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Franco-Nevada Corporation (FNV) Q4 2020 Earnings Call Transcript

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FNV earnings call for the period ending December 31, 2020.

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Franco-Nevada Corporation (FNV 0.07%)
Q4 2020 Earnings Call
Mar 11, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the Franco-Nevada Corporation Year-End 2020 Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. [Operator Instructions]. This call is being recorded on March 11, 2021.

I would now like to turn the conference over to Candida Hayden. Please go ahead.

Candida Hayden -- Corporate Affairs

Thank you, Joanna. Good morning, everyone. Thank you for joining us today to discuss Franco-Nevada's 2020 year-end results. Accompanying this call is a presentation, which is available on our website at franco-nevada.com, where you will also find our full financial results.

Paul Brink, President and CEO of Franco-Nevada will provide introductory remarks, Sandip Rana, our CFO will provide an overview of our 2020 results; Eaun Gray, our Senior Vice President of Business Development, will provide an overview of the Condestable transaction; and Jason O'Connell, our Senior Vice President of Energy will provide an overview of the Haynesville transaction. This will be followed by a Q&A period. Our executive team is available to answer any questions.

We would like to remind participants that some of today's commentary may contain forward-looking information, and we refer you to our detailed cautionary note on Slide 2 of this presentation.

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

Paul Brink -- President & Chief Executive Officer

Thank you, Candida and good morning. Our tag line is Franco-Nevada is the gold investment that works. And we're committing -- committed to ensuring it does work for our shareholders, our operating partners and our communities.

We're proud of the results achieved in 2020, but would like to start by thanking our staff and supporters and the employees and communities at our operating assets for all your efforts and particularly your resolve through the pandemic this year to make the results possible.

2020 was a strong year for Franco-Nevada. We received top ESG ratings during the year from Sustainalytics, MSCI, and ISS. We were active through the year contributing to help communities weather the COVID-19 crisis. We're committed to the World Gold Council's Responsible Gold Mining Principles and during the year became a signatory of the UN Global Compact and the BlackNorth pledge.

We've also strengthened our commitment to increased diversity of Franco-Nevada by adopting a goal of at least 40% diverse representation at the Board and senior management levels by 2025. Our diverse portfolio weathered the impact of the pandemic, better than expected. Despite COVID interruptions at a number of our operations and a strike at Candelaria. We were able to match and even slightly beat 2019 GEO sales. Our energy assets recovered well through the back half of the year also exceeding our revised guidance. Cobre Panama produced first ore in 2019, but it was really 2020 that it joined Candelaria, Antamina and Antapaccay as one of our core long-term cash flow generators.

On the back of high gold prices, the portfolio generated record financial results. Our revenue exceeded $1 billion for the first time. Our EBITDA margin increased over 80% and our fourth quarter was our most profitable quarter on record. On the strength of these results, we are increasing the quarterly dividend to $0.30 a share, starting with our second quarter dividend payment in June. This will mark our 14th successive annual dividend increase. Greater than 15% increase was larger than typical, but now that we are receiving full contribution from Cobre Panama, we feel it's well warranted.

Our business development team, so good success for the year. Over the last 12 months we acquired a royalty on the Alpala copper-gold development property in Ecuador. The portfolio of natural gas royalties in the Haynesville Shale and a precious metal stream on the Condestable copper operations in Peru. The team was selective about the assets they chose, patiently waiting for the right window in the energy markets and added both to immediate cash flow and long-term growth potential.

Along with our results, we provided new guidance. We expect strong growth in 2021 leading to another record year. We're guiding to 10% to 15% growth in our business year-over-year. In particular, we expect increased contributions from Cobre Panama, Candelaria and Antamina, and that the recovery in energy price is sustained. Our five-year outlook anticipates 20% to 25% growth in our business. We're expecting Cobre Panama ramping to 100 million tonnes per annum, Musselwhite operating again, expansions at Detour, Stillwater and Tasiast and new mines in production, Salares Norte, Hardrock, Stibnite Gold and Valentine Lake. Slide 9 and 10 of the deck provide an indication of the contribution of the core assets and the timing of the expansions and new mines.

There is exciting organic growth in the portfolio coming from the drill base. The year saw exploration success at many of our assets, Detour, Duketon, Guadalupe, Macassa, Malartic, Valentine Lake, and many others. Much of our long-term growth potential is in the form of new copper mines including Rosemont, Alpala, Taca Taca, NuevaUnion. The recent known investment by Wyloo Metals and Andrew Forrest investment vehicle bodes well for our royalties covering much of Ontario's Ring of Fire.

To wrap up, our core assets are outperforming. We have built-in growth and tremendous long term optionality. We have no debt, $1.9 billion in available capital and a generating upwards of $800 million per year in cash from operations. We have a good pipeline of opportunities and are looking forward to putting the capital to work as the industry returns to building new mines.

