Earnings Call Transcript - FNV Q2 2022

Operator, Operator

Good morning, everyone, and welcome to the Franco-Nevada Corporation's Second Quarter 2022 Results Conference Call and Webcast. This call is being recorded on August 11, 2022. I would now like to hand the conference over to your host, Bonavie Tek, Vice President of Finance. Please proceed.

Bonavie Tek, Vice President, Finance

Thank you, Christina. Good morning, everyone. Thank you for joining us today to discuss Franco-Nevada's Second Quarter 2020 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. The presentation is also available to view on the webcast. During our call this morning, Paul Brink, President and CEO of Franco-Nevada, will provide introductory remarks; followed by Sandip Rana, Chief Financial Officer, who will provide a brief review of our results; and Eaun Gray, Senior Vice President, Business Development, who will provide an overview of our Tocantinzinho transaction. This will be followed by a Q&A period. Our full executive team is available to answer any questions. Participants may submit questions by telephone or via the webcast. 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 3 of this presentation. I will now turn the call over to Paul Brink, President and CEO of Franco-Nevada.

Paul Brink, President and CEO

Thank you, Bonavie, and good morning. We're proud to report our best quarterly and half year results on record. Each of revenues, adjusted EBITDA, and adjusted net income were records for the quarter. The low-risk nature of our business is most pronounced in today's inflationary environment. Our top line precious metals stream and royalty interests helped generate our highest ever margins since adding streaming to our business, over 85% for adjusted EBITDA and 55% for adjusted net income. High energy prices in this environment are positive for us and drove an increase in our diversified GEOs, partly offset by marginally lower precious metal GEOs sold. At half year, our total GEOs sold was slightly ahead at the midpoint of our guidance range, and we're maintaining our previously issued guidance. In July, we were delighted to announce the financing package for the Tocantinzinho property in Brazil with G Mining Ventures for $353 million. The financing package included a $250 million gold stream, a $75 million term loan, and a $27.5 million equity financing. The project is construction ready with first deliveries expected in late 2024 and is fully financed. The team behind G Mining Ventures is well known in the industry for its record of building mines on time and on budget, including Merian for Newmont Mining and Fruta del Norte for Lundin Gold. We expect Tocantinzinho will be the first of many mine builds for the company and have entered into a long-term partnership for future financings and acquisitions. We've been in close dialogue with Lundin Mining on the sinkhole that has developed close to the Alcaparrosa portion of the Candelaria operations. Fortunately, all staff and the community are safe and the appearance of the sinkhole didn't result in any injuries. Lundin and their experts have experts evaluating the event and hope to have an initial understanding of the causes in the coming weeks. Notable in terms of organic growth news in the quarter was Detour Lake. Agnico Eagle announced a 10-year mine life extension to 2052, and they're looking to expand throughput to 32 million tonnes per year as well as potentially develop an underground mine that could increase production to 1 million ounces or more per year. The Detour expansion, along with expansions at Stillwater and Tasiast, and of course, Cobre Panama, form the core of our near-term organic growth. We'll also have contributions from three new mines in the next couple of years, and the construction of Salares Norte and Greenstone are all proceeding on track. We expect the development of Valentine Lake, Stibnite Gold, and Eskay Creek to follow. With respect to ESG, during the quarter, Franco-Nevada was named on Corporate Knight's 2022 List of the Best 50 Corporate Citizens in Canada. Also, as part of the Tocantinzinho transaction, we committed $1 million to environmental and community support programs over four years. We also continue to expand our community engagement and contributions with existing partners. In summary, Franco-Nevada continues to deliver with record financial performance, built-in growth, and long-term optionality. We're cash flow positive with no debt, of $1.9 billion in available capital and generating operating cash flow at a rate of $1 billion per year. We're focused on growing the company by adding more precious metal assets and are seeing a good pipeline of opportunities. With that, I'll hand it over to Sandip.

