporting and Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining Franco-Nevada's internal control over financial reporting and other financial disclosure and our disclosure controls and procedures.
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 IFRS. Franco-Nevada'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 Franco-Nevada; (ii) are designed to provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of Franco-Nevada are being made only in accordance with authorizations of management and directors of Franco-Nevada; and (iii) are designed to provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Franco-Nevada's assets that could have a material effect on Franco-Nevada's financial statements. Internal control over other financial disclosure is a process designed to ensure that other financial information included in this MD&A, fairly represents in all material respects the financial condition, results of operations and cash flows of Franco-Nevada for the periods presented in this MD&A.
Franco-Nevada's disclosure controls and procedures are designed to provide reasonable assurance that material information relating to Franco-Nevada, including its consolidated subsidiaries, is made known to management by others within those entities, particularly during the period in which this report is prepared and that information required to be disclosed by Franco-Nevada in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation.
Due to its inherent limitations, internal control over financial reporting and other financial disclosure may not prevent or detect all 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 change.
An evaluation was carried out under the supervision of the CEO and CFO and with the participation of management, of the effectiveness of the design and operation of Franco-Nevada's internal control over financial reporting as of the end of the period covered by this report based on the framework and criteria established in Internal Control – Integrated Framework (2013) as issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission. Based on that evaluation, the CEO and CFO have concluded that Franco-Nevada's internal control over financial reporting was effective as of December 31, 2017.
An evaluation was also carried out under the supervision of the CEO and CFO and with the participation of management, of the effectiveness of the design and operation of Franco-Nevada's disclosure controls and procedures (as defined under applicable Canadian securities laws and in Rule 13a – 15(e) and Rule 15d – 15(e) under the U.S. Securities Exchange Act of 1934), and based on that evaluation the CEO and the CFO have concluded that as of December 31, 2017, Franco-Nevada's disclosure controls and procedures were effective.
|
|
|
|
38 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
For the year ended December 31, 2017, there has been no change in Franco-Nevada's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, Franco-Nevada's internal control over financial reporting.
Franco-Nevada's report of management's assessment regarding internal control over financial reporting (as defined in Rule 13a‑15(f) or 15d‑15(f) under the U.S. Securities Exchange Act of 1934) is included in the Management's Report on Internal Control over Financial Reporting that accompanies Franco-Nevada's Annual Consolidated Financial Statements for the fiscal year ended December 31, 2017.
Adjusted EBITDA and Adjusted EBITDA per share
Adjusted EBITDA and Adjusted EBITDA per share are non-IFRS financial measures, which exclude the following from net income and earnings per share (“EPS”):
|
· |
|
Income tax expense/recovery; |
|
· |
|
Finance expenses; |
|
· |
|
Finance income; |
|
· |
|
Depletion and depreciation; |
|
· |
|
Non-cash costs of sales; |
|
· |
|
Impairment charges related to royalty, stream and working interests; |
|
· |
|
Impairment of investments; |
|
· |
|
Gains/losses on sale of royalty, stream and working interests; |
|
· |
|
Gains/losses on investments; |
|
· |
|
Foreign exchange gains/losses and other income/expenses; and |
|
· |
|
Unusual non-recurring items. |
Management uses Adjusted EBITDA and Adjusted EBITDA per share to evaluate the underlying operating performance of the Company as a whole for the reporting periods presented, to assist with the planning and forecasting of future operating results, and to supplement information in its financial statements. The Company also uses Margin, which is defined as Adjusted EBITDA divided by revenue, in its annual incentive compensation process to evaluate management's performance in increasing revenue and containing costs. Management believes that in addition to measures prepared in accordance with IFRS such as Net Income and Earnings per Share, our investors and analysts use Adjusted EBITDA and Adjusted EBITDA per share to evaluate the results of the underlying business of the Company, particularly since the excluded items are typically not included in our guidance, with the exception of depletion and depreciation expense. While the adjustments to net income and EPS in these measures include items that are both recurring and non-recurring, management believes that Adjusted EBITDA and Adjusted EBITDA per share are useful measures of the Company's performance because they adjust for items which may not relate to or have a disproportionate effect on the period in which they are recognized, impact the comparability of our core operating results from period to period, are not always reflective of the underlying operating performance of our business and/or are not necessarily indicative of future operating results. Adjusted EBITDA and Adjusted EBITDA per share are only intended to provide additional information to investors and analysts, and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. They do not have any standardized meaning under IFRS, and may not be comparable to similar measures presented by other issuers.
|
|
|
39 |
Reconciliation of Net Income to Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the year ended |
|
||||||||||
|
|
|
December 31, |
|
|
December 31, |
|
||||||||||
(expressed in millions, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net Income |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depletion and depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash costs of sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charges |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Impairment of investments |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Gain on sale of royalty interest |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Gain on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange (gains)/losses and other (income)/expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Basic weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance expenses |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
Finance income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depletion and depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash costs of sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charges |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Impairment of investments |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Gain on sale of royalty interest |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Gain on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange (gains)/losses and other (income)/expenses |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Adjusted EBITDA per share |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Margin
Margin is a non-IFRS financial measure which is defined by the Company as Adjusted EBITDA divided by revenue. The Company uses Margin in its annual incentive compensation process to evaluate management's performance in increasing revenue and containing costs. Margin is intended to provide additional information, does not have any standardized definition under IFRS and should not be considered in isolation or as a substitute for a measure of performance in accordance with IFRS.
Reconciliation of Net Income to Margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the year ended |
|
||||||||||
|
|
|
December 31, |
|
|
December 31, |
|
||||||||||
(expressed in millions, except Margin) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net Income |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depletion and depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash costs of sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charges |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Impairment of investments |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Gain on sale of royalty interest |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Gain on investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange (gains)/losses and other (income)/expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
Adjusted Net Income and Adjusted Net Income per share
Adjusted Net Income and Adjusted Net Income per share are non-IFRS financial measures, which exclude the following from net income and EPS:
|
· |
|
Foreign exchange gains/losses and other income/expenses; |
|
· |
|
Impairment charges related to royalty, stream and working interests; |
|
· |
|
Impairment of investments; |
|
· |
|
Gains/losses on sale of royalty, stream and working interests; |
|
· |
|
Gains/losses on investments; |
|
· |
|
Unusual non-recurring items; and |
|
· |
|
Impact of income taxes on these items. |
Management uses Adjusted Net Income and Adjusted Net Income per share to evaluate the underlying operating performance of the Company as a whole for the reporting periods presented, to assist with the planning and forecasting of future operating results, and to supplement information in its financial statements. Management believes that in addition to measures prepared in accordance with IFRS such as Net Income and Earnings per Share, our investors and analysts use Adjusted Net Income and Adjusted Net Income per share to evaluate the results of the underlying business of the Company, particularly since the excluded items are typically not included in our guidance. While the adjustments to net income and EPS in these measures include items that are both recurring and non-recurring, management believes that Adjusted Net Income and Adjusted Net Income per share are useful measures of the Company's performance because they adjust for items which may not relate to or have a disproportionate effect on the period in which they are recognized, impact the comparability of our core operating results from period to period, are not always reflective of the underlying operating performance of our business and/or are not necessarily indicative of future operating results. Adjusted Net Income and Adjusted Net Income per share are intended to provide additional information to investors and analysts and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. They do not have any standardized meaning under IFRS, and may not be comparable to similar measures presented by other issuers.
Reconciliation of Net Income to Adjusted Net Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended |
|
|
For the year ended |
|
||||||||||
|
|
|
December 31, |
|
|
December 31, |
|
||||||||||
(expressed in millions, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net Income |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Foreign exchange (gains)/losses and other (income)/expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charges |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Impairment of investments |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Gain on sale of royalty interest |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Gain on investments |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Tax effect of adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other tax related adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilization of tax attributes for which no deferred tax asset was previously recognized |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
U.S. Tax Reform Impact |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Impact of tax increases |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Adjusted Net Income |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Basic weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Foreign exchange (gains)/losses and other (income)/expenses |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Impairment charges |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Impairment of investments |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Gain on sale of royalty interest |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Gain on investments |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Tax effect of adjustments |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
Other tax related adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
Utilization of tax attributes for which no deferred tax asset was previously recognized |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
U.S. Tax Reform Impact |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
Impact of tax increases |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Adjusted Net Income per share |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
41 |
Cautionary Statement on Forward-Looking Information
This MD&A contains “forward-looking information” and “forward-looking statements” within the meaning of applicable Canadian securities laws and the United States Private Securities Litigation Reform Act of 1995, respectively, which may include, but are not limited to, statements with respect to future events or future performance, management's expectations regarding Franco-Nevada's growth, results of operations, estimated future revenues, carrying value of assets, future dividends and requirements for additional capital, mineral reserve and mineral resource estimates, production estimates, production costs and revenue, future demand for and prices of commodities, expected mining sequences, business prospects and opportunities, and the acquisition of the additional Cobre Panama stream and its expected impact on future performance and results of operations. In addition, statements (including data in tables) relating to reserves and resources and gold equivalent ounces are forward-looking statements, as they involve implied assessment, based on certain estimates and assumptions, and no assurance can be given that the estimates and assumptions are accurate and that such reserves and resources and GEOs will be realized. Such forward-looking statements reflect management's current beliefs and are based on information currently available to management. Often, but not always, forward-looking statements can be identified by the use of words such as “plans”, “expects”, “is expected”, “budgets”, “scheduled”, “estimates”, “forecasts”, “predicts”, “projects”, “intends”, “targets”, “aims”, “anticipates” or “believes” or variations (including negative variations) of such words and phrases or may be identified by statements to the effect that certain actions “may”, “could”, “should”, “would”, “might” or “will” be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of Franco-Nevada to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. A number of factors could cause actual events or results to differ materially from any forward-looking statements, including, without limitation: fluctuations in the prices of the primary commodities that drive royalty and stream revenue (gold, platinum group metals, copper, nickel, uranium, silver, iron-ore and oil & gas); fluctuations in the value of the Canadian, Australian dollar and Mexican Peso and any other currency in which revenue is generated, relative to the U.S. dollar; changes in national and local government legislation, including permitting and licensing regimes and taxation policies and the enforcement thereof; regulatory, political or economic developments in any of the countries where properties in which Franco-Nevada holds a royalty, stream or other interest are located or through which they are held; risks related to the operators of the properties in which Franco-Nevada holds a royalty, stream or other interest, including changes in the ownership and control of such operators; influence of macroeconomic developments; business opportunities that become available to, or are pursued by Franco-Nevada; reduced access to debt and equity capital; litigation; title, permit or license disputes related to interests on any of the properties in which Franco-Nevada holds a royalty, stream or other interest; whether or not the Company is determined to have “passive foreign investment company” (“PFIC”) status as defined in Section 1297 of the United States Internal Revenue Code of 1986, as amended; potential changes in Canadian tax treatment of offshore streams; excessive cost escalation as well as development, permitting, infrastructure, operating or technical difficulties on any of the properties in which Franco-Nevada holds a royalty, stream or other interest; actual mineral content may differ from the reserves and resources contained in technical reports; rate and timing of production differences from resource estimates, other technical reports and mine plans; risks and hazards associated with the business of development and mining on any of the properties in which Franco-Nevada holds a royalty, stream or other interest, including, but not limited to unusual or unexpected geological and metallurgical conditions, slope failures or cave-ins, flooding and other natural disasters, terrorism, civil unrest or an outbreak of contagious diseases; and the integration of acquired assets. The forward-looking statements contained in this MD&A are based upon assumptions management believes to be reasonable, including, without limitation: the ongoing operation of the properties in which Franco-Nevada holds a royalty, stream or other interest by the owners or operators of such properties in a manner consistent with past practice; the accuracy of public statements and disclosures made by the owners or operators of such underlying properties; no material adverse change in the market price of the commodities that underlie the asset portfolio; the Company's ongoing income and assets relating to determination of its PFIC status; no material changes to existing tax treatment; no adverse development in respect of any significant property in which Franco-Nevada holds a royalty, stream or other interest; the accuracy of publicly disclosed expectations for the development of underlying properties that are not yet in production; integration of acquired assets; risks related to the completion of the acquisition of the additional Cobre Panama stream in accordance with its terms; and the absence of any other factors that could cause actions, events or results to differ from those anticipated, estimated or intended. However, there can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Investors are cautioned that forward-looking statements are not guarantees of future performance. Franco-Nevada cannot assure investors that actual results will be consistent with these forward-looking statements. Accordingly, investors should not place undue reliance on forward-looking statements due to the inherent uncertainty therein. For additional information with respect to risks, uncertainties and assumptions, please refer to Franco-Nevada's most recent Annual Information Form filed with the Canadian securities regulatory authorities on www.sedar.com and Franco-Nevada's most recent Annual Report filed on Form 40‑F filed with the SEC on www.sec.gov. The forward-looking statements herein are made as of the date of this MD&A only and Franco-Nevada does not assume any obligation to update or revise them to reflect new information, estimates or opinions, future events or results or otherwise, except as required by applicable law.
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42 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
Management's Report on Internal Control Over Financial Reporting
Franco-Nevada's 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 assessed the effectiveness of the Company's internal control over financial reporting as at December 31, 2017. 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 Franco-Nevada's management's assessment, Franco-Nevada's internal control over financial reporting is effective as at December 31, 2017.
The effectiveness of the Company's internal control over financial reporting as at December 31, 2017 has been audited by PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm, as stated in their report appearing herein.
|
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/s/ David Harquail |
|
/s/ Sandip Rana |
|
David Harquail |
|
Sandip Rana |
|
Chief Executive officer |
|
Chief Financial officer |
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March 7, 2018 |
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43 |
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, 2017 and 2016, and the related consolidated statements of income and comprehensive income, cash flows and changes in shareholders' equity 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, 2017, 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, 2017 and 2016, and their financial performance and their 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, 2017, 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.
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.
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44 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
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.
(Signed) “PricewaterhouseCoopers LLP”
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
March 7, 2018
We have served as the Company's auditor since 2007.
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45 |
Consolidated Statements of Financial Position |
(in millions of U.S. dollars)
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|||
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At
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At
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2016 |
|
||
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|
|
ASSETS |
|
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|
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Cash and cash equivalents (Note 5) |
|
$ |
|
|
|
$ |
253.0 |
|
Receivables |
|
|
|
|
|
|
71.1 |
|
Prepaid expenses and other (Note 7) |
|
|
|
|
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|
37.1 |
|
Current assets |
|
|
|
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|
361.2 |
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|
|
|
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Royalty, stream and working interests, net (Note 8) |
|
|
|
|
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|
3,668.3 |
|
Investments (Note 6) |
|
|
|
|
|
|
147.4 |
|
Deferred income tax assets (Note 17) |
|
|
|
|
|
|
21.3 |
|
Other assets (Note 9) |
|
|
|
|
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23.4 |
|
Total assets |
|
$ |
|
|
|
$ |
4,221.6 |
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|
|
LIABILITIES |
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Accounts payable and accrued liabilities (Note 10) |
|
$ |
|
|
|
$ |
21.0 |
|
Current income tax liabilities |
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|
16.6 |
|
Current liabilities |
|
|
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|
37.6 |
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|
|
|
|
|
|
|
|
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Deferred income tax liabilities (Note 17) |
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|
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|
37.5 |
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Total liabilities |
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|
|
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|
|
75.1 |
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|
|
|
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SHAREHOLDERS' EQUITY (Note 18) |
|
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|
Common shares |
|
|
|
|
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|
4,666.2 |
|
Contributed surplus |
|
|
|
|
|
|
41.6 |
|
Deficit |
|
|
|
|
|
|
(336.8) |
|
Accumulated other comprehensive loss |
|
|
|
|
|
|
(224.5) |
|
Total shareholders' equity |
|
|
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4,146.5 |
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Total liabilities and shareholders' equity |
|
$ |
|
|
|
$ |
4,221.6 |
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|
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|
|
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Commitments (Note 20) |
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Subsequent Events (Note 4 and 13) |
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The accompanying notes are an integral part of these consolidated financial statements.
Approved by the Board of Directors and authorized for issue on March 7, 2018.
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/s/ Pierre Lassonde |
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/s/ Randall Oliphant |
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Pierre Lassonde |
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Randall Oliphant |
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Director |
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Director |
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46 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
FRANCO-NEVADA CORPORATION
|
Consolidated Statements of Income and Comprehensive Income |
(in millions of U.S. dollars, except per share amounts)
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For the year ended |
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|||||
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December 31, |
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|||||
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Revenue (Note 14) |
|
$ |
|
|
|
$ |
610.2 |
|
|
|
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|
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|
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Cost of sales |
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Costs of sales (Note 15) |
|
|
|
|
|
|
105.8 |
|
Depletion and depreciation (Note 8(a)) |
|
|
|
|
|
|
273.8 |
|
Total cost of sales |
|
|
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|
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|
379.6 |
|
Gross profit |
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|
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|
230.6 |
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Other operating expenses (income) |
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Corporate administration |
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|
20.7 |
|
Business development |
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|
3.4 |
|
Impairment charges (Note 8(b)) |
|
|
— |
|
|
|
67.5 |
|
(Gain) on sale of royalty interest (Note 8(c)) |
|
|
— |
|
|
|
(14.1) |
|
(Gain) on sale of gold bullion |
|
|
(0.3) |
|
|
|
(2.3) |
|
Total other operating expenses (income) |
|
|
|
|
|
|
75.2 |
|
Operating income |
|
|
|
|
|
|
155.4 |
|
Foreign exchange gain (loss) and other income (expenses) |
|
|
1.1 |
|
|
|
0.2 |
|
Realized gain on investments |
|
|
2.0 |
|
|
|
12.4 |
|
Impairment of investments |
|
|
(4.5) |
|
|
|
— |
|
Income before finance items and income taxes |
|
|
|
|
|
|
168.0 |
|
|
|
|
|
|
|
|
|
|
Finance items |
|
|
|
|
|
|
|
|
Finance income |
|
|
5.4 |
|
|
|
3.5 |
|
Finance expenses (Note 13) |
|
|
(3.4) |
|
|
|
(3.6) |
|
Net income before income taxes |
|
|
|
|
|
|
167.9 |
|
|
|
|
|
|
|
|
|
|
Income tax expense (Note 17) |
|
|
41.3 |
|
|
|
45.7 |
|
Net income |
|
$ |
|
|
|
$ |
122.2 |
|
|
|
|
|
|
|
|
|
|
Other comprehensive income: |
|
|
|
|
|
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|
|
Items that may be reclassified subsequently to profit and loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain in the fair value of available-for-sale investments, net of income tax expense of $6.1 (2016 -‑$5.3) (Note 6) |
|
|
|
|
|
|
52.9 |
|
Reclassification of realized loss (gain) in fair value of available-for-sale investments, net of income tax recovery of $0.2 (2016 - income tax expense of $1.6) (Note 6) |
|
|
2.4 |
|
|
|
(10.6) |
|
Currency translation adjustment |
|
|
|
|
|
|
21.3 |
|
Other comprehensive income |
|
|
|
|
|
|
63.6 |
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
$ |
|
|
|
$ |
185.8 |
|
Basic earnings per share (Note 19) |
|
$ |
|
|
|
$ |
0.70 |
|
Diluted earnings per share (Note 19) |
|
$ |
|
|
|
$ |
0.69 |
|
The accompanying notes are an integral part of these consolidated financial statements.
|
|
|
47 |
Franco-Nevada Corporation
|
Consolidated Statements of Cash Flows |
(in millions of U.S. dollars)
|
|
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|
|
|
|
|
|
|
|
For the year ended |
||||||
|
|
December 31, |
||||||
|
|
|
|
|
|
|
||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
194.7 |
|
|
$ |
122.2 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depletion and depreciation |
|
|
273.0 |
|
|
|
273.8 |
|
Non-cash costs of sales |
|
|
7.7 |
|
|
|
6.5 |
|
Share-based payments |
|
|
4.6 |
|
|
|
5.0 |
|
Impairment charges (Note 8(b)) |
|
|
— |
|
|
|
67.5 |
|
Gain on sale of royalty interest |
|
|
— |
|
|
|
(14.1) |
|
Unrealized foreign exchange (gain) loss |
|
|
(1.7) |
|
|
|
0.5 |
|
Mark-to-market on warrants |
|
|
0.2 |
|
|
|
(0.4) |
|
Gain on investments |
|
|
(2.0) |
|
|
|
(12.4) |
|
Impairment of investments |
|
|
4.5 |
|
|
|
— |
|
Deferred income tax expense |
|
|
21.8 |
|
|
|
3.5 |
|
Other non-cash items |
|
|
(2.1) |
|
|
|
(1.2) |
|
Acquisition of gold bullion |
|
|
(24.1) |
|
|
|
(53.5) |
|
Proceeds from sale of gold bullion |
|
|
19.0 |
|
|
|
67.3 |
|
Operating cash flows before changes in non-cash working capital |
|
|
|
|
|
|
464.7 |
|
Changes in non-cash working capital: |
|
|
|
|
|
|
|
|
Decrease (increase) in receivables |
|
|
|
|
|
|
(6.0) |
|
Decrease (increase) in prepaid expenses and other |
|
|
|
|
|
|
(4.5) |
|
(Decrease) increase in current liabilities |
|
|
(15.5) |
|
|
|
16.8 |
|
Net cash provided by operating activities |
|
|
|
|
|
|
471.0 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Proceeds from sale of investments |
|
|
12.6 |
|
|
|
28.6 |
|
Proceeds from sale of royalty interest |
|
|
— |
|
|
|
30.3 |
|
Acquisition of investments |
|
|
(12.3) |
|
|
|
(1.6) |
|
Acquisition of royalty, stream and working interests |
|
|
(499.5) |
|
|
|
(744.8) |
|
Acquisition of oil & gas well equipment |
|
|
(1.7) |
|
|
|
(2.1) |
|
Acquisition of property and equipment |
|
|
— |
|
|
|
(0.2) |
|
Net cash used in investing activities |
|
|
(500.9) |
|
|
|
(689.8) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Net proceeds from issuance of common shares |
|
|
— |
|
|
|
883.5 |
|
Repayment of Credit Facility |
|
|
— |
|
|
|
(460.0) |
|
Credit facility amendment costs |
|
|
(1.0) |
|
|
|
— |
|
Payment of dividends |
|
|
(125.8) |
|
|
|
(118.1) |
|
Proceeds from exercise of warrants |
|
|
356.4 |
|
|
|
— |
|
Proceeds from exercise of stock options |
|
|
10.1 |
|
|
|
16.3 |
|
Net cash provided by financing activities |
|
|
|
|
|
|
321.7 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
|
|
|
|
0.9 |
|
Net change in cash and cash equivalents |
|
|
|
|
|
|
103.8 |
|
Cash and cash equivalents at beginning of year |
|
|
|
|
|
|
149.2 |
|
Cash and cash equivalents at end of year |
|
$ |
|
|
|
$ |
253.0 |
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest expense and loan standby fees |
|
$ |
|
|
|
$ |
3.0 |
|
Income taxes paid |
|
$ |
|
|
|
$ |
30.7 |
|
The accompanying notes are an integral part of these consolidated financial statements.
|
|
|
|
48 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
Franco-Nevada Corporation
|
Consolidated Statements of Changes in Shareholders' Equity |
(in millions of U.S. dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|||||
|
|
|
|
|
|
other |
|
|
|
|
|
|||||
|
|
Share capital |
|
Contributed |
|
comprehensive |
|
|
|
|
|
|||||
|
|
(Note 18) |
|
Surplus |
|
income (loss) |
|
Deficit |
|
Total Equity |
|
|||||
Balance at January 1, 2017 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Net income |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
Other comprehensive income |
|
|
— |
|
|
— |
|
|
|
|
|
— |
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
|
|
|
|
|
|
|
— |
|
|
— |
|
|
|
|
Exercise of warrants |
|
|
|
|
|
|
|
|
— |
|
|
— |
|
|
|
|
Share-based payments |
|
|
— |
|
|
|
|
|
— |
|
|
— |
|
|
|
|
Vesting of restricted share units |
|
|
|
|
|
|
|
|
— |
|
|
— |
|
|
— |
|
Dividend reinvestment plan |
|
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
Dividends declared |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
Balance at December 31, 2017 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2016 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
Net income |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
Other comprehensive loss |
|
|
— |
|
|
— |
|
|
|
|
|
— |
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity offering |
|
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
Exercise of stock options |
|
|
|
|
|
|
|
|
— |
|
|
— |
|
|
|
|
Share-based payments |
|
|
— |
|
|
|
|
|
— |
|
|
— |
|
|
|
|
Vesting of restricted share units |
|
|
|
|
|
|
|
|
— |
|
|
— |
|
|
— |
|
Dividend reinvestment plan |
|
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
Dividends declared |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
Balance at December 31, 2016 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
|
|
49 |
Franco-Nevada Corporation
|
Notes to Consolidated Financial Statements |
For the years ended December 31, 2017 and 2016
(Expressed in millions of U.S. dollars except share and per share amounts)
Note 1 – Corporate Information
Franco-Nevada Corporation (“Franco-Nevada” or the “Company”) is incorporated under the Canada Business Corporations Act. The Company is a gold-focused royalty and stream company with additional interests in silver, platinum group metals, oil & gas and other resource assets. The majority of revenues are generated from a diversified portfolio of properties in the United States, Canada, Mexico, Peru, Chile, Australia and Africa. At December 31, 2017, the portfolio includes approximately 341 assets covering properties at various stages from production to early stage exploration.
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 cash and cash equivalents, available-for-sale investments and derivatives which are measured at fair value. IFRS comprise IFRS, International Accounting Standards (“IAS”) and interpretations issued by the IFRS Interpretations Committee (“IFRIC”) and the former Standing Interpretations Committee (“SIC”). These consolidated financial statements were authorized for issuance by the Board of Directors on March 7, 2018.
(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.
|
|
|
|
50 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
All subsidiaries of the Company and their geographic locations at December 31, 2017 were as follows:
|
|
|
Entity |
Jurisdiction |
Economic
|
Franco-Nevada U.S. Corporation |
Delaware |
|
Franco-Nevada GLW Holdings Corp. |
British Columbia |
|
Franco-Nevada Mexico Corporation, S.A. de C.V. |
Mexico |
|
Franco-Nevada Canada Holdings Corp. |
Canada |
|
Franco-Nevada (Barbados) Corporation |
Barbados |
|
Franco-Nevada Australia Pty Ltd. |
Australia |
|
Franco-Nevada LRC Holdings Corp. |
British Columbia |
|
Franco-Nevada Alberta Holdings ULC |
Alberta |
|
Franco-Nevada U.S. Holding Corp. |
Delaware |
|
Franco-Nevada Delaware LLC |
Delaware |
|
Franco-Nevada Texas LP (1) |
Texas |
|
Minera Global Copper Chile S.A. |
Chile |
|
Franco-Nevada Alberta Corporation |
Alberta |
|
FN Subco Inc. |
British Columbia |
|
Franco-Nevada Idaho Corporation |
Delaware |
|
FN Holdings ULC |
Alberta |
|
|
1 |
|
Added during the year. |
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 interest in any JO, the Company would recognize its share of any assets, liabilities, revenues and expenses of the JO.
The Company participates in joint operations with respect to oil & gas working interests but does not have joint control. A working interest is an ownership position in the oil & gas 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. The Company's share of the assets, liabilities, revenues and expenses of the joint operation are recognized in the statements of financial position and statements of income and comprehensive income (loss).
(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.
|
|
|
51 |
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 (loss).
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 (loss). 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 some 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 and available-for-sale securities 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 (loss). |
(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. The cost of royalty, stream and working interests is determined by reference to the cost model under IAS 16 Property, Plant and Equipment . 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 .
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. |
|
|
|
|
52 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
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. 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 ounces 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 oil & gas 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 oil & gas properties. For oil & gas interests, management engages previous reserve reports prepared by independent petroleum consultants engaged by the Company or engages other qualified parties.
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-depreciable 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-depreciable interest to depreciable interest. If the cost of a royalty, stream or working interest includes contingent consideration, the contingent consideration is measured at fair value on the date of acquisition and included in the cost of the interest. Any changes in the fair value of the contingent consideration subsequent to the acquisition date are recorded against the cost of the interest acquired.
Royalty, stream and working interests for advanced and exploration assets are recorded at cost and capitalized in accordance with IFRS 6 Exploration for and Evaluation of Mineral Resources. 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 advanced minimum payments prior to the commencement of production on some of its interests. In these circumstances, the Company would record depletion expense as described above, up to a maximum of the total of the advanced minimum payment received.
(f) Working interests in oil & gas properties
Acquired oil & gas 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 oil & gas 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 oil & gas well equipment which is a component of other assets on the statement of financial position.
Capitalized costs, other than those related to oil & gas well equipment, are depreciated when the asset is available for its intended use on a units-of-production basis, whereby the denominator is the proved and probable reserves associated with the oil & gas properties. For oil & gas well equipment, capitalized costs are depreciated by application of a 25% declining balance method.
(g) Impairment of non-financial assets
Producing and advanced mineral, stream and oil & gas 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 , are identified as the smallest identifiable group of assets that generates cash inflows, which are largely independent of the cash inflows from other assets. This is usually at the individual royalty, stream, oil & gas or working interest level for each property from which cash inflows are generated.
|
|
|
53 |
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 oil & gas 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 mineral, stream or oil & gas interest or working interest and any associated oil & gas 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, prepaid gold 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.
Mineral and oil & gas 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 payables, accrued liabilities, debt, and investments, including equity investments, loans receivable, warrants and term deposits. Financial instruments are recognized initially at fair value.
|
(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 classified as available-for-sale and measured at fair value.
|
(ii) |
|
Receivables |
Receivables, other than those related to agreements with provisional pricing mechanisms, are classified as loans and receivables and are initially recorded at fair value of the amount expected to be received and subsequently measured at amortized cost less any provision for impairment.
Individual receivables are considered for recoverability when they are past due or when other objective evidence is received that a specific counterparty will default. Impairments for receivables are presented in the consolidated statement of income and comprehensive income (loss).
|
(iii) |
|
Investments |
Investments comprise equity interests in publicly-traded and privately-held entities, marketable securities with original maturities at the date of the purchase of more than three months and a loan receivable.
Available-for-sale investments are recognized initially at fair value plus transaction costs. Subsequent to initial recognition, available-for-sale investments are measured at fair value and changes in the fair value are recognized directly in other comprehensive income (loss), except for impairment losses, which are recognized in net income in the consolidated statement of income and comprehensive income (loss). When an available-for-sale investment is sold or impaired, the accumulated gains or losses are reversed from accumulated other comprehensive income (loss) and included in other income (expense) or impairment of investments in the statement of income and comprehensive income (loss).
|
|
|
|
54 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
Where the Company holds an investment in a privately-held entity for which there is no active market and for which there is no reliable estimate of fair value, the investment is carried at cost less any provision for impairment.
Translation differences on equity securities classified as available-for-sale, are included in other comprehensive income (loss).
Derivative investments, such as warrants and receivables related to agreements with provisional pricing mechanisms, are classified as fair value through profit and loss and are recognized initially at fair value. Subsequent to initial recognition, derivatives are measured at fair value. Changes in the fair value of receivables related to agreements with provisional pricing mechanisms are recognized in revenue in the statement of income and other comprehensive income (loss). Changes in fair value of warrants are recognized as other income (expenses) in the statement of income and comprehensive income (loss).
Loans receivable are classified as loans and receivables because they have fixed or determinable payments and are not quoted in an active market. Loans are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognized by applying the effective interest rate method and presented as finance income in the statement of income and comprehensive income (loss).
|
(iv) |
|
Financial liabilities |
Financial liabilities, including accounts payable, accrued liabilities and debt, are classified as other financial liabilities at amortized cost using the effective interest method.
|
(v) |
|
Impairment of financial assets |
The Company assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. Financial assets are considered to be impaired if objective evidence indicates that a change in the market, economic or legal environment in which the Company invested has had a negative effect on the estimated future cash flows of that asset. For equity securities classified as available-for-sale, a significant or prolonged decline in fair value of the security below its cost is also evidence that the assets may be impaired. If such evidence exists for available-for-sale financial assets, the cumulative loss, measured as the difference between the acquisition cost and the current fair value, is removed from accumulated other comprehensive income (loss) and recognized as an impairment on investments in net income in the statement of income and other comprehensive income (loss). An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate.
Impairment losses are recognized in net income. For financial assets measured at amortized cost, any reversal of impairment is recognized in net income in subsequent periods if the fair value of the financial assets increase and the increase can be objectively related to an event occurring after the impairment loss was recognized in net income. If the value of the previously impaired available-for-sale equity investment subsequently recovers, additional unrealized gains are recorded in other comprehensive income (loss) and the previously recorded impairment losses are not reversed.
(i) Revenue recognition
Revenue comprises revenue earned in the period from royalty, stream and working interests and dividend income. Revenue is measured at fair value of the consideration received or receivable when management can reliably estimate the amount, pursuant to the terms of the royalty, stream and/or working interest agreements. In some instances, the Company will not have access to sufficient information to make a reasonable estimate of revenue and, accordingly, revenue recognition is deferred until management can make a reasonable estimate. Differences between estimates and actual amounts are adjusted and recorded in the period that the actual amounts are known.
For royalty interests, revenue recognition generally occurs in the month of production from the royalty property. For stream and working interests, relevant commodities received from the stream or working interest operators are sold to the Company's third party customers. Revenue from these sales is recognized when title and risks of the delivered commodity are passed on to the Company's third party customers.
|
|
|
55 |
Under the terms of certain revenue stream agreements and concentrate sales contracts with independent smelting companies, sales prices are provisionally set on a specified future date after shipment based on market prices. Revenue is recorded under these contracts at the time of shipment, which is also when the risk and rewards of ownership pass to the smelting companies, using forward commodity prices on the expected date that final sales prices will be fixed. Variations between the price recorded at the shipment date and the actual final price set under the smelting contracts 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.
(j) Gold and silver sales
Gold and silver, including gold and silver received under stream agreements, is sold primarily in the spot market. The sales price is fixed at the delivery date based on the gold or silver spot prices. The Company records the sales when title and risks of the delivered commodity are passed on to the Company's third party customers.
(k) Oil & gas sales
Revenue from the sale of crude oil, natural gas and natural gas liquids is recorded at the time it enters the pipeline system, which is also when risks and rewards of ownership are transferred. At the time of delivery of oil & gas, revenues are determined based upon contracts by reference to monthly market commodity prices plus certain price adjustments. Price adjustments include product quality and transportation adjustments and market differentials.
(l) Costs of sales
Costs of sales includes various mineral and oil & gas 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 oil & gas properties.
For stream agreements, the Company purchases gold and/or silver 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.
(m) 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 (loss) 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.
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 (loss), except when it relates to items credited or charged directly to equity, in which case the deferred tax is also accounted for within equity.
|
|
|
|
56 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
(n) 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 entry 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.
(o) 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 in 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. 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 five 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 (loss).
(p) Restricted share units
The Company may grant restricted share units to officers and employees under the terms of its share compensation plan. The Company plans to settle every restricted share unit with one common share of the parent company. The Company recognizes the fair value of the restricted share units as share-based compensation expense which is determined with reference to the weighted average trading price of the Company's common shares over the five trading days immediately preceding the date of issuance. The amount recognized reflects the number of awards for which the related service and non-market performance conditions associated with these awards are expected to be met. The Company expenses the fair value of the restricted share units over the applicable service period, with a corresponding increase in contributed surplus. For performance vesting conditions, the grant date fair value of the restricted share unit is measured to reflect such conditions and this estimate is not updated between expected and actual outcomes.
(q) Segment reporting
The Company manages its business under a single operating segment, consisting of resource sector royalty/stream acquisitions and management activities. All of the Company's assets and revenues are attributable to this single operating segment.
The operating segment is 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 segment.
(r) 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.
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|
57 |
New and Amended Standards Adopted by the Company
The following standard was effective and implemented for the annual period as of January 1, 2017.
IAS 12 Income Taxes
IAS 12 Income Taxes provides guidance on the recognition of deferred tax assets. In January 2016, the IASB issued amendments to clarify the requirements for recognizing deferred tax assets on unrealized losses. The amendments clarify the accounting for deferred tax where an asset is measured at fair value and that fair value is below the asset's tax base. They also clarify certain other aspects of accounting for deferred tax assets. The amendments are effective for annual periods beginning on or after January 1, 2017. The Company has adopted the amendments to IAS 12 in its financial statements for the annual period beginning on January 1, 2017. The adoption of the amendments did not have a material impact on the consolidated financial statements.
IFRS Interpretations Committee on interest and penalties related to income taxes
In September 2017, the IFRS Interpretation Committee (IC) issued an agenda decision on interest and penalties related to income taxes. The agenda decision clarifies that if an entity considers that a particular amount payable or receivable for interest and penalties is an income tax, IAS 12 Income Taxes is applied to that amount. If an entity does not apply IAS 12 to an amount payable or receivable for interest and penalties, it applies IAS 37 Provisions, Contingent Liabilities and Contingent Assets to that amount. The agenda decision was effective immediately and did not have a material impact on the consolidated financial statements.
New Accounting Standards Issued But Not Yet Effective
IFRS 9 Financial Instruments
On July 24, 2014, the IASB published the final version IFRS 9 Financial Instruments which brings together the classification, measurement, impairment and hedge accounting phases of the IASB's project to replace IAS 39 Financial Instruments: Recognition and Measurement . IFRS 9 includes a loss impairment model, amends the classification and measurement model for financial assets by adding a new fair value through comprehensive income category for certain debt instruments and provides additional guidance on how to apply the business model and contractual cash flow characteristics test. This final version of IFRS 9 supersedes all previous versions of IFRS 9 and is effective for periods beginning on or after January 1, 2018. The Company has assessed the impact of IFRS 9 on the consolidated financial statements. The Company has completed its assessment of the impact of IFRS 9 and expects the following impacts upon adoption:
|
· |
|
The Company will make an irrevocable election available under IFRS 9 to continue to measure it's currently held long-term investment in equity securities at fair value through other comprehensive income (“OCI”). This election is available on an instrument-by-instrument basis. Under the new standard, all changes in the fair value will be recognized permanently in OCI with no subsequent transfer into earnings (loss), including upon derecognition. On adoption of IFRS 9, the Company expects to make an insignificant adjustment to opening retained earnings with a corresponding adjustment to accumulated other comprehensive income to retroactively adjust for historical gains (losses) previously recognized through earnings (loss). The new classification and measurement requirements under IFRS 9 are not expected to have a material impact on the Company's other financial assets and financial liabilities. |
|
· |
|
Under IAS 39, investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured can currently be measured at cost. This cost exemption is not available under IFRS 9. The Company holds one equity investment at cost, with a carrying value of $4.1 million as at December 31, 2017. The Company has assessed the fair value of the instrument based on valuation techniques that include inputs that are not based on observable market data. The fair value approximates the carrying value of the instrument as of the date adoption and as such the Company has concluded no adjustment is required. However, the previous impairment of this investment that was recorded in 2013 amounting to $24.2 million will be reclassified from deficit to other comprehensive loss upon adoption. |
|
· |
|
IFRS 9 introduces a new expected credit loss model required to evaluate financial assets for impairment, rather than an incurred loss model currently being applied under IAS 39. The Company's financial assets which are currently subject to credit risk include cash and cash equivalents, short-term investments, receivables and loan receivables. The Company holds one loan receivable from Noront Resources Ltd. The loan receivable is carried at amortized cost and has a carrying value of $30.1 million as at December 31, 2017. The Company has assessed the expected credit losses on its financial assets as nominal. The introduction of the new expected credit loss model required to evaluate financial assets for impairment does not have a significant impact on the Company's financial assets. |
|
|
|
|
58 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
IFRS 15 Revenue from Contracts with Customers
In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers . The new standard provides a comprehensive framework for recognition, measurement and disclosure of revenue from contracts with customers, excluding contracts within the scope of the standards on leases, insurance contracts and financial instruments. IFRS 15 becomes effective for annual periods beginning on or after January 1, 2018 and can be applied retrospectively or modified retrospectively with early adoption permitted. The Company has completed its assessment of the impact of IFRS 15, including a review of its material contracts for each of its material revenue categories, and does not expect the new standard to have a material impact on the consolidated financial statements. The Company will adopt IFRS 15 for the annual period beginning January 1, 2018 using the modified retrospective approach.