Last some advance advertising, we are planning to host an Analyst Day this year with a more in-depth review of our assets, likely the second week of April. And we will publish our annual asset handbook and our ESG report at the same time.

I'll now hand it over to Sandip for his review of the results.

Sandip Rana -- Chief Financial Officer

Thank you, Paul. Good morning, everyone. As we know 2020 was not a typical year. As Paul mentioned, a number of our assets were impacted in the first half of the year because of the pandemic. But with the steps that our operators and partners took, and as the year progressed, we saw our royalty and stream interest return to normal operations. As a result, Franco-Nevada ended 2020 with a strong fourth quarter resulting in record financial results for the quarter and full year.

As you turn to Slide 13, you can see how the company performed against the guidance levels that were issued in 2020. The initial guidance provided by the company was 550,000 to 580,000 GEOs sold. Due to the impact on operations of the pandemic, initial GEOs sold guidance was retracted in the spring. Once operation stabilized, the revised guidance was 475,000 to 505,000 GEOs. As the year -- as the year progressed our royalties and stream portfolio has performed better than planned with the GEOs sold for 2020 being 521,000 to 564,000, easily exceeding the high end of the revised guidance range.

With respect to our energy assets, the company had guided to revenue of $80 million to $95 million for the year using a $45 WTI oil price. Again due to the unforeseen circumstances, the guidance was retracted in the spring. The revised revenue range provided was $60 million to $75 million in revenue. Based on the recovery in energy prices, revenue for our energy assets for 2020 was $91.7 million, which also exceeded the top end of our revised range. I will note that revenue for fourth quarter does include $4.2 million in revenue related to the Mesa transaction, which Jason will talk to shortly.

Turning to Slide 14 and looking at the gold equivalent ounces sold for the last five quarters, as well as the previous five years. You can see that the portfolio continues to perform well. The company sold 147,476 GEOs in the fourth quarter 2020 compared to 153,396 in Q4 2019. Although it was lower GEOs than prior year, it was the best quarter of 2020. Strong fourth quarter closed out the year with just over 521,000 GEOs sold for 2020, a new record for Franco-Nevada. Gold ounces represented 75% of GEOs sold for the quarter and 78% for the year. For the quarter, we had strong performance from a number of key assets. Three key contributors being Cobre Panama, Antapaccay and Guadalupe who all delivered higher GEOs than expected. Candelaria was impacted by the work stoppage during the quarter, which did reduce the amount of gold and silver delivered. We expect a stronger year from Candelaria in 2021.

Our NSR and NPI royalties at Hemlo had another strong quarter, generating $21.6 million in revenue. We did have a carry-over of third quarter revenue into fourth quarter of approximately $8 million. For the year, Hemlo generated $70 million in revenue for Franco-Nevada. With the increase in the gold price in 2020, it highlighted the leverage that our net profit interest royalties do have to higher commodity prices. Also on Gold Quarry, the company received 6123 GEOs compared to the expected 11,250 ounce minimum. For 2021, we expect to receive approximately 6,000 GEOs.

2020 saw continued positive momentum in precious metal prices. Gold, silver platinum and palladium prices were higher for the quarter and full-year compared to prior year. Fourth quarter especially saw rebound in silver prices. Energy prices were not as fortunate, as both the WTI oil price and natural gas prices were lower year-over-year. However, natural gas prices did recover in fourth quarter 2020.

Slide 16 highlights total revenue for the last five years along with the average gold price over the same period. The company's total revenue has increased significantly over the period shown. When combined, the slightly higher GEOs sold in 2020 with the higher average precious metal prices, total revenue surpassed $1 billion for the first time. Total revenue increased 21% year-over-year.

As you turn to Slide 17, you will see the key financial results for the company. There are a lot of financial records for the company, for the quarter, and full year which are highlighted in gold. As mentioned, with the increase in commodity prices, the company had strong revenue growth for the quarter and year. And with the margin generation of our business model, there was a significant increase in adjusted EBITDA and adjusted net income. For the full-year 2020, adjusted EBITDA was $839.6 million, a 24.6% increase over 2019. Adjusted net income was $516.3 million, a 51.2% increase over 2019, while adjusted net income per share was $2.71, a 49% increase over full-year 2019. As two of our key contributors for the year were Guadalupe and Hemlo, both of which have minimal book value visited [Phonetic] result in lower overall depletion for the company.

Slide 18 highlights the diversification of the portfolio, which we consider one of the strengths and differentiators of Franco-Nevada. As shown 91% of our 2020 revenue was generated by gold and gold equivalent. The geographic revenue profile has revenue being sourced 86 from the Americas, with Latin America being the largest. With respect to asset diversification, Cobre Panama was our largest revenue generator at 13% of total revenue for the year, followed by Antapaccay at 12% and Candelaria at 10%. No one asset in our portfolio generates more than 13% of our revenue.