Sandip Rana, Chief Financial Officer

Thank you, Paul. Good morning, everyone. As Paul mentioned, the company reported record financial results for the second quarter of 2022 with our overall royalty and stream portfolio performing ahead of expectations. The quarter once again highlighted the benefits of our diversified portfolio by both asset and commodity. On Slide 4, we've highlighted the gold and gold equivalent ounces sold for the three and six months ended June 30, 2022, and 2021. Overall, GEOs sold were relatively flat when compared to the prior year, with Q2 2022 GEOs sold being 191,052 compared to 192,379 last year. You may recall that in Q2 2021, we did record two quarters of GEOs and revenue related to the Vale royalty we had just acquired. This would have equated to an additional 7,600 GEOs and $13.8 million of revenue recorded in Q2 2021. Overall, most assets performed as expected during the quarter, with fewer GEOs delivered by Antamina, Antapaccay, Guadalupe, and Stillwater versus the prior year. As we have highlighted previously, 2022 is a lower production year for Antapaccay as the operator is mining through a lower grade zone. We expect deliveries to resume to prior year levels for 2023. For Antamina, we expected 2022 to be a more normalized year, similar to previous years, with a range of 2.8 million to 3.2 million silver ounces being delivered, which is what is transpiring. Unfortunately, the Stillwater mine was impacted by a significant flood event in June, which resulted in the suspension of operations at the mine. This suspension will have a slight negative impact on our GEOs and revenue from Stillwater for the third quarter. One of the surprises in the quarter was the Hemlo NPI, which was ahead of our expectations, coming in at CAD 10.5 million. This was a result of an increase in mining on Franco-Nevada royalty lands and improvement in operating costs. As we've mentioned previously, it is difficult to predict what the NPI payments will be on a quarterly basis. For the diversified GEOs, our Vale royalty resulted in 5,407 GEOs and $10.1 million in revenue for the quarter. This was lower than previous quarters due to lower production at the mines as well as a lower iron ore price. Each quarter, we make an estimate of what the royalty will be, with the actual amount being announced by Vale in late March and September each year. As a result, you will see adjustments to our accruals in Q3. For our energy assets, GEOs doubled year-over-year as we benefited from continued higher energy prices. Slide 5 highlights our total revenue and adjusted EBITDA amounts for the three and six months ended June 30, 2022, and 2021. As you can see from the bar charts, revenue and adjusted EBITDA have increased year-over-year for both periods. The company recorded $352.3 million in revenue in the second quarter and $301.2 million in adjusted EBITDA, which are both records. A margin of 85.5% was achieved. The second quarter continued the strong contribution from the energy assets as revenue increased from $47.3 million a year ago to $91.5 million this quarter. The WTI price averaged $108 per barrel during the quarter, a 63% increase from the prior year. Natural gas prices also increased significantly, with Henry Hub averaging $7.49 per Mcf during the quarter compared to less than $3 per Mcf a year ago. Oil prices have pulled back recently to approximately $90 a barrel, but are still significantly ahead of last year. As you turn to Slide 6, you'll see the key financial results for the company. Some key financial metrics: revenue, adjusted EBITDA, and adjusted net income are records for the company for both the three and six months ended June 30, 2022. On the cost side, we did record a lower cost of sales amount in Q2 2022 as lower stream ounces were delivered and sold. Cost of sales is dependent on which assets deliver stream ounces, as not all fixed payments per stream ounce are equal. Depletion was also lower at $69.6 million versus $77.2 million a year ago. Depletion is calculated on actual mining GEOs sold as well as barrels of oil equivalent received from the energy business. With lower mining GEOs sold in the quarter and relatively flat energy production, this resulted in less depletion being recorded. With respect to taxes, the effective tax rate for the quarter was 15.7%, which is slightly higher than the rate we have trended to previously. This was due to the higher income generated in Canada and the United States from our energy assets. Adjusted EBITDA was $301.2 million for the quarter, while adjusted net income was $195.8 million, a 7% increase over 2021. Adjusted net income per share was $1.2 per share, a 6% increase compared to the prior year.

