FNV 0001558370-20-009431 6-K as filed: Aug 5, 2020

Exhibit 99.1

NEWS RELEASE

Toronto, August 5, 2020

(in U.S. dollars unless otherwise noted)

Franco-Nevada Reports Q2 Results

Assets returning to normal operations

Franco-Nevada’s diversified portfolio performed well despite the impact of COVID-19 during the quarter. “We recognise the efforts of our operators and their related communities during this difficult period”, stated Paul Brink, CEO. “Of our original 56 cash generating mining assets, 15 experienced some form of temporary curtailment in Q2. All except Golden Highway have since resumed operations. The return to normal operations and higher gold prices makes us optimistic about the second half. In addition, we see the potential for longer-term organic growth from our over 240 exploration and development royalties due to increased capital available to the gold sector. Our energy assets should benefit now that oil & gas prices have stabilized since the lows experienced in Q2. Franco-Nevada is debt free, has a growing cash balance and expects good growth in our gold equivalent ounces over the next few years.”

Q2/2020 Financial Highlights

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104,330 Gold Equivalent Ounces¹ (“GEOs”) sold

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$195.4 million in revenue

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$94.4 million of Net Income, or $0.50 per share

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$91.8 million of Adjusted Net Income², or $0.48 per share

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$27.0 million in Cash Costs³, or $259 per GEO sold

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$158.1 million of Adjusted EBITDA⁴, or $0.83 per share


Revenue and GEO Sales by Asset Categories
	Q2/2020			Q2/2019
	GEO Sales	Revenue		GEO Sales	Revenue
	#	(in millions)		#	(in millions)
Gold	79,758	$	136.6	80,606	$	105.9
Silver	11,630		20.2	12,278		16.6
PGMs	11,367		21.4	10,540		14.7
Other Mining Assets	1,575		2.6	4,350		5.7
Mining	104,330	$	180.8	107,774	$	142.9
Energy	—		14.6	—		27.6
	104,330	$	195.4	107,774	$	170.5

For Q2/2020, revenue was sourced 92.5% from gold and gold equivalents (69.9% gold, 10.3% silver, 11.0% PGM and 1.3% other mining assets) and 7.5% from energy (oil, gas and NGLs). The focus of the portfolio is on precious metals (gold, silver and PGM) with a target of no more than 20% in revenue from energy. Geographically, revenue was sourced 82.3% from the Americas (41.1% Latin America, 22.9% U.S. and 18.3% Canada).

Corporate Updates

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Alpala Royalty Interest: On May 11, 2020, Franco-Nevada agreed, subject to due diligence, to acquire a 1% NSR with reference to all minerals produced from the Alpala copper-gold-silver project in northern Ecuador for $100 million.

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At-the-Market Equity Program (“ATM Program”): In Q2/2020, the Company issued 474,900 shares under its ATM Program for net proceeds of $66.8 million. The ATM Program was established on May 11, 2020 permitting the Company to issue up to an aggregate of $300 million worth of common shares.

2020 Guidance

After withdrawing guidance for the year on April 7, 2020 due to uncertainties related to the COVID-19 pandemic, the Company is now issuing new guidance. Franco-Nevada expects attributable royalty and stream sales to total 475,000 to 505,000 GEOs from its mining assets and revenue of $60 to $75 million from its energy assets in 2020. For this guidance, silver, platinum and palladium metals have been converted to GEOs using assumed commodity prices of $1,800/oz Au, $20.00/oz Ag, $900/oz Pt and $2,200/oz Pd. The WTI oil price and Henry Hub natural gas price are assumed to average $40 per barrel and $2.00 per mcf, respectively. The 2020 guidance is based on public forecasts and other disclosure by the third-party owners and operators of our assets or our assessment thereof.

COVID-19 Updates

Franco-Nevada supports measures to address the COVID-19 pandemic. All of our employees continue to work remotely and there are no known cases in the Company. The Company is closely monitoring the impact of the COVID-19 pandemic on its portfolio of assets.

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Gold and Gold Equivalent Mining Assets: Franco-Nevada has a diversified portfolio that originally included 56 producing assets consisting of four larger cash-flowing assets, Antamina, Antapaccay, Candelaria and Cobre Panama and 52 smaller cash-flowing assets. Operations at Cobre Panama and Antamina were temporarily suspended in Q1/2020 but have since restarted. 15 of the cash-flowing assets experienced temporarily reduced or curtailed production. All except Golden Highway have since resumed operations. With the assets from Golden Highway currently in temporary suspension, our total producing mining assets have reduced from the original 56 at the beginning of Q2/2020 to 53 at the end Q2/2020.

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Energy Assets: Recent geopolitical and market factors impacting global energy markets (including those related to the COVID-19 pandemic) have contributed to a significant decrease in the price of oil and gas. Reduced demand and a lack of available storage contributed to oil prices and future contracts reaching historical lows in April 2020. Prices have since rebounded from the lows.

Q2/2020 Portfolio Updates

Gold Equivalent Ounces Sold: GEOs sold for the quarter were 104,330, a decrease of 3.2% from the 107,774 sold in Q2/2019. Lower contributions from Antapaccay, Goldstrike and Sabodala were partly offset by higher contributions from Cobre Panama and Hemlo.

Latin America:

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Cobre Panama (gold and silver stream) – On April 7, 2020, First Quantum announced that Cobre Panama was placed on care and maintenance as the Ministry of Health of the Republic of Panama (“MINSA”) ordered the temporary suspension of labor activities at the mine due to COVID-19. On July 7, 2020, First Quantum announced that it had received notice from MINSA lifting the temporary suspension and it is implementing a reopening plan. The operation is expected to ramp up to full production by mid-August, depending on successful implementation of the reopening plan. Franco-Nevada sold 10,344 GEOs from the asset in Q2/2020.

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Candelaria (gold and silver stream) – Franco-Nevada sold 15,463 GEOs from the mine in Q2/2020. On July 29, 2020, Lundin Mining reported that copper production at the Candelaria mine was higher quarter-over-quarter due to higher copper head grades and recoveries as more higher grade open-pit and underground ore was mined. However, throughput was lower than planned due to ore hardness, operational issues and an unplanned maintenance stop. In addition, COVID-19 has further delayed the Candelaria Mill Optimization Project and installation of the final ball mill motor is now planned for January 2021. In Lundin Mining’s revised guidance, Candelaria is expecting annual production of 145,000 – 155,000 tonnes of copper and 80,000 – 90,000 ounces of gold, compared to original guidance of 160,000 – 175,000 tonnes of copper and 90,000 – 100,000 ounces of gold.

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Antapaccay (gold and silver stream) – Antapaccay production was lower quarter-over-quarter due to anticipated lower grades based on the life of mine plan. GEOs delivered and sold were lower due to concentrate shipment delays in April and May as a result of the COVID-19 pandemic.

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Antamina (22.5% silver stream) – GEOs sold from Antamina were lower quarter-over-quarter due to COVID-19 related temporary suspension of mine operations that was announced on April 13, 2020. On May 27, 2020, Teck announced that Antamina had resumed operations with plans to start operating at 80% capacity with a gradual ramp up to full production expected in the third quarter of 2020.

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Guadalupe-Palmarejo (50% gold stream) – Sales from Guadalupe-Palmarejo were slightly lower quarter-over-quarter. As a result of COVID-19, operations at the mine were suspended on April 7, 2020. On May 13, 2020, Coeur Mining announced that it had taken steps to restart active mining, processing and exploration activities at the Palmarejo gold-silver complex.

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Cerro Moro (2% royalty) – Due to COVID-19, operations at Cerro Moro were temporarily suspended on March 20, 2020 but restarted on April 3, 2020 following the Argentine Government declaring mining an essential service; however, ongoing provincial restrictions over interprovincial travel have temporarily extended the length of the

operational ramp-up. Following the ramp-up, Cerro Moro's plant is expected to return to its optimized 1,110 tpd throughput.

U.S.:

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Stillwater (5% royalty) – Stillwater benefited from strong palladium prices during the quarter. On March 23, 2020, Sibanye-Stillwater announced the deferral of non-essential growth capital expenditures at the mine in response to COVID-19, which may impact the development schedule of the Blitz project.

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South Arturo (4-9% royalty) – El Nino mine production exceeded the operator’s expectations during the second quarter despite a planned shutdown of the Goldstrike roaster which resulted in minimal ore processing during the month of June. 4,764 ounces of gold were produced at South Arturo during the quarter prior to the shutdown.

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Castle Mountain (2.65% royalty) – Phase 1 operation targeted by Equinox to start in Q3/2020 anticipates production of 45,000 ounces per year for three years. Phase 1 construction was more than 75% complete by May 2020. Feasibility and permitting for Phase 2 is underway and is expected to be completed by late 2020. Annual average production of 200,000 ounces is expected for Phase 2.

Canada:

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Detour Lake (2% royalty) – Production from the Detour Lake mine totaled 131,992 ounces in Q2/2020 despite disruptions caused by COVID-19. Kirkland Lake Gold re-issued guidance on June 30, 2020, with annual production of 520,000 – 540,000 ounces of gold in 2020 expected from Detour, unchanged from its original guidance in February 2020.

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Kirkland Lake (1.5-5.5% royalty & 20% NPI) – Kirkland Lake Gold reported that workers at Macassa began to be recalled starting in early May after the mine transitioned to reduced operations due to COVID-19 around the end of March. Exploration drilling and work on key projects resumed early in Q2/2020. Kirkland Lake reported that exploration results at Macassa were encouraging including the identification of a new, large corridor of high-grade mineralization in close proximity to the #4 shaft, currently under development, and also the continued expansion of the South Mine Complex. In Kirkland Lake’s re-issued guidance on June 30, 2020, Macassa is expecting annual production of 210,000 – 220,000 ounces of gold in 2020, compared to original guidance of 240,000 – 250,000 ounces in its original guidance in February 2020.