The last chart highlights our operator diversity. Our largest exposure to revenue being generated by any one operator is 13%, which is First Quantum who operates Cobre Panama. We are fortunate to have royalties and streams on many properties mined by some of the most reputable mining companies in the world.

Slide 19 illustrates the strength of our business model to generate high margins. For 2020, the cash cost per GEOs, which is basically cost of sales less cost associated with the energy business divided by gold equivalent ounces sold is $292 per GEO. This compares to $266 per GEO in 2019. This amount will fluctuate each quarter depending on the mix of royalty versus stream ounces, but as you can see current average gold prices the company generate significant margins. For 2020, Franco earned a GEO margin of approximately 14.80 [Phonetic] per GEO. With our business model, the company sees an immediate financial benefit to a rising commodity prices.

The other cost component for the company besides cost of sales is our corporate administration costs. Our Board and management are very proud of our focus on cost management. We like to stress the strength of our business model and the scalability. The chart on Slide 20 clearly illustrates our focus on being cost efficient as possible in managing this business. Here we have highlighted our quarterly revenues and our quarterly corporate administration expenses since our IPO. Since 2008, our revenues have grown from approximately $25 million to an excess of $300 million this quarter, that is a 12 fold increase. This while our G&A has remained fairly stable over this time period. General and administrative costs have averaged $5 million to $8 million per quarter for the last 13 years. For Q4 2020, G&A was less than 2% of revenue. Management believes we can continue to add to our portfolio and grow our business without adding significant overhead to the company.

2020 was a strong year for Franco-Nevada as it built on the momentum from 2019. We looked at 2021 to continue to build on this momentum. For 2021, we are guiding to 555,000 GEOs sold to 585,000 GEOs sold. This is a 10% increase over the level reached in 2020. The main drivers of the growth are Cobre Panama, where we have the mine ramping up and producing at 85 million tonnes per year. Increased GEOs from Candelaria, as it is running back at normal operations and from Antamina, where we expect an increase in silver deliveries. We will be receiving our first gold and silver deliveries from the recent Condestable stream to which Eaun will speak to shortly. These increases will be slightly offset by lower expected ounces from Hemlo, with a lower gold price and lower production on the Interlake plain will reduce profitability. Sudbury will be in production for the full year, but at a reduced rate. We expect to receive approximately half the GEOs we were delivered in 2020. Also our stream on Karma steps away from the fixed ounces and becomes variable. Guidance has been calculated using $1,750 gold, $25 silver, $1,100 platinum and $2,200 palladium per ounce.

On the energy side, we expect revenue of $115 million to $135 million, using $55 per barrel WTI price and $2.50 Mcf natural gas price. Both of which are higher than what was realized in 2020. This revenue guidance does include a full-year revenue from the recent Haynesville acquisition.

As we look forward to 2025, we are proud of the built-in growth that the company already has in place. Our outlook for 2025 is 600,000 GEOs sold to 630,000 GEOs sold. Main contributors will be Cobre Panama as it ramps up to 100 million tonnes per year. We are expecting a number of new mines to be in production, as Paul mentioned Hardrock, Salares Norte, Valentine Lake and Stibnite Gold. We do expect McCreedy West in Sudbury to remain in production at 2021 levels until 2026. Also, it should be noted that our cap on Mine Waste Solutions reached -- is reached in 2024.

On the energy side, the revenue outlook is $150 million to $175 [Phonetic] million for 2025. This assumes the full capital commitment for continental has been funded and it also assumes there is a rebound in US drilling levels, but not to what they were in 2019. Again similar commodity prices are used to ask for 2021.

Overall, when you look at the outlook for GEOs sold and energy revenue growth to 2025, at current commodity prices, the company has greater than 20% revenue growth over the next five years. Obviously, this assumes no additional acquisition added to the portfolio.

With respect to the CRA audit that is ongoing, I would like to highlight a few items. As normal course, CRA has begun auditing years 2016 and 2017 for Franco. No proposals or reassessments have been received. We did receive reassessments in fourth quarter related to penalties and interest for the 2013 to 2015 previously issued reassessments. These were approximately $10 million. In our view, these are all normal course. Also the recent court decisions involving Canadian transfer pricing disputes including that of chemicals are encouraging. We believe CRAs reassessments are not supported by Canadian tax law and we are vigorously defending our tax filing position and will continue to do so.

Slide 23 summarizes the financial resources available to the company. When including working capital of $610.5 million, marketable securities of $191.8 million and our credit facilities of $1.1 billion, total available capital at December 31, 2020 is $1.9 billion. The company did fund the $165 million Condestable transaction subsequent to year-end.

Before I turn it over to Eaun, I'd like to mention that we have added an interactive analyst center to our website, making it easier to download financial data, historic financial information has been added and the website is live.

And now, I will pass it over to Eaun. Thank you.