Eaun Gray, Senior Vice President, Business Development

Thank you, Sandip. In July, we were very pleased to complete the Tocantinzinho project financing. We're delighted to be partnering with G Mining Ventures, a team that has successfully and quite frankly provided one of the best track records in delivering similar projects in South America. The project is conventional from a technical standpoint, has good grades and is located in Pará, Brazil, a seasoned mining jurisdiction. We believe that there's great upside potential in the broader land package as well. We have also worked an agreement into the deal such that the G Mining team will provide us opportunities for a right on future transactions. We've included key project parameters on this slide and highlighted the very recent feasibility study. Franco-Nevada's participation is primarily through a $250 million gold stream, but we'll also be providing a $75 million term loan as described for $27.5 million in equity alongside La Mancha and Eldorado. This financing covers the full expected cost to build the mine, plus a buffer. Finally, as part of this financing, we will be contributing to G Mining's efforts to support communities and the environment with the commitment of up to $1 million over four years. On Slide 13, we highlight our available capital of $1.9 billion. Equity valuations of line developers are particularly depressed at the moment in this high inflation environment, and we believe we can put capital to work with good developers on good projects. With that, I'll hand the call back to Bonavie.

Bonavie Tek, Vice President, Finance

Thank you to our presenters. Operator, you may now begin the Q&A session.

Operator, Operator

We'll take our first question from Adam Josephson with KeyBanc.

Adam Josephson, Analyst

Sandip, quick question about Stillwater. Can you be more specific about the impact you're expecting in the third quarter?

Sandip Rana, Chief Financial Officer

Sure, Adam. They experienced a flood in late June, which is very unfortunate, but thankfully there don't seem to be any injuries reported. They are working on restarting operations, though I'm not sure if they have done so yet or are close. If they do resume in the third quarter, it would impact our GEOs by approximately 2,000.

Adam Josephson, Analyst

Okay. So not a really consequential impact in terms of...

Sandip Rana, Chief Financial Officer

I guess they had the flood in late June, and it's very unfortunate, but I don't think there are any injuries or anything of that nature. They are trying to restart it. I don't know if they have restarted it or are close to, but the impact on our GEOs would be approximately 2,000 GEOs if they do start in Q3.

Adam Josephson, Analyst

Yes. Yes. In terms of your updated price assumptions, I just wanted to drill down upon intended on oil and natural gas for that matter. Obviously, prices have fallen from the recent peaks because of Chinese lockdowns, other demand destruction and combined with expectations of further demand erosion as the economy deteriorates. Perhaps this is best for Eaun. Just based on your conversations with your partners and the production plans that you've seen, I know you raised your WTI full year assumption by $5 a barrel. But can you just talk qualitatively about what you're seeing in terms of energy markets and more specifically energy prices and how resilient you expect oil and gas prices to be based on those production plans?

Jason O’Connell, Analyst

Yes, it's Jason here. Thanks for the question. For oil, we've seen a steep run-up in oil prices over a number of months here. Part of that is attributable likely to the Ukrainian conflict. But even before that, there was a run-up in prices really that was, I think, attributable to an underlying supply deficit. Some of that premium has come out, as you point out, over the last month or so here as COVID concerns continue in China and the overall sort of negative impact to the economy become apparent. Going forward, we still think that prices will remain strong for a while here. The impact that we've seen on operators is drilling rates and activity rates, particularly in our U.S. operations have been strong. They've rebounded quite significantly from the lows that we saw in 2020. We're still below peak activity levels that we would have seen back in sort of late 2019 before the oil price cap. So I'd say, looking at it holistically, we're probably 70%, 75% of those peak activity levels. And we'll keep an eye on where those activity levels go up, but are still disciplined in how they are deploying capital. And so I don't expect it to be a strong ramp-up here, but I would say it will continue to be robust.

Adam Josephson, Analyst

I appreciate that. Do you expect to get back to 100% in the foreseeable future? Or do you think that, perhaps, is a stretch based on any number of constraints that continue to exist?

Jason O’Connell, Analyst

Yes. I think it will depend on where commodity prices ultimately go and then how long they stay elevated. I think if you see very strong commodity prices, activity levels inevitably will creep up towards those highs. But if commodity prices are in the below $90 a barrel range, I don't think you'll see activity rates come back to where they were at their peak levels, which would imply significant growth in overall production volumes in the U.S. I don't think we'll get back to that unless we see very strong commodity prices sort of north of $90 to $100 a barrel. But that's a guess, obviously, on our part.