IFRIC 23 Uncertainty over Income Tax Treatments
In June 2017, the IFRS Interpretation Committee issued IFRIC 23, which clarifies how the recognition and measurement requirements of IAS 12 Income Taxes are applied where there is uncertainty over income tax treatments. IFRIC 23 becomes effective for annual periods beginning on or after January 1, 2019 and is to be applied retrospectively with early adoption permitted. The Company is in the process of assessing the impact of IFRIC 23 on the consolidated financial statements.
IFRS 16 Leases
In January 2016, the IASB issued IFRS 16 Leases , which requires lessees to recognize assets and liabilities for most leases. IFRS 16 becomes effective for annual periods beginning on or after January 1, 2019 and is to be applied retrospectively with early adoption permitted, provided IFRS 15 has been applied or is applied at the same date as IFRS 16. The Company does not anticipate early adoption and is assessing the impact of adoption of this new standard on the 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:
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 oil & gas interests, the estimated reserves in reserve reports prepared by previous independent petroleum consultants engaged by the Company 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.
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|
59 |
Impairment of Royalty, Stream and Working Interests
Assessment of impairment of royalty, stream, working interests and oil & gas well equipment requires the use of judgments, assumptions and estimates when assessing whether there are any indicators that could give rise to the requirement to conduct a formal impairment test on the Company's royalty, stream and working interests, investments measured at cost and/or oil & gas equipment. 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 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, investments measured at cost, or oil & gas well equipment could impact the impairment analysis.
Asset Acquisition
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 requires 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.
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 silver or gold 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 silver and gold. 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.
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60 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
Note 4 – Acquisitions and other transactions
(a) Acquisition of Bowen Basin Coal Royalties, Australia
Subsequent to year end, on February 28, 2018, Franco-Nevada, through a wholly-owned subsidiary, acquired a portfolio of metallurgical coal royalties located in the Bowen Basin of Queensland, Australia for a cash consideration of A$4.2 million. The portfolio includes certain claims that comprise the producing Moorvale mine, the Olive Downs project which had permitting applications, and another 33 exploration tenements. The Bowen Basin Coal royalty is a production payment of A$0.10 per tonne, adjusted for consumer price index changes since December 31, 1997.
(b) Acquisition of Additional Stream and Update on the Cobre Panama Project - Panama
The Company has a precious metals stream agreement for First Quantum Minerals Ltd.'s (“First Quantum”) Cobre Panama project (“Cobre Panama”). The project, which is located in Panama, is in the construction phase. Under the terms of the agreement, Franco-Nevada is funding a deposit of $1.0 billion against future deliveries of gold and silver from Cobre Panama. The deposit is funded on a pro-rata basis of 1:3 with First Quantum's 80% share of the capital costs in excess of $1.0 billion.
In 2017, the Company funded $264.4 million (2016 - $124.3 million) towards the stream, for a cumulative total of $726.6 million (2016 - $462.2 million) of its maximum $1.0 billion commitment. Capitalized costs for the Cobre Panama project of $734.4 million (2016 - $467.5 million) are included in royalty, stream and working interests on the consolidated statement of financial position as at December 31, 2017.
On September 7, 2017, the Company agreed to terms with First Quantum to purchase an additional precious metals stream from the Cobre Panama project for a purchase price of $178.0 million. This agreement was expanded to $356.0 million and signed on January 22, 2018 to also include a precious metal stream on the 10% indirect interest held by Korea Resources Corp. (“KORES”). The total purchase price of $356.0 million is payable as a one-time advance payment upon closing of the transaction which is expected to occur before the end of March. No additional pro-rata funding commitments will apply to the additional stream. The terms of the additional stream, other than the ongoing price, will be similar to the existing stream on the Cobre Panama project, including initially linking precious metals deliveries to copper in concentrate shipped. Full details of the terms of the additional precious metal stream are provided in Note 20 – Commitments.
(c) Acquisition of U.S. Oil & Gas Royalties – Delaware, Texas
Subsequent to year-end, on February 20, 2018, the Company purchased a royalty portfolio in the Delaware Basin, which represents the western portion of the Permian Basin for $101.3 million. The royalties are derived principally from mineral title which provides a perpetual interest in royalty lands. The transaction entitles the Company to royalties effective October 1, 2017. No amounts have been recorded in the statement of income and comprehensive income as of December 31, 2017. Prior to year-end, the Company advanced $11.0 million into escrow in respect to this transition and this amount was included in Royalty, stream and working interests, net on the statement of financial position as at December 31, 2017.
(d) Acquisition of Additional of U.S. Oil & Gas Royalties – STACK, Oklahoma
On November 1, 2017, the Company purchased for $27.6 million, a second package of mineral titles in the core of the Sooner Trend, Anadarko Basin, Canadian and Kingfisher counties (“STACK”) shale play in Oklahoma from a private company. Franco-Nevada has the right to royalties on production beginning from June 1, 2017.
On December 19, 2016, the Company acquired a package of royalty rights in the Sooner Trend, Anadarko Basin, Canadian and Kingfisher counties (“STACK”) shale play in Oklahoma's Anadarko Basin for a price of $100.0 million. The two primary operators of the lands are Newfield Exploration Company and Devon Energy Corporation.
(e) Acquisition of Canadian Oil & Gas Royalties – Orion Thermal Project, Alberta
On September 29, 2017, Franco-Nevada acquired a 4% Gross Overriding Royalty (“GORR”) on the Clearwater formation within the Orion oil sands project (“Orion”) in the Cold Lake region of Alberta from Osum Oil Sands Corp. (“Osum”) for a cash consideration of $74.1 million (C$92.5 million).
(f) Acquisition of Railroad Royalty – Carlin Trend, Nevada
On May 26, 2017, Franco-Nevada, through a wholly-owned U.S. subsidiary, acquired an existing 1% NSR on certain claims that comprise the Railroad deposit located on the Carlin Trend in north-central Nevada for a cash consideration of $0.9 million.
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61 |
(g) Acquisition of U.S. Oil & Gas Royalties – Midland Basin, Texas
On March 13, 2017, Franco-Nevada, through a wholly-owned U.S. subsidiary, entered into an agreement to purchase a royalty portfolio in the Midland Basin of West Texas for $110.0 million. Following completion of due diligence, the first part of the portfolio was acquired for $89.8 million and closed on May 24, 2017. The second part of the portfolio closed on August 8, 2017. The total purchase price was $114.6 million including adjustments for title due diligence and the acquisition of the second part of the portfolio.
(h) Restructuring of Existing Royalties and Acquisition of Shares - Castle Mountain, California
On June 16, 2016, Franco-Nevada and NewCastle Gold Ltd. completed the restructuring of Franco-Nevada's existing royalties at the Castle Mountain gold project in California, USA, into a single 2.65% royalty covering a larger property for C$2.2 million in cash.
In addition, the Company purchased 3,636,364 common shares of NewCastle and 1,818,182 common share purchase warrants for C$1.2 million. Each common share purchase warrant is exercisable to acquire one common share at a price of C$0.64 for a period of five years, expiring on May 9, 2021.
On December 22, 2017, NewCastle, Anfield Gold Corp. and Trek Mining Inc. combined their business to create Equinox Gold Corp. (“Equinox Gold”). The Company received 0.873 Equinox Gold common shares and warrants for each NewCastle common share and warrant held, respectively. The Company recorded a gain on the consolidated statements of income and comprehensive income for the year ended December 31, 2017 of $1.5 million, net of tax, in respect to the exchange of the shares. The Company currently holds 3,174,545 common shares and 1,587,272 warrants in Equinox Gold.
(i) Acquisition of Stream – Antapaccay, Peru
On February 26, 2016, the Company acquired a $500.0 million precious metal stream from Glencore plc with reference to production from the Antapaccay mine located in Peru. Under the stream agreement, gold and silver deliveries are initially referenced to copper in concentrate shipped. The Company will receive 300 ounces of gold and 4,700 ounces of silver for each 1,000 tonnes of copper in concentrate shipped, until 630,000 ounces of gold and 10.0 million ounces of silver have been delivered. Thereafter, the Company will receive 30% of the gold and silver shipped. The Company pays an on-going price of 20% of the spot price of gold and silver until 750,000 ounces of refined gold and 12.8 million ounces of refined silver have been delivered. Thereafter, the on-going price will increase to 30% of the spot price of gold and silver.
All of the above acquisitions have been classified as asset acquisitions.
Note 5 – Cash and Cash Equivalents
As at December 31, 2017 and 2016, cash and cash equivalents were primarily held in interest-bearing deposits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Cash deposits |
|
|
$ |
|
|
|
$ |
182.4 |
|
Term deposits |
|
|
|
|
|
|
|
70.6 |
|
|
|
|
$ |
|
|
|
$ |
253.0 |
|
Note 6 – Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Non-current investments |
|
|
|
|
|
|
|
|
|
Equity investments |
|
|
$ |
|
|
|
$ |
118.4 |
|
Warrants |
|
|
|
|
|
|
|
0.9 |
|
Loan Receivable |
|
|
|
|
|
|
|
28.1 |
|
Total Investments |
|
|
$ |
|
|
|
$ |
147.4 |
|
|
|
|
|
62 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
Non-current investments
These investments comprise: (i) equity interests in various public and non-public entities which the Company acquired through the open market or through transactions; (ii) warrants in various publicly-listed companies; and (iii) a loan receivable from Noront acquired through the Ring of Fire transaction in 2015. Equity investments have been designated as available-for-sale and, as a result, have been recorded at fair value. One equity investment of a non-public entity, having a carrying value of $4.1 million (2016 - $3.8 million), has been designated as an equity investment held at cost as no reliable estimate of fair value can be determined because there is no publicly available information with which to estimate future cash flows, associated operating costs or capital expenditures and no alternative active market. Management does not intend to dispose of the investment and expects to recover the carrying value through the payment of dividends.
The loan receivable has been designated as loans and receivables under IFRS and is carried at amortized cost using the effective interest rate method.
The unrealized gains (losses) on available-for-sale investments recognized in other comprehensive income (loss) for the year ended December 31, 2017 and 2016 were as follows:
|
|
|
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|
|
|
|
|
|
|
|
For the year ended |
|
||||||
|
|
December 31, |
|
||||||
|
|
|
|
|
|
|
|
||
Mark-to-market gain on equity investments |
|
|
$ |
|
|
|
$ |
58.2 |
|
Deferred tax (expense) recovery in other comprehensive income |
|
|
|
(6.1) |
|
|
|
(5.3) |
|
Unrealized gain on available-for-sale securities, net of tax |
|
|
|
|
|
|
|
52.9 |
|
Reclassification for realized change in market value recognized in net income, net of tax |
|
|
|
2.4 |
|
|
|
(10.6) |
|
|
|
|
$ |
|
|
|
$ |
42.3 |
|
Note 7 – Prepaid expenses and other
Prepaid expenses and other current assets comprise the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold bullion |
|
|
$ |
|
|
|
$ |
9.3 |
|
Inventory |
|
|
|
|
|
|
|
2.7 |
|
Prepaid gold |
|
|
|
— |
|
|
|
7.0 |
|
Prepaid expenses |
|
|
|
|
|
|
|
17.5 |
|
Debt issue costs |
|
|
|
|
|
|
|
0.6 |
|
|
|
|
$ |
|
|
|
$ |
37.1 |
|
Note 8 – Royalty, Stream and Working Interests, Net
a) Royalties, Streams and Working Interests
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 |
|
|||||||||||
|
|
|
|
Accumulated |
|
|
|
Carrying |
|
|||||
|
|
Cost |
|
Depletion (1) |
|
Impairment |
|
|
Value |
|
||||
Mineral Royalties |
|
$ |
|
|
$ |
(530.9) |
|
$ |
— |
|
|
$ |
|
|
Streams |
|
|
|
|
|
(1,140.5) |
|
|
— |
|
|
|
|
|
Oil and Gas |
|
|
|
|
|
(326.8) |
|
|
— |
|
|
|
|
|
Advanced |
|
|
|
|
|
(36.2) |
|
|
— |
|
|
|
|
|
Exploration |
|
|
|
|
|
(15.6) |
|
|
— |
|
|
|
|
|
|
|
$ |
|
|
$ |
(2,050.0) |
|
$ |
— |
|
|
$ |
|
|
|
|
|
63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 |
|
|||||||||||
|
|
|
|
Accumulated |
|
|
|
Carrying |
|
|||||
|
|
Cost |
|
Depletion (1) |
|
Impairment |
|
|
Value |
|
||||
Mineral Royalties |
|
$ |
963.0 |
|
$ |
(475.0) |
|
$ |
— |
|
|
$ |
488.0 |
|
Streams |
|
|
3,450.0 |
|
|
(880.4) |
|
|
(67.4) |
|
|
|
2,502.2 |
|
Oil and Gas |
|
|
732.4 |
|
|
(283.5) |
|
|
— |
|
|
|
448.9 |
|
Advanced |
|
|
222.9 |
|
|
(34.1) |
|
|
— |
|
|
|
188.8 |
|
Exploration |
|
|
52.0 |
|
|
(11.5) |
|
|
(0.1) |
|
|
|
40.4 |
|
|
|
$ |
5,420.3 |
|
$ |
(1,684.5) |
|
$ |
(67.5) |
|
|
$ |
3,668.3 |
|
|
1 |
|
Accumulated depletion includes previously recognized impairment charges. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mineral |
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Royalties |
|
Streams |
|
Oil & Gas (1) |
|
Advanced |
|
Exploration |
|
Total |
|
||||||
Balance at January 1, 2016 |
|
$ |
538.2 |
|
$ |
2,122.3 |
|
$ |
356.3 |
|
$ |
200.4 |
|
$ |
40.3 |
|
$ |
3,257.5 |
|
Acquisitions |
|
|
— |
|
|
642.8 |
|
|
101.3 |
|
|
1.7 |
|
|
— |
|
|
745.8 |
|
Disposals |
|
|
(16.2) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(16.2) |
|
Transfers |
|
|
6.2 |
|
|
— |
|
|
— |
|
|
(6.2) |
|
|
— |
|
|
— |
|
Impairments |
|
|
— |
|
|
(67.4) |
|
|
— |
|
|
— |
|
|
(0.1) |
|
|
(67.5) |
|
Depletion |
|
|
(52.1) |
|
|
(195.5) |
|
|
(19.1) |
|
|
(0.7) |
|
|
(0.2) |
|
|
(267.6) |
|
Impact of foreign exchange |
|
|
11.9 |
|
|
— |
|
|
10.4 |
|
|
(6.4) |
|
|
0.4 |
|
|
16.3 |
|
Balance at December 31, 2016 |
|
$ |
488.0 |
|
$ |
2,502.2 |
|
$ |
448.9 |
|
$ |
188.8 |
|
$ |
40.4 |
|
$ |
3,668.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions (Note 4) |
|
|
— |
|
|
265.8 |
|
|
232.7 |
|
|
— |
|
|
1.0 |
|
|
499.5 |
|
Transfers |
|
|
42.1 |
|
|
— |
|
|
— |
|
|
(43.2) |
|
|
1.1 |
|
|
— |
|
Impairments |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Depletion |
|
|
(52.3) |
|
|
(192.6) |
|
|
(23.0) |
|
|
(1.0) |
|
|
— |
|
|
(268.9) |
|
Impact of foreign exchange |
|
|
8.3 |
|
|
— |
|
|
24.1 |
|
|
7.3 |
|
|
0.6 |
|
|
40.3 |
|
Balance at December 31, 2017 |
|
$ |
486.1 |
|
$ |
2,575.4 |
|
$ |
682.7 |
|
$ |
151.9 |
|
$ |
43.1 |
|
$ |
3,939.2 |
|
|
1 |
|
Of the net book value as at December 31, 2017, $453.7 million (2016 - $345.8 million) is depletable and $229.0 million (2016 - $103.1 million) is non-depletable. |
b) Impairments of Royalties, Streams and Working Interests
Impairments in the carrying value of each CGU (generally individual royalty or stream interest or in the case of oil & gas, a group of interests in the same property and the associated oil & gas well equipment) are measured and recorded to the extent that the carrying value of each CGU exceeds its estimated recoverable amount, which is generally calculated using an estimate of future discounted cash-flows. As part of the Company's regular asset impairment analysis, which included the presence of impairment indicators, the Company recorded impairment charges for the year ended December 31, 2016, as summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty, stream and working interests, net: |
|
|
|
|
|
|
|
|
|
Cooke 4 |
|
|
$ |
— |
|
|
$ |
67.4 |
|
Exploration assets |
|
|
|
— |
|
|
|
0.1 |
|
Total impairment losses |
|
|
$ |
— |
|
|
$ |
67.5 |
|
There were no impairment indicators identified during 2017. During 2016, the following were identified as indicators of impairment:
Cooke 4
On October 27, 2016, Sibanye Gold Limited (“Sibanye”) announced that it had ceased production at the Cooke 4 underground operation. Management assessed the cessation of operations as an indicator of impairment, and accordingly, performed an impairment assessment.
|
|
|
|
64 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
Exploration assets
The Company was notified, pursuant to various royalty agreements, that the explorer/developer had abandoned tenements, concessions or ground which was subject to royalty rights held by the Company. In the circumstances, the Company wrote-off the carrying value of the associated exploration assets to nil. For the year ended December 31, 2016, the total amount written off was $0.1 million.
Key assumptions and sensitivity
The key assumptions and estimates used in determining the recoverable amount are related to commodity prices and discount rates.
The FVLCD for Cooke 4 was determined by calculating the net present value (“NPV”) of the estimated future cash-flows expected to be generated by the processing of the Cooke 4 tailings. The estimates of future cash-flows were derived from a model developed by management based on expected performance using publicly released information from the operator. Based on observable market or publicly available data, the Company's management made assumptions of future commodity prices to estimate future revenues. These price assumptions were supported by longer-term consensus price estimates obtained from a sample of analysts. The future cash-flows were discounted using an after-tax discount rate which reflects specific market risk factors associated with Cooke 4. The Company estimated the recoverable amount of its Cooke 4 interest to be $2.1 million.
The key assumptions in the impairment testing consisted of the timing of the estimated future cash flows, forecasted gold prices, and the discount rate. The Company used a long-term gold price of $1,321 per ounce, and a discount rate of 8%. The Company also performed sensitivity analyses on these key assumptions that impact the impairment calculations, by applying a change of 10% on the gold price assumption, a change of 300 basis points for the discount rate assumption, and a 5‑year change in the timing of expected future cash flows. These sensitivity analyses did not result in a significant change in the estimated recoverable amount and impairment charge.
c) Disposals of Royalties, Streams and Working Interests
In October 2016, Kirkland Lake Gold Ltd. (“Kirkland Lake”) exercised its option to buy back 1% of an overlying 2.5% net smelter return royalty for an aggregate cash consideration of $30.3 million ($36.0 million less royalty proceeds attributable to the buyback portion of the NSR paid to Franco-Nevada prior to the effective date of the buyback). The carrying value of the NSR portion subject to the buyback was $16.2 million. The Company recognized a gain on disposal of $14.1 million in the consolidated statement of income and comprehensive income for the year ended December 31, 2016.
Note 9 – Other assets
Other assets comprise the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid gold |
|
|
$ |
— |
|
|
$ |
7.1 |
|
Oil & gas well equipment, net |
|
|
|
|
|
|
|
14.0 |
|
Furniture and fixtures, net |
|
|
|
|
|
|
|
0.7 |
|
Debt issue costs |
|
|
|
|
|
|
|
1.6 |
|
|
|
|
$ |
|
|
|
$ |
23.4 |
|
Note 10 – Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities comprise the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
$ |
|
|
|
$ |
9.6 |
|
Accrued liabilities |
|
|
|
|
|
|
|
11.4 |
|
|
|
|
$ |
|
|
|
$ |
21.0 |
|
|
|
|
65 |
Note 11 - 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 no transfers between the levels of the fair value hierarchy during the year ended December 31, 2017.
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, 2017 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
|
Fair Value |
|
||||
Cash and cash equivalents |
|
$ |
|
|
$ |
— |
|
$ |
— |
|
|
$ |
|
|
Receivables from provisional gold equivalent sales |
|
|
— |
|
|
11.3 |
|
|
— |
|
|
|
|
|
Available-for-sale equity investments |
|
|
168.1 |
|
|
— |
|
|
— |
|
|
|
|
|
Warrants |
|
|
— |
|
|
0.8 |
|
|
— |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
Significant Other |
|
Significant |
|
|
|
|
||||
|
|
Active Markets for |
|
Observable |
|
Unobservable |
|
|
|
|
||||
|
|
Identical Assets |
|
Inputs |
|
Inputs |
|
|
Aggregate |
|
||||
As at December 31, 2016 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
|
Fair Value |
|
||||
Cash and cash equivalents |
|
$ |
253.0 |
|
$ |
— |
|
$ |
— |
|
|
$ |
253.0 |
|
Receivables from provisional gold equivalent sales |
|
|
— |
|
|
9.8 |
|
|
— |
|
|
|
9.8 |
|
Available-for-sale equity investments |
|
|
114.6 |
|
|
— |
|
|
— |
|
|
|
114.6 |
|
Warrants |
|
|
— |
|
|
0.9 |
|
|
— |
|
|
|
0.9 |
|
|
|
$ |
367.6 |
|
$ |
10.7 |
|
$ |
— |
|
|
$ |
378.3 |
|
Fair Values of Financial Assets and Liabilities
The fair values of the Company's remaining financial assets and liabilities, which include receivables, loan receivables, accounts payable and accrued liabilities, approximate their carrying values due to their short-term nature and historically negligible credit losses and/or fair value of collateral.
The Company has not offset financial assets with financial liabilities.
|
|
|
|
66 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
Assets Measured at Fair Value on a Non-Recurring Basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
Significant |
|
|
|
|
||||
|
|
Active Markets for |
|
Significant Other |
|
Unobservable |
|
|
|
|
||||
|
|
Identical Assets |
|
Observable Inputs |
|
Inputs |
|
|
Aggregate |
|
||||
As at December 31, 2017 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
|
Fair Value |
|
||||
Royalty, stream and working interests |
|
$ |
— |
|
$ |
— |
|
$ |
|
|
|
$ |
|
|
|
|
$ |
— |
|
$ |
— |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in |
|
|
|
Significant |
|
|
|
|
||||
|
|
Active Markets for |
|
Significant Other |
|
Unobservable |
|
|
|
|
||||
|
|
Identical Assets |
|
Observable Inputs |
|
Inputs |
|
|
Aggregate |
|
||||
As at December 31, 2016 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
|
Fair Value |
|
||||
Royalty, stream and working interests |
|
$ |
— |
|
$ |
— |
|
$ |
2.1 |
|
|
$ |
2.1 |
|
|
|
$ |
— |
|
$ |
— |
|
$ |
2.1 |
|
|
$ |
2.1 |
|
The valuation techniques that are used to measure fair value are as follows:
a) Cash and cash equivalents
The fair values of cash and cash equivalents, including interest bearing deposits, are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets.
b) Receivables
The fair values of receivables arising from gold and platinum group metal 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.
c) Investments
The fair values of publicly-traded investments, including available-for-sale equity 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 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.
d) Royalty, stream, and working interests and oil well equipment
The fair values of royalty, stream, and working interests and oil well equipment are determined primarily using a market approach using unobservable discounted future cash-flows and cash-flow and revenue multiples. As a result, the fair values are classified within Level 3 of the fair value hierarchy.
Note 12 – 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, short-term investments, 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.
|
|
|
67 |
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 our 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 Risk
Market risk is the risk that changes 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 risk by either accepting it or mitigating it through the use of economic strategies.
Commodity Price Risk
The Company's royalties/streams are subject to fluctuations from changes in market prices of the underlying commodities. The market prices of gold, silver, platinum, palladium and oil 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 oil & gas 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 invests its cash and cash equivalents and short-term investments in U.S. and Canadian dollar denominated interest-bearing deposits on a ratio of 87% to 2%, respectively, and 11% in other currencies, as at December 31, 2017.
During the year ended December 31, 2017, the U.S. dollar weakened in relation to the Canadian dollar and upon the translation of the Company's assets and liabilities held in Canada, the Company recorded a currency translation adjustment income of $77.2 million in other comprehensive income (2016 — income of $21.3 million).
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. As at December 31, 2017, the Company's interest rate exposure arises mainly from the interest receipts on cash, cash equivalents and short-term investments.
The following table shows the approximate interest rate sensitivities of our financial assets and liabilities as at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect on Net Income |
|
|
Effect on Equity |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
0.5% increase |
|
|
$ |
(2.2) |
|
|
$ |
(1.0) |
|
|
$ |
(2.2) |
|
|
$ |
(1.0) |
|
0.5% decrease |
|
|
|
2.2 |
|
|
|
1.0 |
|
|
|
2.2 |
|
|
|
1.0 |
|
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, short-term investments, 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, 2017, the Company is unaware of any information which would cause it to believe that these financial assets are not fully recoverable.
|
|
|
|
68 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
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 undrawn 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, 2017, the Company held $511.1 million in either cash, cash equivalents or highly-liquid investments (2016 – $253.0 million). All of the Company's financial liabilities are due within one year. The Company's near-term cash requirements include corporate administration costs, certain costs of sales, including the ore purchase commitments described in Note 20(a), dividends and income taxes directly related to the recognition of royalty, stream and working interest revenues. In addition, the Company is committed to fund under its precious metals stream agreements as described in Note 4 (a) .
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, 2017 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 facility as at December 31, 2017.
As at December 31, 2017, the Company has cash, cash equivalents and available-for-sale short-term investments totaling $511.1 million (2016 – $253.0 million), long-term investments totaling $203.1 million (2016 – $147.4 million), of which $168.1 million (2016 – $114.6 million) are held in liquid securities. The Company also has $1.0 billion (2016 – $1.0 billion) available under its unsecured revolving term credit facility. All of these sources of capital were available for growing the Company's asset portfolio and paying dividends.
Note 13 – Revolving term credit facility
(a) Credit Facility - $1.0 billion
The Company has a five year $1.0 billion unsecured revolving term credit facility (the “Credit Facility”). On March 22, 2017, the Company amended its Credit Facility by extending the term from November 12, 2020 to March 22, 2022. Subsequent to year end, on March 7, 2018, the Company further amended its Credit Facility by extending the term from March 22, 2022 to March 22, 2023.
Advances under the Credit Facility 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 0.20% and 1.20% per annum depending upon the Company's leverage ratio; or |
|
· |
|
LIBOR loans for periods of 1, 2, 3 or 6 months with interest payable at a rate of LIBOR, plus between 1.20% and 2.20% per annum, depending on the Company's leverage ratio. |
Canadian dollars
|
· |
|
Prime rate advances with interest payable monthly at the CIBC prime rate, plus between 0.20% and 1.20% per annum, depending on the Company's leverage ratio; or |
|
· |
|
Bankers' acceptances for a period of 30 to 180 days with a stamping fee calculated on the face amount between 1.20% and 2.20%, depending on the Company's leverage ratio. |
All loans are readily convertible into loans of other types, described above, on customary terms and upon provision of appropriate notice. Borrowings under the Credit Facility are guaranteed by certain of the Company's subsidiaries and are unsecured.
The Credit Facility is subject to a standby fee of 0.24% to 0.44% per annum, depending on the Company's leverage ratio, even if no amounts are outstanding under the Credit Facility.
|
|
|
69 |
As at December 31, 2017, there was no balance (December 31, 2016 – $Nil) outstanding under the Credit Facility.
As at December 31, 2017, a balance of $2.5 million related to debt issue costs is remaining to be amortized over the remaining term of the Credit Facility (December 31, 2016 – $2.2 million). The unamortized debt issue costs associated with the Credit Facility are included in prepaid expenses and other current assets, and other non-current assets. For the year ended December 31, 2017, the Company recognized debt issuance cost amortization expense of $0.9 million (2016 - $0.6 million), and $2.5 million (2016 – $2.2 million) of standby and administrative fees in the consolidated statement of income and comprehensive income.
(b) FNBC Credit Facility - $100.0 million
On March 20, 2017, the Company's subsidiary, Franco-Nevada (Barbados) Corporation, entered into an unsecured revolving term credit facility (the “FNBC Credit Facility”). The FNBC Credit Facility provides for the availability over a one-year period of up to $100.0 million in borrowings. The FNBC Credit Facility has a maturity date of March 20, 2018. The Company has the option of requesting, during a period of time before each anniversary date, up to two additional one-year extensions of the maturity. These requests are subject to approval from the lenders. Subsequent to year end, on February 21, 2018, the FNBC Credit Facility's maturity date was extended from March 20, 2018 to March 20, 2019.
Advances under the FNBC Credit Facility can be drawn as follows:
|
· |
|
Base rate advances with interest payable monthly at the CIBC base rate, plus 0.35% per annum; or |
|
· |
|
LIBOR loans for periods of 1, 2, 3 or 6 months with interest payable at a rate of LIBOR plus 1.35% per annum. |
All loans are readily convertible into loans of other types on customary terms and upon provision of appropriate notice.
The FNBC Credit Facility is subject to a standby fee of 0.27% per annum, even if no amounts are outstanding.
As at December 31, 2017, there was no balance outstanding under the FNBC Credit Facility.
As at December 31, 2017, $0.1 million related to debt issue costs were capitalized and will be amortised over the remaining term of the FNBC Credit Facility.
Note 14 – Revenue
Revenue is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Mineral royalties |
|
|
$ |
173.7 |
|
|
$ |
169.3 |
|
Mineral streams |
|
|
|
443.3 |
|
|
|
401.6 |
|
Sale of prepaid gold |
|
|
|
11.0 |
|
|
|
9.2 |
|
Oil & gas interests |
|
|
|
47.0 |
|
|
|
30.1 |
|
|
|
|
$ |
675.0 |
|
|
$ |
610.2 |
|
Note 15 – Costs of sales
Costs of sales are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Per ounce stream purchase cost |
|
|
$ |
127.4 |
|
|
$ |
95.6 |
|
Cost of prepaid ounces |
|
|
|
7.7 |
|
|
|
6.5 |
|
Mineral production taxes |
|
|
|
2.3 |
|
|
|
0.5 |
|
Oil & gas operating costs |
|
|
|
4.6 |
|
|
|
3.2 |
|
|
|
|
$ |
142.0 |
|
|
$ |
105.8 |
|
|
|
|
|
70 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
Note 16 – 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Short-term benefits (1) |
|
|
$ |
4.5 |
|
|
$ |
4.5 |
|
Share-based payments (2) |
|
|
|
6.4 |
|
|
|
5.1 |
|
|
|
|
$ |
10.9 |
|
|
$ |
9.6 |
|
|
1 |
|
Includes salary, benefits and short-term accrued incentives/other bonuses earned in the period. |
|
2 |
|
Represents the expense of stock options, restricted share units earned and mark-to-market charges on deferred share units during the year. |
Note 17 - Income taxes
Income tax expense for the years ended December 31, 2017 and 2016 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Current income tax expense |
|
|
|
|
|
|
|
|
|
Expense for the year |
|
|
$ |
25.1 |
|
|
$ |
35.5 |
|
Adjustment in respect of prior years |
|
|
|
(5.6) |
|
|
|
5.4 |
|
Current income tax expense |
|
|
$ |
19.5 |
|
|
|
40.9 |
|
Deferred income tax expense (recovery) |
|
|
|
|
|
|
|
|
|
Origination and reversal of temporary differences in the current year |
|
|
|
15.7 |
|
|
|
15.3 |
|
Impact of U.S. Tax Reform |
|
|
|
7.1 |
|
|
|
— |
|
Impact of changes in tax rate |
|
|
|
(0.9) |
|
|
|
(0.8) |
|
Change in (reversal of) unrecognized deductible temporary differences |
|
|
|
0.1 |
|
|
|
(4.4) |
|
Adjustments in respect of prior years |
|
|
|
0.6 |
|
|
|
(4.3) |
|
Other |
|
|
|
(0.8) |
|
|
|
(1.0) |
|
Deferred income tax expense |
|
|
|
21.8 |
|
|
|
4.8 |
|
Total |
|
|
$ |
41.3 |
|
|
$ |
45.7 |
|
A reconciliation of the provision for income taxes computed at 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 (loss) for the years ended December 31, 2017 and 2016, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Net income before income taxes |
|
|
$ |
236.0 |
|
|
$ |
167.9 |
|
Statutory tax rate |
|
|
|
|
|
|
|
|
|
Tax expense at statutory rate |
|
|
|
62.8 |
|
|
|
44.7 |
|
Reconciling items: |
|
|
|
|
|
|
|
|
|
Change in (reversal of) unrecognized deductible temporary differences |
|
|
|
0.1 |
|
|
|
(4.4) |
|
Income/expenses not (taxed) deductible |
|
|
|
(3.0) |
|
|
|
(1.9) |
|
Differences in foreign statutory tax rates |
|
|
|
(20.9) |
|
|
|
4.8 |
|
Differences due to changing future tax rates |
|
|
|
(0.9) |
|
|
|
(0.8) |
|
Impact of U.S. Tax Reform |
|
|
|
7.1 |
|
|
|
— |
|
Foreign withholding tax |
|
|
|
1.4 |
|
|
|
1.8 |
|
Temporary differences subject to initial recognition exemption |
|
|
|
(5.2) |
|
|
|
0.5 |
|
Other |
|
|
|
(0.1) |
|
|
|
1.0 |
|
Net income tax expense |
|
|
$ |
41.3 |
|
|
$ |
45.7 |
|
On December 22, 2017, the United States enacted Tax Reform legislation. Among the significant changes include a reduction in the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018, which resulted in a deferred tax expense of $7.1 million on the re-measurement of the Company's deferred tax assets in the U.S. The impact of the U.S. Tax Reform on the Company may differ from the expense recorded due to changes as a result of additional information and guidance that will be issued by the Department of Treasury.
|
|
|
71 |
Income tax (expense) recognized in other comprehensive income (loss) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 |
|
|
|
2016 |
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
After |
|
|
|
|
|
|
|
|
|
|
|
After |
|
|
|
|
|
Before |
|
|
|
Tax |
|
|
|
Tax |
|
|
|
Before |
|
|
|
Tax |
|
|
|
Tax |
|
|
|
|
|
Tax Gain |
|
|
|
Expense |
|
|
|
Gain |
|
|
|
Tax Loss |
|
|
|
Expense |
|
|
|
Loss |
|
Change in market value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of available-for-sale investments |
|
|
$ |
47.1 |
|
|
$ |
(6.3) |
|
|
$ |
40.8 |
|
|
$ |
46.0 |
|
|
$ |
(3.7) |
|
|
$ |
42.3 |
|
Cumulative translation adjustment |
|
|
|
77.2 |
|
|
|
— |
|
|
|
77.2 |
|
|
|
21.3 |
|
|
|
— |
|
|
|
21.3 |
|
Other comprehensive loss |
|
|
$ |
124.3 |
|
|
$ |
(6.3) |
|
|
$ |
118.0 |
|
|
$ |
67.3 |
|
|
$ |
(3.7) |
|
|
$ |
63.6 |
|
Deferred tax |
|
|
$ |
— |
|
|
$ |
(6.3) |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(3.7) |
|
|
$ |
— |
|
The significant components of deferred income tax assets and liabilities as at December 31, 2017 and 2016, respectively, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Deferred income tax assets: |
|
|
|
|
|
|
|
|
|
Deductible temporary differences relating to: |
|
|
|
|
|
|
|
|
|
Royalty, stream and working interests |
|
|
$ |
5.6 |
|
|
$ |
10.7 |
|
Non-capital loss carry-forwards |
|
|
|
9.5 |
|
|
|
11.2 |
|
Other |
|
|
|
(0.6) |
|
|
|
(0.6) |
|
|
|
|
$ |
14.5 |
|
|
$ |
21.3 |
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities: |
|
|
|
|
|
|
|
|
|
Taxable temporary differences relating to: |
|
|
|
|
|
|
|
|
|
Share issue and debt issue costs |
|
|
$ |
(7.1) |
|
|
$ |
(9.7) |
|
Royalty, stream and working interests |
|
|
|
71.1 |
|
|
|
54.2 |
|
Non-capital loss carry-forwards |
|
|
|
(5.6) |
|
|
|
(4.4) |
|
Investments |
|
|
|
5.8 |
|
|
|
(0.1) |
|
Other |
|
|
|
(3.9) |
|
|
|
(2.5) |
|
|
|
|
$ |
60.3 |
|
|
$ |
37.5 |
|
Deferred income tax liabilities, net |
|
|
$ |
45.8 |
|
|
$ |
16.2 |
|
Deferred tax assets and liabilities have been offset where they relate to income taxes levied by the same taxation authority and the Company has the legal right and intent to offset.
The analysis of deferred tax assets and deferred tax liabilities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Deferred income tax assets: |
|
|
|
|
|
|
|
|
|
Deferred income tax asset to be recovered within 12 months |
|
|
$ |
0.1 |
|
|
$ |
0.1 |
|
Deferred income tax asset to be recovered after more than 12 months |
|
|
|
14.4 |
|
|
|
21.2 |
|
|
|
|
$ |
14.5 |
|
|
$ |
21.3 |
|
Deferred income tax liabilities: |
|
|
|
|
|
|
|
|
|
Deferred income tax liability to be settled within 12 months |
|
|
|
0.9 |
|
|
|
1.2 |
|
Deferred income tax liability to be settled after more than 12 months |
|
|
|
59.4 |
|
|
|
36.3 |
|
|
|
|
$ |
60.3 |
|
|
$ |
37.5 |
|
Deferred income tax liabilities, net |
|
|
$ |
45.8 |
|
|
$ |
16.2 |
|
|
|
|
|
72 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
Movement in net deferred taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
|
$ |
16.2 |
|
|
$ |
17.1 |
|
Recognized in profit/loss |
|
|
|
21.8 |
|
|
|
4.8 |
|
Recognized in other comprehensive income |
|
|
|
6.3 |
|
|
|
3.7 |
|
Recognized in equity |
|
|
|
— |
|
|
|
(10.0) |
|
Other |
|
|
|
1.5 |
|
|
|
0.6 |
|
Deferred income tax liabilities, net |
|
|
$ |
45.8 |
|
|
$ |
16.2 |
|
The following table summarizes the Company's non-capital losses at December 31, 2017 that can be applied against future taxable profit:
|
|
|
|
|
|
|
|
|
Country |
|
Type |
|
Amount |
|
Expiry Date |
|
|
Canada |
|
Non-Capital Losses |
|
$ |
|
|
|
|
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, 2017 is $336.8 million (December 31, 2016 – $324.8 million). No deferred tax liabilities are recognized on the temporary differences associated with investment in subsidiaries because the company controls the timing of reversal and it is not probable that they will reverse in the foreseeable future.