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Hemlo (3% royalty & 50% NPI) – Royalties from Hemlo increased quarter-over-quarter. The 50% NPI at Hemlo increased significantly year-over-year as a result of an increase in the gold price. Barrick Gold reported that Q2/2020 production from Hemlo totaled 54,000 ounces.

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Golden Highway (Holt, Holloway and Taylor mines) – Kirkland Lake Gold announced that Golden Highway operations were placed on temporary suspension as part of its COVID-19 protocols effective April 2, 2020 with production for Q2/2020 totaling 807 ounces. Golden Highway will remain on temporary suspension while Kirkland Lake continues to assess options for the future of the assets. Kirkland Lake’s June 30, 2020 re-issued guidance assumes no production from Golden Highway in the second half of the year.

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Canadian Malartic (1.5% royalty) – Canadian Malartic production in Q2/2020 exceeded its production plan despite the government-mandated temporary suspension of operations between March 24, 2020 to April 15, 2020 due to COVID-19.

Rest of World:

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MWS (gold stream) – Due to COVID-19, operations at MWS were suspended on March 26, 2020. On April 15, 2020, AngloGold Ashanti announced it had been granted permission for a limited restart, with a third of its usual workforce.

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Sabodala (gold stream) – Teranga Gold announced on May 26, 2020 that Sabodala mine operations continued uninterrupted during the COVID-19 pandemic. Gold shipment logistics were a challenge in mid-March, however regular shipments to refineries in Europe have since resumed in early April.

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Tasiast (2% royalty) – Kinross Gold reported on July 29, 2020 that the Tasiast 24k project continues to advance and remains on schedule to increase throughput capacity to 21,000 tonnes per day by the end of 2021, and to 24,000 tonnes per day by mid-2023. The project team continues to explore measures to mitigate potential impacts on the global movement of people and supplies caused by COVID-19. However, by late June, the company reinstated more regular rotations of expatriate staff in Mauritania, which has improved the situation. Kinross also reached an agreement with the Government of Mauritania to resolve outstanding matters between the parties. The agreement will provide Kinross with a 30 year license for Tasiast Sud with expedited permitting.

Energy: Revenue from the energy assets decreased to $14.6 million in Q2/2020 compared to $27.6 million in Q2/2019. Revenues were negatively impacted by lower realized commodity prices and lower volumes associated with a reduction in drilling by operators in the SCOOP/STACK, and negative revenue from Weyburn as operating and capital costs exceeded revenue. The overall decrease for the energy assets was partially offset by revenue from new investments in the Marcellus.

U.S.:

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Marcellus (1% royalty) – The royalty, acquired in Q3/2019 from Range Resources, contributed $4.9 million to revenue in Q2/2020. The asset will benefit from its first full year of revenue in 2020.

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SCOOP/STACK (various royalty rates) – Royalties from SCOOP/STACK decreased quarter-over-quarter due to lower realized commodity prices and lower volumes through reduced drilling by the operators on royalty lands. In Q2/2020, Franco-Nevada recorded capital contributions of $2.5 million to the Royalty Acquisition Venture. Franco-Nevada has a remaining commitment of $124.5 million to be funded in future periods. The pace of acquisition in the Royalty Acquisition Venture has been slowed with a focus on acquiring acreage at lower prices. The anticipated range of capital contributions for H2/2020 is expected to be between $10 million to $20 million.

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Permian Basin (various royalty rates) – Revenue from Franco-Nevada’s interests in the Permian Basin decreased quarter-over-quarter due to lower drilling activity on royalty lands and lower realized prices.

Canada:

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Weyburn (NRI, ORR, WI) – Revenue from Weyburn was negative for the quarter due to accounting treatment for the NRI. While our ORR and WI royalties are accounted for on a gross basis, our NRI is recorded on net basis, after deduction of costs. Operating and capital costs in the quarter exceeded sales due to lower realized prices and higher capital spending.

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Orion (4% GORR) – Revenue from Orion decreased quarter-over-quarter due to lower production and lower realized prices. Production volumes have since returned to more normal levels.

Dividend Declaration

Franco-Nevada is pleased to announce that its Board of Directors has declared a quarterly dividend of $0.26 per share. The dividend will be paid on September 24, 2020 to shareholders of record on September 10, 2020 (the “Record Date”). The Canadian dollar equivalent is to be determined based on the daily average rate posted by the Bank of Canada on the Record Date. Under Canadian tax legislation, Canadian resident individuals who receive “eligible dividends” are entitled to an enhanced gross-up and dividend tax credit on such dividends.

The Company has a Dividend Reinvestment Plan (the “DRIP”). Participation in the DRIP is optional. The Company will issue additional common shares through treasury at a 3% discount to the Average Market Price, as defined in the DRIP. However, the Company may, from time to time, in its discretion, change or eliminate the discount applicable to treasury acquisitions or direct that such common shares be purchased in market acquisitions at the prevailing market price, any of which would be publicly announced. The DRIP and enrollment forms are available on the Company’s website at www.franco-nevada.com. Canadian and U.S. registered shareholders may also enroll in the DRIP online through the plan agent’s self-service web portal at www.investorcentre.com/franco-nevada. Canadian and U.S. beneficial shareholders should contact their financial intermediary to arrange enrollment. Non-Canadian and non-U.S. shareholders may potentially participate in the DRIP, subject to the satisfaction of certain conditions. Non-Canadian and non-U.S. shareholders should contact the Company to determine whether they satisfy the necessary conditions to participate in the DRIP.

This press release is not an offer to sell or a solicitation of an offer of securities. A registration statement relating to the DRIP has been filed with the U.S. Securities and Exchange Commission and may be obtained under the Company’s profile on the U.S. Securities and Exchange Commission’s website at www.sec.gov.

Shareholder Information

The complete Consolidated Interim 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.

Management will host a conference call tomorrow, Thursday, August 6, 2020 at 10:00 a.m. Eastern Time to review Franco-Nevada’s Q2/2020 results. Interested investors are invited to participate as follows:

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Via Conference Call: Toll-Free: (888) 390-0546; International: (416) 764-8688

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Conference Call Replay until August 13, 2020: Toll-Free (888) 390-0541; International (416) 764-8677; Code 213924 #

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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 streaming 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:


Sandip Rana
Chief Financial Officer
(416) 306-6303
info@franco-nevada.com

Forward-Looking Statements

This press release 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, audits being conducted by the Canada Revenue Agency, the expected exposure for current and future assessments and available remedies, the remedies relating to and consequences of the ruling of the Supreme Court of Panama in relation to the Cobre Panama project, the aggregate value of Common Shares which may be issued pursuant to the ATM Program, and the Company’s expected use of the net proceeds of the ATM Program, if any, and the acquisition of the SolGold royalty interest. In addition, statements (including data in tables) relating to reserves and resources and gold equivalent ounces (“GEOs”) 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 statement, including, without limitation: the price at which Common Shares are sold in the ATM program and the aggregate net proceeds received by the Company as a result of the ATM program; 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 and gas); fluctuations in the value of the Canadian and Australian dollar, 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; access to sufficient pipeline capacity; 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; the impact of the COVID-19 (coronavirus) pandemic; and the integration of acquired assets. The forward-looking statements contained in this press release 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; risks related to the completion of the acquisition of the SolGold royalty interest; the expected application of tax laws and regulations by taxation authorities; the expected assessment and outcome of any audit by any taxation authority; 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; 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. In addition, there can be no assurance as to the outcome of the ongoing audit by the CRA or the Company’s exposure as a result thereof. 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 press release 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.

NON-IFRS MEASURES: Cash Costs, Adjusted EBITDA, and Adjusted Net Income 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 see below or the Company’s current MD&A disclosure found on the Company’s website, on SEDAR and on EDGAR. Comparative information has been recalculated to conform to current presentation.

GEOs include production from our Mining assets and do not include Energy 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 mining commodities are converted to GEOs by dividing associated revenue, which includes settlement adjustments, by the relevant gold price. The 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 price for the month, quarter, or year in which the mining commodity was produced or sold. For Q2/2020, the average commodity prices were as follows: $1,711 gold (Q2/2019 - $1,310), $16.38 silver (Q2/2019 - $14.89), $790 platinum (Q2/2019 - $842) and $1,965 palladium (Q2/2019 - $1,388).

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”): impairment charges related to royalty, stream and working interests and investments; gains/losses on the sale of royalty, stream and working interests and investments; foreign exchange gains/losses and other income/expenses; unusual non-recurring items; and the impact of income taxes on these items.

Cash Costs attributable to GEOs sold and Cash Costs per GEO sold are non-IFRS financial measures. Cash Costs attributable to GEOs sold is calculated by starting with total costs of sales and excluding depletion and depreciation, costs not attributable to GEO sales such as our Energy operating costs, and other non-cash costs of sales such as costs related to our prepaid gold purchase agreement. Cash Costs is then divided by GEOs sold, excluding prepaid ounces, to arrive at Cash Costs per GEO sold.

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 and finance income; depletion and depreciation; non-cash costs of sales; impairment charges related to royalty, stream and working interests and investments; gains/losses on the sale of royalty, stream and working interests and investments; foreign exchange gains/losses and other income/expenses; and unusual non-recurring items.