Adam Josephson, Analyst

Yes. And Paul, just one for you. There have been some decent-sized deals announced recently, obviously, yourselves included. Can you just compare the prices being paid for deals today to what they've been in previous gold market up cycles and how that's affecting your willingness to transact?

Paul Brink, President and CEO

I noticed that our industry has become more competitive, which is undeniable. The key question is how to advance the business in such an environment. Eaun Gray, could you share your thoughts on how we plan to navigate this situation?

Eaun Gray, Senior Vice President, Business Development

Thank you, Paul. In this environment, as I mentioned a moment ago, we do see some stress in the capital markets for miners, and that drives opportunity. We think that we can partner effectively as we did with GMIN with groups that have good projects and good teams that meet our financing. So that's going to be a key area of focus for us going forward. That really does drive kind of more medium-sized deals, but we think it's a good place to focus the majority of our efforts.

Adam Josephson, Analyst

I appreciate it. Eaun, is the stress primarily due to the inflation these companies are facing, or is it also related to the closure of capital markets for some of them? What exactly would you attribute this stress to, and how long do you believe it is likely to persist?

Eaun Gray, Senior Vice President, Business Development

I would say the capital markets are certainly a contributor to that. And markets are fickle, so they can change. But at the moment, equity markets remain pretty tough for medium to smaller developers, and that's an opportunity. I think the same with high yield. High yield is also a fairly challenging market for a lot of mining companies to access at the moment. So that also drives opportunity.

Operator, Operator

Go to our next question from Heiko Ihle with HC Wainwright.

Heiko Ihle, Analyst

Congratulations on the G Mining deal as well for the project, obviously. It's nice to see somewhat larger scale transactions happening again given that we sold in a climate where folks tend to be quite a bit scared. Obviously, with Tocantinzinho, it was only partially for the stream; nine figures of money were spent on a term loan and the equity private placement. And you still have a large amount at your disposal, but can you maybe provide a bit of color on what you're seeing in the market with the sellers of streams? Obviously, again, you went into a term loan and a private placement as opposed to a stream for at least part of the money with the big thing being the stream nonetheless. And building all, maybe tell us a bit about what you're seeing other ways that you think deals might get done in the future, if not outright streaming?

Eaun Gray, Senior Vice President, Business Development

Thank you for the question. You're right. We did provide a term loan component and a participation alongside La Mancha and Eldorado in the equity raise. It was important, I think, in the current capital environment to provide a fulsome solution. We're happy to participate in doing that. The lion's share of our financing still was a stream. But going forward, you could see this type of financing as a model for others. That's entirely possible should the capital markets remain challenging, where you bring a few groups together to complete the picture.

Heiko Ihle, Analyst

Yes. And then the other end of the spectrum, geopolitical risk factors have become quite a bit more important in 2022 than they've been in many years. We just had another Minister of Mining and Energy in South America, who joined the fray literally in May, who is hopefully against mining. You got 49% of our revenue tied to Mexico, Central and South America. Can you just provide a touch of color on which parts of the world you're watching the most intently? And are you thinking about maybe divesting or trading away some assets if things get a little bit more dicey than they are? As much color as you're willing to provide in this setting.

Paul Brink, President and CEO

Sure. Heiko, no doubt about it. There has been a shift to the left, particularly in South America. May well have happened in any case, but certainly spurred on by COVID. So we do keep an eye on that. As we think of our portfolio, one of our greatest strengths is diversification. In mining, you do need to take some risk. The way we think about it is we want to be a low-risk way for investors to participate. We know that most of our capital needs to be in good jurisdictions. We can have some of the exposed areas that have more risk. So we know we need to continue to participate in some of these countries. It's just a question of what's the dollar exposure that you have to each of them, and is that a reasonable amount in the context of our portfolio. Yes, obviously, what's happening in the region means you're a bit more circumspect about it. But also, what we've seen over time, and quite honestly, the same applies to Canada and the U.S. and elsewhere. The pendulum swings from one set of political leaders to the next. We're very long-term investors. So we're happy to hold the interest. We don't spend much time thinking about divesting the interest. More so, as I mentioned, just holding them out, that is palpable in the context of our portfolio and happy to ride out the bumps along the way.