The aggregate amount of deductible temporary differences associated with other items, for which deferred tax assets have not been recognized as at December 31, 2017 is $4.0 million (December 31, 2016 - $3.7 million). No deferred tax asset is recognized in respect of these items because it is not probable that future taxable profits will be available against which the company can utilize the benefit.
Note 18 - Shareholders' equity
a) Common shares
The Company's authorized capital stock includes an unlimited number of common shares (issued 185,930,331 common shares) having no par value and preferred shares issuable in series (issued - nil).
During the year ended December 31, 2017, 433,718 common shares (2016 – 545,087 common shares) were issued on the exercise of stock options, for cash proceeds of $10.1 million (2016 - $16.3 million), 50,393 common shares (2016 – 66,032 common shares) were issued upon vesting of restricted share units and 6,388,528 common shares (2016 – 489 common shares) were issued upon the exercise of warrants for cash proceeds of $356.4 million (2016 - $0.03 million). In addition, 575,553 common shares (2016 – 588,182 common shares) were issued pursuant to the terms of the Company's Dividend Reinvestment Plan (“DRIP”) for the year ended December 31, 2017.
On February 19, 2016, the Company completed a bought deal financing with a syndicate of underwriters for 19.2 million common shares at $47.85 per common share. The net proceeds to the Company were $883.5 million after deducting share issue costs and expenses of $36.6 million. The Company recorded a deferred tax asset of $10.4 million relating to the share issue costs.
b) Dividends
The Company declared dividends in the amount of $167.9 million (2016 - $156.8 million), or $0.91 per share (2016 - $0.87 per share), in the year ended December 31, 2017. The Company paid cash dividends in the amount $125.8 million (2016 - $118.1 million) and issued common shares pursuant to its DRIP valued at $42.1 million (2016 - $38.7 million), in the year ended December 31, 2017.
|
|
|
73 |
c) Stock-based payments
On November 12, 2007, the Company's Board of Directors adopted a stock option plan, which was replaced by the Company's share compensation plan covering both stock options and RSUs effective May 12, 2010 (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 ten years from the date of grant. Options expire on the earlier of the expiry date or the date of termination. Options are non-transferable. The options granted will be adjusted in the event of an amalgamation, rights offering, share consolidation or subdivision or other similar adjustments of the share capital of the Company. The aggregate number of common shares that may be issued under the Plan is limited to 5,700,876 common shares. Within any one-year period, the number of common shares issued to any single insider participant under the Plan shall not exceed 5% of the common shares then issued and outstanding.
During the year ended December 31, 2017, the Company granted 97,789 stock options (2016 — 263,568) to employees at a weighted average exercise price of C$100.10 (2016 — C$75.45). These ten-year term options vest over three years in equal portions on the anniversary of the grant date. The fair value of stock options granted during 2017 has been determined to be $2.3 million (2016 - $4.3 million).
The fair value of the options was calculated using the Black-Scholes option pricing model and utilized the following weighted average assumptions, and resulted in a weighted average fair value of C$30.30 per stock option (2016 — C$21.78 per stock option):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate |
|
|
|
|
|
0.66% |
|
Expected dividend yield |
|
|
|
|
|
1.54% |
|
Expected price volatility of the Company's common shares |
|
|
|
|
|
37.70% |
|
Expected life of the option |
|
|
5 years |
|
|
5 years |
|
Forfeiture rate |
|
|
|
|
|
0% |
|
During the year ended December 31, 2017, an expense of $3.1 million (2016 - $2.3 million) related to stock options has been included in the consolidated statement of income and other comprehensive income (loss) and $0.5 million was capitalized to royalty, stream and working interest, net (2016 - $0.3 million). As at December 31, 2017, there is $4.2 million (2016 - $5.3 million) of total unrecognized non-cash stock-based compensation expense relating to stock options granted under the Plan, which is expected to be recognized over a weighted average period of 1.4 years (2016 — 1.4 years).
Options to purchase common shares of the Company that have been granted in accordance with the Plan and pursuant to other agreements are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 |
|
|
2016 |
|
||||||
|
|
|
|
|
Weighted |
|
|
|
|
Weighted |
|
||
|
|
|
|
|
average
|
|
|
|
|
average
|
|
||
|
|
|
Number |
|
price |
|
|
Numbe r |
|
price |
|
||
Stock options outstanding, beginning of year |
|
|
1,304,328 |
|
C$ |
50.64 |
|
|
1,592,480 |
|
C$ |
46.67 |
|
Granted |
|
|
|
|
C$ |
|
|
|
263,568 |
|
C$ |
75.45 |
|
Exercised |
|
|
|
|
C$ |
|
|
|
(545,087) |
|
C$ |
39.25 |
|
Forfeited |
|
|
|
|
C$ |
|
|
|
(6,633) |
|
C$ |
58.35 |
|
Stock options outstanding, end of the year |
|
|
955,603 |
|
C$ |
|
|
|
1,304,328 |
|
C$ |
50.64 |
|
Exercisable stock options, end of the year |
|
|
|
|
C$ |
|
|
|
825,875 |
|
C$ |
39.72 |
|
|
|
|
|
74 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
Options to purchase common shares outstanding at December 31, 2017, exercise prices and weighted average lives to maturity as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Exercise |
|
Options |
|
Options |
|
average life |
|
|
price |
|
outstanding |
|
exercisable |
|
(years) |
|
|
C$15.41 |
|
5,000 |
|
5,000 |
|
0.89 |
|
|
C$31.39 |
|
10,000 |
|
10,000 |
|
2.39 |
|
|
C$31.45 |
|
38,000 |
|
38,000 |
|
2.71 |
|
|
C$33.12 |
|
1,500 |
|
1,500 |
|
2.90 |
|
|
C$33.20 |
|
1,000 |
|
1,000 |
|
2.98 |
|
|
C$40.87 |
|
52,786 |
|
52,786 |
|
5.95 |
|
|
C$42.43 |
|
3,000 |
|
3,000 |
|
4.25 |
|
|
C$42.67 |
|
2,500 |
|
2,500 |
|
3.92 |
|
|
C$46.17 |
|
100,000 |
|
100,000 |
|
5.64 |
|
|
C$55.58 |
|
27,397 |
|
27,397 |
|
4.95 |
|
|
C$59.52 |
|
155,936 |
|
155,936 |
|
6.95 |
|
|
C$58.67 |
|
65,000 |
|
43,333 |
|
7.64 |
|
|
C$65.76 |
|
136,718 |
|
90,759 |
|
7.95 |
|
|
C$75.45 |
|
258,977 |
|
86,328 |
|
8.95 |
|
|
C$100.10 |
|
97,789 |
|
— |
|
9.95 |
|
|
|
|
955,603 |
|
617,539 |
|
7.46 |
|
d) Share Purchase Warrants
Outstanding share purchase warrants as at December 31, 2017 and 2016 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants outstanding, beginning of the year |
|
|
6,510,280 |
|
|
6,510,769 |
|
Exercised |
|
|
(6,388,528) |
|
|
(489) |
|
Forfeited |
|
|
(121,752) |
|
|
— |
|
Warrants outstanding, end of the year |
|
|
— |
|
|
6,510,280 |
|
During the year ended December 31, 2017, 6,388,528 warrants were exercised for cash proceeds of $356.4 million in exchange for the issuance of 6,388,528 common shares. The warrants had an exercise price of C$75.00 per warrant and expired on June 16, 2017.
e) Deferred Share Unit Plan
Under the DSU Plan, non-executive directors may choose to convert all or a percentage of their directors' fees into DSUs. The directors must elect to convert their fees prior to January 1 in each year. In addition, the Company may award DSUs to non-executive directors as compensation.
DSUs earn dividend equivalents in the form of additional DSUs at the same rate as dividends on common shares. Participants are not allowed to redeem their DSUs until retirement or termination of directorship. For DSUs that have been credited upon the conversion of directors' fees, the DSUs vest immediately. 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.
During the year ended December 31, 2017, 19,632 DSUs and Dividend Equivalent DSUs were granted to directors under the DSU Plan (2016 — 19,209). The value of the DSU liability as at December 31, 2017, was $6.7 million (2016 - $3.8 million). The mark-to-market adjustment recorded for the year ended December 31, 2017, in respect of the DSU Plan, was $1.6 million (2016 - $0.2 million).
f) Restricted Share Units
Under the Plan, employees and officers may be granted performance-based or time-based RSUs. When each RSU vests, the holder is entitled to one common share for no additional consideration. Performance-based RSUs vest at the end of a three year period following the achievement of certain performance criteria and target settlement will range from 0% to 100% of the value. Time-based RSUs vest over a three year period on the anniversary of the date of grant.
|
|
|
75 |
During the year ended December 31, 2017, 21,095 performance-based RSUs (2016 — 25,611) and 20,745 time-based RSUs (2016 — 25,164) were awarded to management of the Company. The fair value of the RSUs, which is determined with reference to the weighted average trading price of the Company's common shares over the five trading days immediately preceding the date of issuance granted, was determined to be $3.3 million in 2017 (2016 - $2.9 million). Included in the Company's stock-based compensation expense is an amount of $1.5 million (2016 – $2.7 million) relating to RSUs. In addition, $0.3 million related to the RSUs was capitalised to royalty, stream and working interest, net (2016 – $0.3 million). As at December 31, 2017, there is $5.3 million (2016 – $4.1 million) of total unrecognized non-cash stock-based compensation expense relating to non-vested restricted share units granted under the Plan, which is expected to be recognized over a weighted average period of 1.5 years (2016 — 1.5 years).
g) Outstanding Share Purchase Warrants, Incentive Stock Options, Special Warrants and Restricted Share Units
The following table sets out the maximum shares that would be outstanding if all of the share purchase warrants, incentive stock options and restricted share units, at December 31, 2017 and 2016, respectively, were exercised:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding |
|
|
|
|
|
178,482,139 |
|
Stock options |
|
|
|
|
|
1,304,328 |
|
Restricted Share Units |
|
|
|
|
|
138,614 |
|
Warrants |
|
|
— |
|
|
6,510,280 |
|
Special Warrant (1) |
|
|
— |
|
|
2,000,000 |
|
|
|
|
|
|
|
188,435,361 |
|
|
1 |
|
In connection with a transaction with Taseko Mines Limited, one special warrant was granted to Taseko which was exchangeable into 2,000,000 purchase share warrants entitling Taseko to purchase one common share of the Company at a price of C$75.00 once Taseko's New Prosperity project gets fully permitted and financed. New Prosperity's most recent permit application was denied and the warrant expired unexercised on June 16, 2017. |
Note 19 – Earnings per share (“EPS”)
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|
|
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|
||||||||||
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|
|
Earnings |
|
Shares |
|
|
Per Share |
|
||
|
|
|
(Numerator) |
|
(Denominator) |
|
|
Amount |
|
||
Basic EPS |
|
|
$ |
|
|
|
|
|
$ |
|
|
Effect of dilutive securities |
|
|
|
— |
|
|
|
|
|
— |
|
Diluted EPS |
|
|
$ |
|
|
|
|
|
$ |
|
|
For the year ended December 31, 2017, 5,626 stock options (2016 – Nil) and 1,194 time-based RSUs (2016 – Nil) were excluded in the computation of diluted EPS due to the strike price exceeding the weighted average share price during the year. Restricted share units totaling 73,947 (2016 – 84,094) were excluded from the computation of diluted EPS for the year ended December 31, 2017 due to the performance criteria for the vesting of the RSUs not being measurable as at December 31, 2017.
|
|
|
|
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|
|
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|
|
|
||||||||||
|
|
|
Earnings |
|
Shares |
|
|
Per Share |
|
||
|
|
|
(Numerator) |
|
(Denominator) |
|
|
Amount |
|
||
Basic EPS |
|
|
$ |
122.2 |
|
175.2 |
|
|
$ |
0.70 |
|
Effect of dilutive securities |
|
|
|
— |
|
1.2 |
|
|
|
(0.01) |
|
Diluted EPS |
|
|
$ |
122.2 |
|
176.4 |
|
|
$ |
0.69 |
|
|
|
|
|
76 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
Note 20 – Commitments
(a) Ore purchase commitments
The following table summarizes the Company's commitments to pay for gold, silver and platinum group metals (“PGM”) pursuant to the associated precious metals agreements:
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Attributable Payable |
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|
|||||||||||
|
|
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 |
|
0% |
|
22.5% |
(4) |
0% |
|
|
n/a |
|
|
5% |
(5) |
|
n/a |
|
40 years |
|
7‑Oct‑15 |
|
Antapaccay |
|
—% |
(6) |
—% |
(7) |
0% |
|
|
20% |
(8) |
|
20% |
(9) |
|
n/a |
|
40 years |
|
10‑Feb‑16 |
|
Candelaria |
|
68% |
(10) |
68% |
(10) |
0% |
|
$ |
400 |
|
$ |
4.00 |
|
|
n/a |
|
40 years |
|
6‑Oct‑14 |
|
Cobre Panama I (25) |
|
—% |
(11) |
—% |
(12) |
0% |
|
$ |
|
(13) |
$ |
|
(14) |
|
n/a |
|
40 years |
|
22‑Jan‑18 |
|
Cobre Panama II (25) |
|
—% |
(15) |
—% |
(16) |
0% |
|
|
20% |
(17) |
|
20% |
(18) |
|
n/a |
|
40 years |
|
22‑Jan‑18 |
|
Karma |
|
4.875% |
(19) |
0% |
|
0% |
|
|
20% |
(20) |
|
n/a |
|
|
n/a |
|
40 years |
|
11‑Aug‑14 |
|
Guadalupe-Palmarejo |
|
50% |
|
0% |
|
0% |
|
$ |
|
|
|
n/a |
|
|
n/a |
|
40 years |
|
2‑Oct‑14 |
|
Sabodala |
|
6% |
(21) |
0% |
|
0% |
|
|
20% |
(22) |
|
n/a |
|
|
n/a |
|
40 years |
|
12‑Dec‑13 |
|
MWS |
|
25% |
|
0% |
|
0% |
|
$ |
|
|
|
n/a |
|
|
n/a |
|
40 years |
(23) |
2‑Mar‑12 |
|
Cooke 4 |
|
7% |
|
0% |
|
0% |
|
$ |
|
|
|
n/a |
|
|
n/a |
|
40 years |
|
5‑Nov‑09 |
|
Sudbury (24) |
|
50% |
|
0% |
|
50% |
|
$ |
|
|
|
n/a |
|
$ |
|
|
40 years |
|
15‑Jul‑08 |
|
|
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 90%. Percentage decreases to 15% after 86 million ounces of silver has been delivered under the agreement. |
|
5 |
|
Purchase price is 5% of the average silver price at the time of delivery. |
|
6 |
|
Gold deliveries are referenced to copper in concentrate shipped with 300 ounces of gold delivered for each 1,000 tonnes of copper in concentrate shipped, until 630,000 ounces of gold have been delivered. Thereafter, percentage is 30% of gold shipped. |
|
7 |
|
Silver deliveries are referenced to copper in concentrate shipped with 4,700 ounces of silver delivered for each 1,000 tonnes of copper in concentrate shipped, until 10.0 million ounces of silver have been delivered. Thereafter, percentage is 30% of silver shipped. |
|
8 |
|
Purchase price is 20% of the spot price of gold until 750,000 ounces of gold has been delivered, thereafter the purchase price is 30% of the spot price of gold. |
|
9 |
|
Purchase price is 20% of the spot price of silver until 12.8 million ounces of silver has been delivered, thereafter the purchase price is 30% of the spot price of silver. |
|
10 |
|
Percentage decreases to 40% after 720,000 ounces of gold and 12.0 million ounces of silver have been delivered under the agreement. |
|
11 |
|
Gold deliveries are indexed to copper in concentrate produced from the project. 120 ounces of gold per every 1 million pounds of copper produced until 808,000 ounces of gold delivered. Thereafter, 81 ounces of gold per 1 million pounds of copper produced to 1,716,188 ounces of gold delivered, thereafter 63.4% of the gold in concentrate. |
|
12 |
|
Silver deliveries are indexed to copper in concentrate produced from the project. 1,376 ounces of silver per every 1 million pounds of copper produced until 9,842,000 ounces of silver delivered. Thereafter, 1,776 ounces of silver per 1 million pounds of copper produced to 29,731,000 ounces of silver delivered, thereafter 62.1% of the silver in concentrate. |
|
13 |
|
In accordance with the terms of the agreement, the purchase price was adjusted from $406 per ounce to $418.27 per ounce after November 2018 on the initial gold deliveries. After 1,341,000 ounces of gold delivered, purchase price is the greater of 50% of spot and $418.27 per ounce. |
|
14 |
|
In accordance with the terms of the agreement, the purchase price was adjusted from $6.09 per ounce to $6.27 per ounce after November 2018 on the initial silver deliveries. After 21,510,000 ounces of silver delivered, purchase price is the greater of 50% of spot and $6.27 per ounce. |
|
15 |
|
Gold deliveries are indexed to copper in concentrate produced from the project. 30 ounces of gold per every 1 million pounds of copper produced until 202,000 ounces of gold delivered. Thereafter 20.25 ounces of gold per 1 million pounds of copper produced to 429,047 ounces of gold delivered, thereafter 15.85% of the gold in concentrate. |
|
16 |
|
Silver deliveries are indexed to copper in concentrate produced from the project. 344 ounces of silver per every 1 million pounds of copper produced until 2,460,500 ounces of silver delivered. Thereafter, 444 ounces of silver per 1 million pounds of copper produced to 7,432,750 ounces of silver delivered, thereafter 15.53% of the silver in concentrate. |
|
17 |
|
Purchase price is 20% of the spot price of gold until 604,000 ounces of gold delivered. Thereafter, purchase price is 50% of the spot price of gold. |
|
18 |
|
Purchase price is 20% of the spot price of silver until 9,618,000 ounce of silver delivered. Thereafter, purchase price is 50% of the spot price of silver. |
|
19 |
|
Gold deliveries are fixed at 15,000 ounces per annum from March 31, 2016 until February 28, 2021. Thereafter, percentage is 4.875%. |
|
20 |
|
Purchase price is 20% of the average gold price at the time of delivery. |
|
21 |
|
Gold deliveries are fixed at 1,875 ounces per month until December 31, 2019. Thereafter, percentage is 6% of gold produced. |
|
22 |
|
Purchase price is 20% of prevailing market price at the time of delivery. |
|
23 |
|
Agreement is capped at 312,500 ounces of gold. |
|
24 |
|
The Company is committed to purchase 50% of the precious metals contained in ore from the properties. Cash payment is based on gold equivalent ounces. |
|
25 |
|
Agreement amended subsequent to year-end. |
(b) Cobre Panama Precious Metal Stream
The Company is committed to fund the Cobre Panama precious metals stream as described in Note 4(a).
|
|
|
77 |
Note 21 – Segment Reporting
The chief operating decision-maker organizes and manages the business under a single operating segment, consisting of resource sector royalty, stream and working interest acquisitions and management activities directly relating to royalty, stream and working interests. All of the Company's assets and revenues are attributable to this single operating segment.
For the year ended December 31, 2017, two interests generated revenue totaling $105.2 million and $90.2 million, respectively (2016 – three interests generated revenue totaling $92.5 million, $88.5 million, and $75.0 million), comprised 15.6% and 13.4%, respectively (2016 – 15.2%, 14.5% and 12.3%) of revenue. Geographic revenues are separated by the jurisdiction of the entity making the payment.
Revenue is earned from the following jurisdictions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Latin America: |
|
|
|
|
|
|
|
|
Peru |
|
|
$ |
153.1 |
|
|
167.5 |
|
Chile |
|
|
|
105.2 |
|
|
88.4 |
|
Other |
|
|
|
67.7 |
|
|
47.8 |
|
United States |
|
|
$ |
100.2 |
|
|
92.4 |
|
Canada |
|
|
|
125.5 |
|
|
116.9 |
|
Rest of World |
|
|
|
123.3 |
|
|
97.2 |
|
|
|
|
$ |
675.0 |
|
|
610.2 |
|
Geographic royalty, stream and working interests are presented by the location of the mining operations giving rise to the royalty, stream or working interest.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Latin America: |
|
|
|
|
|
|
|
|
Peru |
|
|
$ |
953.2 |
|
|
1,021.7 |
|
Chile |
|
|
|
533.4 |
|
|
586.1 |
|
Panama |
|
|
|
734.4 |
|
|
468.9 |
|
Other |
|
|
|
59.0 |
|
|
64.3 |
|
United States |
|
|
$ |
622.5 |
|
|
502.0 |
|
Canada |
|
|
|
666.7 |
|
|
610.5 |
|
Rest of World |
|
|
|
370.0 |
|
|
414.8 |
|
|
|
|
$ |
3,939.2 |
|
|
3,668.3 |
|
Investments of $203.1 million (2016 - $147.4 million) are held in Canada. Oil & gas well equipment, included in other non-current assets, of $12.7 million (2016 - $14.0 million) is located in Canada.
|
|
|
|
78 |
FNV TSX NYSE |
The Gold Investment that WORKS |
2017 Annual Report |
Corporate Information
David Harquail President & CEO
Paul Brink Senior Vice President, Business Development
Sandip Rana Chief Financial Officer
Lloyd Hong Chief Legal Officer & Corporate Secretary
Directors
Pierre Lassonde Chair
David Harquail President & CEO
Tom Albanese
Derek Evans
Graham Farquharson
Dr. Catharine Farrow
Louis Gignac
Randall Oliphant
Hon. David R. Peterson |
Head Office
199 Bay Street, Suite 2000 P.O. Box 285 Commerce Court Postal Station Toronto, Canada M5L 1G9
Tel: (416) 306-6300
Barbados Office
Ground Floor, Balmoral Hall, Balmoral Gap, Hastings, Christ Church Barbados, BB14034
Tel: (246) 434-8200
U.S. Office
1745 Shea Center Drive, Suite 400 Highlands Ranch, Colorado, USA 80129
Tel: (720) 344-4986
Australia Office
44 Kings Park Road, Suite 41 West Perth, WA 6005, Australia
Tel: 61-8-6263-4425
|
Auditors
PricewaterhouseCoopers LLP Toronto, Canada
Listings
Toronto Stock Exchange New York Stock Exchange - Common shares: FNV
Share Capital
As at March 6, 2018
Common shares outstanding 185,930,331 Reserved for: Options & other 1,075,399
Fully diluted: 187,005,730
Transfer Agent
Computershare Investor Services Inc. 100 University Avenue, 8th Floor Toronto, Canada M5J 2Y1
Toll Free: (800) 564-6253 Tel: (514) 982-7555
service@computershare.com
Investor Information
Stefan Axell Director, Corporate Affairs
info@franco-nevada.com www.franco-nevada.com
Tel: (416) 306-6328 Toll Free: (877) 401-3833 |
Annual and Special Meeting
Franco-Nevada Corporation will hold its Annual and Special Meeting
at the TMX Broadcast Centre, Exchange Tower, 130 King Street West, Toronto
on Wednesday, May 9, 2018 at 4:00 pm.
|
|
|
|
Exhibit 99.2
Dear Shareholders:
March 22, 2018
This letter marks the completion of our 10 th full year since Franco-Nevada was reborn as a public company with our Initial Public Offering (“IPO”) in late 2007. Over those 10 years, our business model has created true shareholder value. Franco-Nevada’s share price has outperformed both gold and all the relevant comparable gold equity benchmarks. Over those 10 years, our shareholders have realized a compounded annual total return of 19.5%. In 2017, we increased dividends for the tenth consecutive year and dividends reached US$168 million. This is the largest payout in the gold industry and speaks to the strength of our business model and quality of our portfolio. Our year-end market capitalization of over US$14 billion ranks us among the largest global gold companies. We are proud to continue to showcase Franco-Nevada as the gold investment that works.
During the bull commodity market, many mining companies financed growth projects and acquisitions with debt. In the downturn, they were forced to retrench and sell assets. Even though we believe the gold price will trade higher in the longer term, this will always be a cyclical business with periods of consolidation. We have created a great deal of value over the years by being counter-cyclical and making investments when others could not.
Our portfolio became stronger and more diversified with the addition of streams over major long-life and low-cost mines during the 2014-2016 commodity downturn. In 2017 and early this year we increased our gold & silver from the Cobre Panama project. We expect this investment will generate further growth for Franco-Nevada as production ramps up starting in 2019. We have also added to our oil & gas royalties both in Canada and in the Permian and Anadarko shale basins in the U.S. In the past 18 months, Franco-Nevada has invested over US$1 billion to expand its portfolio using available cash on-hand and its strong free cash-flow. Franco-Nevada remains debt free.
Our aspiration is to make Franco-Nevada the “go to” gold stock for any generalist investor. We believe that our emphasis on paying dividends, avoiding debt, minimizing risk through a diversified royalty and stream portfolio and maintaining high governance standards is what generalist investors want. In a world confronted by political volatility and financial market instability, making Franco-Nevada a low risk gold investment, with a dividend and leverage to gold, is the right strategy.
Franco-Nevada operates with a small team of highly dedicated professionals. Even though we have experienced substantial growth in the number of our assets and revenues, our overheads have remained low. Franco-Nevada’s success is a reflection of the hard work of the team guided by an experienced and engaged board of directors. All of them have a material stake in the company and act as owners.
Graham Farquharson has served as a director for over 10 years and will not be standing for reelection at the upcoming annual meeting. He has been an outstanding director, and happily, he has agreed to take on the role of “honorary director”. We look forward to the ongoing benefit of his wise counsel.
To our shareholders, we thank you for your continuing support and investment with us. Please consider the resolutions in this circular for our upcoming shareholders’ meeting. We look forward to meeting many of you personally on May 9 th .
|
|
“Pierre Lassonde” “David Harquail” Chair President & CEO
|
TMX 10 th Anniversary bell ringing – December 20, 2017 |
|
|
Notice of Annual and Special meeting of shareholders
Annual and Special Meeting (the “Meeting”) of the shareholders of Franco-Nevada Corporation (the “Corporation”)
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Date: |
|
|
Wednesday, May 9, 2018 |
|
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Time: |
|
|
4:00 p.m. (Toronto time) |
|
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Place: |
|
|
The TMX Broadcast Centre, The Exchange Tower
|
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Items of Business: |
|
|
√ |
to receive the audited consolidated financial statements of the Corporation for the year ended December 31, 2017, together with the auditors’ report thereon; |
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|
√ |
to elect the directors of the Corporation; |
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|
√ |
to appoint PricewaterhouseCoopers LLP, Chartered Professional Accountants, as auditors of the Corporation for the ensuing year and to authorize the directors to fix the remuneration to be paid to the auditors; |
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|
√ |
to consider and, if thought appropriate, pass, with or without variation, an advisory resolution on the Corporation’s approach to executive compensation; |
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|
√ |
to consider and, if thought appropriate, pass, with or without variation, resolutions approving certain amendments to the Corporation's share compensation plan; and |
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|
√ |
to transact such other business as may properly come before the Meeting or any adjournment thereof. |
|
|
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|
|
The accompanying management information circular dated March 22, 2018 provides additional information relating to the matters to be dealt with at the Meeting and forms part of this notice.
Shareholders are encouraged to vote. Registered shareholders as of the close of business on March 16, 2018 will be entitled to receive notice of, and vote at, the Meeting and any adjournment thereof.
Registered shareholders who are unable to be present at the Meeting in person, may vote their shares by proxy. Instructions on how to complete and return the proxy are provided with the form of proxy. To be valid, proxies must be deposited with Computershare Investor Services Inc. at 100 University Avenue, 8 th Floor, Toronto, Ontario M5J 2Y1, no later than 5:00 p.m. (Toronto time) on May 7, 2018 or on the second business day preceding the date of any adjournment of the Meeting.
Non-registered beneficial shareholders should follow the instructions of their intermediaries in order to vote their shares.
By order of the Board of Directors
“Lloyd Hong”
Chief Legal Officer & Corporate Secretary
Dated at Toronto, the 22 nd day of March, 2018.
|
|
TABLE OF CONTENTS
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Named Executive Officers : Accomplishments and Incentive Awards |
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Securities Authorized for Issuance Under Equity Compensation Plans |
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Schedule “A” FRANCO-NEVADA CORPORATION AMENDED AND RESTATED SHARE COMPENSATION PLAN |
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Schedule “B” FRANCO-NEVADA CORPORATION MANDATE OF THE BOARD OF DIRECTORS |
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This management information circular (this “ Circular ”) is furnished in connection with the solicitation by the management of Franco-Nevada Corporation (the “ Corporation ” or “ Franco-Nevada ”) of proxies to be used at the annual and special meeting (the “ Meeting ”) of shareholders of the Corporation to be held at the TMX Broadcast Centre, The Exchange Tower, 130 King Street West, Toronto, Ontario M5X 1J2 on Wednesday, May 9, 2018, at 4:00 p.m. (Toronto time), and at all adjournments thereof, for the purposes set forth in the notice of the Meeting that accompanies this Circular (the “ Notice of Meeting ”).
Who can vote?
The directors have fixed March 16, 2018 as the record date for the determination of shareholders entitled to receive notice of the Meeting. Shareholders of record on such date are entitled to vote at the Meeting.
Who is soliciting my proxy?
Management of the Corporation is soliciting your proxy. It is expected that the solicitation will be made primarily by mail but proxies may also be solicited personally by directors, officers or employees of the Corporation. Such persons will not receive any extra compensation for such activities. The Corporation may also retain, and pay a fee to, one or more proxy solicitation firms to solicit proxies from the shareholders of the Corporation in favour of the matters set forth in the Notice of Meeting. The Corporation may pay brokers or other persons holding common shares of the Corporation in their own names, or in the names of nominees, for their reasonable expenses for sending proxies and the Circular to beneficial owners of common shares and obtaining proxies therefor. The total cost of the solicitation will be borne directly by the Corporation.
Who votes my shares and can I appoint someone else?
The persons named in the enclosed form of proxy are officers or directors of the Corporation. A shareholder has the right to appoint a person (who need not be a shareholder of the Corporation) other than the persons specified in such form of proxy to attend and act on behalf of such shareholder at the Meeting. Such right may be exercised by striking out the names of the persons specified in the form of proxy, inserting the name of the person to be appointed in the blank space provided in the form of proxy, signing the form of proxy and returning it in the manner set forth in the form of proxy.
A shareholder who has given a proxy may revoke it:
(i) by depositing an instrument in writing, including another completed form of proxy, executed by such shareholder or shareholder’s attorney authorized in writing either:
a. at the registered office of the Corporation at any time up to and including the last business day preceding the date of the Meeting or any adjournment thereof; or
b. with the Chair of the Meeting prior to the commencement of the Meeting on the day of the Meeting or any adjournment thereof; or
(ii) in any other manner permitted by law.
How will my shares be voted?
The persons named in the enclosed form of proxy will vote the shares in respect of which they are appointed by proxy on any ballot that may be called for in accordance with the instructions contained therein. If the shareholder specifies a choice with respect to any matter to be acted upon, the shares will be voted accordingly. In the absence of such specifications, such shares will be voted FOR each of the matters referred to herein.
How do I vote if I am not a registered shareholder?
The information set forth in this section is of significant importance to many holders of common shares, as a substantial number of shareholders do not hold common shares in their own name. Shareholders who do not hold
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1 |
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their common shares in their own name (referred to herein as “ Beneficial Shareholders ”) should note that only proxies deposited by shareholders whose names appear on the records of the Corporation as the registered holders of common shares can be recognized and acted upon at the Meeting. If common shares are listed in an account statement provided to a shareholder by a broker, then, in almost all cases, those common shares will not be registered in the shareholder’s name on the records of the Corporation. Such shares will more likely be registered under the name of the shareholder’s broker or an agent of that broker. More particularly, a person is a Beneficial Shareholder in respect of common shares which are held on behalf of that person but which are registered either: (a) in the name of an intermediary that the Beneficial Shareholder deals with in respect of the common shares (intermediaries include, among others, banks, trust companies, securities dealers or brokers and trustees or administrators of self-administered RRSPs, RRIFs, RESPs and similar plans); or (b) in the name of a clearing agency (such as The Canadian Depository for Securities Limited (“ CDS ”) or the Depository Trust Company (“ DTC ”)), of which the intermediary is a participant. The vast majority of such shares are registered under the name of CDS or DTC, which act as nominee for many brokerage firms. Common shares held by brokers or their nominees can only be voted upon the instructions of the Beneficial Shareholder. Without specific voting instructions, brokers and their nominees are prohibited from voting common shares held for Beneficial Shareholders. Therefore, Beneficial Shareholders should ensure that instructions respecting the voting of their common shares are communicated to the appropriate person or that the common shares are duly registered in their name.
Applicable securities regulatory policy requires intermediaries/brokers to seek voting instructions from Beneficial Shareholders in advance of shareholders’ meetings. Every intermediary/broker has its own mailing procedures and provides its own return instructions to clients, which should be carefully followed by Beneficial Shareholders in order to ensure that their common shares are voted at the Meeting.
The majority of brokers now delegate responsibility for obtaining voting instructions from Beneficial Shareholders to Broadridge Investor Communication Solutions (“ Broadridge ”). Broadridge supplies a voting instruction form (“ VIF ”) and asks Beneficial Shareholders to complete and return the VIF to Broadridge in accordance with the instructions set out in the VIF. Broadridge then tabulates the results of all instructions received and provides appropriate instructions respecting the voting of common shares to be represented at the Meeting. The Corporation does intend to pay for an intermediary to deliver the proxy-related materials and related forms to Beneficial Shareholders.
Can I vote by phone or online?
Both our transfer agent, Computershare Investor Services Inc. (the “ Transfer Agent ”) and Broadridge provide telephone voting and Internet voting instructions on the form of proxy for registered shareholders and the VIF for Beneficial Shareholders, respectively.
What if I wish to attend and vote at the Meeting in person?
If you are a registered shareholder, please do not complete your form of proxy and instead register with the Transfer Agent when you arrive at the Meeting.
If you are a Beneficial Shareholder, and wish to attend the Meeting in person or appoint some other person or company, who need not be a shareholder, to attend and act on your behalf at the Meeting or any adjournment or postponement thereof, please follow the instructions contained in the VIF.
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2 |
MANAGEMENT INFORMATION CIRCULAR
Except where otherwise indicated, this Circular contains information as of the close of business on March 22, 2018 .
Voting Securities and Principal Holders Thereof
As at March 22, 2018, there were 185,930,331 common shares of the Corporation issued and outstanding. Each common share has the right to one vote on each matter at the Meeting.
To the knowledge of the directors and officers of the Corporation, there are no persons or companies beneficially owning, or exercising control or direction over, directly or indirectly, 10% or more of the issued and outstanding common shares of the Corporation.
Interests of Certain Persons or Companies in Matters to be Acted Upon
Except as otherwise disclosed below, management of the Corporation is not aware of a material interest, direct or indirect, by way of beneficial ownership of common shares or otherwise, of any director or officer of the Corporation at any time since the beginning of the Corporation’s last financial year, of any proposed nominee for election as a director of the Corporation, or of any associate or affiliate of any such person, in any matter to be acted upon at the Meeting other than the election of directors or the appointment of auditors.
Change in Reporting Currency
Please note that all dollar amounts reported in this Circular are reported in Canadian dollars and the symbol $ refers to the Canadian dollar, unless otherwise indicated. In previous years, the Corporation reported in U.S. dollars as this is the currency the Corporation uses for its financial statements. The Corporation has determined to report in Canadian dollars in this Circular as all amounts paid to the directors and the Named Executive Officers (as defined herein) are paid in Canadian dollars. By eliminating foreign exchange conversions, the Corporation hopes to facilitate readers’ understanding of the compensation discussion in this Circular.
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The audited consolidated financial statements of the Corporation for the year ended December 31, 2017 and the auditors’ report thereon will be placed before the shareholders at the Meeting. The audited consolidated financial statements are available from the Corporation upon request or they can be found on SEDAR at www.sedar.com , on EDGAR at www.sec.gov and on the Corporation’s website at www.franco-nevada.com .
Item 2 – Election of Directors
At the Meeting, it is proposed that eight directors be elected to the board of directors of the Corporation (the “ Board ”). Each director’s term of office will expire at the next annual meeting of shareholders of the Corporation or when his or her successor is duly elected or appointed, unless his or her term ends earlier in accordance with the articles or by-laws of the Corporation, he or she resigns from office or becomes disqualified to act as a director of the Corporation.
For further information, on the director nominees, director compensation and our corporate governance practices, please refer to pages 7 to 29 of this Circular.
Unless the shareholder has specified in the enclosed form of proxy that the common shares represented by such proxy are to be withheld from voting in the election of directors, the persons named in the enclosed form of proxy intend to vote FOR the election of the nominees whose names are set forth below. |
The Board has adopted a policy on majority voting. If, with respect to any particular nominee, such nominee is not elected by a majority (50% + 1 vote) of the votes cast with respect to his or her election, then for purposes of the policy the nominee shall be considered not to have received the support of the shareholders, even though duly elected as a matter of corporate law. A person elected as a director who is considered under this test not to have the confidence of the shareholders must immediately submit to the Board his or her resignation, to take effect upon acceptance by the Board. The Board will refer the resignation to the Compensation and Corporate Governance Committee (the “ CCGC ”) for consideration. A nominee who tenders a resignation pursuant to the policy will not participate in any meeting of the Board or the CCGC at which the resignation is considered. The Board will promptly accept the resignation unless the CCGC determines that there are exceptional circumstances (for example, relating to the composition of the Board or the voting results) that should delay the acceptance of the resignation or justify rejecting it. In any event, it is expected that the resignation will be accepted (or in rare cases rejected) and the Board will promptly announce its decision in a press release within 90 days of the meeting, including reasons for rejecting the resignation, if applicable. This policy does not apply to a contested meeting.
Item 3 – Appointment of Auditors
The auditors of the Corporation are PricewaterhouseCoopers LLP, who were first appointed as auditors of the Corporation on November 29, 2007.
Unless the shareholder has specified in the enclosed form of proxy that the common shares represented by such proxy are to be withheld from voting in the appointment of auditors, the persons named in the enclosed form of proxy intend to vote FOR the appointment of PricewaterhouseCoopers LLP, as auditors of the Corporation to hold office until the next annual meeting of shareholders, and to authorize the directors to fix the remuneration of the auditors. |
Fees
For the years ended December 31, 2017 and 2016, PricewaterhouseCoopers LLP was paid fees in Canadian dollars from the Corporation as detailed below:
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Dec 31, 2017 |
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Dec 31, 2016 |
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Audit Fees |
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$857,800 |
(1) |
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$470,845 |
(1) |
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Audit-Related Fees |
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$70,000 |
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$243,000 |
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Tax Fees |
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Nil |
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Nil |
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Other Fees |
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Nil |
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Nil |
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Total Fees |
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$927,800 |
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$713,845 |
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Note
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(1) |
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Fees are reported on a cash basis and fees paid in 2017 include payment of certain invoices issued in respect of 2016. |
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4 |
For the year ended December 31, 2017, “Audit-Related Fees” noted above included $55,000 and $15,000 for services related to: (i) the French translation of documents, and (ii) ESTMA reporting, respectively. For the year ended December 31, 2016, “Audit-Related Fees” noted above included $175,000 and $68,000 for services related to: (i) the Corporation’s shelf prospectus and equity issue, and (ii) the French translation of documents, respectively.