Reconciliation to IFRS measures:


	For the three months ended				For the six months ended
	June 30,				June 30,
(expressed in millions, except per GEO amounts)	2020		2019		2020		2019
Total costs of sales	$	80.3	$	86.3	$	188.3	$	179.6
Depletion and depreciation		(52.3)		(58.9)		(116.7)		(119.8)
Energy operating costs		(1.0)		(1.8)		(3.1)		(3.2)
Cash Costs attributable to GEOs sold	$	27.0	$	25.6	$	68.5	$	56.6
GEOs, excluding prepaid ounces		104,330		107,774		239,271		229,823
Cash Costs per GEO sold	$	259	$	238	$	286	$	246


	For the three months ended				For the six months ended
	June 30,				June 30,
(expressed in millions, except per share amounts)	2020		2019		2020		2019
Net Income (loss)	$	94.4	$	64.0	$	(4.4)	$	129.2
Income tax expense (recovery)		11.5		13.7		(33.4)		26.7
Finance expenses		0.8		2.5		1.9		5.0
Finance income		(1.0)		(1.2)		(1.9)		(1.9)
Depletion and depreciation		52.3		58.9		116.7		119.8
Impairment of royalty, stream and working interests		—		—		271.7		—
Foreign exchange (gains)/losses and other (income)/expenses		0.1		—		0.2		—
Adjusted EBITDA	$	158.1	$	137.9	$	350.8	$	278.8
Basic weighted average shares outstanding		190.2		187.2		189.6		187.1
Adjusted EBITDA per share	$	0.83	$	0.74	$	1.85	$	1.49


	For the three months ended				For the six months ended
	June 30,				June 30,
(expressed in millions, except per share amounts)	2020		2019		2020		2019
Net Income (loss)	$	94.4	$	64.0	$	(4.4)	$	129.2
Impairment of royalty, stream and working interests		—		—		271.7		—
Foreign exchange (gains)/losses and other (income)/expenses		0.1		—		0.2		—
Tax effect of adjustments		(2.7)		—		(66.5)		—
Adjusted Net Income	$	91.8	$	64.0	$	201.0	$	129.2
Basic weighted average shares outstanding		190.2		187.2		189.6		187.1
Adjusted Net Income per share	$	0.48	$	0.34	$	1.06	$	0.69

FRANCO-NEVADA CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(unaudited, in millions of U.S. dollars)


	At June 30,		At December 31,
	2020		2019
ASSETS
Cash and cash equivalents (Note 4)	$	378.5	$	132.1
Receivables		78.4		97.8
Loan receivable (Note 5)		15.0		—
Prepaid expenses and other (Note 6)		43.8		48.8
Current assets	$	515.7	$	278.7

Royalty, stream and working interests, net (Note 7)	$	4,423.8	$	4,797.8
Investments and loan receivable (Note 5)		179.9		183.2
Deferred income tax assets		54.0		6.8
Other assets (Note 8)		8.8		14.1
Total assets	$	5,182.2	$	5,280.6

LIABILITIES
Accounts payable and accrued liabilities	$	35.3	$	41.8
Current income tax liabilities		2.8		11.6
Current liabilities	$	38.1	$	53.4

Debt (Note 9)	$	—	$	80.0
Deferred income tax liabilities		69.4		82.4
Other liabilities		4.3		2.6
Total liabilities	$	111.8	$	218.4

SHAREHOLDERS’ EQUITY (Note 15)
Share capital	$	5,531.9	$	5,390.7
Contributed surplus		15.1		14.2
Deficit		(265.8)		(164.4)
Accumulated other comprehensive loss		(210.8)		(178.3)
Total shareholders’ equity	$	5,070.4	$	5,062.2
Total liabilities and shareholders’ equity	$	5,182.2	$	5,280.6


Contingencies (Note 19)

The accompanying notes are an integral part of these consolidated financial statements and can be found in our Q2/2020 Report available on our website

FRANCO-NEVADA CORPORATION

CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME

(unaudited, in millions of U.S. dollars and shares, except per share amounts)


	For the three months ended				For the six months ended
	June 30,				June 30,
	2020		2019		2020		2019
Revenue (Note 10)	$	195.4	$	170.5	$	435.9	$	350.3

Costs of sales
Costs of sales (Note 11)	$	28.0	$	27.4	$	71.6	$	59.8
Depletion and depreciation		52.3		58.9		116.7		119.8
Total costs of sales	$	80.3	$	86.3	$	188.3	$	179.6
Gross profit	$	115.1	$	84.2	$	247.6	$	170.7

Other operating expenses (income)
Impairment of royalty, stream and working interests (Note 7)	$	—	$	—	$	271.7	$	—
General and administrative expenses		11.7		5.6		17.9		12.5
Gain on sale of gold bullion		(2.4)		(0.4)		(4.4)		(0.8)
Total other operating expenses	$	9.3	$	5.2	$	285.2	$	11.7
Operating income (loss)	$	105.8	$	79.0	$	(37.6)	$	159.0
Foreign exchange gain (loss) and other income (expenses)	$	(0.1)	$	—	$	(0.2)	$	—
Income (loss) before finance items and income taxes	$	105.7	$	79.0	$	(37.8)	$	159.0

Finance items (Note 13)
Finance income	$	1.0	$	1.2	$	1.9	$	1.9
Finance expenses		(0.8)		(2.5)		(1.9)		(5.0)
Net income (loss) before income taxes	$	105.9	$	77.7	$	(37.8)	$	155.9

Income tax expense (recovery) (Note 14)		11.5		13.7		(33.4)		26.7
Net income (loss)	$	94.4	$	64.0	$	(4.4)	$	129.2

Other comprehensive income (loss)

Items that may be reclassified subsequently to profit and loss:
Currency translation adjustment	$	29.4	$	14.1	$	(34.2)	$	28.1

Items that will not be reclassified subsequently to profit and loss:
Gain on changes in the fair value of equity investments at fair
value through other comprehensive income (loss) ("FVTOCI"),
net of income tax (Note 5)		37.0		24.8		1.7		47.7
Other comprehensive income (loss)	$	66.4	$	38.9	$	(32.5)	$	75.8

Comprehensive income (loss)	$	160.8	$	102.9	$	(36.9)	$	205.0

Earnings (loss) per share (Note 16)
Basic	$	0.50	$	0.34	$	(0.02)	$	0.69
Diluted	$	0.50	$	0.34	$	(0.02)	$	0.69
Weighted average number of shares outstanding (Note 16)
Basic		190.2		187.2		189.6		187.1
Diluted		190.6		187.5		189.6		187.4

The accompanying notes are an integral part of these consolidated financial statements and can be found in our Q2/2020 Report available on our website

FRANCO-NEVADA CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in millions of U.S. dollars)


	For the six months ended
	June 30,
	2020		2019
Cash flows from operating activities
Net (loss) income	$	(4.4)	$	129.2
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depletion and depreciation		116.7		119.8
Share-based payments		2.5		2.6
Impairment of royalty, stream and working interests		271.7		—
Unrealized foreign exchange loss (gain)		0.4		(0.1)
Deferred income tax (recovery) expense		(57.9)		5.3
Other non-cash items		(5.6)		(1.9)
Acquisition of gold bullion		(17.6)		(15.6)
Proceeds from sale of gold bullion		28.1		17.9
Operating cash flows before changes in non-cash working capital	$	333.9	$	257.2
Changes in non-cash working capital:
Decrease in receivables	$	19.4	$	4.7
Decrease (increase) in prepaid expenses and other		2.3		(5.4)
(Decrease) increase in current liabilities		(10.2)		6.2
Net cash provided by operating activities	$	345.4	$	262.7

Cash flows from investing activities
Acquisition of royalty, stream and working interests	$	(38.3)	$	(95.6)
Acquisition of energy well equipment		(0.2)		(0.5)
Issuance of loan receivable		(15.0)		—
Proceeds from sale of investments		—		6.3
Net cash used in investing activities	$	(53.5)	$	(89.8)

Cash flows from financing activities
Repayment of revolving credit facilities	$	—	$	(210.0)
Proceeds from draw of credit facilities		—		275.0
(Repayment) proceeds from draw of term loan		(80.0)		160.0
Proceeds from at-the-market equity offering		107.3		—
Credit facility amendment costs		—		(0.8)
Payment of dividends		(76.0)		(70.0)
Proceeds from exercise of stock options		6.0		2.5
Net cash (used in) provided by financing activities	$	(42.7)	$	156.7
Effect of exchange rate changes on cash and cash equivalents	$	(2.8)	$	(0.4)
Net change in cash and cash equivalents	$	246.4	$	329.2
Cash and cash equivalents at beginning of period	$	132.1	$	69.7
Cash and cash equivalents at end of period	$	378.5	$	398.9

Supplemental cash flow information:
Cash paid for interest expense and loan standby fees	$	1.3	$	4.4
Income taxes paid	$	33.5	$	25.1

The accompanying notes are an integral part of these consolidated financial statements and can be found in our Q2/2020 Report available on our website

Exhibit 99.2

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 August 5, 2020 and should be read in conjunction with Franco-Nevada’s unaudited condensed consolidated financial statements and related notes as at and for the three and six months ended June 30, 2020 and 2019. The unaudited condensed consolidated financial statements and this 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”) applicable to the preparation of condensed interim financial statements, including IAS 34, Interim Financial Reporting.

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 unaudited consolidated financial statements for the three and six months ended June 30, 2020 and 2019 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 on Form 6-K filed with the United States Securities and Exchange Commission on EDGAR at www.sec.gov.

Additional information related to Franco-Nevada, including our Annual Information Form and Form 40-F, are available on SEDAR at www.sedar.com, and on EDGAR at www.sec.gov, respectively. 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, please see our website at www.franco-nevada.com.