Eaun Gray -- Senior Vice President, Business Development

Thank you, Sandip, and good morning. We're very happy to announce the closing of gold and silver stream for $165 million over the Condestable mine located in Peru. Mine is owned by Southern Peaks Mining, which is a GNRI portfolio company. We're very excited about this opportunity as we see excellent geological potential in the asset, which I'll speak to further in a moment.

Condestable has a very long history as recently grown its in situ global resources to over 90 million tonnes of M&I on the back of significant drilling and very good geological work. We believe the potential for near-mine and depth extensions of these ore bodies is excellent and quite -- and are quite excited to partner with Southern Peaks on the asset, where we see very good potential for output growth and mine life extension. The mine is currently in the process of expanding to 8.4000 tonnes per day this year and advancing studies to move to 10,000 tonnes per day. This further expansion does require some permitting where we see 10,000 tonnes per day or more as very likely with time. It's worth noting also that the stream benefits from five years of fixed deliveries, which helps derisk any ramp up. While the mine is privately owned and does not have publicly reported reserves, our team is confident the current resources should support a 15-year plus mine plan.

Moving to Slide 26, we've shown Condestable location in the Andes copper belt and the overall concession. As you'll see, the mine benefits for a location 90 [Phonetic] kilometers to south of Lima. This provides easy access to labor and infrastructure, which underpins very low operating costs and puts the mine in the bottom half of the cost curve. It's worth highlighting that our technical team sees great parallels here between the deposits geology, the underground at Candelaria where we saw reserves grow tenfold since the acquisition. The underground Manso and main mineralization is similar between them and both benefit from excellent geotechnical conditions, which really helps in terms of cost and safety.

As part of the deal, and we're also partnering with the operator on community development initiatives around the mine. We're very excited to have a positive impact here. Miners enjoy good relationships with the communities for many years. The stream also covers 45,000 hectares, which is a very large land package. Location of the concession is shown on the right hand side of the page. Our team sees this as highly prospective land and believe there is good potential for more discoveries over time.

Moving to Slide 27. We've shown a cross-section of the deposits that make up Condestable. The stream applies to the Condestable role and Vinchos mines, which are highlighted on this slide. The key takeaway here is the potential that more both depth and long stream. We see good drill indicated upside conforming to large size of the system. This makes us believe the asset should be a good contributor across multiple cycles.

Moving onto the next slide, we've highlighted the deal terms. The stream is effective for January 1 and will start contributing immediately. The deliveries are fixed for the first five years as I mentioned and they provide roughly 13,000 GEOs annually through that period. We like the fixed feature given the certainty in the medium term, but we believe in the variable deliveries give us great exposure to the geological upside that we expect to see here. The deliveries, which is 63% of gold and silver contained in concentrate after year five, which we expect to last for roughly another five years before it steps down to 25% of the gold and silver for the entire life of mine. We have offered the operator the ability to buy the stream down with an advance delivery for the first four years. If this were to occur, it would however boost our returns and still give us immediate exposure with the 25% variable stream, which would commence there upon. It's worth noting that buy down in year one is only possible under certain circumstances.

Overall, we see this as a very good fit with our model as it maximizes geological optionality on the exciting deposit and a large land package. We're mitigating our risk with the initial fixed deliveries. We expect this asset will be a long-term contributor.

Thank you very much. And with that I'll hand it over to Jason.

Jason O'Connell -- Senior Vice President, Energy

Thanks, Eaun and good morning everyone. In December, we closed the transaction with a private company Mesa Minerals Partners to acquire their portfolio of royalties in East Texas for $135 million. The assets consist of about 2,640 [Phonetic] net mineral acres, which provides for perpetual ownership interest in the land and which is shown on the map on the right hand side of Slide 29. The acreage is situated in the Western portion of the Haynesville Shale play in Harrison and Panola Counties where the producing formation is at its thickest.

The Haynesville along with Marcellus Shale in the Northeastern US are the two most significant natural gas plays in the United States. Haynesville benefits from its close proximity to the US Gulf Coast, were low transportation costs provide strong underlying economics for operators. Throughout the commodity price downturn in 2020, the Haynesville remained one of the most robust basins in North America and saw only limited draw down in drilling rates relative to other shale plays.

The portfolio of royalties we are acquiring was originally assembled by Mesa in partnership with Rockcliff Energy. Both companies are sponsored by the private equity group Quantum Energy Partners and that relationship allowed for Mesa to leverage Rockcliff geologic knowledge of the basin and to prioritize acreage buying ahead of Rockcliff's drilling program. Rockcliff is the operator on approximately 75% of the acreage position. And they are the leading operator in East Texas part of the Haynesville.