Policies and Procedures Regarding Services Provided by External Auditors
The Board, upon the recommendation of the Audit and Risk Committee (“ ARC ”), has adopted policies and procedures regarding services provided by external auditors (collectively, the “ Auditor Independence Policy ”). Under the Auditor Independence Policy, specific proposals for audit services and permitted non-audit services must be pre-approved by the ARC. The ARC may delegate to any one or more of its members pre-approval authority (other than pre-approval of the annual audit service engagement). Any approvals granted under this delegated authority must be presented to the ARC at its next meeting. The Auditor Independence Policy also provides that the ARC may pre-approve services (other than the annual audit service engagement) without the requirement for a specific proposal where the scope and parameters of such services and their attendant fees are clearly defined. The ARC must be informed in writing at its next scheduled meeting of any engagement of the external auditor to provide services in such circumstances. The Auditor Independence Policy deems de minimus non-audit services to have been pre-approved by the ARC in limited circumstances and subject to certain conditions being met.
The Auditor Independence Policy prohibits the external auditors from providing any of the following types of non-audit services: (a) bookkeeping or other services related to the accounting records or financial statements; (b) financial information systems design and implementation; (c) appraisal or valuation services, fairness opinions, or contribution-in-kind reports; (d) actuarial services; (e) internal audit outsourcing services; (f) management functions or human resources services; (g) corporate finance or other services; (h) broker-dealer, investment advisor or investment banking services; (i) legal services; and (j) any other service that under applicable law and generally accepted auditing standards cannot be provided by an external auditor.
The Auditor Independence Policy provides that the external auditor should not be precluded from providing tax or advisory services that do not fall within any of the categories described above, unless the provision of those services would reasonably be expected to compromise the independence of the external auditor.
Item 4 – “Say-on-Pay” Advisory Resolution
Shareholders of the Corporation are being given the opportunity to vote on an advisory basis “for” or “against” the Corporation’s approach to executive compensation through the following resolution (the “ Say-on-Pay Advisory Resolution ”):
BE IT RESOLVED THAT, on an advisory basis and not to diminish the role and responsibilities of the board of directors of the Corporation, the shareholders accept the approach to executive compensation as disclosed in the Corporation’s management information circular dated March 22, 2018.
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The Board recommends to shareholders of the Corporation that they vote FOR the Say-on-Pay Advisory Resolution. Unless the shareholder has specified in the enclosed form of proxy that the common shares represented by such proxy are to be voted against the Say-on-Pay Advisory Resolution, the persons named in the enclosed form of proxy intend to vote FOR the Say-on-Pay Advisory Resolution. |
Since the vote is advisory, it will not be binding on the Board or the CCGC. However, the Board and, in particular, the CCGC, will consider the outcome of the vote as part of its ongoing review of executive compensation. The Corporation’s approach to executive compensation was accepted at the previous shareholder meeting in 2017. This advisory vote indicated “for” 75,402,453 (89.57%) and “against” 8,782,247 (10.43%). For further information on the Corporation’s approach to executive compensation, please refer to pages 30 to 52 of this Circular.
Item 5 – Amended and Restated Share Compensation Plan
Shareholders of the Corporation are being asked to vote “for” or “against” certain amendments to the Corporation’s share compensation plan (the “ Amended and Restated Share Compensation Plan ”) through the following resolution (the “ Share Compensation Plan Resolution ”):
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5 |
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BE IT RESOLVED THAT:
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1. |
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The increase to the maximum number of common shares issuable under such Amended and Restated Share Compensation Plan as described in the Circular is hereby approved, ratified and confirmed; |
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2. |
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The amendments to the participation limits for non-employee directors under the Amended and Restated Share Compensation Plan as described in the Circular, are hereby approved, ratified and confirmed; and |
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3. |
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Any one director or officer of the Corporation is hereby authorized and directed for and on behalf of the Corporation to execute or cause to be executed and to deliver or cause to be delivered all such documents, and to do or cause to be done all such acts and things, as such director or officer may deem necessary or desirable in connection with the foregoing resolution . |
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The Board recommends to shareholders of the Corporation that they vote FOR the Share Compensation Plan Resolution. Unless the shareholder has specified in the enclosed form of proxy that the common shares represented by such proxy are to be voted against the Share Compensation Plan Resolution, the persons named in the enclosed form of proxy intend to vote FOR the Share Compensation Plan Resolution. |
Shareholders approved the Corporation’s share compensation plan (the “ 2010 Share Compensation Plan ”) at its 2010 annual meeting. On March 7, 2018, the Board adopted the Amended and Restated Share Compensation Plan, subject to receiving shareholder approval at the meeting for those amendments set out in the Share Compensation Plan Resolution. For a summary of the Amended and Restated Share Compensation Plan including the amendments to the 2010 Share Compensation Plan, please refer to pages 53 to 57 of this Circular. Such summary is qualified in its entirety by the full text of the Amended and Restated Share Compensation Plan, which is set out in Schedule “A” to this Circular. Shareholders are encouraged to read the full text of the Amended and Restated Share Compensation Plan before voting on this resolution .
If shareholders of the Corporation do not approve the Share Compensation Plan Resolution, the Amended and Restated Share Compensation Plan will terminate and the 2010 Share Compensation Plan will continue in force but without giving effect to the amendments. Options and restricted share units granted under the 2010 Share Compensation Plan will continue unaffected.
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6 |
The following table sets forth for each of the persons proposed to be nominated for election as directors their name, age, city, province/state, and country of residence; their principal occupations or employment; a brief biographical description; the date on which they became directors of the Corporation; their independence; their memberships on the ARC or CCGC, as applicable; their attendance at Board meetings; their attendance at ARC and CCGC meetings, as applicable; the number of common shares of the Corporation beneficially owned or over which control or direction is exercised, directly or indirectly; the number of stock options held; the number of deferred share units (“ DSUs ”) or restricted share units (“ RSUs ”) held; the “at-risk” values thereof; their voting results at previous shareholder meetings; and current other board and committee memberships (including interlocks), all as at March 22, 2018.
For additional information regarding compensation, options and minimum ownership requirements, please see “Director Compensation” in this section.
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Pierre Lassonde (1) |
Pierre Lassonde is the independent Chair of the Board. In this capacity, Mr. Lassonde provides leadership to the Board of Directors in discharging their duties but is not actively involved in the day-to-day operations of the Corporation. For further details, please see “Statement of Governance Practices – Chair of the Board”. Mr. Lassonde formerly served as President of Newmont Mining Corporation (“ Newmont ”) from 2002 to 2006 and as a director and Vice-Chair of Newmont until November 30, 2007. Previously, Mr. Lassonde served as a director and President (1982 to 2002) and Co-CEO (1999 to 2002) of Franco-Nevada Mining Corporation Limited (“ Old Franco-Nevada ”). Mr. Lassonde also served as President and CEO of Euro-Nevada Mining Corporation Limited from 1985 to 1999, prior to its amalgamation with Old Franco-Nevada. Mr. Lassonde served as a director of Normandy Mining Limited from 2001 to 2002 and of New Gold Inc. from 2008 to 2016. Mr. Lassonde is past Chair and a past director of the World Gold Council, past Chair of the Quebec National Art Museum and a director of Enghouse Systems Limited. Mr. Lassonde received his Chartered Financial Analyst designation from the CFA Institute in 1984, a P. Eng (Association of Professional Engineers of Ontario) in 1976, a Master of Business Administration from the University of Utah in 1973, a B.Sc. (Electrical Engineering) from Ecole Polytechnique in 1971 and a B.A. from Seminaire de St. Hyacinthe/Université de Montréal in 1967. Mr. Lassonde was appointed a Member of the Order of Canada in 2002, was inducted into the Canadian Mining Hall of Fame in 2013 and was appointed Chair of the Canadian Council for the Arts in July 2015. |
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7 |
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Toronto, Ontario, Canada |
Securities Held |
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Director Since: Nov 13, 2007 |
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At-Risk Value of |
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At-Risk Value of |
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Age: 61 |
Common |
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Common Shares and |
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Common Shares, |
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Shares (2) |
RSUs (7) |
RSUs (4) |
Options (5) |
RSUs and Options (6) |
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1,142,205 |
48,758 |
Aggregate of C$104,780,925 comprised of C$100,491,196 (1,142,205 Common Shares) and C$2,665,059 (29,837 Performance-based RSUs) and C$1,664,670 (18,921 Time-based RSUs) |
175,480 |
C$107,612,804 |
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Board and Committee Positions |
Membership and Attendance |
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Non-Independent Member of the Board (President & CEO) |
Board Meetings Attended 2017: 6 of 6 - 100% |
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Committee Memberships: None |
Mr. Harquail regularly attends meetings of the committees of which he is not a member. |
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Annual and Special Meeting Voting Results |
Votes in Favour |
Votes Withheld |
||||
2017 |
83,993,055 |
(99.77%) |
191,651 |
(0.23%) |
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2016 |
91,486,198 |
(99.93%) |
59,954 |
(0.07%) |
||
Current Other Public Board Memberships |
Current Other Committee Memberships |
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None |
None |
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Hillsborough, NJ, USA |
Securities Held |
|||||
Director Since: Aug 8, 2013 |
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At-Risk Value of |
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At-Risk Value of |
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Age: 60 |
Common |
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Common Shares and |
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Common Shares, |
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Shares (2) |
DSUs (3) |
DSUs (4) |
Options (5) |
DSUs and Options (6) |
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11,235 |
6,411 |
C$1,552,495 |
75,000 |
C$4,688,245 |
|
Board and Committee Positions |
Membership and Attendance |
|||||
Independent Member of the Board |
Board Meetings Attended 2017: 6 of 6 - 100% |
|||||
Committee Memberships: ARC |
ARC Meetings Attended 2017: 5 of 5 - 100% |
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Mr. Albanese regularly attends CCGC meetings. |
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Annual and Special Meeting Voting Results |
Votes in Favour |
Votes Withheld |
||||
2017 |
83,308,321 |
(98.96%) |
876,385 |
(1.04%) |
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2016 |
89,926,851 |
(98.23%) |
1,619,301 |
(1.77%) |
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Current Other Public Board Memberships |
Current Other Committee Memberships |
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None |
None |
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8 |
(1)
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Derek W. Evans (1) |
Derek Evans is a director of Franco-Nevada. He served as President and CEO and a director of Pengrowth Energy Corporation (an oil and natural gas company) from 2009 until March 15, 2018. From May to September 2009, Mr. Evans was President and Chief Operating Officer of Pengrowth Energy Trust. Mr. Evans served as President and CEO of Focus Energy Trust from May 2002 until March 2008. Mr. Evans has over 30 years of experience in a variety of operational and senior management positions in the oil and gas business in Western Canada. Mr. Evans holds a Bachelor of Science degree in Mining Engineering from Queen’s University and is a registered Professional Engineer in Alberta. Mr. Evans is also a member of the Institute of Corporate Directors. |
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Calgary, Alberta, Canada |
Securities Held |
|||||
Director Since: Aug 8, 2008 |
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At-Risk Value of |
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At-Risk Value of |
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Age: 61 |
Common |
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Common Shares and |
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Common Shares, |
|
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Shares (2) |
DSUs (3) |
DSUs (4) |
Options (5) |
DSUs and Options (6) |
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14,054 |
14,090 |
C$2,476,109 |
Nil |
C$2,476,109 |
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Board and Committee Positions |
Membership and Attendance |
|||||
Independent Member of the Board |
Board Meetings Attended 2017: 6 of 6 - 100% |
|||||
Committee Memberships: ARC |
ARC Meetings Attended 2017: 5 of 5 - 100% |
|||||
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Mr. Evans regularly attends CCGC meetings. |
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Annual and Special Meeting Voting Results |
Votes in Favour |
Votes Withheld |
||||
2017 |
84,000,366 |
(99.78%) |
184,340 |
(0.22%) |
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2016 |
91,477,030 |
(99.92%) |
69,122 |
(0.08%) |
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Current Other Public Board Memberships |
Current Other Committee Memberships |
|||||
None |
None |
(1)
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Catharine Farrow (1) |
Dr. Catharine Farrow is a director of Franco-Nevada and President of FarExGeoMine Ltd. (a private consultancy). Dr. Farrow previously served as founding Chief Executive Officer and a Director of TMAC Resources Inc. and Chief Operating Officer of KGHM International Ltd. (formerly FNX Mining Company Inc.). Dr. Farrow is also a member of the Advisory Committee of the Goodman School of Mines and is an Adjunct Professor at Laurentian University, and also has been a member of several non-profit boards and steering committees. Dr. Farrow is a member of the Association of Professional Geoscientists of Ontario, the Canadian Institute of Mining, Metallurgy & Petroleum, and a Fellow of the Society of Economic Geologists. She holds a Doctorate in Earth Sciences from Carleton University, a Master’s degree in Geology from Acadia University, and a Bachelor of Science degree in Geology from Mount Allison University. |
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9 |
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Brossard, Québec, Canada |
Securities Held |
|||||
Director Since: Nov 12, 2007 |
|
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At-Risk Value of |
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At-Risk Value of |
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Age: 67 |
Common |
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Common Shares and |
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Common Shares, |
|
|
Shares (2) |
DSUs (3) |
DSUs (4) |
Options (5) |
DSUs and Options (6) |
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10,000 |
10,484 |
C$1,802,182 |
Nil |
C$1,802,182 |
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Board and Committee Positions |
Membership and Attendance |
|||||
Independent Member of the Board |
Board Meetings Attended 2017: 6 of 6 - 100% |
|||||
Committee Memberships: CCGC |
CCGC Meetings Attended 2017: 4 of 4 - 100% |
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Mr. Gignac regularly attends ARC meetings. |
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Annual and Special Meeting Voting Results |
Votes in Favour |
Votes Withheld |
||||
2017 |
83,671,419 |
(99.39%) |
513,287 |
(0.61%) |
||
2016 |
91,195,005 |
(99.62%) |
351,147 |
(0.38%) |
||
Current Other Public Board Memberships |
Current Other Committee Memberships |
|||||
None |
None |
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10 |
Notes
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(1) |
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Additional information is provided in the “Statement of Governance Practices – Nomination of Directors” section of this Circular, which contains a “skills matrix” highlighting individual director skills. |
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(2) |
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The information as to the number of common shares of the Corporation and any of its subsidiaries beneficially owned, or over which control or direction is exercised, directly or indirectly, by each proposed director, including those which are not registered in the name of such director and not being within the knowledge of the Corporation, has been furnished by the respective director. |
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(3) |
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Non-employee directors are eligible to participate in the Corporation’s deferred share unit plan to receive DSUs. The President & CEO, as an employee director, is eligible to participate in the Corporation’s share compensation plan to receive RSUs. For additional information regarding these plans, please see “Deferred Share Unit Plan” in this section and “Other Information – Amended and Restated Share Compensation Plan”. Fractional DSUs have been rounded. |
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(4) |
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Calculated as of March 22, 2018 using the closing price of the common shares on the TSX of C$87.98 per share. |
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(5) |
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For additional information regarding options held by directors, please see “Director Compensation” below. |
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(6) |
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Calculated as of March 22, 2018 using the closing price of the common shares on the TSX of C$87.98 per share, less the applicable exercise price for options. |
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(7) |
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Comprised of 29,837 performance-based RSUs and 18,921 time-based RSUs. See “Statement of Executive Compensation”. |
Securities laws require the Corporation to disclose whether a proposed director has within the past 10 years: (i) been a director or an executive officer of a company that has been subject to a cease trade or other order or become bankrupt; (ii) been bankrupt; (iii) been subject to any penalties or sanctions relating to securities legislation or entered into a settlement agreement with a securities regulatory authority; and (iv) been subject to any other penalties or sanctions that would likely be considered important to a reasonable shareholder in deciding whether to vote for a proposed director. To the Corporation’s knowledge (based on information furnished by the proposed directors), no disclosure is required in respect of the proposed directors, other than as follows:
Derek Evans was a director (until his resignation in January 2016) of a private oil and gas company that sought protection under the Companies’ Creditors Arrangement Act (Canada) in May 2016.
Under a settlement agreement dated November 30, 2017, Mr. Louis Gignac, a director of the Corporation, resolved concerns of the Authorité des marches financiers (“ AMF ”) regarding a trade in shares of another issuer made in 2015. The AMF and Mr. Gignac agreed in the settlement agreement that Mr. Gignac traded shares in error while in possession of privileged information, as defined in the Securities Act (Quebec) (the “ Quebec Act ”). The AMF and Mr. Gignac agreed that Mr. Gignac self-reported his trading to the AMF, fully cooperated with the AMF and that Mr. Gignac had no intention of trading with privileged information. Mr. Gignac agreed to pay an administrative fine of $94,369 under section 204 of the Quebec Act to fully resolve the matter.
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11 |
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Other Disclosed Matters
On October 17, 2017, the U. S. Securities and Exchange Commission (the “SEC”) filed civil charges against each of Rio Tinto plc, Tom Albanese and the former CFO of Rio Tinto plc, alleging, among other things, violations of the anti-fraud, reporting, books and records and internal control provisions of U.S. federal securities laws in connection with conduct at Rio Tinto plc and certain of its subsidiaries while Mr. Albanese was the CEO of Rio Tinto plc and prior to his becoming a director of the Corporation. On March 2, 2018, the Australian Securities and Investments Commission (“ASIC”) commenced proceedings in the Federal Court of Australia against each of Rio Tinto Limited, Tom Albanese and the former CFO of Rio Tinto Limited relating to statements which ASIC alleges were misleading contained in the annual report of Rio Tinto Limited for 2011.
The Corporation is aware of the allegations and will continue to monitor the progress of the situation.
Director Compensation Table
The following table (presented in accordance with Form 51‑102F6 – Statement of Executive Compensation (“ Form 51‑102F6 ”) under National Instrument 51‑102 – Continuous Disclosure Obligations ) sets forth in Canadian dollars all amounts of compensation earned by the non-executive directors for the Corporation’s most recently completed financial year.
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Name |
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Fees |
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Share- |
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Option- |
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|
Non-equity |
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All other |
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Total |
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||||
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|
earned (1) |
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based |
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|
based |
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|
incentive |
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|
compensation (3) |
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||||
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awards (2) |
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awards |
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|
plan |
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||||
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|
compensation |
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||||
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|
|
|
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|
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|
|
|
|
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|
Pierre Lassonde |
|
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|
$135,000 |
|
|
|
$200,600 |
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|
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Nil |
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|
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Nil |
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|
$3,000 |
|
|
$338,600 |
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|
|
|
|
|
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|
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|
|
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|
Tom Albanese |
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$45,000 |
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|
$196,266 |
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Nil |
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|
Nil |
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|
$12,000 |
|
|
$253,266 |
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|
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|
Derek Evans |
|
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$45,000 |
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|
$205,205 |
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Nil |
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|
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Nil |
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|
$12,000 |
|
|
$262,205 |
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|
Graham Farquharson |
|
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|
$45,000 |
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|
$205,519 |
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Nil |
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Nil |
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|
$3,000 |
|
|
$253,519 |
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Catharine Farrow |
|
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$45,000 |
|
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|
$196,456 |
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Nil |
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Nil |
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|
$3,000 |
|
|
$244,456 |
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|
|
|
|
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|
Louis Gignac |
|
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|
$45,000 |
|
|
|
$201,178 |
|
|
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Nil |
|
|
|
Nil |
|
|
$9,000 |
|
|
$255,178 |
|
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|
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|
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|
Randall Oliphant |
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|
$70,000 |
|
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|
$195,049 |
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Nil |
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Nil |
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|
$3,000 |
|
|
$268,049 |
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|
|
|
|
|
|
|
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|
David Peterson |
|
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|
$60,000 |
|
|
|
$207,680 |
|
|
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Nil |
|
|
|
Nil |
|
|
$3,000 |
|
|
$270,680 |
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Notes
|
(1) |
|
For a breakdown of fees paid in cash versus fees credited in DSUs, see the chart under “Deferred Share Unit Plan” below. Fees paid or payable to the directors were payable in Canadian dollars. The annual retainer paid to each director is $45,000 per year. Messrs. Lassonde, Oliphant and Peterson are also paid additional retainers for serving as the Chair of the Board, the Chair of the ARC and the Chair of the CCGC, respectively. The additional retainers for the Chair of the Board, the Chair of the ARC and the Chair of the CCGC were $90,000 per year, $25,000 per year and $15,000 per year, respectively. See “Discussion of Director Compensation Table” below. |
|
(2) |
|
Represents the grant date fair value of the: (1) dividend equivalents credited under the DSU Plan and (2) 2,000 DSUs credited to each director See “Discussion of Director Compensation Table” below. |
|
(3) |
|
Includes travel fees for out-of-town directors and for directors travelling to out-of-town meetings, as applicable, of $1,500 per day to a maximum of two days per meeting. Reimbursement to each of the directors for other expenses and fees was made during the year. These reimbursements were not considered perquisites, as they were integrally and directly related to the performance of each director’s duties. |
Discussion of Director Compensation Table
Significant factors necessary to understand the information disclosed in the Director Compensation Table above include the Board’s fee structure, the Corporation’s deferred share unit plan, and directors’ equity investment requirements.
Board Fees
In 2015, the CCGC conducted an extensive review of non-executive director compensation and concluded that compensation needed to be adjusted to account for (i) the growth of the Corporation, (ii) the increased workload of the directors (including the Chair and the Chairs of the ARC and CCGC), and (iii) the need to recruit new directors in connection with Board renewal as existing directors retire. The CCGC further determined that director compensation
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|
12 |
should largely be linked to the long-term growth of the Corporation’s share price. As such, the CCGC determined that an increase to director compensation should include the grant of DSUs (as defined below) instead of additional cash compensation.
The components of director compensation are as follows:
an annual retainer (the “ Annual Retainer ”) of $45,000;
an additional retainer to the Chair of the Board, the Chair of the ARC and the Chair of the CCGC of $90,000, $25,000 and $15,000, respectively;
the grant of 2,000 DSUs per year payable on a quarterly basis in arrears to each director which vest on the grant date (the “ Annual DSU Grant ”); and
the payment of travel fees (for out-of-town directors) of $1,500 per day to a maximum of two days per meeting.
Directors are also reimbursed for out-of-pocket expenses for attending Board and committee meetings and in respect of other activities relating to Board service, which include contributing significant additional time and expertise to management for which directors receive no additional compensation. No director compensation is paid to directors who are members of management of the Corporation.
Deferred Share Unit Plan
Effective March 26, 2008, the Board adopted a deferred share unit plan (the “ DSU Plan ”), which permits directors who are not salaried officers or employees of the Corporation or a related corporation (referred to as “ Eligible Directors ”) to defer receipt of all or a portion of their Board fees until termination of Board service. The DSU Plan also provides the Board with the flexibility to award deferred share units (“ DSUs ”) to Eligible Directors as another form of compensation. Only Eligible Directors are permitted to participate in the DSU Plan which is administered by the CCGC.
With respect to conversion of Board fees into DSUs (“ Conversion DSUs ”), each Eligible Director may elect to be paid a minimum of 20% up to a maximum of 100%, (in 10% increments), of Board fees in the form of Conversion DSUs in lieu of being paid such fees in cash. On the date on which Board fees are payable (on a quarterly basis), the number of Conversion DSUs to be credited to a participating Eligible Director (a “ Participant ”) is determined by dividing an amount equal to the designated percentage of the Board fees that the Participant has elected to have credited in Conversion DSUs on that fee payment date, by the fair market value of a common share (i.e. weighted average trading price for the last five trading days) on that fee payment date.
The DSU Plan also permits the CCGC to award DSUs to directors as additional compensation. In 2015, on the recommendation of the CCGC, the Board approved the Annual DSU Grant in lieu of increasing cash retainers paid to directors. Under the DSU Plan, the CCGC is authorized to determine when these DSUs will be awarded, the number of DSUs to be awarded, the vesting criteria for each award of these DSUs, if any, and all other terms and conditions of each award. Unless the CCGC determines otherwise (as was done for the Annual DSU Grant as these DSUs are issued in arrears for services rendered), the DSUs awarded under the DSU Plan will be subject to a vesting schedule whereby they will become vested in equal instalments over three years with one-third vesting on the first anniversary of the award and one-third vesting on each of the subsequent anniversaries of the award. The CCGC may consider alternatives for vesting criteria related to the Corporation’s performance and has the flexibility under the DSU Plan to apply such vesting criteria to particular awards of DSUs. The DSU Plan also provides that: (i) where a Participant’s termination of Board service is as a result of death, all unvested DSUs will vest effective on the date of death; and (ii) in a change of control context, all unvested DSUs will vest immediately prior to the change of control.
When dividends are declared by the Corporation, a Participant is also credited with dividend equivalents in the form of additional DSUs based on the number of vested DSUs the Participant holds on the record date for the payment of a dividend.
A Participant is permitted to redeem his or her vested DSUs only following termination of Board service by way of retirement, non-re-election as a director, resignation or death. A Participant (or, in the case of death of the Participant, the Participant’s legal representative) will be entitled, by giving written notice to the Corporation, provided the Participant is not at that time a salaried officer or an employee of the Corporation or a related corporation, to redeem, on one or more dates specified by the Participant (or the Participant’s legal representative, as the case may be)
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13 |
|
occurring on or after the date of such notice, which date(s) shall not, in any event, be prior to the tenth trading day following the release of the Corporation’s quarterly or annual financial results immediately following the Participant’s termination of Board service and shall not be later than December 1 st of the first calendar year commencing after the time of such termination of Board service, all or a portion of the vested DSUs. If the Participant (or the Participant’s legal representative, as the case may be) fails to provide written notice to the Corporation in respect of the redemption of all or any portion of the Participant’s vested DSUs, the Participant (or the Participant’s legal representative, as the case may be) will be deemed to have elected to redeem all vested DSUs on December 1 st of the calendar year commencing after the date of termination of Board service of the Participant. The DSU Plan has more specific restrictions on redemptions for U.S. Participants.
Upon redemption of DSUs, the Corporation will pay to the Participant a lump sum cash payment equal to the number of DSUs to be redeemed multiplied by a calculation of the fair market value of a common share (i.e. weighted average trading price for the last five trading days) on the redemption date, net of any applicable deductions and withholdings. The DSU Plan does not entitle any Participant to acquire common shares of the Corporation nor does it allow for the issuance of common shares of the Corporation from treasury.
The following table outlines the breakdown of fees paid in cash versus fees credited in DSUs during the year ended December 31, 2017 and the total DSUs accumulated during the year ended December 31, 2017.
Director Fees/DSUs Breakdown
(in C$)
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Name |
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Fees |
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DSU |
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Total fees |
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|
Total fees |
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|
Total fees |
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Number of |
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|
Dividend |
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Grant of |
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Total |
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||
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|
|
earned (1) |
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|
election |
|
|
paid in |
|
|
accrued in |
|
|
credited in |
|
|
DSUs (3) |
|
|
equivalents (3) |
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|
DSUs (4) |
|
|
number of |
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||
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|
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|
|
|
|
percentage |
|
|
cash |
|
|
cash (2) |
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|
DSUs |
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DSUs (3) |
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||
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|
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|
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|
|
|
|
Pierre Lassonde |
|
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|
$135,000 |
|
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|
0% |
|
|
$101,250 |
|
|
$33,750 |
|
|
Nil |
|
|
Nil |
|
|
105 |
|
|
2,000 |
|
|
2,105 |
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|
|
|
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|
|
Tom Albanese |
|
|
|
$45,000 |
|
|
|
100% |
|
|
Nil |
|
|
Nil |
|
|
$45,000 |
|
|
473 |
|
|
59 |
|
|
2,000 |
|
|
2,532 |
|
|
|
|
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|
Derek Evans |
|
|
|
$45,000 |
|
|
|
100% |
|
|
Nil |
|
|
Nil |
|
|
$45,000 |
|
|
473 |
|
|
153 |
|
|
2,000 |
|
|
2,626 |
|
|
|
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|
|
Graham Farquharson |
|
|
|
$45,000 |
|
|
|
100% |
|
|
Nil |
|
|
Nil |
|
|
$45,000 |
|
|
473 |
|
|
157 |
|
|
2,000 |
|
|
2,630 |
|
|
|
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|
|
|
|
|
|
Catharine Farrow |
|
|
|
$45,000 |
|
|
|
100% |
|
|
Nil |
|
|
Nil |
|
|
$45,000 |
|
|
473 |
|
|
61 |
|
|
2,000 |
|
|
2,534 |
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Louis Gignac |
|
|
|
$45,000 |
|
|
|
50% |
|
|
$16,875 |
|
|
$5,625 |
|
|
$22,500 |
|
|
237 |
|
|
111 |
|
|
2,000 |
|
|
2,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Randall Oliphant |
|
|
|
$70,000 |
|
|
|
0% |
|
|
$52,500 |
|
|
$17,500 |
|
|
Nil |
|
|
Nil |
|
|
47 |
|
|
2,000 |
|
|
2,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Peterson |
|
|
|
$60,000 |
|
|
|
100% |
|
|
Nil |
|
|
Nil |
|
|
$60,000 |
|
|
631 |
|
|
179 |
|
|
2,000 |
|
|
2,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
|
|
Notes
|
(1) |
|
Fees paid or payable to the directors were payable in Canadian dollars. |
|
(2) |
|
Represents cash fees payable for the fourth quarter of 2017 which were paid in 2018. |
|
(3) |
|
Fractional DSUs have been rounded. |
|
(4) |
|
Represents the Annual DSU Grant. |
Directors’ Equity Investment Requirements
With a view to aligning the interests of directors with those of shareholders, each director that is not a salaried officer or employee of the Corporation is required to hold a minimum equity investment in the Corporation equivalent in value to three times the Annual Retainer in the form of common shares of the Corporation and/or DSUs held pursuant to the DSU Plan. Each director has a period of three years from the date of his/her first election by shareholders or appointment by the Board, as applicable, to satisfy the minimum equity investment requirement.
Under the Equity Ownership Policy for Directors, if a director has not achieved the minimum equity investment at the time of any options being exercised by the director, he or she shall be required to continue to hold at least 50% or such lesser number of common shares issuable upon the exercise of such options as required to achieve the minimum equity ownership requirements.
|
|
|
14 |
The value of the equity investment of a director at any time will be based on the current market value of the common shares, and of the DSUs under the DSU Plan. Based on the Annual Retainer for fiscal 2017, the minimum equity investment is $135,000 . The following table summarizes equity investment in the Corporation by the directors as at March 22, 2018.
|
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|
|
|
|
|
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|
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|
|
|
|
|
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|
|||||||||
|
Name |
|
|
Equity Ownership |
|
|
Equity Ownership |
|
|
Net Changes in |
|
|
Value of Equity Investment |
|
|
Additional Required |
|
|||||||||||
|
|
|
|
as at March 22, 2018 |
|
|
as at March 22, 2017 |
|
|
Equity Ownership |
|
|
at March 22, 2018 (2) |
|
|
Investment |
|
|||||||||||
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|
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|
|
|
|
|
|
|
|
|
(in C$) |
|
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|
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
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||
|
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|
|
Common |
|
|
DSUs |
|
|
Common |
|
|
DSUs |
|
|
Common |
|
|
DSUs (1) |
|
|
|
|
|
|
|
||
|
|
|
|
Shares |
|
|
|
|
|
Shares |
|
|
|
|
|
Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pierre Lassonde |
|
|
1,999,247 |
|
|
9,843 |
|
|
2,359,247 |
|
|
7,738 |
|
|
(360,000) |
|
|
2,105 |
|
|
$176,759,738 |
|
|
|
Nil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tom Albanese |
|
|
11,235 |
|
|
6,411 |
|
|
11,235 |
|
|
3,879 |
|
|
Nil |
|
|
2,532 |
|
|
$1,552,495 |
|
|
|
Nil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derek Evans |
|
|
14,054 |
|
|
14,090 |
|
|
4,054 |
|
|
11,464 |
|
|
10,000 |
|
|
2,626 |
|
|
$2,476,109 |
|
|
|
Nil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Graham Farquharson |
|
|
120,946 |
|
|
14,361 |
|
|
121,543 |
|
|
11,731 |
|
|
(597) |
|
|
2,630 |
|
|
$11,904,310 |
|
|
|
Nil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Catharine Farrow |
|
|
Nil |
|
|
6,576 |
|
|
Nil |
|
|
4,042 |
|
|
Nil |
|
|
2,534 |
|
|
$578,556 |
|
|
|
Nil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Louis Gignac |
|
|
10,000 |
|
|
10,484 |
|
|
10,000 |
|
|
8,136 |
|
|
Nil |
|
|
2,348 |
|
|
$1,802,182 |
|
|
|
Nil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Randall Oliphant |
|
|
75,000 |
|
|
5,074 |
|
|
75,000 |
|
|
3,027 |
|
|
Nil |
|
|
2,047 |
|
|
$7,044,911 |
|
|
|
Nil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Peterson |
|
|
15,401 |
|
|
16,332 |
|
|
15,208 |
|
|
13,522 |
|
|
193 |
|
|
2,810 |
|
|
$2,791,869 |
|
|
|
Nil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
(1) |
|
Fractional DSUs have been rounded. |
|
(2) |
|
Based on the closing price of the common shares on the TSX on March 22, 2018, which was C$87.98 per share. |
Other Information
There were no repricings during the financial year ended December 31, 2017. Other than the DSU Plan, the Corporation did not have any other share-based or option-based award programs for non-executive directors in place during the financial year ended December 31, 2017. No awards of DSUs other than Conversion DSUs and the Annual DSU Grant were made under the DSU Plan during the financial year ended December 31, 2017.
|
|
15 |
|
Incentive Plan Awards for Directors
Outstanding Share-Based Awards and Option-Based Awards
The following table (presented in accordance with Form 51‑102F6) sets forth for each non-executive director all awards outstanding at the end of the most recently completed financial year, including awards granted before the most recently completed financial year.
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Name |
|
|
Option-based Awards |
|
|
Share-based Awards |
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Option |
|
|
Option |
|
|
Value of |
|
|
Number of |
|
|
Market or |
|
|
Market or |
|
|
|
|
|
securities |
|
|
exercise |
|
|
expiration |
|
|
unexercised |
|
|
shares or |
|
|
payout value of |
|
|
payout value of |
|
|
|
|
|
underlying |
|
|
price |
|
|
date |
|
|
in-the-money |
|
|
units of |
|
|
share-based |
|
|
vested |
|
|
|
|
|
unexercised |
|
|
(in C$) |
|
|
|
|
|
options (2) |
|
|
shares |
|
|
awards |
|
|
share-based |
|
|
|
|
|
options (1) |
|
|
|
|
|
|
|
|
(in C$) |
|
|
that |
|
|
that |
|
|
awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
have not |
|
|
have not |
|
|
not paid out or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
vested (3) |
|
|
vested |
|
|
distributed (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in C$) |
|
|
(in C$) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pierre Lassonde |
|
|
Nil |
|
|
– |
|
|
– |
|
|
Nil |
|
|
Nil |
|
|
Nil |
|
|
$902,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tom Albanese |
|
|
75,000 |
|
|
$46.17 |
|
|
Aug 19, 2023 |
|
|
$4,071,750 |
|
|
Nil |
|
|
Nil |
|
|
$587,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derek Evans |
|
|
Nil |
|
|
– |
|
|
– |
|
|
Nil |
|
|
Nil |
|
|
Nil |
|
|
$1,292,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Graham Farquharson |
|
|
Nil |
|
|
– |
|
|
– |
|
|
Nil |
|
|
Nil |
|
|
Nil |
|
|
$1,316,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Catharine Farrow |
|
|
65,000 |
|
|
$58.67 |
|
|
Aug 20, 2025 |
|
|
$2,716,350 |
|
|
Nil |
|
|
Nil |
|
|
$603,043 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Louis Gignac |
|
|
Nil |
|
|
– |
|
|
– |
|
|
Nil |
|
|
Nil |
|
|
Nil |
|
|
$961,525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Randall Oliphant |
|
|
Nil |
|
|
– |
|
|
– |
|
|
Nil |
|
|
Nil |
|
|
Nil |
|
|
$465,355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Peterson |
|
|
Nil |
|
|
– |
|
|
– |
|
|
Nil |
|
|
Nil |
|
|
Nil |
|
|
$1,497,820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
(1) |
|
Options vest over a three-year period in equal thirds commencing on the first anniversary of the grant date and have a 10‑year term. Grant dates coincide with the date 10 years prior to the option expiration date. |
|
(2) |
|
The value of unexercised options was calculated using the closing price of the common shares on the TSX on December 29, 2017 (as December 31, 2017 fell on a Sunday), which was $100.46 per share, less the exercise price of the option. |
|
(3) |
|
All dividend equivalents credited under the DSU Plan, Conversion DSUs and Annual DSU Grants since inception of the DSU Plan are vested, but under the terms of the DSU Plan cannot be paid out until redeemed by the Participant following termination of Board service. Conversion DSUs do not represent additional compensation or additional share-based awards as they are fees that directors have elected to be paid in the form of Conversion DSUs in lieu of cash and no shares are ever issued. The inclusion of Conversion DSUs in the table above is for informational purposes. |
|
(4) |
|
The market or payout value was calculated using the closing price of the common shares on the TSX on December 29, 2017 (as December 31, 2017 fell on a Sunday), which was $100.46 per share. The aggregate number of dividend equivalents, Conversion DSUs and Annual DSU Grants since inception of the DSU Plan was as follows: Mr. Lassonde – 9,843, Mr. Albanese – 6,411, Mr. Evans – 14,090, Mr. Farquharson – 14,360, Dr. Farrow – 6,576, Mr. Gignac – 10,484, Mr. Oliphant – 5,074 and Mr. Peterson – 16,332. |
Incentive Plan Awards – Value Vested or Earning During the Year
The following table (presented in accordance with Form 51‑102F6) sets forth details of the value vested or earned by each non-executive director during the most recently completed financial year for each incentive plan award.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Name |
|
|
Option-based Awards |
|
|
Share-based Awards |
|
|
Non-equity incentive |
|
||
|
|
|
|
Value vested during the year (1) |
|
|
Value vested during the year (2) |
|
|
plan compensation |
|
||
|
|
|
|
(in C$) |
|
|
(in C$) |
|
|
Value earned during the year |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pierre Lassonde |
|
|
|
Nil |
|
|
|
$200,600 |
|
|
Nil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tom Albanese |
|
|
|
Nil |
|
|
|
$241,266 |
|
|
Nil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derek Evans |
|
|
|
Nil |
|
|
|
$250,205 |
|
|
Nil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Graham Farquharson |
|
|
|
Nil |
|
|
|
$250,520 |
|
|
Nil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Catharine Farrow |
|
|
|
$876,213 |
|
|
|
$241,456 |
|
|
Nil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Louis Gignac |
|
|
|
Nil |
|
|
|
$223,678 |
|
|
Nil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Randall Oliphant |
|
|
|
Nil |
|
|
|
$195,049 |
|
|
Nil |
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|
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|
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|
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David Peterson |
|
|
|
Nil |
|
|
|
$267,681 |
|
|
Nil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 |
Notes
|
(1) |
|
Represents 33 ⅓ % of options with grant dates and vesting dates as set out below. The value vested during the year of option-based grants was calculated using the closing price of the common shares on the TSX on the vesting date, less the exercise price of the options. The relevant grant dates, vesting dates and TSX prices are as follows: |
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|
Applicable Director |
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|
Grant date |
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|
Vesting date |
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|
TSX price on vesting |
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||
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Dr. Farrow |
|
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|
August 20, 2015 |
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|
August 21, 2017 (as August 20, 2017 fell on a Sunday) |
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|
|
$99.11 |
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(2) |
|
Dividend equivalents credited under the DSU Plan, Conversion DSUs and Annual DSU Grants vest on the date they are credited/awarded. Conversion DSUs do not represent additional compensation or additional share-based awards as they are fees that directors have elected to be paid in the form of Conversion DSUs in lieu of cash and no shares are ever issued. The inclusion of Conversion DSUs in the table above is for informational purposes. During 2017, Conversion DSUs, Annual DSU Grants and dividend equivalents were calculated based on the 5‑day weighted average price on the TSX prior to the grant date: |
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Type |
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Grant date |
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TSX price |
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Dividend Equivalents (Q1) |
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|
March 30, 2017 |
|
|
$87.58 |
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|
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|
Conversion DSUs and Annual DSU Grant (Q1) |
|
|
March 31, 2017 |
|
|
$87.69 |
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|
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|
Dividend Equivalents (Q2) |
|
|
June 29, 2017 |
|
|
$97.12 |
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|
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|
|
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|
Conversion DSUs and Annual DSU Grant (Q2) |
|
|
June 30, 2017 |
|
|
$96.39 |
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|
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|
Dividend Equivalents (Q3) |
|
|
September 28, 2017 |
|
|
$97.73 |
|
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
Conversion DSUs and Annual DSU Grant (Q3) |
|
|
September 29, 2017 |
|
|
$97.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend Equivalents (Q4) |
|
|
December 21, 2017 |
|
|
$98.33 |
|
|
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|
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|
|
|
|
|
|
|
|
|
Conversion DSUs and Annual DSU Grant (Q4) |
|
|
December 29, 2017 |
|
|
$99.40 |
|
|
|
|
|
|
|
|
|
|
The aggregate number of dividend equivalents credited under the DSU Plan, Conversion DSUs and Annual DSU Grants during 2017 was as follows: Mr. Lassonde – 2,105, Mr. Albanese – 2,532, Mr. Evans – 2,626, Mr. Farquharson – 2,630, Dr. Farrow – 2,534, Mr. Gignac – 2,348, Mr. Oliphant – 2,047 and Mr. Peterson – 2,810. While such DSUs technically vested when credited/awarded during 2017, under the terms of the DSU Plan they cannot be paid out until redeemed by the Participant following termination of Board service.