Table of Contents


3	Overview
4	Strategy
5	Highlights
7	Guidance
8	Market overview
9	Selected financial information
10	Revenue by asset
11	Review of quarterly financial performance
14	Review of year-to-date financial performance
18	Impairments of royalties, stream and working interests
19	General and administrative expenses
20	Other income and expenses
21	Summary of quarterly information
21	Balance sheet review
22	Liquidity and capital resources
25	Critical accounting estimates
26	Outstanding share data
27	Internal control over financial reporting and disclosure controls and procedures
27	Non-IFRS financial measures
30	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		Interest types		Measurement
"H1/2019"	The six-month period ended June 30, 2020	"NSR"	Net smelter return royalty	"GEO"	Gold equivalent ounces
"H1/2019"	The six-month period ended June 30, 2019	"GR"	Gross royalty	"PGM"	Platinum group metals
"Q2/2020"	The three-month period ended June 30, 2020	"ORR"	Overriding royalty	"oz"	Ounce
"Q1/2020"	The three-month period ended March 31, 2020	"GORR"	Gross overriding royalty	"oz Au"	Ounce of gold
"Q4/2019"	The three-month period ended December 31, 2019	"FH"	Freehold or lessor royalty	"oz Ag"	Ounce of silver
"Q3/2019"	The three-month period ended September 30, 2019	"NPI"	Net profits interest	"oz Pt"	Ounce of platinum
"Q2/2019"	The three-month period ended June 30, 2019	"NRI"	Net royalty interest	"oz Pd"	Ounce of palladium
		"WI"	Working interest	"LBMA"	London Bullion Market Association
Places and currencies				"bbl"	Barrel
"U.S."	United States			"boe"	Barrels of oil equivalent
"$" or "USD"	United States dollars			"WTI"	West Texas Intermediate
"C$" or "CAD"	Canadian dollars			"mcf"	Thousand cubic feet
"A$" or "AUD"	Australian dollars


2020 Second Quarter Management’s Discussion and Analysis	2

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.

Overview

Franco-Nevada is the leading gold-focused royalty and streaming company with the largest and most diversified portfolio of royalties and streams by commodity, geography, revenue type and stage of project. The portfolio is actively managed to maintain a focus on precious metals (gold, silver and PGM) and a diversity of revenue sources with a target of not more than 20% of revenue from Energy (oil, gas and NGLs).


Franco-Nevada Asset Count at August 5, 2020
	Mining	Energy	TOTAL
Producing	53	56	109
Advanced	38	—	38
Exploration	206	23	229
TOTAL	297	79	376

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 commodity price and exploration optionality while limiting exposure to many of the risks of operating companies. Since its initial public offering over twelve years ago, Franco-Nevada has increased its dividend annually and its share price has outperformed the gold price and all relevant gold equity benchmarks.

Our aspiration is to make Franco-Nevada the “go to” gold stock for the generalist investor. We believe that our emphasis on minimizing risk, paying dividends and maintaining a strong balance sheet along with high governance standards is attractive to generalist investors. In a world confronted by political volatility and financial market instability, we believe making Franco-Nevada a lower risk gold investment that pays dividends and has leverage to gold is the right strategy.


2020 Second Quarter Management’s Discussion and Analysis	3

Strategy

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 types of arrangements.

The Company does not operate mines, develop projects or conduct exploration. Franco-Nevada has a Free Cash Flow generating business with limited future capital commitments and management is focused on managing and growing its portfolio of royalties and streams. The advantages of this business model are:

●

Exposure to commodity price optionality;

●

A perpetual discovery option over large areas of geologically prospective lands;

●

No additional capital requirements other than the initial investment;

●

Limited exposure to many of the risks associated with operating companies;

●

A free cash-flow business with limited cash calls;

●

A high-margin business that can generate cash through the entire commodity cycle;

●

A scalable and diversified business in which a large number of assets can be managed with a small stable overhead; and

●

Management that focuses on forward looking 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 assets. Financial results have also typically been supplemented by acquisitions of new 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 operated by maintaining a strong balance sheet so that it can make investments during commodity cycle downturns.

Franco-Nevada manages its portfolio to maintain a focus on precious metals (gold, silver and PGM) and a diversity of revenue sources with a target of not more than 20% of revenue from Energy (oil, gas and NGLs). In the short term, we may temporarily diverge from the long-term target based on opportunities available. In Q2/2020, 92.5% of revenue was earned from gold and gold equivalents and 7.5% from Energy assets.

One of the strengths of the Franco-Nevada business model is that our business is not generally impacted when producer costs increase as long as the producer continues to operate the underlying asset. During H1/2020, production from some of our assets were impacted by temporary suspension of operations as a result of the COVID-19 pandemic. Royalty and stream payments/deliveries are based on production levels 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 operation. Profit-based royalties accounted for approximately 7.0% of total revenue in H1/2020.


2020 Second Quarter Management’s Discussion and Analysis	4

Highlights

Financial Update – Q2/2020

●

104,330 GEOs⁽¹⁾ sold in Q2/2020, a decrease of 3.2% from 107,774 GEOs sold in Q2/2019;

●

$195.4 million in revenue, an increase of 14.6% compared to $170.5 million in Q2/2019;

●

$27.0 million, or $259 per GEO sold, in Cash Costs⁽²⁾ attributable to GEO production, compared to $25.6 million, or $238 per GEO sold, in Q2/2019;

●

$158.1 million, or $0.83 per share, of Adjusted EBITDA⁽²⁾, an increase of 14.6% and 12.2%, respectively, compared to $137.9 million, or $0.74 per share, in Q2/2019;

●

80.9% in Margin⁽²⁾, compared to 80.9% in Q2/2019;

●

$94.4 million, or $0.50 per share, in net income, compared to $64.0 million, or $0.34 per share, in Q2/2019;

●

$91.8 million, or $0.48 per share in Adjusted Net Income⁽²⁾, an increase of 43.4% and 41.2%, respectively, compared to $64.0 million, or $0.34 per share, in Q2/2019;

●

$150.2 million in net cash provided by operating activities, an increase of 21.3% compared to $119.1 million in Q2/2019;

●

$378.5 million in cash and cash equivalents at June 30, 2020 with no debt

●

$1.7 billion in available capital as at June 30, 2020.

Financial Update – H1/2020

●

239,271 GEOs sold, an increase of 4.1% from 229,823 GEOs sold in H1/2019;

●

$435.9 million in revenue, an increase of 24.4% compared to $350.3 million in H1/2019;

●

$68.5 million, or $286 per GEO sold, in Cash Costs attributable to GEO production, compared to $56.6 million, or $246 per GEO sold, in H1/2019;

●

$350.8 million, or $1.85 per share, in Adjusted EBITDA, an increase of 25.8% and 24.2%, respectively, compared to $278.8 million, or $1.49 per share, in H1/2019;

●

80.5% in Margin, compared to 79.6% in H1/2019;

●

$4.4 million, or $0.02 per share, in net loss, compared to $129.2 million net income, or $0.69 per share, in H1/2019;

●

$201.0 million, or $1.06 per share, in Adjusted Net Income, an increase of 55.6% and 53.6%, respectively, compared to $129.2 million, or $0.69 per share, in H1/2019;

●

$345.4 million in net cash provided by operating activities, an increase of 29.3% compared to $262.7 million in H1/2019.

Impact of the COVID-19 Pandemic

Franco-Nevada supports measures to address the COVID-19 pandemic. All of our employees are working remotely and there are no known cases in the Company. Our business development team has developed work-arounds for various due diligence processes.

The Company is closely monitoring the impact of the COVID-19 pandemic on its portfolio of assets. We remain in close contact with many of our operators who are facing increased challenges due to COVID-19. Further details are provided below in the “Significant Portfolio Updates” section of this MD&A.

In addition, a number of geopolitical and market factors impacting global energy markets (including those related to the COVID-19 pandemic) have contributed to extreme volatility and a significant decrease in the price of oil and gas. As a result of reduced production and capital spend by the operators of the Company’s Energy assets due to lower market expectations for oil and gas prices, the Company undertook a review of the carrying value of its Energy assets at the end of the first quarter this year and recorded after-tax impairments of $207.4 million ($271.7 million pre-tax) related to its interests in the SCOOP/STACK and Weyburn. Further details are provided in the “Impairment Charges” section of this MD&A.

Franco-Nevada is financially strong, debt-free, and well-positioned to make further investments to grow its diversified portfolio of assets. At June 30, 2020, the Company had working capital of $477.6 million, including cash and cash equivalents of $378.5 million, marketable securities of $137.3 million, and credit facilities of $1.1 billion.

__________________________

GEOs include production from our Mining assets and do not include Energy 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 mining commodities are converted to GEOs by dividing associated revenue, which includes settlement adjustments, by the relevant gold price. The 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 price for the month, quarter, or year in which the mining commodity was produced or sold. For illustrative purposes, please refer to the average commodity price table on page 11 and 14 of this MD&A for indicative prices which may be used in the calculation of GEOs for the three and six months ended June 30, 2020 and 2019, respectively.

2	Cash Costs, 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 the “Non-IFRS Financial Measures” section of this MD&A.


2020 Second Quarter Management’s Discussion and Analysis	5

Significant Portfolio Updates

Additional updates related to our portfolio of assets are available in our News Release issued on August 5, 2020, available on SEDAR at www.sedar.com, and EDGAR at www.sec.gov.

As a result of the COVID-19 pandemic, temporarily reduced or curtailed production was announced by the respective operators for the following Mining assets; however, several operations have been restarted recently:

●

Cobre Panama: On April 7, 2020, First Quantum Minerals Ltd. (“First Quantum”) announced that the Ministry of Health of the Republic of Panama (“MINSA”) ordered the temporary suspension of labour activities at the mine due to COVID-19. First Quantum placed the Cobre Panama operation on care and maintenance until MINSA was satisfied that the quarantine conditions were appropriate. On July 7, 2020, First Quantum announced that it had received notice from MINSA lifting the temporary suspension and is implementing a reopening plan. The operation is expected to ramp up to full production by mid-August, depending on successful implementation of the reopening plan.

●

Antamina: On April 13, 2020, Teck Resources Limited (“Teck”) announced that the operation was being temporarily suspended to support Peruvian COVID-19 response efforts and to facilitate a change in workforce. On May 27, 2020, Teck announced that Antamina had resumed operations with plans to start operating at 80% capacity with a gradual ramp up to full production expected in the third quarter of 2020.

●

Guadalupe-Palmarejo: On April 7, 2020, Coeur Mining, Inc. (“Coeur”) announced the temporary suspension of active mining and processing activities at its Palmarejo gold-silver complex in the State of Chihuahua, Mexico in accordance with a government-mandated decree in response to COVID-19. On May 13, 2020, Coeur announced that it had taken steps to restart active mining, processing and exploration activities at its Palmaejo gold-silver complex in accordance with updated guidance from the Federal government of Mexico.