Turning to Slide 30. One of the key attributes of the royalties is that they are generating strong current cash flow. The transaction had an effective date of October 1, 2020 and in Q4 the assets generated $4.2 million of revenue from the production of 2 Bcf of natural gas. We expect the assets will contribute at a similar level of $4 million to $5 million per quarter in the coming year. Looking longer term, the acreage hosts approximately 700 undeveloped well locations. And for context, last year they were about -- about 60 wells drilled on our lands. That level of activity will provide for more than a decade of drilling activity followed by a long tail as the wells decline. Along with excellent mineral tenure and strong current cash flow, the transaction is attractive and that it adds to our natural gas weighting, bringing the balance of the gas in our portfolio to about 35% in the current environment. In addition, it adds increased portfolio diversity from acreage position within a core of a new high-quality basin.

That concludes our prepared remarks for this morning. So with that, we'll turn it back to Joanna for any questions from those on the call.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] First question comes from Tyler Langton at J.P. Morgan. Please go ahead.

Tyler Langton -- J.P. Morgan -- Analyst

Good morning, everybody. Thanks for taking my questions. I guess just to start on the energy side, I know the guidance for this year is the $115 million $135 million growing to the $150 million to $170 million in 2025. Should that be somewhat, I guess of linear increase over the next five years? And then can you remind us how dependent that revenue guidance is on sort of oil and gas prices?

Paul Brink -- President & Chief Executive Officer

Yeah Tyler, the ramp up in revenue over the course of the next five years is not exactly linear for many assets, there will be sort of a reasonably steady increase in production. For example, from our portfolio assets in the US. For those assets, we're expecting a continued ramp up in drilling activity, so you should see good -- relatively stable year-on-year growth on those assets. For our Canadian assets, there's not a lot of growth out of those assets other than increased revenue through better commodity prices. And the other US asset that has a bit of a step-up call at some point in the next few years will be Continental. We have a structure there within that agreement that allows us to take additional distributions from that partnership, should the company fall short of certain volume target. We expect that could occur depending on where drilling rates are within the next two years or three years so there will be a bit of a step-up around 2023 or so.

Tyler Langton -- J.P. Morgan -- Analyst

And then in terms of the sensitivity to oil and gas prices?

Paul Brink -- President & Chief Executive Officer

I don't have an exact number to give you. The sensitivity on our Canadian assets is related to -- mostly the Weyburn NRI, where we have -- we're responsible for our operating and capital cost of that operation. So there is a fair bit of sort of financial leverage there. With the US assets, there is leverage in the form of drilling rates. And so as prices increase, typically operators will increase the capital that they spend and increase the drilling rates on the acreage. So it's more than a one-to-one relationship with price, but I don't have an exact ratio for you at this point.

Tyler Langton -- J.P. Morgan -- Analyst

Got you. And then just on the acquisition front, I guess, could you talk a little bit about what you're seeing more recently, I don't know with base metal prices having increased, are you seeing more companies based on our producers looking for streams on the precious metal side if they have it or just more precious metal deals. Just any kind of color around that and sort of deal size and sort of items like that?

Eaun Gray -- Senior Vice President, Business Development

Hi, Euan here. Yeah, I would say the three legs of the stool at the moment in terms of deal flow are probably acquisition finance, as people start to look at M&A again seriously, development finance, and existing royalties. And in terms of development finance, certainly bi-products lend themselves well to that. So we're hopeful we'll see some deal flow there. That's what I would point you to in terms of new transactions.

Tyler Langton -- J.P. Morgan -- Analyst

Great. Thanks so much.

Operator

Thank you. The next question comes from Cosmos Chiu from CIBC. Please go ahead.

Cosmos Chiu -- CIBC World Markets -- Analyst

Thanks, Paul, Sandeep, Eaun and Jason, and the team here. Great to see very strong Q4 and also great to see the dividend increase here. Maybe my first question is on energy as well, it's kind of funny, sometimes you don't want to talk about it, and now everyone wants to talk about it. Jason, I don't know if you have this handy in front of you, but could you maybe remind to be what percentage of your revenues sensitive to the different commodities? I know you have some exposure to WTI, exposure to AECO, exposure the WCS, exposure to Henry Hub, by what percentage are we talking about based on your revenue?

Jason O'Connell -- Senior Vice President, Energy

Yeah, sure Cosmos. And I always love to talk about Energy. So thanks for the question. In terms of where we have exposure, our portfolio as of Q4 was about 35% gas. Most of that is referenced to Henry Hub. So call it 35% of our revenue would have Henry Hub exposure. We do have a bunch of exposure to natural gas liquids, so that would be propane, ethane, those various commodities, so they are exposed to a different benchmark. And then within the oil side, call it 55% of our revenue as of last quarter, I don't have the exact split, but I'd say it's probably one-third exposed to Canadian light oil, so that's an Alberta benchmark, probably another 10% exposed to WCS, which is a heavy benchmark in Canada, and then the remainder would be WTI exposure. So the broad buckets are 35% gas, 10% NGLs and 55% or so oil.