Aggregated Option Exercises During the Most Recently Completed Financial Year and Financial Year-End Option Values
The following table sets forth details of the exercise of options during the most recently completed financial year by each non-executive director and the financial year-end value of unexercised options on an aggregated basis.
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||||
|
Name |
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Securities |
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|
Aggregate Value |
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|
Unexercised |
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|
Value of |
|
||||
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Acquired on |
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|
Realized (1) |
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Options at |
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Unexercised |
|
||||
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Exercise |
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(in C$) |
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Financial Year-End |
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In the-Money |
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||||
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Exercisable/ |
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Options at |
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||||
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Unexercisable |
|
|
Financial Year-End (2) |
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||||
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Exercisable/ |
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||||
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Unexercisable |
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||
|
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(in C$) |
|
||||
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|
|
|
|
|
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|
|
|
|
|
|
|
|
Pierre Lassonde |
|
|
Nil |
|
|
Nil |
|
|
Nil |
/ |
Nil |
|
|
Nil |
/ |
Nil |
|
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|
|
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|
|
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|
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Tom Albanese |
|
|
Nil |
|
|
Nil |
|
|
|
/ |
Nil |
|
|
$4,071,750 |
/ |
Nil |
|
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Derek Evans |
|
|
75,000 |
|
|
$6,067,470 |
|
|
Nil |
/ |
Nil |
|
|
Nil |
/ |
Nil |
|
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Graham Farquharson |
|
|
Nil |
|
|
Nil |
|
|
Nil |
/ |
Nil |
|
|
Nil |
/ |
Nil |
|
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Catharine Farrow |
|
|
Nil |
|
|
Nil |
|
|
|
/ |
21,667 |
|
|
$1,810,886 |
/ |
$905,464 |
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|
Louis Gignac |
|
|
25,000 |
|
|
$2,074,298 |
|
|
Nil |
/ |
Nil |
|
|
Nil |
/ |
Nil |
|
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|
Randall Oliphant |
|
|
Nil |
|
|
Nil |
|
|
Nil |
/ |
Nil |
|
|
Nil |
/ |
Nil |
|
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|
David Peterson |
|
|
Nil |
|
|
Nil |
|
|
Nil |
/ |
Nil |
|
|
Nil |
/ |
Nil |
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
Notes
|
(1) |
|
The aggregate value realized was calculated using the sale price of the common shares realized by each director following the exercise of options, less the exercise price of the options. |
|
(2) |
|
The value of unexercised options was calculated using the closing price of the common shares on the TSX on December 29, 2017 (as December 31, 2017 fell on a Sunday), which was $100.46 per share, less the exercise price of the options. |
|
|
17 |
|
Discussion of Incentive Plan Awards for Directors
The significant terms of all plan-based awards, including non-equity incentive plan awards, issued or vested, or under which options have been exercised, during the year, or outstanding at year end, in respect of non-executive directors, are set out above in this section under “Deferred Share Unit Plan” and below under “Other Information – Amended and Restated Share Compensation Plan”. For clarity, the only plan-based awards for which non-executive directors are or will be eligible are options awarded under the 2010 Share Compensation Plan (and, if approved at the Meeting, the Amended and Restated Share Compensation Plan) and DSUs under the DSU Plan. Non-executive directors are not eligible for annual cash bonuses or RSUs under the 2010 Share Compensation Plan (and, if approved at the Meeting, the Amended and Restated Share Compensation Plan).
While the 2010 Share Compensation Plan (and, if approved at the Meeting, the Amended and Restated Share Compensation Plan) technically permits the grant of options to directors, the Corporation has no intention of granting options to any non-executive directors in the foreseeable future.
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|
18 |
STATEMENT OF GOVERNANCE PRACTICES
Composition of the Board – Independence
The Board is currently comprised of nine directors. The Board has considered the independence of each of its directors. Consistent with National Instrument 58‑101 – Disclosure of Corporate Governance Practices (“ NI 58‑101 ”) and the listing standards of the New York Stock Exchange (“ NYSE ”), to be considered independent, the Board must conclude that a director has no material relationship with the Corporation. A “material relationship” is a relationship which could, in the view of the Board, reasonably interfere with the exercise of a director’s independent judgment and includes an indirect material relationship.
The Board has concluded that eight directors (Messrs. Lassonde, Peterson, Gignac, Farquharson, Oliphant, Evans and Albanese and Dr. Farrow) are “independent” for purposes of Board membership, as provided in NI 58‑101 and by NYSE listing standards, and therefore all of the directors are “independent” other than Mr. Harquail, by virtue of his position as President & CEO.
The Board has also considered the independence of its directors more generally, and whether they are “related” or “affiliated” as defined by various governance ratings agencies and confirms its view that Messrs. Lassonde, Peterson, Gignac, Farquharson, Oliphant, Evans and Albanese and Dr. Farrow are not “related” or “affiliated” with the Corporation in such a way as to affect their exercise of independent judgment.
Shareholders and other interested parties may communicate with any member of the board of directors, including the Chair of the Board, and the independent directors as a group, by contacting the Chief Legal Officer & Corporate Secretary at 199 Bay Street, Suite 2000, P. O. Box 285, Commerce Court Postal Station, Toronto, Ontario, Canada M5L 1G9.
Independent Director Meetings
At 100% of the meetings of the Board and its committees held during fiscal 2017 (including those that were not regularly scheduled meetings), the independent directors held an in-camera session at which non-independent directors and members of management were not present. It is the intention of the directors to continue to hold an in-camera session at each Board and committee meeting.
Chair of the Board
Pierre Lassonde Chair of the Board |
Mr. Lassonde, the Chair of the Board, has had an exemplary career as a professional engineer, astute investor, innovative financier, entrepreneurial company builder, dedicated philanthropist, senior statesman of Canada’s mining and investment industries and internationally respected industry spokesman. Mr. Lassonde is a respected worldwide authority on mining and precious metals. In addition to his qualifications, the Board has unanimously concluded that Mr. Lassonde is an independent director. See “Composition of the Board – Independence” above. The Chair of the Board’s role is to provide leadership to the directors in discharging their mandate, including by: (i) leading, managing and organizing the Board, consistent with the approach to corporate governance adopted by the Board from time to time; (ii) promoting cohesiveness among the directors; and (iii) being satisfied that the responsibilities of the Board and its committees are well understood by the directors. The responsibilities of the Chair of the Board include: providing advice, counsel and mentorship to the CEO; providing information to the directors on a timely basis; chairing the Board, scheduling meetings, setting the agendas, co-ordinating with the chairs of the committees of the Board to schedule committee meetings, ensuring that all business required to come before the Board is brought properly, monitoring the adequacy of Board materials, ensuring sufficient time for review of materials, and encouraging free and open discussion at meetings of the Board; and presiding over shareholder meetings. |
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|
19 |
|
Attendance at Meetings
During the financial year ended December 31, 2017, the Board held six meetings. The ARC held five meetings and the CCGC held four meetings. Non-committee members also regularly attend committee meetings. The following summarizes the attendance record for each of such meetings.
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||||||
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Name |
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Board Meetings |
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ARC Meetings |
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CCGC Meetings |
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Attended |
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Attended |
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Attended |
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Pierre Lassonde |
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6 of 6 |
- |
100% |
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N/A |
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N/A |
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||||
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David Harquail |
|
|
6 of 6 |
- |
100% |
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|
N/A |
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|
N/A |
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||||
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Tom Albanese |
|
|
6 of 6 |
- |
100% |
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|
5 of 5 |
- |
100% |
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N/A |
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Derek Evans |
|
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6 of 6 |
- |
100% |
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5 of 5 |
- |
100% |
|
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N/A |
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||
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|
Graham Farquharson |
|
|
6 of 6 |
- |
100% |
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|
|
N/A |
|
|
4 of 4 |
- |
100% |
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||
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|
Catharine Farrow |
|
|
5 of 6 |
- |
|
(1) |
|
|
N/A |
|
|
4 of 4 |
- |
100% |
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||
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|
Louis Gignac |
|
|
6 of 6 |
- |
100% |
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|
N/A |
|
|
4 of 4 |
- |
100% |
|
||
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|
|
Randall Oliphant |
|
|
6 of 6 |
- |
100% |
|
|
|
5 of 5 |
- |
100% |
|
|
N/A |
|
||
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|
David Peterson |
|
|
6 of 6 |
- |
100% |
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|
|
N/A |
|
|
4 of 4 |
- |
100% |
|
||
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|
Note
|
(1) |
|
Dr. Farrow was unable to attend due to a scheduling conflict. She was consulted prior to the meeting and approved all matters discussed at the meeting. |
It is the policy of the Board that, except in exceptional circumstances (i.e. due to illness or other incapacity), all directors of the Corporation shall attend the annual meeting of shareholders of the Corporation.
Board Mandate
A copy of the Board’s written mandate is attached as Schedule “B” to this Circular and is also available on the Corporation’s website at www.franco-nevada.com .
Board Engagement with Shareholders on Governance Matters
On November 11, 2010, the Board adopted a policy relating to Board engagement with shareholders on governance matters. The policy provides that the Board believes that it is important to have regular and constructive engagement directly with the shareholders of the Corporation to allow and encourage shareholders to express their views on governance matters directly to the Board outside of the Corporation’s annual meetings. These discussions are intended to be an interchange of views about governance and disclosure matters that are within the public domain and will not include a discussion of undisclosed material facts or material changes. This policy further provides that the Board will continue with developing practices to increase engagement with its shareholders as is appropriate for its shareholder base and size. Examples of engagement practices in 2017 include meetings between the Chair of the Board and the Corporation’s larger shareholders and potential shareholders in North America and Europe, as well as meetings between Board members and the Corporation’s shareholders. It is also the practice of the Board to annually host institutional investors and analysts at the Corporation’s offices. This provides all Board members with an opportunity to engage directly with shareholders. Board members are also provided with opportunities to join management at industry conferences (such as the Denver Gold Show and BMO Global Metals & Mining Conference) including individual meetings with the Corporation’s shareholders to understand their priorities and concerns. This policy also provides that the Board recognizes that shareholder engagement is an evolving practice in Canada and globally and will review this policy annually to ensure that it is effective in achieving its objectives.
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|
|
20 |
Audit and Risk Committee
Members |
|
||
Randall Oliphant Chair |
Tom Albanese |
Derek Evans |
All members of the ARC are (and have been) “independent” and “financially literate” (as defined in National Instrument 52‑110 – Audit Committees ) Mr. Oliphant has been determined by the Board in its business judgment to be a “financial expert” |
The ARC has been established to assist the Board in fulfilling its oversight and evaluation of:
the quality and integrity of the financial statements of the Corporation;
the compliance by the Corporation with legal and regulatory requirements in respect of financial disclosure;
the qualification, independence and performance of the Corporation’s independent auditors;
the performance of the Chief Financial Officer;
risk management oversight;
the compliance by the Corporation with legal and regulatory requirements in respect of its oil & gas disclosure; and
the qualification, independence and performance of the Corporation’s qualified oil & gas reserves evaluator or auditor.
Specifically, with respect to the independent auditors, the ARC is directly responsible for the appointment, compensation, retention (and termination) and oversight of the work of the independent auditor (including oversight of the resolution of any disagreements between management and the independent auditor regarding financial reporting).
The Corporation’s Audit and Risk Committee Charter also addresses the ARC’s responsibilities relating to risk management and oil & gas reserves. A copy of the Corporation’s Audit and Risk Committee Charter and additional disclosure relating to the ARC is set out in the Corporation’s most recent Annual Information Form and Form 40‑F which are available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov , respectively, and is also available on the Corporation’s website at www.franco-nevada.com .
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Compensation and Corporate Governance Committee
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David Peterson Chair |
Graham Farquharson |
Dr. Catharine Farrow |
Louis Gignac |
All members of the CCGC are “independent” (as defined in NI 58‑101)
Dr. Catharine Farrow became a member of the CCGC effective May 9, 2017
Mr. Farquharson will cease to be a member of the CCGC effective May 9, 2018
Among other things, the CCGC:
reviews and makes recommendations to the Board concerning the appointment of officers of the Corporation;
annually reviews the CEO’s goals and objectives for the upcoming year, provides an appraisal of the CEO’s performance and reviews his compensation;
makes recommendations concerning the remuneration of directors; and
administers and makes recommendations regarding the operation of the Corporation’s employee incentive compensation plans.
The CCGC also serves as the Board’s nominating committee. It is responsible for:
developing the Corporation’s approach to governance issues;
filling vacancies among the directors (see “Nomination of Directors” in this section);
reviewing the effectiveness and the contribution of the Board, its committees and individual directors (see “Board Assessment” in this section);
adopting, reviewing and updating the Corporation’s written Code of Business Conduct and Ethics and its written disclosure policy (see “Ethical Business Conduct” in this section); and
ensuring compliance of the compensation policies and practices of the Corporation with its enterprise risk management goals.
The Corporation’s Compensation and Corporate Governance Charter provides that, in addition to the independence requirements, no more than one-third of the members of the CCGC can be current CEOs of publicly-traded companies and that the CCGC will have an in-camera session at every meeting, consistent with the Canadian Coalition for Good Governance’s recommendations relating to best practices for compensation committees. A copy of the CCGC’s charter is available on the Corporation’s website at www.franco-nevada.com .
Position Descriptions
The Board has developed and approved written position descriptions for the Chair of the Board, the Chair of the ARC, the Chair of the CCGC and for the CEO.
Orientation and Continuing Education
The Corporation provides an orientation program for new directors in order that they can become familiar with the role of the Board, its committees and its directors and with the nature and operation of the Corporation’s business. To date, all Board members have been provided with a copy of the written mandate and charters for the Board and each of its committees, respectively, and a copy of the Board’s approved policies relating to, among other things, the business
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conduct and ethics of directors, officers and employees, auditor independence, employee complaint procedures for accounting and auditing matters, diversity and confidentiality, fair disclosure and trading in securities. Board members have also been provided with a copy of each committee’s planning schedules/work plans, as applicable. New Board members will be provided with these materials and meet with the Chair of the Board and members of management as part of their orientation.
With respect to continuing education, the Corporation works to ensure that its directors maintain the skill and knowledge necessary to meet their obligations as directors by having management provide relevant presentations at Board and committee meetings, as appropriate, by bringing consultants and other outside experts in to address the Board on various issues, by arranging for meetings with management and other outside advisors/experts/third parties, and by arranging for site visits and offsite meetings. The Board also has scheduled dinners at which various topics are discussed, such as industry trends, technical updates, strategic opportunities, corporate goals and strategies, board composition, financing options, the dividend policy, executive compensation and succession matters. The Board also receives, on a regular basis, materials of interest, including analyst reports and industry reports, from the Chair and the Named Executive Officers. Individual directors are, subject to the approval of the Chair of the Board, also able to attend continuing education conferences at the Corporation’s expense.
During 2017, in addition to standard management presentations on such matters as enterprise risk management, compensation policies and strategies, the Corporation’s portfolio of assets and management thereof, analyst and other reports, corporate performance reviews and merger and acquisition strategies in the mining and oil & gas industries, presentations from management and outside advisors/experts/third parties were provided at the following events:
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Timing/Place |
Attendees |
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Presented/Hosted By |
February 2017/Florida |
Lassonde, Harquail, Albanese, Farrow, Gignac and Oliphant |
Investor and banking relationships |
Management/Bank of Montreal |
May 2017/Toronto |
All Directors |
U.S. and Canadian Oil and Gas Markets; U.S. shale valuation workshop |
Management/External advisors to the Corporation |
September 2017/Denver |
Lassonde, Harquail, Oliphant and Farrow |
Investor and banking relationships |
Management/Denver Gold Group |
November 2017/Houston |
All Directors |
U.S. Oil and Gas markets and site visit |
Management/External advisors to the Corporation and operators on the Corporation’s royalty properties |
Directors have full and free access to officers and employees of the Corporation and may arrange meetings either directly or through the CEO. In addition, Board members are encouraged to attend mining, and oil & gas industry events, and other relevant stakeholder events.
Nomination of Directors, Board Renewal and Diversity
Nomination of Directors
The CCGC serves as the Board’s nominating committee. The CCGC is composed entirely of independent directors. The responsibilities, powers and operation of the CCGC generally are summarized above. The CCGC has the authority to retain a search firm to be used to identify director candidates. With respect to nomination of directors, the CCGC is responsible for:
developing and recommending to the Board criteria for selecting new directors;
assisting the Board by identifying individuals qualified to become members of the Board; and
recommending to the Board the director nominees for the next annual meeting of shareholders and for each committee of the Board.
The process by which the Board will identify new candidates for Board nomination will involve:
annually reviewing the competencies, skills and personal qualities required of directors to add value to the Corporation;
annually reviewing the competencies and skills that the Board considers each director to possess, including the skills matrix as discussed below, and what each new nominee should bring to the Board; and
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working closely with the Chair of the Board in seeking individuals qualified to become members of the Board, in the context of the Corporation’s needs and the criteria established by the Board, including the diversity criteria as discussed below.
The CCGC has developed a skills matrix comprised of the skills and competencies it expects the Board as a whole to possess and has identified which of those skills and competencies are possessed by its existing directors. The skills and competencies are as follows: experience with respect to the mining industry, oil & gas industry, accounting and finance, risk management, legal matters, human resources and compensation matters, corporate governance, public company boards and public company management. Set out below are the skills identified for each director.
Skills |
Pierre Lassonde |
David Harquail |
Tom Albanese |
Derek Evans |
Graham Farquharson |
Catharine Farrow |
Louis Gignac |
Randall Oliphant |
Hon. David R. Peterson |
Mining |
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Oil & Gas |
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Accounting & Finance |
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Legal |
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Risk Management |
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HR & Compensation |
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Corporate Governance |
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Public Company Boards |
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Public Company Management |
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Director Retirement Policy/Term Limits
The Board has adopted a director retirement policy which provides the framework for the Corporation to allow for the renewal of the Board, where appropriate, by specifying a process for the Board to determine whether turnover in the Board is appropriate once a director reaches a specified age. On the March 1 st after a non-employee director’s 72 nd birthday and on every March 1 st thereafter while such individual is still a director of the Corporation, the director must submit his or her resignation to the Board and the CCGC for consideration. The CCGC will consider such resignation and, taking into account factors such as the competencies and skills possessed by the Board as a whole and the director individually, the size of the Board and the overall best interests of the Corporation, make a recommendation to the Board as to whether the Board should accept such resignation in conjunction with the Corporation’s next annual meeting of shareholders or reject such resignation and nominate the director for election at the Corporation’s next annual meeting of shareholders. The Board will then consider the CCGC’s recommendation and make its determination. Neither the CCGC nor the Board has waived compliance with this policy to date. In accordance with this policy, Mr. Peterson tendered his resignation on March 1, 2018. As Mr. Farquharson had previously advised the Corporation of his decision to not seek re-election, there was no need for him to tender his resignation. The Board, on the recommendation of the CCGC, unanimously declined to accept Mr. Peterson’s resignation and has nominated him for re-election to the Board. The Board took into consideration, among other things, Mr. Peterson’s specialized governance and legal expertise in determining it was in the best interests of the Corporation for Mr. Peterson to continue to serve as director. Mr. Peterson did not participate in the deliberations of the CCGC or the Board with respect to his resignation.
While Mr. Farquharson is not standing for re-election, he has agreed to be an honorary director to continue to provide the Corporation with the benefit of his lengthy experience and great knowledge. Mr. Farquharson will not receive any compensation in this role and will not be entitled to a vote but will be invited to Board meetings when available to provide the Board with the benefit of his views.
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The Board has determined, being a ten-year-old company, not to establish term limits for directors at this time due to the potential loss of contributions from directors who have significant insight into the Corporation and its operations. As well, the director retirement policy is expected to provide sufficient opportunities to consider board renewal in the near-term such that meaningful board renewal may occur. The Board will continue to evaluate whether term limits would be advisable on an ongoing basis.
Diversity
The Corporation is committed to diversity among its employees, executive officers and on the Board. In 2015, the Board adopted a formal written diversity policy (the “ Diversity Policy ”) relating to identifying women as candidates to recommend for appointment/election to the Board and for appointment/promotion to senior management positions. Pursuant to the Diversity Policy, the CCGC will seek out highly-qualified candidates for Board and/or senior management positions and will specifically consider diversity criteria including gender, ethnicity and geographic background when identifying candidates. Where appropriate, the CCGC will engage qualified independent external advisors to conduct a search for candidates that meet the Board’s skills and diversity criteria to help achieve its diversity aspirations. As all recommendations of director nominees and appointments of executive officers need to be approved by the CCGC, the Board has concluded that appropriate measures are in place to ensure that the Diversity Policy is effectively implemented. The Diversity Policy will be reviewed annually by the CCGC to ensure it is effective in achieving its objectives. A copy of the Diversity Policy is available on the Corporation’s website at www.franco-nevada.com .
The Board and the CCGC have been considering the level of representation of women on the Board in identifying and nominating candidates for election and re-election to the Board. Over the past several years, the CCGC has been proactive and has considered and interviewed several women as potential Board members. Initially the Board was focused on recruiting a director with a strong technical mining background and following an exhaustive search, Dr. Farrow was elected by shareholders at the 2015 annual and special meeting of the Corporation as its ninth director. With the addition of Dr. Farrow to the Board, for 2018, one of nine (11%) directors of the Corporation is a woman.
The Board will continue to actively search for additional qualified women as directors. During 2017 and early 2018, the Board conducted an extensive recruitment process for a new woman director. Over the course of 2017, the Board identified a candidate, following which each Board member and executive officer interviewed the candidate to determine whether she possessed the experience and skill set desired to be added to the Board. Following numerous board discussions, it was unanimously agreed to put forward the woman candidate as a nominee for election and she accepted subject to obtaining a required consent from her previous employer, which was ultimately not provided. The Board’s commitment to improving gender diversity is evidenced by the considerable amount of time and resources spent during this most recent recruitment process and the Board will continue to focus on adding women directors to the Board. The Corporation is confident that additional meaningful progress will be achieved in improving gender diversity on the Board over the next few years.
The Corporation does consider the level of representation of women in executive officer positions when making executive officer appointments. Between 2007 and 2012, the Corporation had two women in Named Executive Officer positions, a clear demonstration of the Corporation’s commitment to gender diversity at the highest executive level. One executive retired and the other decided to pursue other opportunities. After the CEO, 67% of the Corporation’s current executive officers are members of visible minorities reflecting the Corporation’s commitment to diversity more broadly. During 2016, additional gender diversity progress was made through the hiring of a woman for a senior level position (Director of Finance) and the internal promotion of another woman to a senior level position (Controller). The Corporation will continue to seek out and consider women as candidates in all positions as they become available, including executive officer positions.
The Corporation has not set targets for women as Board members and executive officers. The Board has determined that its historical practices have resulted in meaningful progress to date and, together with the Diversity Policy, the Board is committed to further progress in the future. The Diversity Policy provides that the Board will review the policy annually to ensure that it is effective in achieving its objectives. Any changes to the policy as well as additional diversity achievements will be reported annually in the Corporation’s management information circular.
The CCGC serves as the Board’s compensation committee. The CCGC is composed entirely of independent directors. The responsibilities, powers and operation of the CCGC generally are summarized above under “Compensation and
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Corporate Governance Committee” in this section. With respect to compensation of directors and executive officers, the CCGC is responsible for:
assisting the Board in its annual review of the Board’s performance and oversight of the evaluation of management’s performance;
reviewing and making recommendations to the Board with respect to the compensation of directors and the executive officers (including the CEO) of the Corporation; and
approving and evaluating the compensation plans, policies and programs of the Corporation.
For information regarding the process by which the Board determines the compensation for the Corporation’s executive officers, please see “Compensation Discussion & Analysis”. For information regarding the process by which the Board determines the compensation for the Corporation’s directors, please see “Director Information – Director Compensation” above.
The Board assesses itself, its committees and individual directors with respect to their effectiveness and contribution on an annual basis. Such assessment process involves a confidential director questionnaire and discussions among the Chair of the Board, the Chairs of the committees and individual directors relating to overall Board assessment, individual committee assessments, Chair of the Board assessment, individual committee chair assessments, individual director self-assessments and peer assessments. The Chair of the Board meets with each individual director and the Chair of the CCGC meets with the Chair of the Board to discuss the above matters. Members of the CCGC are responsible for drafting, collecting and assessing questionnaires, and facilitating discussions. The Chair of the CCGC reports on the results of this process to the Board. The CCGC is also permitted to retain external advisors to assist with the assessment process. The assessment for 2017 was conducted in the first quarter of 2018 and the CCGC and the Board considered the results of the assessment process at their March meeting.
The CCGC is responsible for ensuring that succession strategies are both appropriate and are being implemented. All meetings of the CCGC and meetings of the Board in 2017 included an in-camera session with and without the CEO at which human resource issues and succession were regularly discussed. During the in-camera sessions, the CEO provided a verbal report on his current succession plan and those internal candidates that are in a succession position near-term and those that would require longer-term mentoring. The CEO also reported on his actions to mentor the internal candidates, including the provision of executive coaching, additional educational resources, broader experiences and higher public profiles. The potential for the Corporation to recruit an external candidate as CEO is also regularly discussed and is considered a viable option that does not require implementation at this stage. The CCGC also monitors progress in succession for executive positions reporting to the CEO. One of the five corporate goals for each executive is to ensure succession and technical depth are in place. Specific succession objectives are included in the annual key responsibilities and specific objectives that are agreed upon by each executive and the CEO and which are provided to the CCGC. Each year, the CEO reviews the achievement of succession objectives with each executive which then forms part of the CEO’s annual performance review of each executive and recommendations that he makes to the CCGC. These reviews and recommendations are considered by the CCGC in connection with its recommendations to the Board for annual incentive compensation. Finally at year end, the CEO provides the CCGC with a written memorandum assessing corporate accomplishments including an organizational chart and steps being undertaken to strengthen the Corporation. In the event of an emergency, the Board and CCGC have temporary succession plans that can be implemented. The Corporation is confident that appropriate succession strategies are being implemented to ensure the Corporation’s business will continue to be strongly managed in the future.
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Code of Business Conduct and Ethics
The Board has adopted a written Code of Business Conduct and Ethics (the “ Code ”) for the Corporation’s directors, officers and employees. The Code is available on SEDAR at www.sedar.com and on the Corporation’s web site at www.franco-nevada.com .
The Code reflects the Corporation’s core values of honesty, responsibility and fairness and addresses the following matters: compliance with laws, rules and regulations; conflicts of interest; confidentiality; corporate opportunities; protection and proper use of corporate assets; competition and fair dealing; gifts and entertainment; payments to government personnel; discrimination, harassment and equal opportunity; health and safety; accuracy of company records and reporting; use of e-mail and internet services; loans to or guarantees of obligations of the Corporation’s personnel; and reporting of any illegal or unethical behaviour.
With respect to the issue of conflicts of interest in particular, various officers, directors or other insiders of the Corporation may hold senior positions with other entities, including entities involved in the resource industry or may otherwise be involved in transactions within the resource industry and may develop other interests outside the Corporation. In the event that any such conflict of interest arises (or could potentially arise) for a director, such director will be required to disclose the conflict to a meeting of the directors of the Corporation and abstain from voting for or against the approval of such participation or such terms. In the event that any such conflict of interest arises (or could potentially arise) for an officer or other insider of the Corporation, such person will be required to disclose the conflict to the Chief Legal Officer and abstain from participating in any discussions related to such matter and the Board will be apprised of such conflict. In appropriate cases, the Corporation will establish a special committee of independent directors to review a matter in which several directors, or management, may have a conflict. Any decision made by any of such directors involving the Corporation will be required to be made in accordance with their duties and obligations to deal honestly and in good faith with a view to the best interests of the Corporation and its shareholders.
The CCGC will monitor compliance with the Code and be responsible for granting any waivers from the application of the Code and will review management’s monitoring of compliance with the Code. To date, no such waivers have been granted.
Under the Code, the Corporation’s personnel are expected to talk to supervisors, managers or other appropriate personnel including the Chief Legal Officer about observed illegal or unethical behaviour and when in doubt about the best course of action in a particular situation. All of the Corporation’s personnel are required to cooperate in internal investigations of misconduct.
Business Integrity Policy
The Board has adopted a Business Integrity Policy (the “ Business Integrity Policy ”) for the Corporation’s directors, officers and employees, which is intended to supplement the Code. The Business Integrity Policy is available on the Corporation’s website at www.franco-nevada.com .
This Business Integrity Policy is intended to ensure that the Corporation does not receive an improper advantage in its business dealings and that all payments and expenses are properly recorded in its financial books and records and addresses the following matters. Among other things, the policy provides guidance on dealing with agents, contractors and public officials, acceptance of gifts, making political contributions and dealing with certain types of payments. Employees of the Corporation are obligated to promptly report any violations of the policy to the Chief Legal Officer who will in turn report to the Chief Financial Officer and the ARC.
Whistleblower Policy
The Board has adopted employee complaint procedures for accounting and auditing matters (collectively, the “ Whistleblower Policy ”) for the Corporation’s directors, officers and employees to enable such personnel to submit good faith complaints relating to any questionable accounting or auditing matter. The Whistleblower Policy outlines how an employee with a good faith concern about any accounting or auditing matter can report those concerns directly to the Chief Legal Officer, and on an anonymous basis, directly to the Chair of the ARC.
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Policy Concerning Confidentiality, Fair Disclosure and Trading in Securities
The Board has adopted a Policy Concerning Confidentiality, Fair Disclosure and Trading in Securities, which serves as the Corporation’s corporate disclosure policy and insider trading policy. This policy applies to the Corporation’s directors, officers and employees to ensure that such personnel comply with securities legislation and the rules of applicable stock exchanges relating to insider trading, tipping and selective disclosure.
With respect to confidentiality and disclosure, this policy generally outlines principles of confidentiality and guidelines for maintaining confidentiality, disclosure principles and guidelines for disclosure (including who the authorized spokespersons are and how discussions with the investing community will occur), what constitutes material information, what is non-public information and how forward-looking information should be disclosed.
With respect to trading in securities, this policy generally outlines prohibitions on trading, the Corporation’s policies on trading windows and black-out periods, required pre-approval for trades by insiders and sanctions if improper trading were to occur. This policy also prohibits the entering into of any “equity monetization” transactions or purchases of financial instruments, including prepaid variable forward contracts, equity swaps, collars or units of exchange funds that are designed to hedge or offset a decrease in market value of equity securities. This policy requires the Corporation’s personnel to report any violations immediately to the CEO or the Chief Legal Officer.
Strategy and Risk Management
The Board reviews with management the Corporation’s goals and strategy on a regular basis. During these discussions, the performance of the Corporation and future opportunities are extensively discussed to assess whether adjustments to strategy are warranted. The Corporation’s core business principles and long term strategy remains constant. The Corporation is a gold-focused royalty and streaming company with a diversified portfolio, providing investors with a low-risk gold investment with gold price and exploration optionality. The Corporation is focused on growing net asset value on a per share, sustainable, long-term basis. It recognizes that it operates in a highly cyclical business and has maintained a capital structure that allows the Corporation to invest counter-cyclically. In executing its strategy, the Corporation is willing to make investments over the long-term, including in projects that may take significant time before coming to fruition.
The Corporation’s enterprise risk management environment ensures that the key objectives and strategy for the success of the Corporation are achieved. The risk management process of the Corporation is a several pronged process involving management, the ARC and the Board of the Corporation. In its annual strategic planning session, the Board’s understanding of the current business strategy, its critical success factors and the related business risks is a key focus. The risks of the business are analyzed and reviewed together with strategic opportunities and issues. Management provides a detailed listing of risks and a related risk analysis, the latest of which was presented and reviewed with the ARC in November 2017 which identified risks to be monitored by the Board including (i) succession planning, (ii) political risks generally, (iii) cybersecurity, and (iv) competition and growth. Also included in this review, the roles of management, the ARC and the Board relating to risk were highlighted and reaffirmed. The Board is responsible for strategic aspects and the enforcement of an appropriate risk culture throughout the organization, including through the CCGC relating to compensation aspects. The ARC is charged with the supervision of the risk analysis and policing of the mitigation factors and plans. Management conducts a periodic detailed analysis of risks, recommended mitigation plans and is responsible for the implementation and review of effectiveness of such mitigation plans.
In addition, critical to the Corporation’s success is the appropriate management of risk around all assets including potential new investments. In this regard, the Board is fully engaged in the review of new investments. At Board meetings, management updates the Board on potential investments and seeks guidance on whether to proceed. Board members are also provided with at least monthly reports from the CEO in between Board meetings. Board members are very active in the review of potential investments including participating in due diligence and providing technical, political, financial, corporate social responsibility and other expertise. Directors are frequently involved by management to advise on specific due diligence or asset management issues. Directors will often accompany management on site visits to existing assets or potential investments and report independently to the Board on their observations.
If management proposes to proceed with a transaction in excess of a threshold amount, it must first seek Board approval. Below this threshold amount, management has discretion to proceed with an investment but must report the transaction to the Board in order to refresh its executive authority before being able to proceed with another investment. The Board is also regularly updated as to existing material assets and provided with risk assessments of those assets.
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Discrimination, Harassment and Equal Opportunity Policy
The Board has adopted a Discrimination, Harassment and Equal Opportunity Policy which provides the framework for the Corporation to maintain an environment free of discrimination and harassment, in which all individuals are treated with respect and dignity, are able to contribute fully and have equal opportunities. This policy also deals with harassment and workplace violence. This policy articulates the Corporation’s position with respect to: (i) diversity, equal opportunity, discrimination (including grounds therefore), harassment and threats or acts of violence; (ii) reporting inappropriate conduct, harassment and workplace violence; (iii) disciplinary measures; and (iv) the development of procedures to prevent and address human rights issues.
Environmental and Social Responsibility
The Corporation’s business is investing in the business of others and does not directly operate any of its assets. The projects on which the Corporation has royalties and streams are owned and operated by independent mining and oil & gas companies which are typically publicly listed. As management is not responsible for the day-to-day operational or development decisions at a project, it is able to focus on growth and new investments. While the Corporation does not control or influence the operations of any of the properties over which it has an interest, it is committed to responsible mining and oil & gas extraction in all aspects of its investments including with respect to environmental, social and governance issues, which are addressed through a combination of the following:
policies which guide investment decisions
due diligence process for new investments
contractual rights in royalty and stream agreements
The approach taken by the Corporation has generated real value for shareholders and has allowed it to acquire royalties and streams on projects operated by some of the best operators in the industry. Information regarding the Corporation’s environmental and social responsibility policies (including its Investment Principles (Environmental, Social and Governance) Policy, Corporate Responsibility Policy, and Health and Safety Policy), its due diligence process, ongoing management through contractual rights and its impact as well as the impact of its third-party operators is available on the Corporation’s website at www.franco-nevada.com .
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STATEMENT OF EXECUTIVE COMPENSATION
Dear Shareholders:
On behalf of the Board, the members of the Compensation and Corporate Governance Committee present our 2017 Statement of Executive Compensation.
The Corporation’s compensation program has evolved over time since the Corporation’s IPO in 2007. The Corporation has moved from a 100% cash compensation program to a program consisting primarily of long-term, at-risk share-based compensation in order to align the interests of the executive officers with our shareholders. The Committee has worked with the Board and management over the past 10 years to develop our compensation program.
The Committee believes that the Corporation’s compensation program has been consistently improved to advance the interests of shareholders.
The Committee has not adopted a formulaic approach to compensation as the Committee does not believe such an approach suits the Corporation’s business model or principles. Rather, the Corporation has taken a very disciplined approach within a compensation framework taking into account relevant objective and subjective factors which may change year over year to determine appropriate levels of overall compensation and awards of incentive compensation. The Committee has always maintained an absolute focus on performance and generation/preservation of shareholder value in determining compensation.
We believe that this approach has worked well to date. As the Corporation commemorates its 10 th anniversary, it has achieved the following milestones:
Total shareholder return of over 600% over the 10-year period, assuming the reinvestment of dividends;
Consistent outperformance against gold and relevant comparable gold equity benchmarks; and
4 th best performer of the TSX60 over the 10-year period
Over this same 10-year period, there has been strong alignment between shareholder value generation and executive compensation. We are very proud of what our executive team has accomplished.
2017 was another successful year for the Corporation and in the following discussion, we highlight the corporate achievements and personal considerations that were taken into account in determining compensation. Also taken into consideration was the long-term performance of the Corporation and executive team as the goal of the Corporation is to create meaningful shareholder value over the long term as opposed to any given year.
We remain committed to maintaining high standards of corporate governance and compensation practices and we encourage and welcome your feedback. Based on our engagement with stakeholders this past year, in the following discussion we have provided further information and clarification on our existing compensation practices and have also adopted additional compensation best practices.