●

Detour: On March 22, 2020, Kirkland Lake Gold Ltd. (“Kirkland Lake”) transitioned the Detour Lake mine to reduced operations effective March 23, 2020. Continuing activities at the mine included mill processing of reduced feed from the open pit and stockpiled ore, management of water levels during the spring run-off and environmental management activities. On May 6, 2020, Kirkland Lake announced that it had commenced a gradual recall of its workers at Detour Lake.

●

Other Mining Assets: Other assets with temporarily reduced operations or curtailed production include Golden Highway, Kirkland Lake (Macassa), Cerro Moro, Canadian Malartic, MWS, Musselwhite, Stillwater, Timmins West, and Island Gold. All have been subsequently authorized to resume operations except for Golden Highway which remains on temporary suspension while Kirkland Lake continues to assess options for the future of the assets. With the Golden Highway assets currently in temporary suspension, our total producing mining assets have reduced from 56 at the beginning of Q2/2020 to 53 at the end Q2/2020.

With respect to the Company’s Energy assets, several operators of the Company’s Energy assets announced in Q1/2020 significant reductions in planned capital expenditures and have curtailed production due to lower market expectations for oil and gas prices, including as a result of the COVID-19 pandemic. As a result, the Company recorded after-tax impairments of $207.4 million ($271.7 million pre-tax) related to its interest in the SCOOP/STACK and Weyburn at March 31, 2020. Further details are provided in the “Impairment Charges” section of this MD&A. As of the date of this MD&A, oil and gas prices have partially rebounded from historic lows in April 2020.

Corporate Developments

Acquisition of Alpala Royalty – Northern Ecuador

On May 11, 2020, the Company entered into an agreement with SolGold plc (“SolGold”) to acquire a 1% NSR with reference to all minerals produced from the Alpala copper-gold-silver project in northern Ecuador for $100.0 million. The Alpala project is owned by Exploraciones Novomining SA, which is held 85% by SolGold and 15% by Cornerstone Capital Resource Inc. SolGold has the option to increase the size of the transaction to $150 million for a 1.5% NSR until January 11, 2021 and also has the option to buy-back 50% of the royalty for a period of time. Franco-Nevada is entitled to receive certain minimum royalty payments from 2028 and also has the option to convert the NSR to a gold NSR for a period of time once Alpala is producing. The NSR will cover the 4,979 hectare Cascabel concession. Closing of the acquisition is subject to various conditions. In May 2020, the Company provided SolGold with a bridge loan of $15 million for a period of up to 8 months.


2020 Second Quarter Management’s Discussion and Analysis	6

Acquisition of U.S. Oil & Gas Royalty Rights with Continental Resources, Inc. – SCOOP and STACK, Oklahoma, U.S.A.

Franco-Nevada recorded contributions to the Royalty Acquisition Venture of $2.5 million and $19.3 million in Q2/2020 and H1/2020, respectively (Q2/2019 and H1/2019 - $35.1 million and $86.5 million, respectively). Of this, $0.5 million was funded after quarter-end. As at June 30, 2020, the total cumulative investment in the Royalty Acquisition Venture by the Company totalled $395.5 million and Franco-Nevada has remaining commitments of up to $124.5 million to be funded in future periods. In the first half of the year, in order to account for weakness in the commodity price environment, Franco-Nevada and Continental Resources, Inc. (“Continental”) collectively agreed to reduce their capital funding commitments to the Royalty Acquisition Venture by approximately half for the 2020 fiscal year. Since that time, the pace of acquisition has been slower than anticipated and capital contributions for 2020 are now expected to total approximately $30 million to $40 million, with $19.3 million expensed in the first half of 2020. The reduced funding level will target lower prices for acquiring acreage, which will allow the Royalty Acquisition Venture to bolster the land base and provide a stronger platform for a potential future rebound in commodity prices and a resumption of development activity by Continental.

Financing

Credit Facilities

As at June 30, 2020, the Company had no amounts outstanding against its $1.0 billion unsecured revolving term credit facility (the “Corporate Revolver”). However, the Company has posted security in the form of standby letters of credit in the amount of $17.0 million (C$23.1 million) in connection with the audit by the Canada Revenue Agency (“CRA”) of its 2013–2015 taxation years. The standby letters of credit reduce the available balance under the Corporate Revolver.

On March 10, 2020, Franco-Nevada (Barbados) Corporation amended its $100.0 million unsecured revolving credit facility (the “FNBC Revolver”) to extend the term by an additional year to March 20, 2021. The amendment also provided a reduction in the applicable margins and standby fees, which depend on the Company’s leverage ratio. As at June 30, 2020, the Company had no amounts outstanding against the FNBC Revolver.

On February 14, 2020, the Company made full repayment of the $80.0 million it had outstanding at December 31, 2019 under its non-revolving credit facility (the “Corporate Term Loan”). The Corporate Term Loan is a non-revolving facility, and is therefore no longer available to draw.

At-the-Market Equity Program

In Q2/2020, the Company issued 474,900 common shares under the ATM Program at an average price per common share of $143.58. The gross proceeds from these issuances were $68.2 million, and the net proceeds were $66.8 million after deducting agent commission costs of $0.7 million and other share issuance costs of $0.7 million.

For H1/2020, the Company issued 909,900 common shares under the ATM Program as defined and the previous ATM program at an average price per common share of $125.54. The gross proceeds from these issuances were $114.2 million, and the net proceeds were $112.3 million after deducting agent commission costs of $1.1 million and other share issuance costs of $0.8 million.

Dividend Declaration

In Q2/2020, Franco-Nevada declared a quarterly dividend of $0.26 per share. The total dividend declared was $49.9 million, of which $39.8 million was paid in cash and $10.1 million was paid in common shares issued under the Company’s Dividend Reinvestment Plan (the “DRIP”). For H1/2020, dividends declared totaled $0.51 per share, or $97.0 million, of which $76.0 million was paid in cash and $21.0 million was paid in common shares under the DRIP.

Guidance

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 United States Securities and Exchange Commission on www.sec.gov.

Franco-Nevada now expects attributable royalty and stream sales to total 475,000 to 505,000 GEOs from its mining assets and revenue of $60 to $75 million from its energy assets in 2020. For this updated guidance, silver, platinum and palladium metals have been converted to GEOs using assumed commodity prices of $1,800/oz Au, $20.00/oz Ag, $900/oz Pt and $2,200/oz Pd. The WTI oil price and Henry Hub natural gas price are assumed to average $40 per barrel and $2.00 per mcf, respectively. The 2020 guidance is based on public forecasts and other disclosures by the third-party owners and operators of our assets or our assessment thereof.


2020 Second Quarter Management’s Discussion and Analysis	7

Market Overview

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 the level of interest rates, fiscal and monetary stimulus, 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 when converting non-gold commodities to GEOs. Silver, platinum, palladium and other mining commodities are converted to GEOs by dividing associated revenue, which includes settlement adjustments, by the relevant gold price. The 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 price for the month, quarter, or year in which the mining commodity was produced or sold.

Gold prices increased 30.6%, averaging $1,711/oz, compared to $1,310/oz in Q2/2019, reflecting improved sentiment toward gold as a safe haven in uncertain times. Gold prices ended Q2/2020 at $1,768/oz, approximately 9.9% higher than at the end of Q1/2020.

Silver prices averaged $16.38/oz in Q2/2020, an increase of 10.0% compared to $14.89/oz in Q2/2019. Platinum and palladium prices averaged $790/oz and $1,965/oz, respectively, in Q2/2020, compared to $842/oz and $1,388/oz, respectively, in Q2/2019, a decrease of 6.2% and an increase of 41.6%, respectively.

During the first half of the year, a number of geopolitical and market factors outside of the Company’s control (including those related to the COVID-19 pandemic) have contributed to volatility and a significant decrease in the price of oil and gas. WTI prices averaged $27.82/bbl in Q2/2020, a 53.4% decrease from Q2/2019, Edmonton Light prices averaged C$32.09/bbl in Q2/2020, down 55.7% compared to Q2/2019. Henry Hub natural gas prices averaged $1.76/mcf in Q2/2020 compared to $2.51/mcf in Q2/2019.


2020 Second Quarter Management’s Discussion and Analysis	8

Selected Financial Information


	For the three months ended						For the six months ended
(in millions, except Average Gold Price, GEOs sold,	June 30,						June 30,
Margin, per ounce amounts and per share amounts)	2020			2019			2020			2019

Statistical Measures
Average Gold Price	$	1,711		$	1,310		$	1,645		$	1,307
GEOs sold⁽¹⁾		104,330			107,774			239,271			229,823

Statement of Comprehensive Income (Loss)
Revenue	$	195.4		$	170.5		$	435.9		$	350.3
Depletion and depreciation		52.3			58.9			116.7			119.8
Costs of sales		28.0			27.4			71.6			59.8
Operating income (loss)		105.8			79.0			(37.6)			159.0
Net income (loss)		94.4			64.0			(4.4)			129.2
Basic earnings (loss) per share	$	0.50		$	0.34		$	(0.02)		$	0.69
Diluted earnings (loss) per share	$	0.50		$	0.34		$	(0.02)		$	0.69

Dividends declared per share	$	0.26		$	0.25		$	0.51		$	0.49
Dividends declared (including DRIP)	$	49.9		$	47.4		$	97.0		$	92.3
Weighted average shares outstanding		190.2			187.2			189.6			187.1

Non-IFRS Measures
Cash Costs⁽²⁾ attributable to GEOs sold	$	27.0		$	25.6		$	68.5		$	56.6
Cash Costs⁽²⁾ per GEO sold	$	259		$	238		$	286		$	246
Adjusted EBITDA⁽²⁾	$	158.1		$	137.9		$	350.8		$	278.8
Adjusted EBITDA⁽²⁾ per share	$	0.83		$	0.74		$	1.85		$	1.49
Margin⁽²⁾		80.9	%		80.9	%		80.5	%		79.6	%
Adjusted Net Income⁽²⁾	$	91.8		$	64.0		$	201.0		$	129.2
Adjusted Net Income⁽²⁾ per share	$	0.48		$	0.34		$	1.06		$	0.69

Statement of Cash Flows
Net cash provided by operating activities	$	150.2		$	119.1		$	345.4		$	262.7
Net cash used in investing activities	$	(19.0)		$	(33.5)		$	(53.5)		$	(89.8)
Net cash provided by (used in) financing activities	$	34.8		$	241.4		$	(42.7)		$	156.7


	As at		As at
	June 30,		December 31,
(expressed in millions)	2020		2019
Statement of Financial Position
Cash and cash equivalents	$	378.5	$	132.1
Total assets		5,182.2		5,280.6
Debt		—		80.0
Deferred income tax liabilities		69.4		82.4
Total shareholders’ equity		5,070.4		5,062.2
Working capital⁽³⁾		477.6		225.3

Refer to Note 1 at the bottom of page 5 of this MD&A for the methodology for calculating GEOs and, for illustrative purposes, to the average commodity price table on page 11 and 14 of this MD&A for indicative prices which may be used in the calculations of GEOs for the three and six months ended June 30, 2020 and 2019, respectively.