Heiko Ihle, Analyst

Yes. Internally, so you have enough diversification where not one asset will really break you.

Operator, Operator

We'll take our next question from Lawson Winder with Bank of America.

Lawson Winder, Analyst

I wanted to first ask about the pipeline. When you mention a strong pipeline of precious metal opportunities, are these base metal mines that produce precious metal byproducts, or are they primarily precious metal mines?

Eaun Gray, Senior Vice President, Business Development

Thank you for the question. I would say we are seeing a bit more of a focus at the moment on primary precious metals opportunities. Not to say that the other opportunities don't exist, but I would say they're probably more focused on the primary product.

Lawson Winder, Analyst

I really liked your slide showing diversification by operator, and it made me wonder how Franco evaluates operator concentration risk. For instance, what would be the maximum threshold? If one of your top five existing streams had the chance to significantly increase that exposure through other assets in their portfolio, would that be an easy decision, or would there be some concerns?

Paul Brink, President and CEO

It's something we obviously think about. I wish I could say that there was a single answer or a single number. It obviously depends on the context. It depends on the quality of the assets; it depends on the jurisdictions where they are; it depends on how good that operator is. So no bright lines. Obviously, something that we pay attention to. Also, when an operator is building assets, it's so much more important because the performance of the asset is sort of dependent on that capability of bringing it on in time. So we do focus on operators. We've been very fortunate, I have to say. A theme that's played out for Franco over time is that, over time, good assets move into even stronger hands. And I suppose that also plays in our thinking as we consider investing in assets.

Lawson Winder, Analyst

That's an interesting comment you just made, that last one. So if I'm interpreting that correctly, you're basically saying you like the idea of getting streams on assets that could be possible takeout candidates or acquisition candidates?

Paul Brink, President and CEO

Also, as we all know, you look at any asset in the industry, any company, there's a great amount of turnover. The geology doesn't change. The country doesn't change. Over time, the operators can change. And we feel if you get the assets right, if you invest in good assets, the chances are they migrate into even stronger hands over time.

Lawson Winder, Analyst

Got it. Well said. And then following up on our other question regarding South America, I was actually thinking about one particular country you do not have a lot of exposure to in South America is Argentina. I think that's actually served Franco quite well given the challenges that country's had and is currently facing. What would be Franco's appetite to add material Argentine exposure at this point?

Paul Brink, President and CEO

We're open to adding exposure to Argentina. We're evaluating it. No surprise to anyone on the call, the geology is fantastic. And we think that things are moving in the right direction in the country at the moment. So we keep monitoring it. If the opportunity came up, we would spend a lot of time on it, that's for sure.

Operator, Operator

And we'll take our next question from Tanya Jakusconek with Scotiabank.

Tanya Jakusconek, Analyst

I have two really. I will have one to do is just the guidance looking forward. Maybe Sandip, can you help me a little bit? I'm trying to forecast as Hemlo or we had been giving guidance that I think it was like 60% of the revenue is supposed to come out in like Q1. Now we've had a stronger Q2. So what are we looking for Hemlo for the next two quarters? Are we seeing any contribution?

Sandip Rana, Chief Financial Officer

Yes, I hear you, Tanya. It was a surprise to us as well. Obviously, it's a lot harder to predict because of the cost structure, it's an NPI. My estimate in my forecasting for Hemlo over the next two quarters is to be approximately CAD 5 million to CAD 6 million a quarter. And that's based upon my understanding of what the production level should be and an estimate on cost. So that's what I'm forecasting. Whether that comes to fruition or not, time will tell, but that's the only guidance I can give you.

Tanya Jakusconek, Analyst

Okay. That's appreciated. Looking ahead to Q3 and Q4, can we assume that the 2,000-ounce Stillwater will normalize? Is it reasonable to expect that Q4 will show better performance on a GEO basis compared to Q3?