Sincerely,
“Hon. David R. Peterson”
“Graham Farquharson”
“Dr. Catharine Farrow”
“Louis Gignac”
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COMPENSATION DISCUSSION & ANALYSIS
Composition, Experience and Skills of the Compensation and Corporate Governance Committee
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David Peterson
Chair, Independent
Nov 12, 2007 |
Graham Farquharson
Independent
Nov 12, 2007 |
Catharine Farrow
Independent
May 8, 2017 |
Louis Gignac
Independent
Mar 20, 2014 |
Previous Member, Compensation Committee, VersaPay Corporation Chairman Emeritus, Cassels Brock & Blackwell LLP and previous Chair of its Executive Committee |
Previous Chair, Corporate Governance and Human Resources Committee, Cambior Inc. Previous Chair, Human Resources and Compensation Committee, Placer Dome Inc. |
Previous CEO, TMAC Resources Inc. Previous Chief Operating Officer of KGHM International Ltd. (formerly Quadra FNX Mining Company Inc.) |
Previous Member, Human Resources Committee, Domtar Corporation Previous President & CEO, Cambior Inc. Previous Chairman, Human Resources Committee, Gaz Métro Inc. |
Messrs. Peterson, Farquharson, Gignac and Dr. Farrow each have skills and direct experience as noted above that is relevant to their responsibilities in executive compensation and which enable them to make decisions on the suitability of the Corporation’s compensation policies and practices. Messrs. Peterson, Farquharson and Gignac have each served on the compensation committees of other Canadian publicly-traded corporations and all members of the CCGC have provided leadership in business, legal and/or government organizations in their current and/or past roles. In these roles, they have participated in compensation planning sessions, made compensation decisions and participated in compensation discussions with external consultants.
Responsibilities of the Compensation and Corporate Governance Committee
The CCGC was established by the Board to assist the Board in fulfilling its responsibilities relating to compensation matters, including the evaluation and approval of the Corporation’s compensation plans, policies and programs. It is the CCGC’s responsibility to ensure that the Corporation develops and maintains a compensation program for its executive officers that will be fair and competitive and consistent with the best interests of the Corporation. The CCGC is also responsible for ensuring compliance of the compensation policies and practices of the Corporation with its enterprise risk management goals.
The CCGC is responsible for reviewing the position description and performance goals and objectives relevant to the compensation of the CEO and for evaluating the CEO’s performance in light of those goals and objectives. The CCGC recommends to the Board the CEO’s compensation based on such evaluation. The CCGC is also responsible for making recommendations to the Board with respect to the compensation of all executive officers and other officers, including incentive compensation plans, equity-based plans (which the CCGC administers), the terms of any employment agreement, severance and change of control arrangements and any special or supplemental benefits. The CEO provides the CCGC with recommendations for compensation of executive officers and other officers, supported by relevant factual data and an assessment of appropriate compensation. The CCGC is also responsible for making recommendations concerning the remuneration of directors.
Compensation Consultants
The CCGC has the authority to retain and receive advice from compensation consultants to carry out its duties, but to date has not determined it necessary to do so. Specifically, during the financial years ended December 31, 2017 and 2016, no compensation consultants or advisors were retained to assist in determining compensation for any of the
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Corporation’s directors and officers, although the directors did continue to obtain guidance from experienced third parties on various compensation-related matters.
Compensation Philosophy and Objectives
The “Named Executive Officers” for purposes of this Circular (being the CEO, the Chief Financial Officer and the other three most highly compensated officers of the Corporation) are: (i) Mr. David Harquail, President & CEO, (ii) Mr. Sandip Rana, Chief Financial Officer, (iii) Mr. Paul Brink, Senior Vice President, Business Development, (iv) Mr. Lloyd Hong, Chief Legal Officer & Corporate Secretary, and (v) Mr. Jason O’Connell, Vice President, Oil & Gas. All of the Named Executive Officers’ compensation is structured such that greater emphasis is placed on incentive-based compensation, particularly long-term, at-risk, share-based compensation, ensuring alignment of such Named Executive Officers with the Corporation’s shareholders.
The Corporation’s strategic objectives drive its overall compensation philosophy such that all Named Executive Officers will expect a majority of their income will derive from the long-term growth of the Corporation’s share price.
The specific objectives of the Corporation’s compensation program for its officers are as follows:
to attract and retain talented officers;
to align the interests of officers with those of the Corporation’s shareholders; and
to link individual compensation to the performance of both the Corporation and the performance of each individual officer.
The Corporation’s compensation program is designed to reward officers for:
superior corporate performance relative to pre-set internal objectives;
superior corporate performance relative to an external performance index; and
exceptional levels of individual performance consistent with, and contributing to the achievement of, the Corporation’s strategic objectives.
The Corporation has generally considered compensation programs in relevant sectors of the mining and oil & gas industries as well as the compensation programs of its competitors but has not specifically engaged in benchmarking with a specific peer group. The Corporation has developed a performance index based on external indices (against which share price performance will be measured) as one of the components of the vesting criteria for performance-based RSUs which may be awarded. For further information, see “Restricted Share Units” in this section below.
The Board is responsible for strategy relating to risk management and the enforcement of an appropriate risk management culture throughout the organization. The Board fulfils these responsibilities through the ARC generally and through the CCGC with respect to compensation matters. The Board is ultimately responsible for considering the implications of risks associated with the Corporation’s compensation policies and practices. Through the ARC and outside advisors, the Board is advised of potential risks, including those relating to human capital, such as recruitment/retention, redundancy, workload/resources, HR support and succession. Through the CCGC, the Board is involved in the design of compensation policies to meet the specific compensation objectives discussed above and considers the risks relating to such policies. To mitigate inappropriate or excessive risk taking, the Corporation has put practices in place. For example, the Corporation has a variety of compensation components that are designed to provide balance between base salary and long term at-risk variable compensation. Also, the Corporation’s long-term incentive compensation has been designed to address its retention objectives. The CCGC is responsible for ensuring compliance with the compensation policies and practices of the Corporation. The Corporation’s enterprise risk management environment is further described under “Statement of Governance Practices – Risk Management”. To date, the Board and CCGC have not identified any risks arising from the Corporation’s compensation policies and practices that would be reasonably likely to have a material adverse effect on the Corporation.
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32 |
The Corporation currently provides a compensation program for officers as illustrated below. The components of the compensation program are base salary and incentive compensation comprised of a non-equity annual incentive cash bonus and long-term, at-risk, share-based compensation which is further comprised of time-based RSUs, performance-based RSUs and stock options.
The following charts set out the overall breakdown of total compensation between guaranteed base salary and incentive compensation (assuming incentive compensation is awarded at target). The Corporation places a greater relative emphasis on long-term, at-risk, share-based compensation with such compensation comprising 60% of targeted total compensation for the CEO and 50% of targeted total compensation for the other Named Executive Officers. For 2018, the breakdown of total compensation is expected to remain the same.
Each element of compensation is discussed in more detail below.
Base Salary
Base salary is a fixed element of compensation for each officer which is set by the CCGC annually and is the only component of compensation that is guaranteed. Base salary is intended to fit into the Corporation’s overall compensation objectives by serving to attract and retain talented officers. The CCGC principally considers the following factors in setting base salaries, including any increases to base salaries:
the level of responsibility related to each officer’s position;
the base salaries paid to equivalent officers at industry peers generally;
the experience of the officer;
the officer’s overall performance versus established goals and objectives; and
the retention risk consideration for each officer.
Incentive Compensation
Incentive compensation is a variable element of compensation comprising annual cash bonuses and long-term, at-risk, share-based compensation. Incentive compensation is not guaranteed and is subject to the achievement of corporate and individual goals by each Named Executive Officer.
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33 |
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Annual Cash Bonus
Annual cash bonuses are a short-term variable element of compensation that reward each officer for both corporate and individual performance and are intended to fit into the Corporation’s overall compensation objectives by directly linking individual compensation to the performance of both the Corporation and the individual. The process by which the CCGC determines the amount of cash bonuses is described further below.
Share-Based Compensation
Share-based compensation is a long-term, at-risk, variable element of compensation that directly and indirectly aligns the interests of officers with shareholders and encourages retention. The components of the share-based compensation consist of time-based RSUs, performance-based RSUs and stock options.
Restricted Share Units
The Corporation awards both time-based RSUs and performance-based RSUs as they have different vesting schedules which ensure strong alignment with shareholder interests. Time-based RSUs, if awarded, vest in equal thirds over a three-year period commencing on the first anniversary of the grant date.
Performance-based RSUs, if awarded, vest 100% on the third anniversary of the grant date subject to the achievement of pre-determined performance vesting criteria on such vesting date. The CCGC determines whether such criteria have been satisfied at the end of the relevant calendar year. For example, the CCGC awarded the Named Executive Officers performance-based RSUs in respect of 2017 (as discussed below) and the CCGC will determine the vesting of such performance-based RSUs in late 2020.
The performance vesting criteria consist of satisfaction of the Corporate Goals (as defined below) and alignment of the Corporation’s share price performance (as an indicator of management’s performance) against a broadly-based performance index (the “ RSU Index ”) developed by the CCGC. The RSU Index comprises the following components: the performance of key commodities underlying the Corporation’s asset portfolio; the performance of certain gold and energy indices; and the performance of reference stock market indices. The relative weighting of the different components of the RSU Index will be based upon the projected percentage contributions of gold, silver platinum, palladium and energy to the projected revenues of the Corporation for the life of the RSUs awarded.
The specific components and weightings of the RSU Index for the performance-based RSUs awarded in 2017(based on the Corporation’s commodity revenue mix as at December 31, 2017 and the Corporation’s 2018 budget) for the three-year measurement period from December 2017 through December 2020, have been established by the CCGC and are illustrated below.
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34 |
At the end of 2020, the CCGC will compare the performance of the RSU Index to the performance of the Corporation’s share price. In order for the performance-based RSUs granted in 2017 to vest, the CCGC will need to be satisfied that the Corporation has (i) achieved its Corporate Goals and (ii) the Corporation’s share price has tracked or outperformed the performance of the RSU Index.
If the CCGC determines that the performance vesting criteria have only been partially met, it is possible that zero vesting may occur. If the CCGC determines that the performance vesting criteria have been met or exceeded, only those number of performance-based RSUs originally granted may vest. There is no upside opportunity on the number of performance-based RSUs that the Named Executive Officers can receive if the CCGC determines that vesting criteria have been satisfied. In such case, the Named Executive Officers will only receive the number of performance-based RSUs that were originally granted.
The CCGC expects that awarded performance-based RSUs would be adjusted if a performance goal or similar condition on which they were based was restated or adjusted.
Stock Options
The Corporation awards stock options which vest in equal thirds over a three-year period commencing on the first anniversary of the grant date. Such options have a 10‑year term.
The CCGC believes the different components of stock-based compensation, together with the different vesting schedules and maturities directly tie an officer’s compensation to shareholder returns and the performance of both the Corporation and the individual over the near, medium and long-term.
Pension, Perquisites and Personal Benefits
The Corporation provides health and insurance benefits, as well as basic fitness club memberships and parking or public transit reimbursement to its Named Executive Officers. These same benefits are available to all employees of the Corporation. Given the relatively nominal nature of these perquisites and benefits, they do not affect decisions
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35 |
|
about other elements of compensation. The Corporation has no pension plan, deferred compensation plan or other programs related to retirement funding.
How is Incentive Compensation Determined
Incentive Compensation Targets
Targeted awards of each element of incentive compensation to Named Executive Officers are set each year as a percentage of base salary. The targeted awards place a greater emphasis on long-term, at-risk, share-based compensation. Actual awards may range from 0% to a maximum of 200% of base salary based on the CCGC’s evaluation of the Corporation’s performance and each Named Executive Officer’s performance against the Corporate Goals (as defined below) and individual objectives. Actual awards of each element of incentive compensation have been capped at 200% of base salary in order to mitigate excessive risk-taking and limit potential windfalls. In the event the CCGC determines that a Named Executive Officer has achieved greater than targeted performance, the CCGC will not automatically award the same performance factor across all components of compensation but will, rather, determine which, if any, component of incentive compensation to apply such performance factor. The CEO and the other Named Executive Officers are not guaranteed an award of any incentive compensation under poor market conditions and it is possible for the CEO and the other Named Executive Officers to receive no incentive compensation.
The targeted awards that were set for 2017 (expressed as a percentage of base salary) are set out below. The targeted awards (expressed as a percentage of base salary) for 2018 remain the same.
The CCGC and Board retain final discretion to modify an award when considered appropriate but this discretion will only be exercised in extraordinary circumstances which will be disclosed if such discretion is ever exercised.
Corporate Goals and Performance
The CCGC and Board have broadly set five corporate goals for the Corporation and the Named Executive Officers. These goals are growth, performance, margins, risk management and succession (the “ Corporate Goals ”). The Corporate Goals have been chosen to encourage good decision-making over the business cycle as opposed to focusing on results in any one year. The CCGC and Board believe that each of the Corporate Goals are equally important. Additionally, the CEO sets personal objectives for the Named Executive Officers which are specific to the year and their personal development which are approved by the CCGC. The CCGC does not use a formulaic approach such as setting threshold, target and maximum goals for each of the Corporate Goals or the personal objectives as the nature of the Corporation’s business does not lend itself to such practices. As an example, it is not possible to predict the number or types of new investment opportunities that may arise during any given year and as such, it would not be appropriate to set a specific growth target in terms of number of investments or other specific metrics with respect to a new investment as it may encourage risk-taking behavior. As well, potential new investments where the Corporation was not a successful bidder
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36 |
or may have chosen not to pursue an opportunity may be as equally important to the achievement of the Corporate Goals.
Ultimately, the Corporation’s success is driven by the ability to act opportunistically while maintaining strong discipline. As a result, the CCGC takes a more principled approach to compensation as opposed to a formulaic one. The Corporation’s business has evolved since its IPO in 2007 and the management team have continued to create true shareholder value over this period by focusing on its business model principles and not specific targets. In evaluating corporate and individual performance, the CCGC evaluates each Corporate Goal and individual performance taking into account numerous objective and subjective factors.
Set out in the chart below are (i) the key principles for each Corporate Goal, (ii) the objective and subjective achievements for 2017 considered in determining incentive awards for 2017, and (iii) the CCGC’s conclusion as to the satisfaction of each Corporate Goal.
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37 |
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Notes
(1) All the Named Executive Officers are responsible for the achievement of the Corporate Goals. However, the level of responsibility may be different based on the role of such Named Executive Officer. The CEO has full responsibility for all the Corporate Goals. Mr. Brink has greater responsibility for growth, medium responsibility for performance, margins and succession and low responsibility for risk management. Mr. Rana has greater responsibility for margins and risk management, medium responsibility for growth, performance and succession. Mr. Hong has greater responsibility for risk management, medium responsibility for growth, performance and succession and low responsibility for margins. Mr. O’Connell has the same levels of responsibility as Mr. Brink.
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38 |
(2) Margin is defined by the Corporation as Adjusted EBITDA divided by revenue. The Corporation uses this non-GAAP measure to evaluate management’s performance in increasing revenue and containing costs. Margin is intended to provide additional information, does not have any standardized definition under IFRS and should not be considered in isolation or as a substitute for a measure of performance in accordance with IFRS. Please refer to the Corporation’s financial statements for additional detail.
Named Executive Officers: Accomplishments and Incentive Awards
The following section provides information about each Named Executive Officer and their respective 2017 performance and compensation awards.
|
David Harquail President & CEO David Harquail is President & CEO and is a director Franco-Nevada. He is responsible for the day-to-day operation of Franco-Nevada’s business. In discharging his responsibilities, Mr. Harquail is required to, among other things, (i) provide leadership and direction to the Franco-Nevada management team; (ii) foster a corporate culture that promotes ethical practices and encourages individual integrity; (iii) develop and recommend to the Board a long-term strategy and vision; and (iv) have overall responsibility for the achievement of Franco-Nevada’s financial and operating goals and objectives. Mr. Harquail led the initial public offering of the Corporation in 2007 and has overseen the growth of the Corporation over the past 10 years. Under his leadership, the Corporation has created true shareholder value. For a brief biographical description for Mr. Harquail, please see “Director Information – Nominee Information” above. |
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Individual performance considerations |
CCGC conclusions |
|
Mr. Harquail: Continued to provide exceptional leadership to the Corporation Progressed succession planning efforts Successfully engaged with shareholders on the Corporation’s U.S. oil and gas efforts |
Mr. Harquail met or exceeded all objectives set for him in 2017. In recognition of Mr. Harquail’s performance, a factor of 130% of base salary was applied to his annual cash bonus. All other incentive compensation was awarded at targeted levels, all as detailed in the Summary Compensation Table. Mr. Harquail’s base salary for 2018 was also adjusted by an inflation factor of 3%.
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39 |
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Set out below is a graph setting out Mr. Harquail’s: (i) targeted compensation for the past five years (based on the targets disclosed in the Corporation’s management information circulars for the relevant years), (ii) the actual compensation awarded (based on the amounts reported in the Summary Compensation Tables in the Corporation’s management information circulars for the relevant years), (iii) the compensation realized (based on the market value of RSUs as at the date of vesting and the value realized on the exercise of stock options less the applicable exercise price of such stock options), and (iv) the amounts which may be realized in future in respect of each relevant year (based on the market value of RSUs and in-the-money value of stock options as at December 31, 2017). The graph also depicts total shareholder return over the same period (assuming reinvestment of dividends). During this period, the total shareholder return has been 86% and Mr. Harquail’s realized and realizable pay has demonstrated a strong alignment between CEO compensation and shareholder interests.
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40 |
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41 |
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Jason O’Connell Vice President, Oil & Gas Jason O’Connell, Vice President, Oil & Gas, has been with Franco-Nevada since 2008. In his role as Vice President, Oil & Gas, Mr. O’Connell reports to Mr. Brink. Mr. O’Connell has held a variety of roles during his tenure with the Corporation, including managing the investor relations’ function and as a Director in the Business Development group. Prior to joining Franco-Nevada, he worked in mining equity research with the Bank of Montreal. Mr. O’Connell holds a Master of Business Administration degree from Dalhousie University and Bachelor of Science degree with honours in Geology from Acadia University. |
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Individual performance considerations |
CCGC conclusions |
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Mr. O’Connell: Continued to provide strong leadership over the oil and gas division and implemented cost-effective structures to manage the Corporation’s U.S. oil and gas assets Executed several transactions growing the Corporation’s business and evaluated numerous other opportunities Established the Corporation as the leading Canadian player in the U.S. oil royalties market |
Mr. O’Connell met or exceeded all objectives set for him in 2017. In recognition of Mr. O’Connell’s performance, the maximum performance factor of 200% of base salary was applied to his annual cash bonus. All other incentive compensation was awarded at targeted levels, all as detailed in the Summary Compensation Table. As well, in recognition of Mr. O’Connell’s continued professional development, it was determined that an adjustment to Mr. O’Connell’s base salary for 2018 to C$250,000 was warranted. |
Termination and Change of Control Benefits
Messrs. Harquail, Rana, Brink and Hong have termination and double-trigger change of control provisions in their respective employment agreements. See “Discussion of Summary Compensation Table – Employment Agreements”, “Termination Benefits” and “Change of Control Benefits” in this section below. The CCGC took into account market standards for termination and change of control benefits when determining the events that trigger payment under these arrangements. Mr. O’Connell does not have any contractual termination or change of control provisions in respect of his employment with the Corporation.
Other Compensation-Related Matters
Financial Instruments: The Corporation’s Policy Concerning Confidentiality, Fair Disclosure and Trading in Securities requires pre-approval for trades by insiders. The policy also prohibits the entering into of any “equity monetization” transactions or purchases of financial instruments, including prepaid variable forward contracts, equity swaps, collars or units of exchange funds that are designed to hedge or offset a decrease in market value of equity securities.
Anticipated Changes to Compensation Policies and Practices: The Corporation does not intend to make any significant changes to its compensation policies and practices for fiscal 2018 other than the anticipated amendment and restatement of the Corporation’s Share Compensation Plan or as otherwise disclosed in this Circular.
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42 |
The graph below compares the cumulative total return over the five years ended December 31, 2017 of the common shares of the Corporation with the cumulative total return of the S&P/TSX Global Gold Index, the S&P/TSX Composite Index and the S&P/TSX Capped Energy Index assuming a $100 investment was made on December 31, 2012 and that all dividends had been reinvested.
Comparison of Cumulative Total Shareholder Return
on a $100 Investment in Common Shares
of the Corporation and the Relevant S&P/TSX Indices
Over the five-year period ended December 31, 2017, an investment in the Corporation has resulted in a compound annual return on the investment of 13.2 % (including dividends), significantly outperforming the market as set out in the graph above. Over the same five-year period, the trend of executive compensation has been aligned with total shareholder returns. Total NEO compensation is set out in the chart above illustrating the total amount of compensation awarded to the Named Executive Officers as reported in the Corporation’s management information circular for each relevant year.
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43 |
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As the Corporation is marking its 10 th anniversary since its IPO, a similar graph is provided below for the 10-year period ending December 31, 2017 which highlights the significant shareholder value that has been generated over the long term.
Comparison of Cumulative Total Shareholder Return
on a $100 Investment in Common Shares
of the Corporation and the Relevant S&P/TSX Indices
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44 |
The following table (presented in accordance with Form 51‑102F6) sets forth all direct and indirect compensation for, or in connection with, services provided to the Corporation and its subsidiaries for the financial years ended December 31, 2017, 2016 and 2015 in respect of the Named Executive Officers.
Summary Compensation Table
(in C$)
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Name and |
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Year |
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Salary (1) |
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Share-based |
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Option-based |
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Non-equity |
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All other |
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Total |
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principal |
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awards (2) |
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awards (3) |
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incentive plan |
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compensation (5) |
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compensation |
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position |
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compensation |
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Annual |
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Long-term |
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incentive |
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incentive |
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plans (4) |
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plans |
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David Harquail |
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2017 |
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$850,000 |
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$1,700,000 |
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$850,000 |
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$1,100,000 |
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Nil |
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$17,178 |
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$4,517,178 |
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President & CEO |
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2016 |
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|
$750,000 |
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$1,500,000 |
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$1,500,000 |
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$1,500,000 |
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Nil |
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$14,948 |
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$5,264,948 |
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2015 |
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$750,000 |
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$1,500,000 |
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$750,000 |
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$750,000 |
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Nil |
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$16,514 |
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$3,766,514 |
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Sandip Rana |
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2017 |
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$550,000 |
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$550,000 |
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$275,000 |
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$850,000 |
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Nil |
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$13,145 |
|
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$2,238,145 |
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Chief Financial Officer |
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2016 |
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$450,000 |
|
|
$450,000 |
|
|
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$1,000,000 |
|
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$900,000 |
|
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Nil |
|
|
$10,467 |
|
|
$2,810,467 |
|
|
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2015 |
|
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$450,000 |
|
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$450,000 |
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|
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$225,000 |
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|
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$225,000 |
|
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Nil |
|
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$11,756 |
|
|
$1,361,756 |
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Paul Brink |
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2017 |
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$600,000 |
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$600,000 |
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$300,000 |
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$850,000 |
|
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Nil |
|
|
$11,924 |
|
|
$2,361,924 |
|
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Senior Vice President, |
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2016 |
|
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$500,000 |
|
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$500,000 |
|
|
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$1,000,000 |
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|
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$1,000,000 |
|
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Nil |
|
|
$12,017 |
|
|
$3,012,017 |
|
|
Business Development |
|
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2015 |
|
|
$500,000 |
|
|
$500,000 |
|
|
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$250,000 |
|
|
|
$250,000 |
|
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Nil |
|
|
$11,756 |
|
|
$1,511,756 |
|
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Lloyd Hong |
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2017 |
|
|
$500,000 |
|
|
$500,000 |
|
|
|
$250,000 |
|
|
|
$850,000 |
|
|
Nil |
|
|
$14,303 |
|
|
$2,114,303 |
|
|
Chief Legal Officer & |
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2016 |
|
|
$400,000 |
|
|
$400,000 |
|
|
|
$1,000,000 |
|
|
|
$800,000 |
|
|
Nil |
|
|
$16,148 |
|
|
$2,616,148 |
|
|
Corporate Secretary |
|
|
2015 |
|
|
$400,000 |
|
|
$400,000 |
|
|
|
$200,000 |
|
|
|
$200,000 |
|
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Nil |
|
|
$15,216 |
|
|
$1,215,216 |
|
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Jason O’Connell |
|
|
2017 |
|
|
$220,000 |
|
|
$220,000 |
|
|
|
$110,000 |
|
|
|
$440,000 |
|
|
Nil |
|
|
$14,190 |
|
|
$1,004,190 |
|
|
Vice President, Oil & Gas (6) |
|
|
2016 |
|
|
$200,000 |
|
|
$200,000 |
|
|
|
$100,000 |
|
|
|
$300,000 |
|
|
Nil |
|
|
$15,756 |
|
|
$815,756 |
|
|
|
|
|
2015 |
|
|
$200,000 |
|
|
$200,000 |
|
|
|
$100,000 |
|
|
|
$100,000 |
|
|
Nil |
|
|
$15,118 |
|
|
$615,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
(1) |
|
Salary and other cash compensation awarded to, earned by, paid to, or payable to the Named Executive Officers was payable in Canadian dollars. |
|
(2) |
|
Represents time-based and performance-based RSUs. Time-based RSUs vest annually in equal thirds commencing on the first anniversary of the grant date. Performance-based RSUs vest on the third anniversary of the grant date (i.e. December 11, 2018, December 11, 2019 and December 11, 2020) upon satisfaction of certain performance criteria as described in “Elements of Compensation – Restricted Share Units” in this section above in respect of the 2017 performance-based RSUs and as described in the Corporation’s management information circulars dated March 22, 2017 and March 21, 2016 in respect of the 2016 and 2015 performance-based RSUs, respectively. The value of the share-based awards was calculated using the 5‑day weighted average price on the TSX prior to the grant date (the “ Grant Date Price ”). The relevant grant dates and Grant Date Prices are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant date |
|
|
Grant Date Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 11, 2017 |
|
|
$100.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 12, 2016 (as December 11, 2016 fell on a Sunday) |
|
|
$75.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 11, 2015 |
|
|
$65.76 |
|
|
|
|
|
|
|
|
(3) |
|
Represents stock options granted which will vest annually in equal thirds commencing on the first anniversary of the grant date. The fair value of stock options granted was calculated using a Black-Scholes option pricing model (the most commonly used form of fair value determination with respect to stock options). The relevant grant dates and Black-Scholes assumptions are as follows: |
|
(4) |
|
Represent cash bonuses. |
|
(5) |
|
Includes all perquisites, including health and insurance benefits in all cases, $125 or less per month for fitness club memberships in some cases and parking costs in some cases. |
|
(6) |
|
Mr. O’Connell was appointed Vice President, Oil & Gas on May 1, 2016. |
|
|
45 |
|
Discussion of Summary Compensation Table
Additional factors necessary to understand the information disclosed in the Summary Compensation Table above include the terms of each executive officer’s employment agreement and executive officers’ equity investment requirements.
Employment Agreements
Each of Messrs. Harquail, Rana, Brink and Hong has entered into an employment agreement with the Corporation which provides for a base salary, subject to an annual review by the CCGC which may recommend to the Board increases to such base salary. Each such executive officer is also entitled to receive a performance-based bonus based on satisfaction of performance criteria set by the CCGC for each year which may be payable in cash and/or securities of the Corporation and on a deferred basis, such terms to be determined in the sole discretion of the Board or CCGC consistent with the Corporation’s incentive compensation plans. Each such executive officer is also eligible to participate in the 2010 Share Compensation Plan (and, if approved at the Meeting, the Amended and Restated Share Compensation Plan) and is required to hold an amount of securities in accordance with the Corporation’s Equity Ownership Policy for Executives. Mr. Harquail has additionally agreed to hold for one year following departure from the Corporation the securities he has received from the Corporation in the then most recent three-year period under the Corporation’s equity incentive compensation plans. Mr. O’Connell receives the same entitlements described above under his employment arrangements with the Corporation but is not subject to the Equity Ownership Policy for Executives as it only applies to C-suite executives.
For information as to the termination provisions and termination and change of control benefits provided in the above employment agreements, including changes to certain of the executive officers’ employment agreements, see “Termination and Change of Control Benefits” in this section below.
Clawback
The Named Executive Officers have each agreed to a claw back of their incentive compensation. If the Corporation’s financial statements are required to be restated due to the fraudulent behaviour or other intentional misconduct of such executive officers or they are found to have engaged in intentional, egregious misconduct, they have agreed to reimburse the Corporation for, or forfeit, as applicable, any entitlement to any bonus or other incentive-based or equity-based compensation received by them during the 12‑month period following the issuance/filing of the financial statements required to be restated or during the 12-month period prior to when the Corporation becomes aware of the misconduct, as applicable.
Executives’ Equity Investment Requirements
With a view to aligning the interests of executive officers with those of the Corporation’s shareholders, each executive officer of the Corporation is required to hold a minimum equity investment in the Corporation equivalent in value to a multiple of such executive officer’s then current base salary as set out in the table below, depending on such executive officer’s level of responsibility. The requirement is to be satisfied in the form of common shares and RSUs of the Corporation. Each executive officer has a period of three years from the date on which he commenced employment with the Corporation as an executive officer, to satisfy the minimum equity investment requirement.
Under the Equity Ownership Policy for Executive Officers, if an executive officer has not achieved the minimum equity investment at the time of any options being exercised by the executive officer, he shall be required to continue to hold at least 50% or such lesser number of the common shares issuable upon the exercise of such options as required to achieve the minimum equity ownership requirements and if an executive officer has not achieved the minimum equity investment at the time of any RSUs vesting, the executive officer will be required to continue to hold at least 50% or such lesser number of the common shares issuable upon the RSUs vesting required to achieve the minimum equity ownership requirements.
For the purpose of determining the value of the equity investment of an executive officer at any time, the value of common shares and RSUs held by such executive officer will be based on the current market value of the common shares held and of the RSUs. The following table summarizes the equity investment in the Corporation of each executive officer as at March 22, 2018 (including ownership requirements for 2018 and onwards).
|
|
|
46 |
Equity Investment Summary
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||||||||||||
|
Name |
|
|
Ownership |
|
|
Equity Ownership |
|
|
Equity Ownership |
|
|
Net Changes in |
|
|
Value of |
|
|
Additional |
|
||||||||||||
|
|
|
|
Requirement (1) |
|
|
as at March 22, |
|
|
as at March 15, |
|
|
Equity Ownership |
|
|
Equity Investment at |
|
|
Required |
|
||||||||||||
|
|
|
|
(in C$) |
|
|
2018 |
|
|
2017 |
|
|
|
|
|
|
|
|
March 22, 2018 (2) |
|
|
Investment |
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|||||||||
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(in C$) |
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||||||||||||
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||||||||||||
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Common |
|
|
RSUs |
|
|
Common |
|
|
RSUs |
|
|
Common |
|
|
RSUs |
|
|
Common |
|
|
RSUs |
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
|
|
Shares |
|
|
|
|
|
Shares |
|
|
|
|
|
Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Harquail |
|
|
3 times/ |
|
|
1,142,205 |
|
|
48,758 |
|
|
1,127,209 |
|
|
51,770 |
|
|
14,996 |
|
|
(3,012) |
|
|
$100,491,196 |
|
|
$4,289,729 |
|
|
Nil |
|
|
|
|
|
$2,626,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sandip Rana |
|
|
2 times/ |
|
|
35,731 |
|
|
15,027 |
|
|
32,897 |
|
|
15,867 |
|
|
2,834 |
|
|
(840) |
|
|
$3,143,613 |
|
|
$1,322,075 |
|
|
Nil |
|
|
|
|
|
$1,133,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul Brink |
|
|
2 times/ |
|
|
208,646 |
|
|
16,585 |
|
|
206,581 |
|
|
17,667 |
|
|
2,065 |
|
|
(1,082) |
|
|
$18,356,675 |
|
|
$1,459,148 |
|
|
Nil |
|
|
|
|
|
$1,236,000 |
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lloyd Hong |
|
|
2 times/ |
|
|
4,414 |
|
|
13,469 |
|
|
3,157 |
|
|
13,730 |
|
|
1,257 |
|
|
(261) |
|
|
$388,344 |
|
|
$1,185,003 |
|
|
Nil |
|
|
|
|
|
$1,030,000 |
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
Notes
|
(1) |
|
2018 base salaries have been set as follows: C$875,500 for Mr. Harquail; C$566,500 for Mr. Rana; C$618,000 for Mr. Brink; and C$515,000 for Mr. Hong. |
|
(2) |
|
The closing price of the common shares on the TSX on March 22, 2018 was C$87.98 per share. |
Other Information
There were no repricings during the financial year ended December 31, 2017. During the financial year ended December 31, 2017, no changes were made to the 2010 Share Compensation Plan. Please refer to pages 53 to 57 of this Circular for a summary of the Amended and Restated Share Compensation Plan, which contains certain proposed amendments to the 2010 Share Compensation Plan.
The share-based awards reported in the Summary Compensation Table above are for RSUs awarded pursuant to the 2010 Share Compensation Plan. During 2015, an aggregate of 44,860 RSUs were awarded to the Named Executive Officers, being 22,430 performance-based RSUs which will vest on December 11, 2018 upon satisfaction of certain performance criteria and 22,430 time-based RSUs which will vest annually in equal thirds commencing on the first anniversary of the award date (being December 11, 2016). During 2016, an aggregate of 40,422 RSUs were awarded to the Named Executive Officers, being 20,211 performance-based RSUs which will vest on December 11, 2019 upon satisfaction of certain performance criteria and 20,211 time-based RSUs which will vest annually in equal thirds commencing on the first anniversary of the award date (being December 11, 2017). During 2017, an aggregate of 35,666 RSUs were awarded to the Named Executive Officers, being 17,833 performance-based RSUs which will vest on December 11, 2020 upon satisfaction of certain performance criteria and 17,833 time-based RSUs which will vest annually in equal thirds commencing on the first anniversary of the award date (being December 11, 2018).
The only awards of options reported in the Summary Compensation Table above are as follows: (i) an award of stock options to the Named Executive Officers in 2015 as part of the annual incentive compensation program (an aggregate of 86,931 options were awarded, at an exercise price of $65.76, vesting over a three-year period); (ii) an award of stock options to the Named Executive Officers in 2016 as part of the annual incentive compensation program (an aggregate of 211,204 options were awarded, at an exercise price of $75.45, vesting over a three-year period); and (iii) an award of stock options to the Named Executive Officers in 2017 as part of the annual incentive compensation program and additional awards granted in 2017 (an aggregate of 58,911 options were awarded, at an exercise price of $100.10, vesting over a three-year period) .
58,911 options were granted to Named Executive Officers in 2017 and, therefore, the Named Executive Officer option grant rate in 2017 as a percentage of the number of common shares outstanding was approximately 0.03%. A total of 97,789 options were granted by the Corporation in 2017 and the total option grant rate in 2017 as a percentage of the number of common shares outstanding was approximately 0.05%. The total cost of Named Executive Officer compensation in 2017 as a percentage of Adjusted EBITDA was approximately 1.8%.
|
|
47 |
|
Outstanding Option-Based Awards and Share-Based Awards
The following table (presented in accordance with Form 51‑102F6) sets forth for each Named Executive Officer all awards outstanding at the end of the most recently completed financial year, including awards granted before the most recently completed financial year.