2	Cash costs, 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 the “Non-IFRS Financial Measures” section of this MD&A.

3	The Company defines Working Capital as current assets less current liabilities.


2020 Second Quarter Management’s Discussion and Analysis	9

Revenue by Asset

Our portfolio is well-diversified with GEOs and revenue being earned from 56 Mining assets and 56 Energy assets in various jurisdictions. The following table details revenue earned from our various royalty, stream and working interests for the three and six months ended June 30, 2020 and 2019:


		For the three months ended				For the six months ended
(expressed in millions)		June 30,				June 30,
Property	Interest and %	2020		2019		2020		2019
GOLD & GOLD EQUIVALENTS
Latin America
Cobre Panama	Stream (indexed) Gold & Silver	$	17.6	$	—	$	57.9	$	—
Candelaria	Stream 68% Gold & Silver		26.6		21.0		45.9		47.4
Antapaccay	Stream (indexed) Gold & Silver		11.6		18.6		36.1		42.0
Antamina	Stream 22.5% Silver		13.2		10.8		25.8		23.1
Guadalupe-Palmarejo	Stream 50% Gold		10.4		8.3		30.2		19.8
Other			1.0		2.2		2.1		3.6
United States
Goldstrike	NSR 2-4%, NPI 2.4-6%	$	5.2	$	8.2	$	9.7	$	12.6
Stillwater	NSR 5% PGM		13.2		8.5		22.8		17.7
Gold Quarry	NSR 7.29%		5.5		2.7		9.3		5.8
Marigold	NSR 1.75-5%, GR 0.5-4%		1.4		2.3		2.8		5.0
Bald Mountain	NSR/GR 0.875-5%		2.9		1.3		5.5		3.5
South Arturo	GR 4-9%		1.2		—		3.0		0.1
Other			2.0		1.2		3.6		2.4
Canada
Sudbury	Stream 50% PGM & Gold	$	9.5	$	7.6	$	24.1	$	18.7
Detour Lake	NSR 2%		4.7		3.9		9.3		8.0
Hemlo	NSR 3%, NPI 50%		12.8		3.5		24.4		9.7
Golden Highway	NSR 2-10%		0.3		0.9		3.0		3.0
Brucejack	NSR 1.2%		1.9		1.2		3.3		2.4
Kirkland Lake	NSR 1.5-5.5%, NPI 20%		1.2		1.1		2.7		2.4
Other			4.0		5.7		7.2		7.7
Rest of World
MWS	Stream 25%	$	9.3	$	9.3	$	18.3	$	16.2
Sabodala	Stream 6%		5.9		7.3		10.6		14.7
Karma	Stream 4.875%, Fixed to 80,625 oz		8.5		5.1		14.5		10.9
Tasiast	NSR 2%		3.5		2.5		6.5		5.2
Subika	NSR 2%		2.1		4.1		4.6		7.5
Duketon	NSR 2%		1.7		1.5		4.2		3.9
Edikan	NSR 1.5%		1.2		0.8		2.1		1.6
Other			2.4		3.3		5.3		7.0
		$	180.8	$	142.9	$	394.8	$	301.9
ENERGY
United States
SCOOP/STACK	Various Royalty Rates	$	4.8	$	6.9	$	13.4	$	12.4
Permian Basin	Various Royalty Rates		3.6		4.9		8.9		9.4
Marcellus	GORR 1%		4.9		—		10.7		—
Canada
Weyburn	NRI 11.71%, ORR 0.44%, WI 2.56%	$	(0.6)	$	10.5	$	3.6	$	17.8
Orion	GORR 4%		1.0		3.2		1.9		4.9
Other			0.9		2.1		2.6		3.9
		$	14.6	$	27.6	$	41.1	$	48.4
Revenue		$	195.4	$	170.5	$	435.9	$	350.3


2020 Second Quarter Management’s Discussion and Analysis	10

Review of Quarterly Financial Performance

The prices of precious metals, oil and gas and production from Mining and Energy 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.


								QOQ		YOY
Quarterly average prices and rates		Q2/2020		Q1/2020		Q2/2019		(Q2/2020-Q1/2020)		(Q2/2020-Q2/2019)
Gold⁽¹⁾	($/oz)	$	1,711	$	1,583	$	1,310	8.1	%	30.6	%
Silver⁽²⁾	($/oz)		16.38		16.90		14.89	(3.1)	%	10.0	%
Platinum⁽³⁾	($/oz)		790		903		842	(12.5)	%	(6.2)	%
Palladium⁽³⁾	($/oz)		1,965		2,284		1,388	(14.0)	%	41.6	%

Edmonton Light	(C$/bbl)		32.09		52.18		72.48	(38.5)	%	(55.7)	%
West Texas Intermediate	($/bbl)		27.82		45.99		59.73	(39.5)	%	(53.4)	%
Henry Hub	($/mcf)		1.76		1.87		2.51	(5.9)	%	(29.9)	%

CAD/USD exchange rate⁽⁴⁾			0.7219		0.7435		0.7476	(2.9)	%	(3.4)	%

Based on LBMA Gold Price PM Fix.

Based on LBMA Silver Price.

Based on London PM Fix.

Based on Bank of Canada daily rates.

Revenue

Revenue and GEO sales by commodity, geographical location and type of interest for the three months ended June 30, 2020 and 2019 is as follows:


	Gold Equivalent Ounces⁽¹⁾			Revenue (in millions)
For the three months ended June 30,	2020	2019	Variance	2020		2019		Variance
Commodity
Gold	79,758	80,606	(848)	$	136.6	$	105.9	$	30.7
Silver	11,630	12,278	(648)		20.2		16.6		3.6
PGM	11,367	10,540	827		21.4		14.7		6.7
Other Mining assets	1,575	4,350	(2,775)		2.6		5.7		(3.1)
Mining	104,330	107,774	(3,444)	$	180.8	$	142.9	$	37.9
Energy	—	—	—		14.6		27.6		(13.0 )
	104,330	107,774	(3,444)	$	195.4	$	170.5	$	24.9
Geography
Latin America	46,538	46,104	434	$	80.4	$	60.9	$	19.5
United States	18,509	18,642	(133)		44.7		36.0		8.7
Canada	19,147	17,479	1,668		35.7		39.7		(4.0)
Rest of World	20,136	25,549	(5,413)		34.6		33.9		0.7
	104,330	107,774	(3,444)	$	195.4	$	170.5	$	24.9
Type
Revenue-based royalties	29,138	30,471	(1,333)	$	65.1	$	56.4	$	8.7
Streams	64,141	65,742	(1,601)		112.6		88.1		24.5
Profit-based royalties	9,467	7,885	1,582		14.1		17.3		(3.2)
Other	1,584	3,676	(2,092)		3.6		8.7		(5.1)
	104,330	107,774	(3,444)	$	195.4	$	170.5	$	24.9

Refer to Note 1 at the bottom of page 5 of this MD&A for the methodology for calculating GEOs and, for illustrative purposes, to the average commodity price table above for indicative prices which may be used in the calculations of GEOs.

Revenue for Q2/2020 was $195.4 million, up 14.6% from Q2/2019, and comprised $180.8 million from Mining assets and $14.6 million from Energy assets. Mining revenue in Q2/2020 increased 26.5% benefited from strong gold prices. Energy revenue in Q2/2020 decreased 47.1% compared to the same period in 2019, due to a decrease in commodity prices which negatively impacted all energy assets, most significantly the Weyburn NRI, offset partially by the addition of the Marcellus royalty.

Mining assets contributed 92.5% of the Company’s total revenue in Q2/2020, compared to 83.8% in Q2/2019. Geographically, the Company remains heavily invested in the Americas, representing 82.3% of revenue in Q2/2020, compared to 80.1% in Q2/2019.


2020 Second Quarter Management’s Discussion and Analysis	11

GEO Sales

GEOs sold in Q2/2020 totaled 104,330 ounces, compared to 107,774 GEOs in Q2/2019.

The quarter-over-quarter decrease in GEOs sold was primarily due to the following assets:

●

Antapaccay – 6,702 GEOs sold in Q2/2020 compared to 14,228 GEOs in Q2/2019. While concentrate production at the mine was as expected in the LOM plan, concentrate shipment delays as a result of the COVID-19 pandemic impacted deliveries to Franco-Nevada.

●

Goldstrike – 3,138 GEOs sold in Q2/2020 compared to 6,396 GEOs in Q2/2019 as additional ounces were received in Q2/2019 in respect of a prior period adjustment.


2020 Second Quarter Management’s Discussion and Analysis	12

●

Sabodala – 3,426 GEOs were sold from the Sabodala stream in Q2/2020 compared to 5,625 GEOs sold in Q2/2019, due to the fixed delivery requirements being fulfilled at the end of 2019.