Sandip Rana, Chief Financial Officer

Historically, Q4 has been a strong quarter for us. For Q3, the one part that we're not aware of yet is the Vale debenture payment that will get announced on September 30. So obviously, we've made accruals for our royalty there. But if the dividend that Vale is paying comes in higher, we would make that adjustment in Q3. So all things being equal, yes, Q4 will likely be a little stronger than Q3, but Q3 does have that Vale adjustment, you accrual that, that will come through.

Tanya Jakusconek, Analyst

Okay, that's helpful. I would like to revisit the M&A environment and gain clarification on the medium-sized deal opportunities mentioned. How do you define a medium-sized deal? Are we still looking at the two range, or have you adjusted what you consider medium-sized?

Eaun Gray, Senior Vice President, Business Development

Tanya, it's Eaun. I think you've bought it. That's, I think, a fair characterization of what we think of as medium.

Tanya Jakusconek, Analyst

That 100...

Eaun Gray, Senior Vice President, Business Development

Yes.

Tanya Jakusconek, Analyst

Eaun, when considering these deals, which mostly involve gold companies developing assets, should I view the new approach to deals as involving a structure that includes a stream, an equity component, and a debt component? At the beginning of the year, I noticed transactions typically included just a stream and equity, but now it seems we're also incorporating debt. Is this the correct way to think about future transactions?

Paul Brink, President and CEO

So Tanya, Paul. The way we're approaching our business is that royalties and streams are excellent instruments, and we aim to utilize as much of them as possible because we appreciate the flexibility they provide. Additionally, another crucial aspect of our business that we excel at is selecting the right assets. It involves conducting due diligence and identifying which assets are likely to perform better over time. As the market becomes more competitive, we believe in focusing on the assets we prefer the most. It's also important to acknowledge that, in the current market, accessing other capital structure elements can be challenging for many. If we can achieve our main goal of securing that stream and royalty while assisting with their overall financing, that’s the strategy we're adopting. Ultimately, the key is to choose the right asset and be adaptable in how we provide the financing.

Tanya Jakusconek, Analyst

As you consider this, I've been surprised by the significant royalty transactions taking place recently. I'm eager to know if you see any other substantial royalty portfolios that we might not know about or if there are smaller royalty portfolios that you're exploring.

Eaun Gray, Senior Vice President, Business Development

Tony, it's Eaun again. We do see various ongoing opportunities with existing royalties. That is one aspect, but where we are focusing much of our time is on collaborating with developers.

Tanya Jakusconek, Analyst

Okay. So the big core transactions, there were very few of those left outstanding.

Eaun Gray, Senior Vice President, Business Development

I wouldn't say there's a large number, but there are royalties like that that exists, and they trade from time to time.

Operator, Operator

Your next question from John Tumazos with John Tumazos Very Independent Research.

John Tumazos, Analyst

Regarding the Brazilian transaction, production is slated to begin in two years with a new operator who has extensive experience in numerous campaigns. Generally, junior and emerging companies tend to have less management depth, which often makes fundraising more difficult for them, though this isn’t the case here. Can you elaborate on your considerations for financing a new mine by a start-up company? Specifically, how far out do you plan, and how many executives are necessary to successfully develop multiple mines? Emerging companies often can't afford the comprehensive management teams seen in large companies like First Quantum due to tighter budgets, which complicates assessing their management capabilities.

Paul Brink, President and CEO

John, you've highlighted a critical issue in the industry, which frequently faces a lack of experienced professionals, especially when it comes to executing building projects. We focus significantly on assessing the capability of teams to deliver, particularly during the construction phase. While we don't quantify the exact number of skilled individuals needed, we pay close attention to their execution strategies and whether we believe they can follow through on those plans. Thankfully, we have experienced solid growth over the years, so we're not solely focused on immediate expansion. This gives us flexibility regarding the timing of project deals. When evaluating the stages of project development, it’s crucial for us to consider our worst-case scenario. We need to ensure that we can recoup our investment in the event of a downside, while also positioning ourselves for potential upside. Therefore, projects must reach a level of development that instills sufficient confidence that they will progress to becoming operational mines with viable economics and adequate ore to assure us we can get our investment back while still offering the potential for gains. These criteria delineate what we consider when allocating significant capital and the decisions we're able to make.