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|
|||||||||
|
Name |
|
|
Option-based Awards |
|
|
Share-based Awards |
|
|||||||||||||||
|
|
|
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|
|
|||||||||||||||
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|
|
|
|
|
|
|
Number of |
|
|
Option |
|
|
Option |
|
|
Value of |
|
|
Number of |
|
|
Market or |
|
|
Market or |
|
|
|
|
|
securities |
|
|
exercise |
|
|
expiration |
|
|
unexercised |
|
|
shares or |
|
|
payout value |
|
|
payout |
|
|
|
|
|
underlying |
|
|
price |
|
|
date |
|
|
in-the-money |
|
|
units that |
|
|
of share- |
|
|
value of |
|
|
|
|
|
unexercised |
|
|
(in C$) |
|
|
|
|
|
options (2) |
|
|
have not |
|
|
based |
|
|
vested |
|
|
|
|
|
options (1) |
|
|
|
|
|
|
|
|
(in C$) |
|
|
vested (3) |
|
|
awards that |
|
|
share- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
have not |
|
|
based |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
vested (4) |
|
|
awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in C$) |
|
|
not paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
out or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
distributed |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Harquail |
|
|
35,803 |
|
|
$59.52 |
|
|
Dec. 11, 2024 |
|
|
$1,465,775 |
|
|
3,802 |
|
|
$381,949 |
|
|
Nil |
|
|
|
|
|
42,753 |
|
|
$65.76 |
|
|
Dec. 11, 2025 |
|
|
$1,483,529 |
|
|
11,405 |
|
|
$1,145,746 |
|
|
|
|
|
|
|
|
68,871 |
|
|
$75.45 |
|
|
Dec. 11, 2026 |
|
|
$1,722,464 |
|
|
6,627 |
|
|
$665,748 |
|
|
|
|
|
|
|
|
28,053 |
|
|
$100.10 |
|
|
Dec. 11, 2027 |
|
|
$10,099 |
|
|
9,940 |
|
|
$998,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,492 |
|
|
$853,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,492 |
|
|
$853,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sandip Rana |
|
|
10,000 |
|
|
$31.39 |
|
|
May 22, 2020 |
|
|
$690,700 |
|
|
1,141 |
|
|
$114,625 |
|
|
Nil |
|
|
|
|
|
10,605 |
|
|
$55.58 |
|
|
Dec. 12, 2022 |
|
|
$475,952 |
|
|
3,422 |
|
|
$343,774 |
|
|
|
|
|
|
|
|
15,144 |
|
|
$40.87 |
|
|
Dec. 11, 2023 |
|
|
$902,431 |
|
|
1,988 |
|
|
$199,714 |
|
|
|
|
|
|
|
|
11,675 |
|
|
$59.52 |
|
|
Dec. 11, 2024 |
|
|
$477,975 |
|
|
2,982 |
|
|
$299,572 |
|
|
|
|
|
|
|
|
12,826 |
|
|
$65.76 |
|
|
Dec. 11, 2025 |
|
|
$445,062 |
|
|
2,747 |
|
|
$275,964 |
|
|
|
|
|
|
|
|
45,914 |
|
|
$75.45 |
|
|
Dec. 11, 2026 |
|
|
$1,148,309 |
|
|
2,747 |
|
|
$275,964 |
|
|
|
|
|
|
|
|
9,076 |
|
|
$100.10 |
|
|
Dec. 11, 2027 |
|
|
$3,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul Brink |
|
|
12,373 |
|
|
$55.58 |
|
|
Dec. 12, 2022 |
|
|
$555,300 |
|
|
1,267 |
|
|
$127,283 |
|
|
Nil |
|
|
|
|
|
17,307 |
|
|
$40.87 |
|
|
Dec. 11, 2023 |
|
|
$1,031,324 |
|
|
3,802 |
|
|
$381,949 |
|
|
|
|
|
|
|
|
13,076 |
|
|
$59.52 |
|
|
Dec. 11, 2024 |
|
|
$535,331 |
|
|
2,209 |
|
|
$221,916 |
|
|
|
|
|
|
|
|
14,251 |
|
|
$65.76 |
|
|
Dec. 11, 2025 |
|
|
$494,510 |
|
|
3,313 |
|
|
$332,824 |
|
|
|
|
|
|
|
|
45,914 |
|
|
$75.45 |
|
|
Dec. 11, 2026 |
|
|
$1,148,309 |
|
|
2,997 |
|
|
$301,079 |
|
|
|
|
|
|
|
|
9,901 |
|
|
$100.10 |
|
|
Dec. 11, 2027 |
|
|
$3,564 |
|
|
2,997 |
|
|
$301,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lloyd Hong |
|
|
10,384 |
|
|
$40.87 |
|
|
Dec. 11, 2023 |
|
|
$618,783 |
|
|
1,014 |
|
|
$101,866 |
|
|
Nil |
|
|
|
|
|
9,340 |
|
|
$59.52 |
|
|
Dec. 11, 2024 |
|
|
$382,380 |
|
|
3,041 |
|
|
$305,499 |
|
|
|
|
|
|
|
|
11,401 |
|
|
$65.76 |
|
|
Dec. 11, 2025 |
|
|
$395,615 |
|
|
1,767 |
|
|
$177,513 |
|
|
|
|
|
|
|
|
45,914 |
|
|
$75.45 |
|
|
Dec. 11, 2026 |
|
|
$1,148,309 |
|
|
2,651 |
|
|
$266,319 |
|
|
|
|
|
|
|
|
8,251 |
|
|
$100.10 |
|
|
Dec. 11, 2027 |
|
|
$2,970 |
|
|
2,498 |
|
|
$250,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,498 |
|
|
$250,949 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jason O’Connell |
|
|
20,759 |
|
|
$59.52 |
|
|
Dec. 11, 2024 |
|
|
$849,873 |
|
|
253 |
|
|
$25,416 |
|
|
Nil |
|
|
|
|
|
5,700 |
|
|
$65.76 |
|
|
Dec. 11, 2025 |
|
|
$197,790 |
|
|
760 |
|
|
$76,350 |
|
|
|
|
|
|
|
|
4,591 |
|
|
$75.45 |
|
|
Dec. 11, 2026 |
|
|
$114,821 |
|
|
883 |
|
|
$88,706 |
|
|
|
|
|
|
|
|
3,630 |
|
|
$100.10 |
|
|
Dec. 11, 2027 |
|
|
$1,307 |
|
|
1,325 |
|
|
$133,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,099 |
|
|
$110,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,099 |
|
|
$110,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
(1) |
|
Options vest over a three-year period in equal thirds commencing on the first anniversary of the grant date and have a 10‑year term. Grant dates coincide with the date 10 years prior to the option expiration date. |
|
(2) |
|
The value of unexercised options was calculated using the closing price of the common shares on the TSX on December 29, 2017 (as December 31, 2017 fell on a Sunday), which was $100.46 per share, less the exercise price of the options. |
|
(3) |
|
Represents time-based and performance-based RSUs. RSUs (ordered as time-based RSUs followed by performance-based RSUs) are listed in chronological order by grant date of December 11, 2015, December 11, 2016 and December 11, 2017, respectively. Time-based RSUs vest annually in equal thirds commencing on the first anniversary of the grant date and the figures listed represent the one-third (December 11, 2015 original grant), two-thirds (December 11, 2016 grant) and full grant (December 11, 2017 grant), respectively, of the original grant of RSUs that remain unvested. Performance-based RSUs vest on the third anniversary of the award date (i.e. December 11, 2018, December 11, 2019 and December 11, 2020) upon satisfaction of certain performance criteria as described in “Elements of Compensation – Restricted Share Units” in this section above in respect of the 2017 Performance-based RSUs and as described in the Corporation’s management information circulars dated March 22, 2017 and March 21, 2016 in respect of the 2016 and 2015 performance-based RSUs, respectively. |
|
|
|
48 |
|
(4) |
|
The market or payout value was calculated using the closing price of the common shares on the TSX on December 29, 2017 (as December 31, 2017 fell on a Sunday), which was $100.46 per share. |
Incentive Plan Awards – Value Vested or Earned During the Year
The following table (presented in accordance with Form 51‑102F6) sets forth details of the value vested or earned during the most recently completed financial year for each incentive plan award.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
|
Option-based awards |
|
|
Share-based awards |
|
|
Non-equity incentive |
|
|
|
|
|
Value vested during |
|
|
Value vested during |
|
|
plan compensation |
|
|
|
|
|
the year (1) |
|
|
the year (2) |
|
|
Value earned during |
|
|
|
|
|
(in C$) |
|
|
(in C$) |
|
|
the year |
|
|
|
|
|
|
|
|
|
|
|
(in C$) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Harquail |
|
|
$1,443,724 |
|
|
$1,962,607 |
|
|
$1,100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sandip Rana |
|
|
$636,271 |
|
|
$621,682 |
|
|
$850,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul Brink |
|
|
$669,697 |
|
|
$694,509 |
|
|
$850,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lloyd Hong |
|
|
$590,793 |
|
|
$515,975 |
|
|
$850,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jason O’Connell |
|
|
$363,592 |
|
|
$164,499 |
|
|
$440,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
(1) |
|
Represents 33 1/3% of options granted on December 11, 2014, December 11, 2015 and December 11, 2016. The value vested during the year of option-based grants was calculated using the closing price of $98.15 on the TSX on the vesting date, which was December 11, 2017, less the exercise price of the options. |
|
(2) |
|
Represents: (i) performance-based RSUs which were granted on December 11, 2014 and vested on December 11, 2017 following determination by the CCGC that the performance-vesting criteria as more particularly described in the Corporation’s management information circular dated March 21, 2015 had been satisfied) and (ii) the portion of time-based RSUs which vested in 2017 in respect of time-based RSUs that were granted in 2014, 2015 and 2016, respectively (in each case, being 33 1/3% of the common shares subject to the original RSU grant) as set out below: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
|
Number of |
|
|
Number of |
|
|
Number of |
|
|
Number of |
|
|
|
|
|
performance-based |
|
|
time-based RSUs |
|
|
time-based RSUs |
|
|
time-based RSUs |
|
|
|
|
|
RSUs which vested in |
|
|
granted in 2014 |
|
|
granted in 2015 |
|
|
granted in 2016 |
|
|
|
|
|
2017 |
|
|
which vested in |
|
|
which vested in |
|
|
which vested in |
|
|
|
|
|
|
|
|
2017 |
|
|
2017 |
|
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Harquail |
|
|
9,661 |
|
|
3,221 |
|
|
3,801 |
|
|
3,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sandip Rana |
|
|
3,150 |
|
|
1,050 |
|
|
1,140 |
|
|
994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul Brink |
|
|
3,528 |
|
|
1,176 |
|
|
1,268 |
|
|
1,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lloyd Hong |
|
|
2,520 |
|
|
840 |
|
|
1,013 |
|
|
884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jason O’Connell |
|
|
735 |
|
|
245 |
|
|
254 |
|
|
442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The value vested was calculated using the closing price of $98.15 on the TSX on the vesting date of December 11, 2017.
Aggregated Option Exercises During the Most Recently Completed Financial Year and Financial Year-End Option Values
The following table sets forth details of the exercise of options during the most recently completed financial year by each Named Executive Officer and the financial year-end value of unexercised options on an aggregated basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
|
Securities |
|
|
Aggregate |
|
|
Unexercised |
|
|
Value of |
|
||||
|
|
|
|
Acquired on |
|
|
Value |
|
|
Options at |
|
|
Unexercised |
|
||||
|
|
|
|
Exercise |
|
|
Realized (1) |
|
|
Financial Year-End |
|
|
In-the-Money |
|
||||
|
|
|
|
|
|
|
(in C$) |
|
|
Exercisable/ |
|
|
Options at |
|
||||
|
|
|
|
|
|
|
|
|
|
Unexercisable |
|
|
Financial Year-End (2) |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable/ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unexercisable |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
(in C$) |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Harquail |
|
|
82,947 |
|
|
$4,377,377 |
|
|
|
/ |
88,218 |
|
|
$
3,028,949
|
/ |
$1,652,918 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sandip Rana |
|
|
50,000 |
|
|
$3,363,065 |
|
|
|
/ |
43,960 |
|
|
$
3,226,556
|
/ |
$917,141 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul Brink |
|
|
18,750 |
|
|
$1,529,616 |
|
|
|
/ |
45,260 |
|
|
$
2,834,419
|
/ |
$933,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lloyd Hong |
|
|
Nil |
|
|
Nil |
|
|
|
/ |
42,660 |
|
|
$
1,647,695
|
/ |
$900,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jason O'Connell |
|
|
21,936 |
|
|
$897,541 |
|
|
|
/ |
8,591 |
|
|
$
1,019,999
|
/ |
$143,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49 |
|
Notes
|
(1) |
|
The aggregate value realized was calculated using the sale price of the common shares realized by each Named Executive Officer following the exercise of options by each Named Executive Officer, less the exercise price of the options. |
|
(2) |
|
The value of unexercised options was calculated using the closing price of the common shares on the TSX on December 29, 2017 (as December 31, 2017 fell on a Sunday), which was $100.46 per share, less the exercise price of the options. |
Discussion of Incentive Plan Awards
The significant terms of all plan-based awards, including non-equity incentive plan awards, issued or vested, or under which options have been exercised, during the year, or outstanding at year end, are set out above in “Compensation Discussion & Analysis” and below under “Other Information - Amended and Restated Share Compensation Plan”. An aggregate of 173,633 stock options held by four Named Executive Officers were exercised during the financial year ended December 31, 2017.
For 2018, incentive compensation will consist of an award of a cash bonus, time-based RSUs, performance-based RSUs and stock options which in the aggregate will be targeted at 200% of base salary (other than for the CEO, who will have a target of 400% of base salary). For illustrative purposes, if all pre-set corporate and personal objectives for 2018 are met, in 2018 cash bonuses, time-based RSUs, performance-based RSUs and stock options are targeted to be awarded as follows:
Illustrative Incentive Compensation
(in C$)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
|
Base Salary |
|
|
Target 2018 |
|
|
Target 2018 |
|
|
Target 2018 |
|
|
Target 2018 |
|
|
|
|
|
|
|
|
Cash Bonus |
|
|
Time-Based RSUs |
|
|
Performance-based RSUs |
|
|
Stock Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Harquail |
|
|
$875,500 |
|
|
$875,500 |
|
|
$875,500 |
|
|
$875,500 |
|
|
$875,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sandip Rana |
|
|
$566,500 |
|
|
$283,250 |
|
|
$283,250 |
|
|
$283,250 |
|
|
$283,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul Brink |
|
|
$618,000 |
|
|
$309,000 |
|
|
$309,000 |
|
|
$309,000 |
|
|
$309,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lloyd Hong |
|
|
$515,000 |
|
|
$257,500 |
|
|
$257,500 |
|
|
$257,500 |
|
|
$257,500 |
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jason O'Connell |
|
|
$250,000 |
|
|
$125,000 |
|
|
$125,000 |
|
|
$125,000 |
|
|
$125,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination and Change of Control Benefits
Each of Messrs. Harquail, Rana, Brink and Hong has entered into an employment agreement with the Corporation that provides for payments at, following, or in connection with, a termination (whether voluntary, involuntary or constructive), resignation, retirement, a change of control of the Corporation or a change in such executive officers’ responsibilities. Mr. O’Connell does not have any contractual termination or change of control provisions in respect of his employment with the Corporation.
Termination Benefits
If any of Messrs. Harquail, Rana, Brink or Hong is terminated without just cause or resigns for “good reason” as defined in the applicable employment agreement (see below), such executive officer will be entitled to a lump sum severance payment equal to the sum of 24 months’ base salary (determined as at the time of termination or resignation, as applicable). The individual will also be entitled to continue participating in the Corporation’s benefit plans for the same 24 month period. If the Corporation is unable to continue the individual’s participation in one or more of its benefit plans, the Corporation is required to pay an amount equal to the premium cost or contributions that would have otherwise been made for the same period of time.
Under the terms of the executive officers’ employment agreements, the concept of resignation for “good reason” applies in circumstances unrelated to a “change of control” (see below). The concept of “good reason” generally includes:
changes in an executive officer’s duties or status, including a material change to the executive officer’s reporting relationship;
a change in aggregate compensation which would include annual base salary and the executive officer’s aggregate incentive compensation or aggregate target incentive compensation that would have the effect of reducing
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50 |
aggregate compensation by 35% or more, including any change in performance metrics that would produce such a result;
failure by the Corporation to continue to provide benefits at least as favourable as those initially provided or the taking of any action that would materially reduce any such benefits;
the Corporation requiring the executive officer to relocate; and
failure by the Corporation to obtain a satisfactory agreement from a successor corporation to assume and agree to perform the employment agreement.
Change of Control Benefits
The executive officers have double-trigger “change of control” provisions in their applicable employment agreements. A “change of control” is defined as: (i) the acquisition of control in law (whether by sale, transfer, merger, consolidation or otherwise) of the Corporation by a third party (that is, the acquisition of control of at least 50.1% of the issued and outstanding voting shares of the Corporation) or (ii) the sale, transfer or other disposition of all or substantially all of the assets of the Corporation to a third party.
In the event that a “change of control” occurs and the executive officer is terminated without cause or resigns for “good reason” within the twelve-month period following the “change of control”, the Corporation is required to provide to the executive officer a lump sum payment equal to a multiple of the executive officer’s base salary and bonus (see below) at the time of termination or resignation, as applicable. For this purpose, the term bonus means the sum of: (i) the cash bonus awarded for performance during the calendar year preceding the “change of control”; and (ii) the grant date dollar value of all share-based compensation awarded for performance during the calendar year preceding the “change of control”. The Corporation is also required to continue the executive officer’s benefits coverage for a specified period (see below). If the Corporation is unable to continue the executive officer’s participation in one or more of its benefit plans, the Corporation is required to pay an amount equal to the premium cost or contributions that would have otherwise been made for the same period of time.
Under the terms of the 2010 Share Compensation Plan (and, if approved at the Meeting, the Amended and Restated Share Compensation Plan), all unvested RSUs and all options (whether or not currently exercisable) will vest or become exercisable, as applicable, at such time as determined by the CCGC in its sole discretion such that the executive officers will be able to participate in a change of control transaction, including by surrendering such RSUs or options, for consideration in the form of cash and/or securities, to be determined by the CCGC in its sole discretion.
For illustrative purposes, in accordance with Form 51‑102F6, the following table sets out the amounts payable:
|
a. |
|
if an executive officer had been terminated without just cause or had resigned for “good reason” on December 31, 2017, |
|
b. |
|
if an executive officer had been terminated without just cause or had resigned for “good reason” on December 31, 2017 following a “change of control” (based on the applicable multiple and the actual base salary and bonus received for 2017, the specified period for benefits and the actual benefits received for 2017, the value of options vested as of such date (assuming accelerated vesting of all options as a result of the change of control) and the value of RSUs vested as of such date (assuming accelerated vesting of all RSUs (both time-based and performance-based) as a result of the change of control), and |
|
c. |
|
if an executive officer had neither been terminated without just cause nor had resigned for “good reason” on December 31, 2017 following a “change of control” (based on the value of options and RSUs vested as of such date (assuming accelerated vesting of all options and RSUs as a result of the change of control). |
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51 |
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|
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|
Name |
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|
Involuntary termination |
|
|
Change of control |
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|
Change of control |
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|||
|
|
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|
without cause or resignation |
|
|
and involuntary |
|
|
without involuntary |
|
|||
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|
|
|
for “good reason” |
|
|
termination without |
|
|
termination but assuming |
|
|||
|
|
|
|
(a) |
|
|
cause or resignation |
|
|
accelerated vesting of |
|
|||
|
|
|
|
(in C$) |
|
|
for “good reason” |
|
|
stock options and RSUs |
|
|||
|
|
|
|
|
|
|
|
(b) |
|
|
(c) |
|
||
|
|
|
|
|
|
|
|
(in C$) |
|
|
(in C$) |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
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|
|
|
|
|
|
David Harquail |
|
|
|
|
|
|
|
|
|
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|
|
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Severance |
|
|
$1,700,000 |
(1) |
|
|
$9,000,000 |
(3) |
|
|
Nil |
|
|
|
Option-based awards value vested |
|
|
Nil |
|
|
|
$1,652,918 |
(4)(7) |
|
|
$1,652,918 |
(4)(7) |
|
|
Share-based awards value vested |
|
|
Nil |
|
|
|
$4,898,227 |
(5)(7) |
|
|
$4,898,227 |
(5)(7) |
|
|
Benefits |
|
|
$34,356 |
(2) |
|
|
$34,356 |
(3)(6) |
|
|
Nil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sandip Rana |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
|
$1,100,000 |
(1) |
|
|
$3,337,500 |
(3) |
|
|
Nil |
|
|
|
Option-based awards value vested |
|
|
Nil |
|
|
|
$917,141 |
(4)(7) |
|
|
$917,141 |
(4)(7) |
|
|
Share-based awards value vested |
|
|
Nil |
|
|
|
$1,509,612 |
(5)(7) |
|
|
$1,509,612 |
(5)(7) |
|
|
Benefits |
|
|
$26,290 |
(2) |
|
|
$19,718 |
(3)(6) |
|
|
Nil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul Brink |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
|
$1,200,000 |
(1) |
|
|
$3,525,000 |
(3) |
|
|
Nil |
|
|
|
Option-based awards value vested |
|
|
Nil |
|
|
|
$933,920 |
(4)(7) |
|
|
$933,920 |
(4)(7) |
|
|
Share-based awards value vested |
|
|
Nil |
|
|
|
$1,666,130 |
(5)(7) |
|
|
$1,666,130 |
(5)(7) |
|
|
Benefits |
|
|
$23,848 |
(2) |
|
|
$17,886 |
(3)(6) |
|
|
Nil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lloyd Hong |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
|
$1,000,000 |
(1) |
|
|
$3,150,000 |
(3) |
|
|
Nil |
|
|
|
Option-based awards value vested |
|
|
Nil |
|
|
|
$900,361 |
(4)(7) |
|
|
$900,361 |
(4)(7) |
|
|
Share-based awards value vested |
|
|
Nil |
|
|
|
$1,353,095 |
(5)(7) |
|
|
$1,353,095 |
(5)(7) |
|
|
Benefits |
|
|
$28,606 |
(2) |
|
|
$21,455 |
(3)(6) |
|
|
Nil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
(1) |
|
Equal to 24 months’ base salary for each executive officer as disclosed in the Summary Compensation Table. |
|
(2) |
|
The actual amounts of perquisites for all executive officers have been disclosed in the Summary Compensation Table and it has been assumed that payment of these amounts would continue for 24 months. |
|
(3) |
|
The multiple and corresponding compensation period used for calculating the applicable lump sum payments upon a “change of control” is: (i) 2 times or 24 months for Mr. Harquail and (ii) 1.5 times or 18 months for Messrs. Rana, Brink and Hong. |
|
(4) |
|
The value of stock options (assuming accelerated vesting of all options as a result of the change of control as provided or permitted for in the 2010 Share Compensation Plan (and, if approved at the Meeting, the Amended and Restated Share Compensation Plan)) was calculated using the closing price of the common shares on the TSX on December 29, 2017 (as December 31, 2017 fell on a Sunday), which was $100.46 per share, less the exercise price of the options. |
|
(5) |
|
The value of RSUs (assuming accelerated vesting of all RSUs (both time-based and performance-based) as a result of the 2010 Share Compensation Plan (and, if approved at the Meeting, the Amended and Restated Share Compensation Plan)) was calculated using the closing price of the common shares on the TSX on December 29, 2017 (as December 31, 2017 fell on a Sunday), which was $100.46 per share. |
|
(6) |
|
The actual amounts of perquisites for all executive officers have been disclosed in the Summary Compensation Table and it has been assumed that payment of these amounts would continue for the compensation period. |
|
(7) |
|
Under the terms of the 2010 Share Compensation Plan (and, if approved at the Meeting, the Amended and Restated Share Compensation Plan), all unvested RSUs and all options (whether or not currently exercisable) will vest or become exercisable, as applicable, at such time as determined by the CCGC in its sole discretion such that the executive officers will be able to participate in a change of control transaction, including by surrendering such RSUs or options, for consideration in the form of cash and/or securities, to be determined by the CCGC in its sole discretion. |
|
|
|
52 |
Securities Authorized for Issuance Under Equity Compensation Plans
The following table (presented in accordance with Form 51‑102F5 – Information Circular ) sets forth all compensation plans under which equity securities of the Corporation are authorized for issuance as of the end of the most recently completed financial year.
Equity Compensation Plan Information
|
|
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|
|
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|
|
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|
|
|
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|
|
|
|
|
|
|
|
Plan Category |
|
|
Number of securities |
|
|
Weighted-average |
|
|
Number of securities |
|
||
|
|
|
|
to be issued |
|
|
exercise price of |
|
|
remaining available for |
|
||
|
|
|
|
upon exercise of |
|
|
outstanding options, |
|
|
future issuance under |
|
||
|
|
|
|
outstanding options, |
|
|
warrants and rights |
|
|
equity compensation plans |
|
||
|
|
|
|
warrants and rights |
|
|
(b) |
|
|
(excluding securities |
|
||
|
|
|
|
(a) |
|
|
(in C$) |
|
reflected in column (a)) |
|
|||
|
|
|
|
|
|
|
|
|
|
(c) |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans approved by shareholders – 2010 Share Compensation Plan – RSUs |
|
|
119,471 |
|
|
N/A |
|
|
|
N/A (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans approved by shareholders – 2010 Share Compensation Plan – Options |
|
|
955,603 |
|
|
$64.48 |
|
|
|
N/A (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,075,074 |
|
|
N/A |
|
|
|
1,026,058 (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
|
(1) |
|
The weighted average term in respect of outstanding options is 7.47 years. |
Background : The 2010 Share Compensation Plan was approved by shareholders at the annual and special meeting of shareholders held on May 12, 2010 (and was amended in November 2010 to update the tax and source deduction provisions relating to RSUs). The 2010 Share Compensation Plan replaced the Corporation’s stock option plan established at the time of its IPO (the “ Option Plan ”) and the Corporation’s original restricted share unit plan (the “ Restricted Share Unit Plan ”). Outstanding options that were granted under the Option Plan remain outstanding pursuant to their original terms but are included in and counted against the 2010 Share Compensation Plan reserve. There are no RSUs outstanding under the Restricted Share Unit Plan. Please see the Corporation’s management information circular dated April 7, 2010 for a summary of the terms of the Option Plan.
Plan Maximum and Common Shares Reserved for Issuance Under the 2010 Share Compensation Plan : The 2010 Share Compensation Plan has a fixed maximum of 5,700,876 common shares, representing approximately 3.07 % of the issued and outstanding common shares as of December 31, 2017 .
Common Shares Available for Issuance Under the 2010 Share Compensation Plan : An aggregate of 1,026,058 common shares remain available for issuance pursuant to future grants and an aggregate of 1,075,074 common shares remain available for issuance for outstanding awards granted under the 2010 Share Compensation Plan (being approximately 0.55% and 0.58%, respectively, of the issued and outstanding common shares as of December 31, 2017).
Annual Burn Rates : The Corporation’s annual burn rate under the 2010 Share Compensation Plan for each of the Corporation’s three most recently completed fiscal years are as follows:
|
|
53 |
|
Burn Rates under the 2010 Share Compensation Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
|
2016 |
|
|
2017 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of annual awards granted under 2010 Share Compensation Plan (1) |
|
|
277,290 |
|
|
|
314,343 |
|
|
|
139,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding (2) |
|
|
156,844,921 |
|
|
|
175,249,197 |
|
|
|
182,870,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Burn Rate |
|
|
0.18% |
|
|
|
0.18% |
|
|
|
0.08% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
(1) Includes options, performance-based RSUs, time-based RSUs.
(2) Calculated in accordance with the CPA Canada Handbook: The weighted average number of common shares outstanding during the period is the number of common shares outstanding at the beginning of the applicable fiscal year, adjusted by the number of common shares bought back or issued during the applicable fiscal year multiplied by a time-weighting factor. The time-weighting factor is the number of days that the common shares are outstanding as a proportion of the total number of days in the applicable fiscal year.
Amendments to the 2010 Share Compensation Plan : During the year ended December 31, 2017, no amendments were made to the 2010 Share Compensation Plan.
Amended and Restated Share Compensation Plan
Shareholders of the Corporation are being asked to vote at the Meeting to approve amendments to the 2010 Share Compensation Plan as contained in the Amended and Restated Share Compensation Plan. Such amendments are being proposed in order to (i) refresh the number of shares issuable under the plan as it has been eight years since the reserve was established, and (ii) implement recommended limitations on non-executive director participation in the plan. The specific amendments are as follows:
Increase the number of common shares authorized for issuance under the Amended and Restated Share Compensation Plan by 4,000,000 common shares from 5,700,876 common shares to a total of 9,700,876 (being approximately 5.2% of the issued an outstanding shares as of December 31, 2017). After accounting for all common shares previously issued under the 2010 Share Compensation Plan and deducted from the plan pursuant to option exercises and vesting of RSUs, the number of common shares reserved for issuance under the Amended and Restated Share Compensation Plan will be 6,101,132 common shares (being approximately 3.3% of the issued and outstanding shares as of December 31, 2017) consisting of 1,075,074 common shares reserved for issuance pursuant to existing unexercised option and unvested RSU grants and 5,026,058 common shares available for issuance pursuant to future grants (being approximately 0.58% and 2.7%, respectively, of the issued and outstanding shares as of December 31, 2017).
Revise the participation limits for non-employee directors under the Amended and Restated Share Compensation Plan such that (i) the number of common shares reserved for issuance over the life of the Amended and Restated Share Compensation Plan to such non-employee directors shall be limited to 1.00% of the common shares then issued and outstanding; and (ii) annual grants shall be limited to a grant value of C$100,000 per non-employee director per year.
On March 7, 2018, the Board adopted the Amended and Restated Share Compensation Plan, subject to receiving shareholder approval at the meeting for those amendments set out in the Share Compensation Plan Resolution. If shareholders of the Corporation do not approve the Share Compensation Plan Resolution, the Amended and Restated Share Compensation Plan will terminate and the 2010 Share Compensation Plan will continue in force but without giving effect to the amendments. Options and restricted share units granted under the 2010 Share Compensation Plan will continue unaffected.
The ensuing description is a summary of the Amended and Restated Share Compensation Plan. Such summary is qualified in its entirety by the full text of the Amended and Restated Share Compensation Plan, which is set out in Schedule “A” to this Circular. Shareholders are encouraged to read the full text of the Amended and Restated Share Compensation Plan before voting “for” or “against” the resolution approving such plan.
Purpose : The stated purpose of the Amended and Restated Share Compensation Plan is to advance the interests of the Corporation and its shareholders by: (a) ensuring that the interests of officers and employees are aligned with the success of the Corporation; (b) encouraging stock ownership by such persons; and (c) providing compensation opportunities to attract, retain and motivate such persons.
|
|
|
54 |
Participants : Each officer and employee of the Corporation and its subsidiaries is eligible to participate in the Amended and Restated Share Compensation Plan. Non-employee directors of the Corporation are not eligible to participate in the Amended and Restated Share Compensation Plan in respect of RSUs. Under the Amended and Restated Share Compensation Plan, non-employee directors of the Corporation are eligible to participate in respect of options, however, only on a limited basis consistent with the guidelines of certain governance rating agencies. See “Restriction on the Award of RSUs and Grant of Options” in this section below.
Administration : The Amended and Restated Share Compensation Plan is administered by the CCGC, which determines, from time to time, the eligibility of persons to participate in the Amended and Restated Share Compensation Plan, when RSUs and options will be awarded or granted, the number of RSUs and options to be awarded or granted, the vesting criteria for each award of RSUs and grant of options and all other terms and conditions of each award and grant, in each case in accordance with applicable securities laws and stock exchange requirements.
Restriction on the Award of RSUs and Grant of Options : Certain restrictions on awards of RSUs and grants of options apply as follows: (a) the total number of common shares issuable to any one person under the Amended and Restated Share Compensation Plan and any other share compensation arrangements cannot exceed 5% of the common shares then outstanding; (b) the number of common shares reserved for issuance under the Amended and Restated Share Compensation Plan together with any other share compensation arrangements cannot exceed 5% of the common shares then outstanding; (c) the number of common shares issuable to insiders under the Amended and Restated Share Compensation Plan and any other share compensation arrangements cannot exceed 5% of the common shares then outstanding; (d) the number of common shares issued to insiders under the Amended and Restated Share Compensation Plan and any other share compensation arrangements within any one-year period cannot exceed 5% of the common shares then outstanding; and (e) the number of common shares issued to any one person within any one-year period cannot exceed 5% of the common shares then outstanding. In addition, consistent with the guidelines of certain governance rating agencies relating to participation of non-employee directors in option plans, the number of common shares reserved for issuance over the life of the Amended and Restated Share Compensation Plan to non-employee directors pursuant to options under the Amended and Restated Share Compensation Plan is limited to 1.00% of the common shares then issued and outstanding. Further, annual grants are limited to a grant value of C$100,000 per non-employee director per year based on a valuation determined using the Black-Scholes formula or any other formula which is widely accepted by the business community as a method for the valuation of options.
Restricted Share Units:
|
(a) |
|
Mechanics for RSUs: RSUs awarded to participants under the Amended and Restated Share Compensation Plan are credited to an account that is established on their behalf and maintained in accordance with the Amended and Restated Share Compensation Plan. Each RSU awarded conditionally entitles the holder thereof to the issuance of one common share upon achievement of the vesting criteria. It is currently anticipated that RSUs awarded under the Amended and Restated Share Compensation Plan will be redeemed for common shares issued from treasury once the vesting criteria established by the CCGC at the time of the award have been satisfied. However, the Corporation will continue to retain the flexibility through the amendment provisions in the Amended and Restated Share Compensation Plan to satisfy its obligation to issue common shares by purchasing common shares in the open market or by making a lump sum cash payment of equivalent value. |
|
(b) |
|
Vesting: The Amended and Restated Share Compensation Plan provides that: (i) at the time of the award of RSUs, the CCGC will determine the vesting criteria applicable to the awarded RSUs; (ii) vesting of RSUs may include criteria such as performance-vesting; (iii) RSUs with time-vesting criteria will, at a minimum (i.e. as the least restrictive criteria), vest annually in equal thirds commencing on the first anniversary of the award date; and (iv) RSUs with performance-vesting criteria will, at a minimum (i.e. as the least restrictive criteria), vest on the first day after the first anniversary of the award date of such RSUs. Currently, the CCGC has determined that performance-based RSUs will, subject to the achievement of pre-determined performance objectives, vest on the first day after the third anniversary of the award date of such RSUs. It is the CCGC’s current intention that RSUs will be awarded with both time-based vesting provisions and performance-based vesting provisions as components of the Corporation’s long-term, at-risk, incentive compensation program. |
Options:
|
(a) |
|
Mechanics for Options: Each option granted will entitle the holder thereof to the issuance of one common share upon achievement of the vesting criteria and payment of the applicable exercise price. Options granted |
|
|
55 |
|
under the Amended and Restated Share Compensation Plan are exercisable for common shares issued from treasury once the vesting criteria established by the CCGC at the time of the grant have been satisfied. However, participants may also elect to exercise options pursuant to a broker-assisted cashless exercise, which provides for a full deduction of the number of underlying common shares from the Amended and Restated Share Compensation Plan’s reserve. Specifically, the Amended and Restated Share Compensation Plan has a cashless exercise feature in respect of options to facilitate the required tax and source deduction remittances. Under this feature, a participant may elect a cashless exercise in a notice of exercise of options if the common shares issuable on the exercise are to be immediately sold. |
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(b) |
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Vesting: The Amended and Restated Share Compensation Plan provides that at the time of the grant of options, the CCGC will determine the vesting criteria applicable to the granted options and that unless otherwise determined by the CCGC, options shall vest annually in equal thirds commencing on the first anniversary of the award date. |
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(c) |
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Exercise Price: The CCGC will determine the exercise price and term/expiration date of each option, provided that the exercise price shall not be less than the fair market value (i.e. weighted average trading price for the last five trading days) on the date the option is granted and no option shall be exercisable after ten years from the date on which it is granted. |
Termination, Retirement and Other Cessation of Employment : A person participating in the Amended and Restated Share Compensation Plan will cease to be eligible to participate in the following circumstances: (a) receipt of any notice of termination of employment or service (whether voluntary or involuntary and whether with or without cause); (b) retirement; and (c) any cessation of employment or service for any reason whatsoever, including disability and death (an “ Event of Termination ”). In such circumstances, unless otherwise determined by the CCGC in its discretion, any unvested RSUs will be automatically forfeited and cancelled and any unvested options will be automatically cancelled, terminated and not available for exercise. Any vested options may be exercised only before the earlier of: (i) the termination of the option; and (ii) six months after the date of the Event of Termination. If a person is terminated for just cause, all unvested RSUs must be forfeited and cancelled and all options are (whether or not then exercisable) automatically cancelled. If a person retires in accordance with the Corporation’s retirement policy at such time, the pro-rata portion of any unvested performance-based RSUs will not be forfeited or cancelled and instead shall vest after the retirement has occurred (as if it had not occurred), but only if the performance vesting criteria are met on the applicable measurement date.
Blackout Periods : Under the Amended and Restated Share Compensation Plan, should the vesting of an RSU fall, or the term of an option expire on a date that falls, within a blackout period or within nine business days following the expiration of a blackout period, the vesting or expiration dated, as applicable, will be automatically extended to the tenth business day after the end of the blackout period.
Change of Control : The Amended and Restated Share Compensation Plan provides that any unvested RSUs and any unvested options will vest at such time as determined by the CCGC such that RSU and option holders will be able to participate in a change of control transaction, including by surrendering such RSUs and options to the Corporation or a third party or exchanging such RSUs and options, for consideration in the form of cash and/or securities.
Transferability : RSUs awarded and options granted under the Amended and Restated Share Compensation Plan are non-transferable other than in accordance with the Amended and Restated Share Compensation Plan.
Amendment Provisions in the Amended and Restated Share Compensation Plan : The Board may amend the Amended and Restated Share Compensation Plan or any RSU or option at any time without the consent of any participants under the Amended and Restated Share Compensation Plan provided that such amendment shall:
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(a) |
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not adversely alter or impair any RSU previously awarded or any option previously granted except as permitted by the adjustment provisions of the Amended and Restated Share Compensation Plan; |
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(b) |
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be subject to any regulatory approvals including, where required, the approval of the TSX; and |
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(c) |
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be subject to shareholder approval, where required, by law or the requirements of the TSX, provided that shareholder approval shall not be required for the following amendments: |
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(i) |
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amendments of a “housekeeping nature”, including any amendment to the Amended and Restated Share Compensation Plan or a RSU or option that is necessary to comply with applicable laws, tax or |
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56 |
accounting provisions or the requirements of any regulatory authority or stock exchange and any amendment to the Amended and Restated Share Compensation Plan or a RSU or option to correct or rectify any ambiguity, defective provision, error or omission therein, including any amendment to any definitions therein; |
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(ii) |
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amendments that are necessary for RSUs or options to qualify for favourable treatment under applicable tax laws; |
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(iii) |
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a change to the vesting provisions of any RSU or any option (including any alteration, extension or acceleration thereof); |
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(iv) |
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a change to the termination provisions of any option (for example, relating to termination of employment, resignation, retirement or death) that does not entail an extension beyond the original expiration date (as such date may be extended by virtue of a blackout period); |
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(v) |
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the introduction of features to the Amended and Restated Share Compensation Plan that would permit the Corporation to, instead of issuing common shares from treasury upon the vesting of the RSUs, retain a broker and make payments for the benefit of participants under the Amended and Restated Share Compensation Plan to such broker who would purchase common shares through the facilities of the TSX for such persons; |
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(vi) |
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the introduction of features to the Amended and Restated Share Compensation Plan that would permit the Corporation to, instead of issuing common shares from treasury upon the vesting of the RSUs, make lump sum cash payments to participants under the Amended and Restated Share Compensation Plan; |
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(vii) |
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the introduction of a cashless exercise feature payable in cash or securities, which provides for a full deduction of the number of underlying securities from the Amended and Restated Share Compensation Plan reserve (which amendment has been made in respect of options to facilitate the required tax and source deduction remittances); and |
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(viii) |
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change the application of adjustment and change of control sections. |
For greater certainty, shareholder approval will be required in circumstances where an amendment to the Amended and Restated Share Compensation Plan would:
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(a) |
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increase the fixed maximum number of common shares issuable under the Amended and Restated Share Compensation Plan, other than by virtue of the adjustment provisions in the Amended and Restated Share Compensation Plan, or change from a fixed maximum number of common shares to a fixed maximum percentage of issued and outstanding common shares; |
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(b) |
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increase the limits referred to in this section above under “Restriction on the Award of RSUs and Grant of Options”; |
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(c) |
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permit the award of RSUs to non-employee directors of the Corporation or a change in the limitations on grants of options to non-employee directors; |
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(d) |
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permit RSUs or options to be transferable or assignable other than for normal estate settlement purposes; |
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(e) |
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reduce the exercise price of any option (including any cancellation of an option for the purpose of reissuance of a new option at a lower exercise price to the same person); |
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(f) |
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extend the term of any option beyond the original term (except if such period is being extended by virtue of a blackout period); or |
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(g) |
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amend the amendment provisions in the Amended and Restated Share Compensation Plan. |
Indebtedness of Directors and Officers
During the most recently completed financial year and as at the date hereof, no director, proposed nominee for election as a director, officer, employee or associate of any such persons has been or is indebted to the Corporation nor has the Corporation guaranteed any loans on behalf of any of these individuals.
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57 |
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Interest of Management and Others in Material Transactions
Management of the Corporation is not aware of a material interest, direct or indirect, of any director or officer of the Corporation, any director or officer of a body corporate that is itself an insider or subsidiary of the Corporation, any proposed nominee for election as a director of the Corporation, any principal shareholder, or any associate or affiliate of any such person, in any transaction since the commencement of the Corporation’s most recently completed financial year or in any proposed transaction which has materially affected or would materially affect the Corporation or any of its subsidiaries.
Directors and Officers Liability Insurance
The Corporation maintains directors’ and officers’ liability insurance for the officers and directors of the Corporation which provides coverage in the amount of US$80 million in each policy year. The deductible amount on the policy is US$1 million and the total annual premium for the policy for 2018 is US$388,800, which excludes any commissions paid to brokers.
SHAREHOLDER PROPOSALS FOR NEXT MEETING
The Canada Business Corporations Act , which governs the Corporation, sets out detailed requirements to be complied with for shareholder proposals and provides that they must be received by December 17, 2018 to be considered for inclusion in the management information circular and the form of proxy for the 2019 annual meeting of shareholders, which is expected to be held on or about May 8, 2019.
Additional information relating to the Corporation is available on SEDAR at www.sedar.com , on EDGAR at www.sec.gov and on the Corporation’s website at www.franco-nevada.com . Financial information is provided in the Corporation’s audited annual financial statements and management’s discussion and analysis as at and for the year ended December 31, 2017.
In addition, copies of the Corporation’s audited annual financial statements and management’s discussion and analysis as at and for the year ended December 31, 2017 may be obtained upon request to the Corporate Secretary of the Corporation. The Corporation may require the payment of a reasonable charge if the request is made by a person who is not a shareholder of the Corporation.