The above decreases were partly offset by the following assets:

●

Cobre Panama – Franco-Nevada sold 10,344 GEOs in Q2/2020, for which there were no comparatives in Q2/2019 as first deliveries were received in July 2019.

●

Hemlo – 7,699 GEOs were sold in Q2/2020, compared to 2,671 GEOs in Q2/2019 due to higher royalty payments from the NPI.

Energy Revenue

Energy assets earned revenue of $14.6 million (78% oil and 22% gas) for the quarter, a decrease of 47.1% compared to $27.6 million (90% oil and 10% gas) in Q2/2019. U.S. assets represented 91.1% of Franco-Nevada’s Energy revenue. The decrease in Energy revenue was primarily due to the following assets:

●

SCOOP/STACK – Royalties from the SCOOP/STACK contributed $4.8 million in Q2/2020 compared to $5.0 million in Q2/2019 due to lower realized commodity prices and lower volumes resulting from a reduction in drilling by operators on royalty lands.

●

Weyburn – Revenue from the Weyburn Unit during the quarter was negative, compared to $10.5 million in Q2/2019. Negative revenue in the quarter was due to accounting treatment for the NRI. While our ORR and WI royalties are accounted for on a gross basis, our NRI is recorded on net basis, after deduction of costs. The realized price from the NRI was C$22.13/boe compared to C$70.74/boe for Q2/2019.

The above decreases were partly offset by the following:

●

Marcellus – The royalty from the Marcellus, which was acquired in July 2019, contributed $4.9 million in Q2/2020.

Costs of Sales

The following table provides a breakdown of costs of sales incurred in the periods presented:


	For the three months ended June 30,
(expressed in millions)	2020		2019		Variance
Costs of stream sales	$	26.2	$	25.0	$	1.2
Mineral production taxes		0.8		0.6		0.2
Mining costs of sales	$	27.0	$	25.6	$	1.4
Energy costs of sales		1.0		1.8		(0.8)
	$	28.0	$	27.4	$	0.6

Costs of stream sales increased 4.8% from Q2/2019, reflecting an increase in costs of sales per ounce as a result of higher metal prices. Certain streams carry a cost per ounce which varies based on spot prices. The Company also received more ounces from the McCreedy West stream, which currently carries a higher cash payment per ounce relative to other streams.

Depletion and Depreciation

Depletion and depreciation expense totaled $52.3 million in Q2/2020, compared to $58.9 million in Q2/2019. The decrease was due to fewer GEOs sold in Q2/2020 compared to Q2/2019.


2020 Second Quarter Management’s Discussion and Analysis	13

Income Taxes

Income tax expense was $11.5 million in Q2/2020 (Q2/2019 – $13.7 million), comprised of a current income tax expense of $10.1 million (Q2/2019 – $11.7 million) and a deferred income tax expense of $1.4 million (Q2/2019 – $2.0 million).

The Company is undergoing an audit by the CRA of its 2012-2015 taxation years. Refer to the “Liquidity and Capital Resources – Contingencies” section of this MD&A for further details.

Net Income

Net income for Q2/2020 was $94.4 million, or $0.50 per share, compared to $64.0 million, or $0.34 per share, for the same period in 2019. Adjusted Net Income, which adjusts for foreign exchange gains and losses and other income and expenses, among other items, was $91.8 million, or $0.48 per share, compared to $64.0 million, or $0.34 per share, earned in Q2/2019.

Review of Year-to-Date Financial Performance

The prices of precious metals, oil and gas and the actual production from Mining and Energy 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		H1/2020		H1/2019		Variance
Gold⁽¹⁾	($/oz)	$	1,645	$	1,307	25.9	%
Silver⁽²⁾	($/oz)		16.65		15.23	9.3	%
Platinum⁽³⁾	($/oz)		848		833	1.8	%
Palladium⁽³⁾	($/oz)		2,128		1,435	48.3	%

Edmonton Light	(C$/bbl)		42.13		70.00	(39.8)	%
West Texas Intermediate	($/bbl)		36.91		57.32	(35.6)	%
Henry Hub	($/mcf)		1.81		2.69	(32.7)	%

CAD/USD exchange rate⁽⁴⁾			0.7326		0.7499	(2.3)	%

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 rates.


2020 Second Quarter Management’s Discussion and Analysis	14

Revenue

Revenue and GEO sales by commodity, geographical location and type of interest for the six months ended June 30, 2020 and 2019 is as follows:


	Gold Equivalent Ounces⁽¹⁾			Revenue (in millions)
For the six months ended June 30,	2020	2019	Variance	2020		2019		Variance
Commodity
Gold	185,509	168,184	17,325	$	303.6	$	219.9	$	83.7
Silver	25,512	27,576	(2,064)		42.3		36.6		5.7
PGM	25,246	25,169	77		44.0		33.8		10.2
Other Mining assets	3,004	8,894	(5,890)		4.9		11.6		(6.7)
Mining	239,271	229,823	9,448	$	394.8	$	301.9	$	92.9
Energy	—	—	—		41.1		48.4		(7.3)
	239,271	229,823	9,448	$	435.9	$	350.3	$	85.6
Geography
Latin America	120,632	103,650	16,982	$	198.0	$	135.9	$	62.1
United States	34,458	36,200	(1,742)		89.7		68.9		20.8
Canada	44,114	39,060	5,054		82.1		78.5		3.6
Rest of World	40,067	50,913	(10,846)		66.1		67.0		(0.9)
	239,271	229,823	9,448	$	435.9	$	350.3	$	85.6
Type
Revenue-based royalties	58,618	64,081	(5,463)	$	133.5	$	112.8	$	20.7
Streams	158,757	145,969	12,788		263.4		192.8		70.6
Profit-based royalties	18,738	11,808	6,930		30.3		26.9		3.4
Other	3,158	7,965	(4,807)		8.7		17.8		(9.1)
	239,271	229,823	9,448	$	435.9	$	350.3	$	85.6

1	Refer to Note 1 at the bottom of page 5 of this MD&A for the methodology for calculating GEOs and, for illustrative purposes, to the average commodity price table above for indicative prices which may be used in the calculations of GEOs.

Revenue in H1/2020 was $435.9 million, up 24.4% from H1/2019 due primarily to an increase in GEOs sold of 4.1% and higher metal prices.

Mining revenue comprised 90.6% of total revenue in H1/2020, compared to 86.2% in H1/2019. We continue to earn the majority of our revenue from the Americas, at 84.8% in H1/2020 compared to 80.9% in H1/2019.


2020 Second Quarter Management’s Discussion and Analysis	15

GEO Sales

GEOs sold in H1/2020 totaled 239,271 ounces, compared to 229,823 GEOs in H1/2019.

The year-over-year increase in GEOs sold was primarily due to the following assets:

●

Cobre Panama – Franco-Nevada sold 35,651 GEOs in H1/2020, for which there were no comparatives in H1/2019 as first deliveries were received in July 2019.

●

Hemlo – 15,382 GEOs were sold in H1/2020 compared to 7,684 GEOs in H1/2019 due to higher royalty payments from the NPI.

●

Guadalupe-Palmarejo – 18,678 GEOs were sold in H1/2020 compared to 14,992 GEOs in H1/2019 due to higher grade.

The above increases were partly offset by the following assets:

●

Antapaccay – 22,174 GEOs were sold in H1/2020 compared to 32,144 GEOs in H1/2019 due to lower head grades as expected based on the life of mine plan and concentrate shipment delays due to the COVID-19 pandemic.

●

Candelaria – 27,493 GEOs were sold in H1/2020 compared to 36,773 GEOs in H1/2019 as mill throughput and gold feed grade were lower than those in H1/2019, in part due to COVID-19 pandemic.

●

Goldstrike – 5,957 GEOs sold in H1/2020 compared to 9,773 GEOs in H1/2019. Additional ounces were received in Q2/2019 in respect of a prior period adjustment.

●

Sabodala – 6,458 GEOs sold in H1/2020 compared to 11,250 GEOs in H1/2019 due to the fixed delivery requirements being fulfilled at the end of 2019.

Energy Revenue

The Company’s Energy assets contributed revenue of $41.1 million in H1/2020 (78% oil and 22% gas), a decrease of 15.1% compared to $48.4 million in H1/2019 (91% oil and 9% gas). The Company’s U.S. Energy assets contributed 80.3% of the Company’s Energy revenue. The year-over-year decrease in Energy revenue was primarily due to the following assets:

●

Weyburn – Revenue from the Weyburn Unit in H1/2020 was $3.6 million compared to $17.8 million in H1/2019 due to lower realized prices as well as increased operating and capital expenditures. The actual realized price from the Weyburn NRI was C$34.22/boe in H1/2020 compared to C$66.62/boe in H1/2019.

The above decrease was partly offset by the following:

●

Marcellus – The royalty from the Marcellus, which was acquired in July 2019, contributed $10.7 million in H1/2020.

●

SCOOP/STACK – Royalties from the SCOOP/STACK generated $13.4 million in revenue in H1/2020 compared to $12.4 million in H1/2019 due to additional contribution from the Royalty Acquisition Venture with Continental.


2020 Second Quarter Management’s Discussion and Analysis	16

Costs of Sales

The following table provides a breakdown of costs of sales incurred in the periods presented:


	For the six months ended June 30,
(expressed in millions)	2020		2019		Variance
Costs of stream sales	$	67.0	$	55.4	$	11.6
Mineral production taxes		1.5		1.2		0.3
Mining costs of sales	$	68.5	$	56.6	$	11.9
Energy costs of sales		3.1		3.2		(0.1)
	$	71.6	$	59.8	$	11.8

Costs of stream ounces in H1/2020 increased 20.9% relative to H1/2019, reflecting an increase in stream GEOs sold of 4.1% in H1/2020 as well as higher gold prices. The Company also received more ounces from the McCreedy West stream, which currently carries a higher cash payment per ounce relative to other streams.