Cosmos Chiu -- CIBC World Markets -- Analyst

Great. Thanks. Maybe digging a little bit deeper here, certainly back in 2020 with the rising gold price, the NPI Hemlo did really well, just given that there is more leverage to it. On the energy side, Jason, given the recent increase in WTI, oil, gas prices, is there anything similar to it? Because I know, for example, you talked about Weyburn. Weyburn has NRI, which is kind of like an NPI. There is also working interest. Can we expect the same thing happen here in terms of more -- I don't want to say parabolic, but giving greater leverage either at Weyburn or somewhere else?

Jason O'Connell -- Senior Vice President, Energy

Yeah as mentioned the biggest sort of form of financial leverage is from the Weyburn asset, which is a -- it is a good portion of our Canadian revenue. And there we do have direct leverage to increases in commodity prices. That leverage obviously changes depending on what the price is. For example, in the spring when commodity prices were $30 a barrel, we were earning next to nothing from that royalty, and so every $5 incremental increase in the oil price generated a big lift in revenue. We'll continue to see good leverage there as oil prices are moving to $65 a barrel or so in today's environment.

The other form of leverage, which I sort of touched on a little bit is from the level of activity that's associated with drilling on our US assets. As commodity prices increase, operators are earning more money, they're putting more capital to work, they're drilling more wells, and all that benefits our royalties. It's just very difficult to give you an exact ratio of how that unfolds. I think in this environment, we saw drilling rates really get reduced in 2020 across North America. I think as prices rebound, we're going to get not only the benefit of higher revenue, but we're going to get the benefit of higher volumes associated with that increase in drilling.

Cosmos Chiu -- CIBC World Markets -- Analyst

Of course. Maybe more of an accounting question here based on the energy front. Early last year, WTI was -- went negative. And as a result, I think Franco-Nevada did about $200 million writedown on the energy portfolio. May be a bit premature at this point in time, but when would you start considering taking a look at that -- the -- I guess value of your energy portfolio and potentially kind of writing a back-up?

Sandip Rana -- Chief Financial Officer

Hey, Cosmos, Sandip here. We look at it every quarter as we are required to under accounting rules. The big trigger for us will be that sustained capital spend, as Jason alluded to the spending by operators on the well drilling, especially in the United States. And if that really comes back at significant levels, we'll take a look at it then, but I wouldn't expect a reversal in the near term.

Cosmos Chiu -- CIBC World Markets -- Analyst

Okay, got it. Maybe switching gears a little bit, on Condestable, I just want to get a better understanding of the buyback or buy down right here. You know, my understanding is that if it were to get exercised say tomorrow, which I know, Euan, you said, it's very, very restricted in the first year or so. But just as an example, if it gets exercise tomorrow, then really what happens is that I would have to figure out the value of 25% of what that's worth and then say over 15 years because in your presentation, it says 15 plus years. And if I were to come to a value, and I did yesterday in my note of saying $90 million based on spot. We essentially have to add that $90 million to $119 million that they have to pay you, so over $200 million for something whereby you paid $165 million for. I guess my question is, is my understanding correct or is my concept here correct? And number two, if that's the case then as the conclusion that it would be fairly expensive for the operator to buy it back. Is that correct as well?

Eaun Gray -- Senior Vice President, Business Development

Hi, Cosmos. Yes. So the exact buyback amount is 118.75 [Phonetic], and yes, they would have to deliver that value of gold to us. It would be subject to the same 20% transfer price or delivery costs for those ounces. So you would net that off. And yes, it will be 25% stream would then commence immediately. And so you'd have to value that. So I think you're looking at it the right way. But perhaps, we just need to account the 20% transfer price on what is -- part of the buyback.

Cosmos Chiu -- CIBC World Markets -- Analyst

For sure. And then maybe as a follow-up here, buy downs, I think, Franco-Nevada never really like to double in buy downs in the past. And I'm sure that's not ideal at this point in time as well. But given the current dynamics of the environment, is this now sort of like a ticket to entry? Should we look at it that way or is it just on a case-by-case basis?

Eaun Gray -- Senior Vice President, Business Development

You know what, I don't think so Cosmos. There are certain circumstances here which made it particularly important in terms of having this as a feature that would salience. And so for us optionality is key. We have a full land package, which is really important. The stream and its residual amount 25% is actually meaningful equivalent net smelter returns. So it's size such that our optionality is right over time and we're not giving up too much of that. So we have to balance that out versus what the operator is looking for. You have seen more of these things, but certainly not something we strive to do.

Cosmos Chiu -- CIBC World Markets -- Analyst

Of course. Thanks a lot. Those are all the questions I have. Thanks a lot once again.

Operator

Thank you. The next question comes from Greg Barnes at TD Securities. Please go ahead.

Greg Barnes -- TD Securities -- Analyst

Thank you. Sandip, just trying to understand what we should be thinking about Hemlo now. You said we should expect lower revenues in 2021. Is there any way to give us some kind of framework we should think about going forward?