The directors of the Corporation have approved the contents and the sending of this Circular.
DATED as of March 22, 2018.
ON BEHALF OF THE BOARD OF DIRECTORS
“Lloyd Hong”
Chief Legal Officer & Corporate Secretary
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58 |
FRANCO-NEVADA CORPORATION
AMENDED AND RESTATED SHARE COMPENSATION PLAN
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1. |
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DEFINITIONS AND INTERPRETATION |
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1.1 |
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Definitions: For purposes of the Plan, unless the context requires otherwise, the following words and terms shall have the following meanings: |
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(a) |
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“ Account ” has the meaning attributed to that term in section 4.9 ; |
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(b) |
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“ Administrators ” means the Board or such other persons as may be designated by the Board from time to time; |
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(c) |
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“ associate ” has the meaning attributed to that term in the Securities Act (Ontario); |
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(d) |
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“ Award Date ” means the date or dates on which an award of Restricted Share Units is made to a Participant in accordance with section 4.1 ; |
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(e) |
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“ Blackout Period ” means the period during which designated directors, officers and employees of the Corporation cannot trade the Common Shares pursuant to the Corporation’s policy respecting restrictions on directors’, officers’ and employee trading which is in effect at that time (which, for greater certainty, does not include the period during which a cease trade order is in effect to which the Corporation or in respect of an insider, that insider is subject); |
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(f) |
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“ Board ” means the board of directors of the Corporation from time to time; |
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(g) |
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“ Business Day ” means each day other than a Saturday, Sunday or statutory holiday in Toronto, Ontario, Canada; |
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(h) |
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“ Change of Control ” means: |
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(i) |
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the acceptance of an Offer by a sufficient number of holders of voting shares in the capital of the Corporation to constitute the offeror, together with persons acting jointly or in concert with the offeror, a shareholder of the Corporation being entitled to exercise more than 50% of the voting rights attaching to the outstanding voting shares in the capital of the Corporation (provided that prior to the Offer, the offeror was not entitled to exercise more than 50% of the voting rights attaching to the outstanding voting shares in the capital of the Corporation), |
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(ii) |
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the completion of a consolidation, merger or amalgamation of the Corporation with or into any other corporation whereby the voting shareholders of the Corporation immediately prior to the consolidation, merger or amalgamation receive less than 50% of the voting rights attaching to the outstanding voting shares of the consolidated, merged or amalgamated corporation, or |
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(iii) |
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the completion of a sale whereby all or substantially all of the Corporation’s undertakings and assets become the property of any other entity and the voting shareholders of the Corporation immediately prior to that sale hold less than 50% of the voting rights attaching to the outstanding voting securities of that other entity immediately following that sale; |
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(i) |
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“ Common Shares ” means the common shares of the Corporation; |
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(j) |
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“ Consultant ” means an individual (including an individual whose services are contracted for through a corporation) or corporation with whom the Corporation or any of its Subsidiaries has a written contract for services; |
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59 |
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(k) |
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“ Corporation ” means Franco-Nevada Corporation, a corporation amalgamated under the Canada Business Corporations Act and the successors thereof; |
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(l) |
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“ Effective Date ” means May 12, 2010; |
(i) any officer or employee of the Corporation and/or any officer or employee of any Subsidiary and, solely for purposes of the grant of Options, any non-employee director of the Corporation and/or any non-employee director of any Subsidiary; and
(ii) a Consultant;
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(n) |
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“ Event of Termination ” means an event whereby a Participant ceases to be an Eligible Person and shall be deemed to have occurred by the giving of any notice of termination of employment or service (whether voluntary or involuntary and whether with or without cause), retirement, or any cessation of employment or service for any reason whatsoever, including disability or death; |
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(o) |
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“ Fair Market Value ” of a Common Share on a day means the weighted average trading price of the Common Shares on any exchange where the Common Shares are listed (including the TSX) for the last five trading days prior to such day; |
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(p) |
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“ Grant Date ” means the date or dates on which a grant of Options is made to a Participant in accordance with section 5.1 ; |
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(q) |
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“ insider ” has the meaning attributed to that term in the Securities Act (Ontario); |
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(r) |
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“ Insider Participant ” means a Participant who is (i) an insider of the Corporation or any of its Subsidiaries, and (ii) an associate of any person who is an insider by virtue of (i); |
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(s) |
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“ Offer ” means a bona fide arm’s length offer made to all holders of voting shares in the capital of the Corporation to purchase, directly or indirectly, voting shares in the capital of the Corporation; |
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(t) |
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“ Option ” means an option granted to an Eligible Person under the Plan to purchase Common Shares; |
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(u) |
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“ Option Agreement ” has the meaning attributed to that term in section 2.4(c) hereto; |
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(v) |
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“ Option Confirmation ” has the meaning attributed to that term in section 2.4(c) hereto; |
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(w) |
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“ Participant ” means an Eligible Person selected by the Board to participate in the Plan in accordance with section 3.1 hereof; |
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(x) |
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“ Plan ” means this share compensation plan, as amended, replaced or restated from time to time; |
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(y) |
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“ reserved for issuance ” refers to Common Shares that may be issued in the future upon the vesting of Restricted Share Units which have been awarded and upon the exercise of Options which have been granted; |
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(z) |
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“ Restricted Share Unit ” means a right granted in accordance with section 4.1 hereof to receive a Common Share that becomes vested in accordance with section 4.3 ; |
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(aa) |
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“ Restricted Share Unit Agreement ” has the meaning attributed to that term in section 2.4(c); |
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(bb) |
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“ Restricted Share Unit Confirmation ” has the meaning attributed to that term in section 2.4(c); |
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(cc) |
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“ Share Compensation Arrangement ” means a stock option, stock option plan, employee stock purchase plan or any other compensation or incentive mechanism involving the issuance or potential |
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60 |
issuance of Common Shares to directors, officers and employees of the Corporation and any of its Subsidiaries or to consultants, including a share purchase from treasury which is financially assisted by the Corporation by way of a loan, guarantee or otherwise; provided, however, that “ Share Compensation Arrangement ” does not include Common Shares owned by an Eligible Person or in respect of which an Eligible Person has subscribed prior to the completion of the initial public offering of the Corporation; |
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(dd) |
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“ Subsidiary ” has the meaning ascribed thereto in the Securities Act (Ontario) and “ Subsidiaries ” shall have a corresponding meaning; and |
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(ee) |
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“ TSX ” means the Toronto Stock Exchange. |
1.2 Headings: The headings of all articles, sections, and paragraphs in the Plan are inserted for convenience of reference only and shall not affect the construction or interpretation of the Plan.
1.3 Context, Construction: Whenever the singular or masculine are used in the Plan, the same shall be construed as being the plural or feminine or neuter or vice versa where the context so requires.
1.4 References to this Plan: The words “hereto”, “herein”, “hereby”, “hereunder”, “hereof” and similar expressions mean or refer to the Plan as a whole and not to any particular article, section, paragraph or other part hereof.
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2. |
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PURPOSE AND ADMINISTRATION OF THE PLAN |
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2.1 |
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Purpose: The purpose of the Plan is to advance the interests of the Corporation and its Subsidiaries, if any, and its shareholders by: (i) ensuring that the interests of key Eligible Persons are aligned with the success of the Corporation and its Subsidiaries, if any; (ii) encouraging stock ownership by key Eligible Persons; and (iii) providing compensation opportunities to attract, retain and motivate key Eligible Persons. |
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2.2 |
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Shares Subject to the Plan: The shares subject to the Plan shall be Common Shares. The Common Shares for which Restricted Share Units are awarded and Options are granted shall be authorized but unissued Common Shares. The aggregate number of Common Shares that may be issued under the Plan is limited to 9,700,876 Common Shares, subject to increase or decrease by reason of any of the events referred to in sections 4.7 and 5.8 hereof, or as may otherwise be permitted by applicable law and the TSX. Where Restricted Share Units or Options are settled for cash under sections 4.6 , 5.6 or 5.7 , a full deduction of the number of underlying Common Shares subject to such Restricted Share Units or Options, as applicable, from the Plan reserve shall be made. |
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(a) |
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the number of Common Shares reserved for issuance to Participants pursuant to Restricted Share Units and Options together with any other Share Compensation Arrangements exceeding 5% of Common Shares then issued and outstanding; |
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(b) |
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the number of Common Shares issuable to Insider Participants (under this Plan and any other Share Compensation Arrangements), at any time exceeding 5% of Common Shares then issued and outstanding; |
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(c) |
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the number of Common Shares issued to Insider Participants (under this Plan and any other Share Compensation Arrangements), within any one-year period, exceeding 5% of Common Shares then issued and outstanding; or |
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61 |
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(d) |
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the number of Common Shares issued to any Participant, within any one-year period, exceeding 5% of Common Shares then issued and outstanding. |
In the event that the Corporation purchases Common Shares for cancellation or any conversion, exchange or purchase rights for Common Shares attached to any securities of the Corporation expire or otherwise are extinguished, the Corporation shall be deemed to be in compliance with the foregoing maximum limits, if immediately prior to such purchase, expiration or other extinguishment, the Corporation was in compliance with such limits.
In addition, the number of Common Shares reserved for issuance over the life of the Plan to Participants who are non-employee directors pursuant to Options shall be limited to 1.00% of the Common Shares then issued and outstanding. In addition, annual grants shall be limited to a grant value of $100,000 per non-employee director per year based on a valuation determined using the Black-Scholes formula or any other formula which is widely accepted by the business community as a method for the valuation of options.
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2.4 |
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Administration of the Plan: The Plan shall be administered by the Administrators, through the recommendation of the Compensation and Corporate Governance Committee of the Board. Subject to section 2.3 hereof and other limitations of the Plan, the Administrators shall have the power and authority to: |
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(a) |
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adopt rules and regulations for implementing the Plan; |
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(b) |
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determine the eligibility of persons to participate in the Plan, when Restricted Share Units and Options to Eligible Persons shall be awarded or granted, the number of Restricted Share Units and Options to be awarded or granted, the vesting criteria for each award of Restricted Share Units and the vesting period for each grant of Options; |
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(c) |
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determine the forms of restricted share unit confirmation (“ Restricted Share Unit Confirmation ”) and restricted share unit agreement (“ Restricted Share Unit Agreement ”) for each Restricted Share Unit, and the forms of option confirmation (“ Option Confirmation ”) and option agreement (“ Option Agreement ”) for each Option; |
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(d) |
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interpret and construe the provisions of the Plan; |
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(e) |
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subject to regulatory requirements, make exceptions to the Plan in circumstances which they determine to be exceptional; and |
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(f) |
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make all other determinations and take all other actions as they determine to be necessary or desirable to implement, administer and give effect to the Plan. |
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3. |
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ELIGIBILITY AND PARTICIPATION IN PLAN |
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4. |
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AWARD OF RESTRICTED SHARE UNITS |
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62 |
Share Units awarded to a Participant shall be credited to the Participant’s Account effective as of the Award Date. |
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4.2 |
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Restricted Share Unit Confirmation: Upon the award of each Restricted Share Unit, a Restricted Share Unit Confirmation specifying the vesting criteria, shall be delivered by the Administrators to the Participant. |
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(a) |
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Subject to subsections (c) and (d) below, at the time of the award of Restricted Share Units, the Administrators shall determine in their sole discretion the vesting criteria applicable to the awarded Restricted Share Units. |
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(b) |
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For greater certainty, the vesting of Restricted Share Units may be determined by the Administrators to include criteria such as performance vesting, in which the number of Common Shares to be delivered to a Participant for each Restricted Share Unit that vests may fluctuate based upon the Corporation’s performance and/or the market price of the Common Shares, in such manner as determined by the Administrators in their sole discretion. |
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(c) |
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At a minimum, Restricted Share Units with time vesting criteria shall vest in respect of 33 1/3 % of the Common Shares subject to the Restricted Share Units on the first day after each of the first three anniversaries of the Award Date of such Restricted Share Units and Restricted Share Units with performance vesting criteria shall vest on the first day after the first anniversary of the Award Date of such Restricted Share Units. |
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(d) |
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Notwithstanding the foregoing in this section 4.3 , all vesting and issuances or payments, as applicable, shall be completed no later than December 15 of the third calendar year commencing after an Award Date. |
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63 |
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required to be remitted by the Corporation for the account of the Participant. Where the Corporation considers that the steps undertaken in connection with the foregoing result in inadequate withholding or a late remittance of taxes, the delivery of any Common Shares to be issued to a Participant on vesting of any Restricted Share Units may be made conditional upon the Participant (or other person) reimbursing or compensating the Corporation or making arrangements satisfactory to the Corporation for the payment to it in a timely manner of all taxes required to be remitted for the account of the Participant. |
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(a) |
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If an Event of Termination has occurred, any and all Common Shares corresponding to any vested Restricted Share Units in the Participant’s Account, if any, shall be issued as soon as practicable after the Event of Termination to the former Participant in accordance with section 4.5 hereof. |
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(b) |
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If an Event of Termination has occurred, any unvested Restricted Share Units in the Participant’s Account shall, unless otherwise determined by the Administrators in their discretion, forthwith and automatically be forfeited by the Participant and cancelled. |
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(c) |
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Notwithstanding the foregoing in (b), if a Participant retires in accordance with the Corporation’s retirement policy at such time, the pro-rata portion of any unvested performance-based Restricted Share Units in the Participant’s Account shall not be forfeited by the Participant or cancelled and instead shall vest after the Event of Termination has occurred (as if it had not occurred), but only if the performance vesting criteria are met on the applicable measurement date. |
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(d) |
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Notwithstanding the foregoing in (b), if a Participant is terminated for just cause, each unvested Restricted Share Unit in the Participant’s Account shall forthwith and automatically be forfeited by the Participant and cancelled. |
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(e) |
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For the purposes of this Plan and all matters relating to the Restricted Share Units, the date of the Event of Termination shall be determined without regard to any applicable notice of termination, severance or termination pay, damages, or any claim thereto (whether express, implied, contractual, statutory, or at common law). |
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4.10 |
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Record Keeping: The Corporation shall maintain records in which shall be recorded: |
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(a) |
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the name and address of each Participant; |
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(b) |
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the number of Restricted Share Units credited to each Participant’s Account; |
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(c) |
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any and all adjustments made to Restricted Share Units recorded in each Participant’s Account; and |
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(d) |
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any other information which the Corporation considers appropriate to record in such register. |
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64 |
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5. |
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GRANT OF OPTIONS |
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5.2 |
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Option Confirmation: Upon the grant of each Option, an Option Confirmation shall be delivered by the Administrators to the Participant. |
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(a) |
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Subject to subsection (b) below, at the time of the grant of Options, the Administrators shall determine in their sole discretion the vesting criteria applicable to the granted Options. |
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(b) |
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Unless otherwise determined by the Administrators, Options shall vest and become exercisable in respect of 33 1/3 % of the Common Shares subject to such Options on the first day after each of the first three anniversaries of the Grant Date of such Options. |
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(a) |
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An Option that has vested in accordance with the provisions of this Plan and the applicable Option Confirmation may be exercised at any time, or from time to time, during its term as to any number of whole Common Shares that are then available for purchase; provided that no partial exercise may be for less than 100 whole Common Shares. An Option may be exercised by delivery of a written notice of the election to the Administrators in the form set forth in the Option Agreement with respect to the Option, or in any other form acceptable to the Administrators. The aggregate amount to be paid for the Common Shares to be acquired pursuant to the exercise of an Option shall accompany the written notice. |
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(b) |
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Upon actual receipt by the Administrators of written notice and a cheque for the aggregate exercise price, the number of Common Shares in respect of which the Option is exercised will be duly issued as fully paid and non-assessable and the Participant exercising the Option shall be registered on the books of the Corporation as the holder of the appropriate number of Common Shares. No person or entity shall enjoy any part of the rights or privileges of a holder of Common Shares subject to Options until that person or entity becomes the holder of record of those Common Shares. |
(a) The Participant will instruct a broker selected by the Participant to sell through the stock exchange or market on which the Common Shares are listed or quoted, the Common Shares issuable on the exercise of Options, as soon as possible at the then applicable bid price of the Common Shares.
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65 |
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(b) On the trade date, the Participant will deliver the exercise notice including details of the trades to the Corporation electing the cashless exercise and the Corporation will direct its registrar and transfer agent to issue a certificate in the name of the broker (or as the broker may otherwise direct) for the number of Common Shares issued on the exercise of the Options, against payment by the broker to the Corporation of (i) the exercise price for such Common Shares; and (ii) the amount the Corporation determines, in its discretion, is required to satisfy the Corporation’s withholding tax and source deduction remittance obligations in respect of the exercise of the Options and issuance of Common Shares.
(c) The broker will deliver to the Participant the remaining proceeds of sale, net of the brokerage commission.
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5.9 |
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Rights Upon an Event of Termination: |
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(a) |
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If an Event of Termination has occurred, any unvested Options, to the extent not available for exercise as of the date of the Event of Termination, shall, unless otherwise determined by the Administrators in their discretion, forthwith and automatically be cancelled, terminated and not available for exercise without further consideration or payment to the Participant. |
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(b) |
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Except as otherwise stated herein or otherwise determined by the Administrators in their discretion, upon the occurrence of an Event of Termination, the vested Options granted to the effected Participant that are available for exercise may be exercised only before the earlier of: |
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(i) |
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the termination of the Option; and |
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(ii) |
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six months after the date of the Event of Termination. |
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(c) |
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Notwithstanding the foregoing in (a) and (b), if a Participant is terminated for just cause, each Option held by the Participant, whether or not then exercisable, shall forthwith and automatically be cancelled and may not be exercised by the Participant. |
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66 |
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(d) |
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For the purposes of this Plan and all matters relating to the Options, the date of the Event of Termination shall be determined without regard to any applicable notice of termination, severance or termination pay, damages, or any claim thereto (whether express, implied, contractual, statutory, or at common law). |
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5.10 |
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Record Keeping: The Corporation shall maintain an Option register in which shall be recorded: |
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(a) |
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the name and address of each holder of Options; |
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(b) |
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the number of Common Shares subject to Options granted to each holder of Options; |
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(c) |
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the term of the Option and exercise price, including adjustments for each Option granted; and |
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(d) |
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any other information which the Corporation considers appropriate to record in such register. |
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6. |
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GENERAL |
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6.1 |
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Effective Date of Plan: The Plan shall be effective as of the Effective Date. |
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(a) |
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Notwithstanding any other provision of this Plan, all unvested Restricted Share Units and all Options (whether or not currently exercisable) shall vest or become exercisable, as applicable, at such time as determined by the Administrators in their sole discretion such that Participants under the Plan shall be able to participate in the Change of Control transaction, including by surrendering such Restricted Share Units and Options to the Corporation or a third party or exchanging such Restricted Share Units or Options, for consideration in the form of cash and/or securities, to be determined by the Administrators in their sole discretion. |
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(b) |
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To the extent that any Options are to be surrendered in connection with a Change of Control transaction, an election in prescribed form in accordance with subsection 110(1.1) of the Income Tax Act (Canada) will be prepared and filed by or on behalf of the Corporation, stating that neither the Corporation nor any person not dealing at arm’s length with the Corporation will deduct in computing its income any amount in respect of the payment to or for the benefit of the Participant in consideration for the surrender of that Option. The election shall be filed in a timely manner and in any event, prior to the filing due date of the Participant’s income tax return for the year in which the Option is surrendered, and evidence in writing of the election shall be provided to the Participant for filing by the Participant with the Participant’s income tax return. |
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6.3 |
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Amendment or Termination of Plan: The Board may amend this Plan or any Restricted Share Unit or any Option at any time without the consent of Participants provided that such amendment shall: |
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(a) |
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not adversely alter or impair any Restricted Share Unit previously awarded or any Option previously granted except as permitted by the provisions of sections 4.7 and 5.8 hereof; |
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(b) |
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be subject to any regulatory approvals including, where required, the approval of the TSX; and |
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(c) |
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be subject to shareholder approval, where required, by law or the requirements of the TSX, provided that shareholder approval shall not be required for the following amendments: |
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(i) |
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amendments of a “housekeeping nature”, including any amendment to the Plan or a Restricted Share Unit or Option that is necessary to comply with applicable laws, tax or accounting provisions or the requirements of any regulatory authority or stock exchange and any amendment to the Plan or a Restricted Share Unit or Option to correct or rectify any ambiguity, defective provision, error or omission therein, including any amendment to any definitions therein; |
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(ii) |
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amendments that are necessary for Restricted Share Units or Options to qualify for favourable treatment under applicable tax laws; |
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(iii) |
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a change to the vesting provisions of any Restricted Share Unit or any Option (including any alteration, extension or acceleration thereof); |
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(iv) |
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a change to the termination provisions of any Option (for example, relating to termination of employment, resignation, retirement or death) that does not entail an extension beyond the original expiration date (as such date may be extended by virtue of section 5.4 ); |
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(v) |
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the introduction of features to the Plan that would permit the Corporation to, instead of issuing Common Shares from treasury upon the vesting of the Restricted Share Units, retain a broker and make payments for the benefit of Participants to such broker who would purchase Common Shares through the facilities of the TSX for such Participants; |
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(vi) |
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the introduction of features to the Plan that would permit the Corporation to, instead of issuing Common Shares from treasury upon the vesting of the Restricted Share Units, make lump sum cash payments to Participants; |
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(vii) |
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the introduction of a cashless exercise feature payable in cash or securities, which provides for a full deduction of the number of underlying securities from the Plan reserve; and |
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(viii) |
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change the application of sections 4.7 and 5.8 hereof (Adjustments) and section 6.2 (Change of Control). |
For greater certainty, shareholder approval shall be required in circumstances where an amendment to the Plan would:
(a) increase the fixed maximum number of Common Shares issuable under the Plan, other than by virtue of sections 4.7 and 5.8 hereof, or change from a fixed maximum number of Common Shares to a fixed maximum percentage of issued and outstanding Common Shares;
(b) increase the limits in section 2.3 ;
(c) permit the award of Restricted Share Units to non-employee directors of the Corporation or change in the limitations on grants of Options to non-employee directors;
(d) permit Restricted Share Units or Options to be transferable or assignable other than for normal estate settlement purposes;
(e) reduce the exercise price of any Option (including any cancellation of an Option for the purpose of reissuance of a new Option at a lower exercise price to the same person);
(f) extend the term of any Option beyond the original term (except if such period is being extended by virtue of section 5.4 hereof); or
(g) amend this section 6.3 .
The Administrators may terminate this Plan at any time in their absolute discretion. If the Plan is so terminated, no further Restricted Share Units shall be awarded and no further Options shall be granted, but the Restricted Shares Units then outstanding and credited to Participants’ Accounts and the Options then outstanding shall continue in full force and effect in accordance with the provisions of this Plan.
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6.4 |
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Transferability: A Participant shall not be entitled to transfer, assign, charge, pledge or hypothecate, or otherwise alienate, whether by operation of law or otherwise, the Participant’s Restricted Share Units or Options or any rights the Participant has under the Plan. |
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6.5 |
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Rights as a Shareholder: Under no circumstances shall the Restricted Share Units or Options be considered Common Shares nor shall they entitle any Participant to exercise voting rights or any other rights attaching to the ownership of Common Shares (including, but not limited to, the right to dividend equivalent payments other than the adjustments provided under sections 4.7 and 5.8 ). |
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6.6 |
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No Effect on Employment, Rights or Benefits: |
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(a) |
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The terms of employment shall not be affected by participation in the Plan. |
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(b) |
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Nothing contained in the Plan shall confer or be deemed to confer upon any Participant the right to continue as a director, officer, employee or Consultant nor interfere or be deemed to interfere in any way with any right of the Corporation, the Board or the shareholders of the Corporation to remove any Participant from the Board or of the Corporation or any Subsidiary to terminate any Participant’s employment or agreement with a Consultant at any time for any reason whatsoever. |
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(c) |
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Under no circumstances shall any person who is or has at any time been a Participant be able to claim from the Corporation or any Subsidiary any sum or other benefit to compensate for the loss of any rights or benefits under or in connection with this Plan or by reason of participation in this Plan. |
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6.7 |
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Market Value of Common Shares: The Corporation makes no representation or warranty as to the future market value of any Common Shares. No Participant shall be entitled, either immediately or in the future, either absolutely or contingently, to receive or obtain any amount or benefit granted to or to be granted for the purpose of reducing the impact, in whole or in part, of any reduction in the market value of the shares of the Corporation or a corporation related thereto. |
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6.8 |
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Compliance with Applicable Law: |
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(a) |
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If any provision of the Plan contravenes any law or any order, policy, by-law or regulation of any regulatory body having jurisdiction, then such provision shall be deemed to be amended to the extent necessary to bring such provision into compliance therewith. |
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(b) |
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The award of Restricted Share Units, the grant of Options and the issuance of Common Shares under this Plan shall be carried out in compliance with applicable statutes and with the regulations of governmental authorities and the TSX. If the Administrators determine in their discretion that, in order to comply with any such statutes or regulations, certain action is necessary or desirable as a condition of or in connection with the award of a Restricted Share Unit, the grant of an Option or the issue of a Common Share upon the vesting of a Restricted Share Unit or exercise of an Option, as applicable, that Restricted Share Unit may not vest in whole or in part and that Option may not be exercised whole or in part, as applicable, unless that action shall have been completed in a manner satisfactory to the Administrators. |
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6.9 |
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Governing Law: This Plan shall be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein. |
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6.10 |
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Subject to Approval: The Plan is adopted subject to the approval of the TSX and any other required regulatory approval. To the extent a provision of the Plan requires regulatory approval which is not received, such provision shall be severed from the remainder of the Plan until the approval is received and the remainder of the Plan shall remain in effect. |
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6.11 |
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Special Terms and Conditions Applicable to U.S. Participants: Common Shares required to be issued to a U.S. Participant upon the vesting of such Participant’s Restricted Share Units in the Participant’s Account will be duly issued as soon as practicable, but in all events, no later than March 15 of the calendar year following the calendar year in which the vesting date occurs. The Administrators shall not, at their discretion, extend the vesting date of any Restricted Share Unit in such a manner that would result in a deferral of compensation that violates section 409A of the U.S. Internal Revenue Code of 1986, as amended. For purposes of this paragraph, “U.S. Participant” means a Participant who is a citizen of the United States or a resident of the |
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United States, as defined in section 7701(a)(30)(A) and section 7701(b)(1) of the U.S. Internal Revenue Code of 1986, as amended. |
ADOPTED by the Board of Directors the 7 th day of March, 2018.
(To be approved by Shareholders of the Corporation on May 9, 2018)
FRANCO-NEVADA CORPORATION
Per: “Lloyd Hong”
Chief Legal Officer & Corporate Secretary
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FRANCO-NEVADA CORPORATION
MANDATE OF THE BOARD OF DIRECTORS
1. PURPOSE
The purpose of this mandate is to set out the mandate and responsibilities of the board of directors (the “ Board of Directors ” or “ Board ”) of Franco-Nevada Corporation (“ Franco-Nevada ”). The Board of Directors is committed to fulfilling its statutory mandate to supervise the management of the business and affairs of Franco-Nevada with the highest standards of ethical conduct and in the best interests of Franco-Nevada.
2. COMPOSITION
The Board of Directors shall be composed of between six and 12 individuals, the majority of whom will be Canadian residents. The Board shall be constituted with a majority of individuals who qualify as “independent” directors as defined in National Instrument 58‑101 – Disclosure of Corporate Governance Practices .
3. RESPONSIBILITIES OF THE BOARD OF DIRECTORS
The Board of Directors is responsible for the stewardship of Franco-Nevada and in that regard shall be responsible for:
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(a) |
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to the extent feasible, satisfying itself as to the integrity of the Chief Executive Officer and other executive officers and that the Chief Executive Officer and other executive officers create a culture of integrity throughout the organization; |
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(b) |
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enhancing the reputation, goodwill and image of Franco-Nevada; |
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(c) |
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adopting a strategic planning process and reviewing, on an annual basis, the strategic plan and business objectives of Franco-Nevada (taking into account, among other things, the opportunities and risks of Franco-Nevada’s business) that are presented by management; |
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(d) |
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the identification and review of the principal risks of Franco-Nevada’s business and ensuring, with the assistance of the audit and risk committee of the Board (the “Audit and Risk Committee”), the implementation of appropriate risk management systems; |
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(e) |
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ensuring, with the assistance of the compensation and corporate governance committee of the Board (the “Compensation and Corporate Governance Committee”), the effective functioning of the Board of Directors and its committees in compliance with the corporate governance requirements of applicable laws, and that such compliance is reviewed periodically by the Compensation and Corporate Governance Committee; |
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(f) |
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assessing the performance of Franco-Nevada’s executive officers, monitoring succession plans and periodically monitoring the compensation levels of executive officers based on the determinations and recommendations made by the Compensation and Corporate Governance Committee; |
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(g) |
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ensuring internal control and management information systems are in place for Franco-Nevada, with the Audit and Risk Committee assessing the effectiveness of the internal control and management information systems through meetings held with the external auditors, as appropriate, and senior management and a review of reports prepared by senior management; |
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(h) |
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establishing the Audit and Risk Committee as a standing audit committee of the Board; |
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(i) |
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developing Franco-Nevada’s approach to corporate governance by establishing the Compensation and Corporate Governance Committee as a standing committee of the Board, including developing a set of corporate governance principles and guidelines that are specifically applicable to Franco-Nevada; |
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(j) |
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ensuring that Franco-Nevada has in place a communication policy which enables Franco-Nevada to effectively communicate with shareholders, other stakeholders and the public generally, and is reviewed at such intervals as the Board deems appropriate; and |
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(k) |
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establishing measures for receiving feedback from stakeholders. |
4. EXPECTATIONS OF DIRECTORS
The Board of Directors has developed a number of specific expectations of directors to promote the discharge by the directors of their responsibilities and to promote the proper conduct of the Board.
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(a) |
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Commitment and Attendance. All directors are expected to maintain a high attendance record at meetings of the Board and the committees of which they are members. Attendance by telephone or video conference may be used to facilitate a director’s attendance. |
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(b) |
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Preparation for Meetings. All directors are expected to review the materials circulated in advance of meetings of the Board and its committees and should arrive prepared to discuss the issues presented. Directors are encouraged to contact the Chair of the Board, the Chief Executive Officer and any other appropriate executive officer(s) of Franco-Nevada to ask questions and discuss agenda items prior to meetings. |
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(c) |
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Participation in Meetings. Each director is expected to be sufficiently knowledgeable of the business of Franco-Nevada, including its financial statements, and the risks it faces, to ensure active and effective participation in the deliberations of the Board of Directors and of each committee on which he or she serves. |
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(d) |
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Loyalty and Ethics. In their roles as directors, all directors owe a duty of loyalty to Franco-Nevada. This duty of loyalty mandates that the best interests of Franco-Nevada take precedence over any other interest possessed by a director. Directors are expected to conduct themselves in accordance with Franco-Nevada’s Code of Business Conduct and Ethics. |
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(e) |
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Other Directorships and Significant Activities. Franco-Nevada values the experience directors bring from other boards on which they serve and other activities in which they participate, but recognizes that those boards and activities also may present demands on a director’s time and availability and may present conflicts or legal issues, including independence issues. No director should serve on the board of a competitor or of a regulatory body with oversight of Franco-Nevada. Each director should, when considering membership on another board or committee, make every effort to ensure that such membership will not impair the director’s time and availability for his or her commitment to Franco-Nevada. Directors should advise the chair of the Compensation and Corporate Governance Committee and the Chief Executive Officer before accepting membership on other public company boards of directors or any audit committee or other significant committee assignment on any other board of directors, or establishing other significant relationships with businesses, institutions, governmental units or regulatory entities, particularly those that may result in significant time commitments or a change in the director’s relationship to Franco-Nevada. |
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(f) |
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Contact with Management and Employees. All directors should be free to contact the Chief Executive Officer at any time to discuss any aspect of Franco-Nevada’s business. Directors should use their judgement to ensure that any such contact is not disruptive to the operations of Franco-Nevada. The Board of Directors expects that there will be frequent opportunities for directors to meet with the Chief Executive Officer in meetings of the Board of Directors and committees, or in other formal or informal settings. |
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(g) |
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Speaking on Behalf of Franco-Nevada. It is important that Franco-Nevada speak to employees and outside constituencies with a single voice, and that management serve as the primary spokesperson. As a result, directors should ensure that they adhere to Franco-Nevada’s disclosure policy. |
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(h) |
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Confidentiality. The proceedings and deliberations of the Board of Directors and its committees are confidential. Each director will maintain the confidentiality of information received in connection with his or her service as a director. |
5. MEASURES FOR RECEIVING SHAREHOLDER FEEDBACK
All publicly disseminated materials of Franco-Nevada shall provide for a mechanism for feedback from shareholders. Persons designated to receive such information shall be required to provide a summary of the feedback to the Board of Directors on a semi-annual basis or at such other interval as they see fit. Specific procedures for
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72 |
permitting shareholder feedback and communication with the Board will be prescribed by Franco-Nevada’s disclosure policy approved by the Board.
6. MEETINGS
The Board of Directors will meet not less than four times per year: three meetings to review quarterly results and one prior to the issuance of the annual financial results of Franco-Nevada.
7. INDEPENDENT ADVICE
In discharging its mandate, the Board of Directors shall have the authority to retain and receive advice from, special legal, accounting or other advisors and outside consultants if appropriate.
8. EXPECTATIONS OF MANAGEMENT OF FRANCO-NEVADA
Management shall be required to report to the Board of Directors at the request of the Board on the performance of Franco-Nevada, management’s concerns and any other matter the Board or its Chair may deem appropriate. In addition, the Board expects management to promptly report to the Chair of the Board any significant developments, changes, transactions or proposals respecting Franco-Nevada.
9. ANNUAL EVALUATION
At least annually, the Board of Directors through the Compensation and Corporate Governance Committee shall, in a manner it determines to be appropriate:
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(a) |
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conduct a review and evaluation of the performance of the Board and its members, its committees and their members, including the compliance of the Board with this mandate and of the committees with their respective charters; and |
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(b) |
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review and assess the adequacy of this mandate on an annual basis. |
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73 |
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Exhibit 99.3
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Security Class Holder Account Number -------Fold Form of Proxy - Annual and Special Meeting to be held on May 9, 2018 This Form of Proxy is solicited by and on behalf of Management. Notes to proxy 1. Every holder has the right to appoint some other person or company of their choice, who need not be a holder, to attend and act on their behalf at the meeting or any adjournment or postponement thereof. If you wish to appoint a person or company other than the persons whose names are printed herein, please insert the name of your chosen proxyholder in the space provided (see reverse). If the securities are registered in the name of more than one owner (for example, joint ownership, trustees, executors, etc.), then all those registered should sign this proxy. If you are voting on behalf of a corporation or another individual you must sign this proxy with signing capacity stated, and you may be required to provide documentation evidencing your power to sign this proxy. This proxy should be signed in the exact manner as the name(s) appear(s) on the proxy. If this proxy is not dated, it will be deemed to bear the date on which it is mailed by Management to the holder. The securities represented by this proxy will be voted as directed by the holder, however, if such a direction is not made in respect of any matter, this proxy will be voted as recommended by Management. The securities represented by this proxy will be voted in favour or withheld from voting or voted against each of the matters described herein, as applicable, in accordance with the instructions of the holder, on any ballot that may be called for and, if the holder has specified a choice with respect to any matter to be acted on, the securities will be voted accordingly. This proxy confers discretionary authority in respect of amendments or variations to matters identified in the Notice of Meeting or other matters that may properly come before the meeting or any adjournment or postponement thereof. This proxy should be read in conjunction with the accompanying documentation provided by Management. 2. 3. 4. 5. 6. 7. -------Fold 8. Proxies submitted must be received by 5:00 pm (Toronto time) on May 7, 2018. VOTE USING THE TELEPHONE OR INTERNET 24 HOURS A DAY 7 DAYS A WEEK! To Vote Using the Telephone To Vote Using the Internet To Receive Documents Electronically • Call the number listed BELOW from a touch tone telephone. 1-866-732-VOTE (8683) Toll Free • Go to the following web site: www.investorvote.com • Smartphone? Scan the QR code to vote now. • You can enroll to receive future securityholder communications electronically by visiting www.investorcentre.com and clicking at the bottom of the page. If you vote by telephone or the Internet, DO NOT mail back this proxy. Voting by mail may be the only method for securities held in the name of a corporation or securities being voted on behalf of another individual. Voting by mail or by Internet are the only methods by which a holder may appoint a person as proxyholder other than the Management nominees named on the reverse of this proxy. Instead of mailing this proxy, you may choose one of the two voting methods outlined above to vote this proxy. To vote by telephone or the Internet, you will need to provide your CONTROL NUMBER listed below. CONTROL NUMBER |
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Appointment of Proxyholder I/We, being holder(s) of Franco-Nevada Corporation, hereby appoint: Print the name of the person you are appointing if this person is someone other than the Management Nominees listed herein. OR Pierre Lassonde, Chair of Franco-Nevada Corporation, or failing him, David Harquail, President & Chief Executive Officer of Franco-Nevada Corporation, or failing him or both, Lloyd Hong, Chief Legal Officer & Corporate Secretary of Franco-Nevada Corporation as my/our proxyholder with full power of substitution and to attend, act and to vote for and on behalf of the shareholder in accordance with the following direction (or if no directions have been given, as the proxyholder sees fit) and on all other matters that may properly come before the Annual and Special Meeting of Shareholders of Franco-Nevada Corporation to be held at the TMX Broadcast Centre, The Exchange Tower, 130 King Street West, Toronto, Ontario M5X 1J2, on Wednesday, May 9, 2018 at 4:00 pm (Toronto time) and at any adjournment or postponement thereof. VOTING RECOMMENDATIONS ARE INDICATED BY HIGHLIGHTED TEXT OVER THE BOXES. 1. Election of Directors For Withhold For Withhold For Withhold 01. Pierre Lassonde 02. David Harquail 03. Tom Albanese -------Fold 04. Derek W. Evans 05. Catharine Farrow 06. Louis Gignac 07. Randall Oliphant 08. David R. Peterson Withhold 2. Appointment of Auditors Appointment of PricewaterhouseCoopers LLP, Chartered Accountants, as Auditors of the Corporation for the ensuing year and authorizing the Directors to fix their remuneration. Against 3. Say-on-Pay Advisory Resolution Acceptance of the Corporation's approach to executive compensation. Against 4. Amended and Restated Share Compensation Plan To approve the amendments to the Corporation's Share Compensation Plan as more particularly described in the accompanying Information Circular. -------Fold Authorized Signature(s) - This section must be completed for your instructions to be executed. Signature(s) Date I/We authorize you to act in accordance with my/our instructions set out above. I/We hereby revoke any proxy previously given with respect to the Meeting. If no voting instructions are indicated above, this Proxy will be voted as recommended by Management. Interim Financial Statements - Mark this box if you would like to receive Interim Financial Statements and accompanying Management’s Discussion and Analysis by mail. Annual Financial Statements - Mark this box if you would NOT like to receive the Annual Financial Statements and accompanying Management’s Discussion and Analysis by mail. If you are not mailing back your proxy, you may register online to receive the above financial report(s) by mail at www.computershare.com/mailinglist. F N V Q 2 6 9 7 3 7 A R 2 For For For |