John Tumazos, Analyst

If we were to contrast Franco and Nevada, say, to Cisco Gold Royalties or Sandstorm, those companies have invested a bigger slug of their capital in earlier-stage companies. You obviously have a much lower valuation. So maybe staying with the majors is really good for the valuation of your stock.

Paul Brink, President and CEO

Yes. Rather than thinking of it that way, we always hold ourselves to the belief that a significant part of the company's premium is derived from two main aspects. One is the built-in optionality, a lot of which comes from the extensive royalty portfolio that we possess. The other aspect is our track record. No matter the circumstances, if we can show shareholders that we can make informed decisions and ultimately deliver good returns on their investment, this contributes to our premium. In my view, these are the two key elements that are essential for the company to maintain its valuation.

John Tumazos, Analyst

Do you think you'll be investing in more projects that are 2 years or 3 years from production because that's partly the point where the companies need to write the checks, and it's harder for them to raise money in the tough markets before production?

Paul Brink, President and CEO

I believe there is a strong possibility of this happening now, for all the reasons you've mentioned. It aligns with the current market situation. These appear to be the companies that require capital the most, so I am optimistic that we can invest more in that sector.

Operator, Operator

We'll take our next question from Adam Josephson with KeyBanc.

Adam Josephson, Analyst

Eaun, you mentioned in response to a previous question that more of the streams and royalties that you're looking at are on precious metals mines rather than on base metals. Can you just go into more detail about why you think that's the case?

Eaun Gray, Senior Vice President, Business Development

Sure. I would say, first off, it's probably somewhat symptomatic of the capital markets. And then also, I think on the precious side, you do have a larger number of projects generally of the size that we've spoken about. Also, base metals prices up until quite recently have been quite elevated. So I think that has left a number of balance sheets quite strong.

Adam Josephson, Analyst

With that in mind, especially regarding the latter point, do you anticipate any changes in the foreseeable future? As the global economy weakens, base metals prices have significantly declined in many instances. How long do you think it would take for that trend to continue, and when might we see a shift back towards base metals mines?

Eaun Gray, Senior Vice President, Business Development

Certainly, this is a cyclical industry and the pendulum can swing fairly quickly, and we've seen that in the past. At the moment, it hasn't shifted to a major degree, but certainly could move relatively quickly.

Operator, Operator

It appears there are no further questions on the phone line. I will now turn the Q&A session over to Bonavie Tek, who will take questions from the webcast.

Bonavie Tek, Vice President, Finance

Thank you, Christina. We do have one question from Diego regarding Noster Capital Management. Is your long-term target still to generate less than 20% of revenue from energy assets?

Paul Brink, President and CEO

Our overall goal is to be the preferred gold stock, which requires us to maintain a high proportion of gold and precious metals in our portfolio. Our strategy remains the same, recognizing that markets are cyclical and opportunities arise at different times. When valuable assets become available, we want to be in a position to acquire them. Therefore, we will refrain from specifying a particular target figure to retain maximum flexibility for when attractive precious or diversified assets come on the market. We aim to manage the portfolio so that a significant portion shifts towards precious metals over time to ensure our stock operates effectively as a gold stock. Currently, we are in a favorable market; energy prices are performing well and constitute a larger share of our revenues. We perceive this situation similarly to your perspective—local prices for various commodities can become self-correcting. Presently, oil prices are relatively low, and while equity markets are underperforming, this provides good pricing opportunities in the gold sector. I believe we have solid prospects ahead, and our next transactions will likely focus on precious metals as we strengthen that aspect of our business.

Bonavie Tek, Vice President, Finance

Thank you, Paul, and then thank you, Diego, for your question. There are no further questions from the webcast. This concludes our second quarter 2022 results conference call and webcast. We expect to release our third quarter 2022 results before market opens on November 7, with the conference call also held that morning. Thank you for your interest in Franco-Nevada.