Sandip Rana -- Chief Financial Officer

So I will give you range, Greg. I think for -- and it will be a wide range, but I think between 20,000 and 30,000 GEOs for 2021 based on current commodity prices and what we know what the mine plan at Hemlo for Interlake. That it will be in that range. I know it's a wide range, but that's what I can tell you at this stage.

Greg Barnes -- TD Securities -- Analyst

And do you have enough visibility to guess, I suppose that what happened post 2021?

Sandip Rana -- Chief Financial Officer

We do. We do. It will tail off over time. And I think 2021, 2022 will be similar in terms of production of our claims and then starting 2023, it will start to tail off and carry on every year at a lower rate.

Greg Barnes -- TD Securities -- Analyst

Okay. And how big will be the tail off?

Sandip Rana -- Chief Financial Officer

At these prices, I would estimate about 10,000 GEOs a year.

Greg Barnes -- TD Securities -- Analyst

Okay. Perfect. Thank you. That's it from me.

Operator

Thank you. The next question comes from Carey MacRury at Canaccord Genuity. Please go ahead.

Carey MacRury -- Canaccord Genuity -- Analyst

Hi. Good morning, everyone. Maybe in the similar range Sandip, you mentioned McCreedy US production going through 2026. And I know your guidance for 2021 is lower than 2020, but just on that particular stream, what we should expect maybe over the -- is there a number we can use over the five year period?

Sandip Rana -- Chief Financial Officer

Sure. So I think for 2020, we did about 21,000 GEOs, we will do half that for 2021. That's our estimate. And we see that just being carried through 2026 at this stage.

Carey MacRury -- Canaccord Genuity -- Analyst

Okay. Great. And then maybe two more questions. So I guess on Gold Quarry, it's transitioned from the minimum. Just wondering is that -- was planned or what -- how they come about? And secondly, on Antapaccay, obviously a record quarter, was some of that sort of carry through from Q2, Q3, or is that relating to Q4 production?

Sandip Rana -- Chief Financial Officer

So on Gold Quarry, yes, the annual minimum is 11,250. We did expect that to drop off starting in 2022. So it's a year ahead of schedule. So we did about 6,000 GEOs, we'll do about 6,000 for 2021. And then post 2021, right now, our estimate is 1,350 going forward. However the caveat with that is how the reserves change at Gold Quarry. So there is certain laybacks that if they get included. The reserves will increase when our minimum will go backup. So those are the numbers at this stage, but as we get more information from the operator, the minimum could change. And then with respect to Antapaccay, yes, it had some carryover of deliveries from Q3 -- or production from Q3 into Q4.

Carey MacRury -- Canaccord Genuity -- Analyst

Okay. Great. And then maybe just one question on the new stream [Indecipherable] in Peru. But just think about the mine life that you guys talking about sort of 15-year sort of planning mine life, but based on the resource base, it looks like there is more than 40 years there and obviously it looks like it's still open for exploration. So I'm just trying to understand the context around 15 years in terms of mine life potential.

Eaun Gray -- Senior Vice President, Business Development

Eaun here. Yes, there is a very large resource base there. It's one of the things that we really like about the asset. In terms of the immediate mine life, obviously, you have to look at what is highest level of confidence around it, in terms of that resource, which we provided. And so that's how we come up with that. We think there will be very long and fruitful mine life. The asset has been operating now in some capacity for over 50 years and continued good drill results. So how we look at it, yeah, we do see the potential for life well beyond that.

Carey MacRury -- Canaccord Genuity -- Analyst

Great. That's it for me. Thanks, everyone.

Operator

Thank you. The next question comes from Brian MacArthur at Raymond James. Please go ahead.

Brian MacArthur -- Raymond James -- Analyst

Hi, good morning. A lot of my questions have been answered. But maybe going into another stream here. Just on the restructuring of Sabodala, it talks about 105,750 cumulative. Is that from September '21 or is that like day one? Exactly how that one work now going forward over the next number of years? And then what's the 6% true up based on, the time period now or what you would have seen before?

Eaun Gray -- Senior Vice President, Business Development

Yes. So what happens with Sabodala is there is a fixed delivery profile, which continues as outlined and there's quite a bit of detail in the MD&A. So they continue to deliver through to that total ounce threshold. And at the end of that threshold, you have to look and say, OK, how much actually came from Sabodala versus if you you'd assume the 6%, which was we went through anyway versus what came from elsewhere the [Indecipherable]. And then effectively what would happen is if there was a lot of displacement from [Indecipherable], which is likely -- did will go on hiatus in the 6% won't start again until they caught up that cumulative amount with production from Sabodala. And we can talk about it in more detail offline as well, that would be helpful.

Brian MacArthur -- Raymond James -- Analyst

Okay. Maybe I'll do that. Thank you very much.

Operator

[Operator Instructions] Next question comes from Tanya Jakusconek at Scotiabank. Please go ahead.

Tanya Jakusconek -- Scotiabank Global Banking and Markets -- Analyst

Yes, good morning everybody. Just a couple of questions. I'm going to start on Antapaccay, if I could. And just turning on to the Coroccohuayco project, the scope and the timing, I just wanted to ask, number one, what's changed there? And number two, is it included in your five year guidance, I think it was last year.

Paul Brink -- President & Chief Executive Officer

Hey, Tanya, it's Paul. The Coroccohuayco at Antapaccay, it is an additional deposit. It's a [Indecipherable] deposit, it's about three quarters the size of Antapaccay itself. Glencore have been planning to develop it. The plan they work on [Technical Issues] mostly on the ground. So little bit the footprint, they've had some success with the community there. Believe now they can build a mine with a bigger footprint and so it can make it largely an open pit mine, so that's, they are back to the drawing board on the assets looking at that bigger mine plan. So there's good and bad news there, it means over time more metal, but they have moved it back in terms of the timing, expect, it's more likely to contribute at the back end of the Antapaccay mine plan.

Tanya Jakusconek -- Scotiabank Global Banking and Markets -- Analyst

Okay. So it's not in your five year guidance?

Paul Brink -- President & Chief Executive Officer

It doesn't impact our five year guidance. They expect that all our production is from Antapaccay.

Tanya Jakusconek -- Scotiabank Global Banking and Markets -- Analyst

Okay. And then maybe just turning over back to Condestable guidance that you provided this morning. Does the higher end of the production guidance range assume expansion to just 8400 tonnes a day or 10,000 tonnes per day?

Eaun Gray -- Senior Vice President, Business Development

Hi, Tanya. It's Eaun. Yes. So the bottom end of the range is closer to the 8400 tonnes per day and the 10,000 I believe it would be more toward the middle end of the range. As I said, we see good potential there to increase further with time given the size of the overall resource.

Tanya Jakusconek -- Scotiabank Global Banking and Markets -- Analyst

Okay, perfect. Thanks. And then just turning on to the energy portion. I'm just trying to understand a little bit your guidance, some for 2021. We have seen significant -- you are showing significant growth from existing assets despite the big capex cuts and that we've seen and most operators seem to be aiming for flat rather than growing production, so what are you assuming in terms of operator capex increases relative to your 2021 budgets?

Eaun Gray -- Senior Vice President, Business Development

Tanya for 2021 we are assuming a modest improvement over what we saw this year. There was a lag in 2020, if you recall of beginning of the year, oil prices were still reasonably strong and operators were still carrying out a fairly robust level of drilling. And so what happened is 2020 had kind of call it half of a normal year. And then, half of a very depressed year. For 2021, we're assuming continued rebound still not to the levels that we saw though in sort of pre-COVID -- pre-OPEC shock levels.

Tanya Jakusconek -- Scotiabank Global Banking and Markets -- Analyst

Okay. And then maybe just on just transaction wise, you talked about what you're seeing out there in terms of acquisition, finance, development and existing royalties. Maybe just sort of the size of the transactions, number one; and number two, can we see you do more in the oil and gas space?

Paul Brink -- President & Chief Executive Officer

So Tanya, in terms of the pipeline, it's a good pipeline. As we had mentioned the combination there of new mines and acquisitions. So say those were most of the things. On the energy side, very happy to add the Haynesville here. We continue to look, although I'd say in terms of what's active at the moment, most likely precious metal and also other metals is the high likelihood through this year.

Tanya Jakusconek -- Scotiabank Global Banking and Markets -- Analyst

And are we looking still in the range of a couple of hundred million to $500 million size range?

Paul Brink -- President & Chief Executive Officer

Yeah, I'd say, everything in the pipeline is meaningful to move the needle, but also in parts of way that it would -- as that will -- all the assets that increase our diversification.

Tanya Jakusconek -- Scotiabank Global Banking and Markets -- Analyst

Okay. Thank you very much.

Operator

Thank you. There are no further questions. I will now turn the call back over to Candida Hayden for closing remarks.

Candida Hayden -- Corporate Affairs

Thank you, Joanna. We expect to release our first quarter 2021 results after market close on May 5 with the conference call held the following morning. Thank you for your interest in Franco-Nevada. Goodbye.

Operator

[Operator Closing Remarks]

Duration: 50 minutes

Call participants:

Candida Hayden -- Corporate Affairs

Paul Brink -- President & Chief Executive Officer

Sandip Rana -- Chief Financial Officer

Eaun Gray -- Senior Vice President, Business Development

Jason O'Connell -- Senior Vice President, Energy

Tyler Langton -- J.P. Morgan -- Analyst

Cosmos Chiu -- CIBC World Markets -- Analyst

Greg Barnes -- TD Securities -- Analyst

Carey MacRury -- Canaccord Genuity -- Analyst

Brian MacArthur -- Raymond James -- Analyst

Tanya Jakusconek -- Scotiabank Global Banking and Markets -- Analyst

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