2020 Second Quarter Management’s Discussion and Analysis	17

Depletion and Depreciation

Depletion and depreciation expense totaled $116.7 million in H1/2020, compared to $119.8 million in H1/2019. While GEOs sold increased year-over-year, depletion expense decreased as the incremental GEOs were earned from assets carrying lower depletion rates. Depletion on a per ounce basis also decreased for certain of the Company’s assets where reserves increased year-over-year.

Impairment Charges

During Q1/2020, the Company recorded pre-tax impairments of $271.7 million, or $207.4 million after-tax, related to its interests in the SCOOP/STACK and Weyburn. Refer to the Impairments of Royalties, Stream and Working Interests section of this MD&A for details.

Income Taxes

Income tax recovery in H1/2020 totaled $33.4 million (H1/2019 –$26.7 million income tax expense), comprised of a current income tax expense of $24.5 million (H1/2019 –$21.4 million) and a deferred income tax recovery of $57.9 million (H1/2019 – $5.3 million deferred income tax expense). The deferred income tax recovery in H1/2020 was mostly related to the impairment charges recorded in the first quarter of 2020.

The Company is undergoing an audit by the CRA of its 2012-2015 taxation years. Refer to the “Liquidity and Capital Resources – Contingencies” section of this MD&A for further details.

Net Loss (Income)

Net loss in H1/2020 was $4.4 million, or $0.02 per share, compared to net income of $129.2 million, or $0.69 per share, for the same period in 2019. The decrease in net income reflects the impairment charges recorded in the first quarter of 2020. Adjusted Net Income was $201.0 million, or $1.06 per share, compared to $129.2 million, or $0.69 per share, earned in H1/2019.

Impairments of Royalties, Stream and Working Interests

Royalties, stream and working interests are reviewed for impairment if there is an indication that the carrying amount may not be recoverable. As a result of reduced production and capital spend by the operators of the Company’s Energy assets due to lower market expectations for oil and gas prices, the Company noted the presence of impairment indicators at March 31, 2020 and carried out an asset impairment analysis of its Energy assets. The Company recorded impairment charges for Q1/2020 with respect to the following CGUs:

SCOOP/STACK

The Company’s interest in the SCOOP/STACK comprises acquisitions of royalty rights through the Royalty Acquisition Venture, a jointly-owned entity with Continental, as well as two packages of royalty rights acquired in December 2016 for a price of $100.0 million, and in November 2017 for $27.6 million.

Weyburn

The Company holds a 11.71% NRI, a 0.44% ORR and a 2.56% WI in the Weyburn Unit, which is located 129km southeast of Regina, Saskatchewan. The 11.71% NRI was acquired on November 13, 2012.


2020 Second Quarter Management’s Discussion and Analysis	18

The following table summarizes the impairment losses recorded in Q1/2020 and estimated recoverable amount by CGU:


		Impairment		Recoverable
(expressed in millions)		Amount		Amount
Royalty, stream and working interests, net
SCOOP/STACK	$	207.2	$	309.2
Weyburn		60.5		162.8
Other assets
Oil well equipment	$	4.0	$	4.7
	$	271.7	$	476.7

Key assumptions and sensitivity analysis

Key assumptions and estimates used in determining the recoverable amounts of the Company’s Energy assets are related to oil prices and discount rates. The future cash flows expected from each CGU were derived from a model developed by management using cash-flows prepared by an independent reserve engineer or a third-party advisor, and expected performance based on publicly-released technical information to predict future performance. For the SCOOP/STACK CGUs, the Company’s management made assumptions of future drilling activity to reflect the reduced capital spending by operators in the current environment.

The Company’s management made assumptions of future WTI prices to estimate future revenues, based on long-term consensus price estimates obtained from a sample of independent reserve evaluators. For the Weyburn CGU, the differential to Edmonton Light prices assumption was $8.55/barrel, and the U.S. dollar to Canadian dollar foreign exchange rate assumption was $0.72. Forecasted WTI prices as at March 31, 2020 used to determine future cash flows were as follows:


											Average
											Annual
	Remainder of										Increase
	2020		2021		2022		2023		2024		Thereafter
WTI oil price (US$/barrel)	$	30.00	$	41.18	$	49.88	$	55.87	$	57.98	2	%

The future cash-flows were discounted using an after-tax discount rate which reflects specific market risk factors associated with individual characteristics of the CGU. For the SCOOP/STACK CGUs, the discount rate ranged between 5% for proved producing reserves to 12% for undeveloped contingent resources. For the Weyburn CGU, the discount rate assumed was 9.5%.

A sensitivity analysis showing the impact of a change, in isolation, in the WTI oil price and discount rate assumptions is shown below:


	Increase (Decrease) to Impairment Charges
	1% Increase		1% Decrease		10% Decrease		10% Increase
	in the		in the		in WTI Oil		in WTI Oil
	Discount Rate		Discount Rate		Price		Price
SCOOP/STACK	$	34.1	$	(39.9)	$	37.8	$	(37.3)
Weyburn, including oil well equipment		16.9		(19.1)		39.8		(39.0)
	$	51.0	$	(59.0)	$	77.6	$	(76.3)

In the second quarter 2020, oil and gas prices rebounded from April 2020. There remains a level of uncertainty surrounding oil and gas prices, and the Company determined that this did not warrant a reversal in the previously recorded impairments.

General and Administrative Expenses

The following table provides a breakdown of general and administrative expenses incurred for the periods presented:


	For the three months ended June 30,						For the six months ended June 30,
(expressed in millions)	2020		2019		Variance		2020		2019		Variance
Salaries and benefits	$	2.0	$	1.5	$	0.5	$	4.5	$	3.4	$	1.1
Professional fees		0.8		0.9		(0.1)		1.4		1.4		—
Office costs		0.1		0.1		—		0.2		0.2		—
Board of Directors' costs		5.7		1.3		4.4		5.8		2.1		3.7
Share-based compensation		1.3		1.2		0.1		2.5		2.6		(0.1)
Other		1.8		0.6		1.2		3.5		2.8		0.7
	$	11.7	$	5.6	$	6.1	$	17.9	$	12.5	$	5.4

General and administrative expenses represented 6.0% of revenue for Q2/2020 (Q2/2019 –3.3%) and 4.1% of revenue in H1/2020 (H1/2019 – 3.6%). General and administrative expenses, which include business development costs, vary depending upon the level of business development related activity and the timing of completing transactions.

Salaries and benefits increased relative to Q2/2019 and H1/2019 due to a higher headcount, and the timing of payment of certain bonuses. Board of Directors’ fees increased relative to Q2/2019 and H1/2019 due primarily to the mark-to-market of the value of the deferred share units (“DSUs”) previously granted to the directors of the Company. The Company also changed its procedures to issue the annual grants to the directors of the Company during the second quarter rather than issuing them on a quarterly basis, resulting in an increase of Board of Director costs in Q2/2020 relative to Q2/2019.


2020 Second Quarter Management’s Discussion and Analysis	19

Other Income and Expenses

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 June 30,						For the six months ended June 30,
(expressed in millions)	2020		2019		Variance		2020		2019		Variance
Foreign exchange loss	$	(0.2)	$	(0.1)	$	(0.1)	$	(0.4)	$	(0.1)	$	(0.3)
Other income		0.1		0.1		—		0.2		0.1		0.1
	$	(0.1)	$	—	$	(0.1)	$	(0.2)	$	—	$	(0.2)

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.

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 June 30,						For the six months ended June 30,
(expressed in millions)	2020		2019		Variance		2020		2019		Variance
Finance income
Interest	$	1.0	$	1.2	$	(0.2)	$	1.9	$	1.9	$	—
	$	1.0	$	1.2	$	(0.2)	$	1.9	$	1.9	$	—
Finance expenses
Interest	$	—	$	1.7	$	(1.7)	$	0.3	$	3.6	$	(3.3)
Standby charges		0.5		0.6		(0.1)		1.0		0.9		0.1
Amortization of debt issue costs		0.3		0.2		0.1		0.5		0.4		0.1
Accretion of lease liabilities		—		—		—		0.1		0.1		—
	$	0.8	$	2.5	$	(1.7)	$	1.9	$	5.0	$	(3.1)

Finance income is earned on our cash and cash equivalents. Finance income also includes interest income in the amount of $0.6 million accrued on the Noront loan during Q2/2020 (Q2/2019 – $0.6 million), and $1.2 million in H1/2020 (H1/2019 - $1.1 million). Finance expenses consist of interest expense incurred on our Corporate Revolver and Corporate Term Loan. The Company also incurs standby charges, which represent the costs of maintaining our credit facilities based on the undrawn amounts, and recognizes the amortization of costs incurred with respect to the initial set-up or subsequent amendments of our credit facilities. Finance expenses also includes the accretion expense on lease liabilities, as required under IFRS 16 Leases, effective January 1, 2019.


2020 Second Quarter Management’s Discussion and Analysis	20

Summary of Quarterly Information

Selected quarterly financial and statistical information for the most recent eight quarters⁽¹⁾ is set out below:


(in millions, except Average Gold Price, Margin,	Q2			Q1			Q4				Q3			Q2			Q1			Q4			Q3
GEOs, per GEO amounts and per share amounts)	2020			2020			2019				2019			2019			2019			2018			2018
Revenue	$	195.4		$	240.5		$	258.1		$	235.7		$	170.5		$	179.8		$	148.2		$	170.6
Costs and expenses⁽²⁾		89.6			383.9			129.1			113.5			91.5			99.8			167.5			104.8
Operating (loss) income		105.8			(143.4)			129.0			122.2			79.0			80.0			(19.3)			65.8
Other (expenses) income		0.1			(0.3)			1.5			(2.7)			(1.3)			(1.8)			(0.3)			0.1
Income tax expense (recovery)		11.5			(44.9)			17.2			17.9			13.7			13.0			11.7			13.8
Net income (loss)		94.4			(98.8)			113.3			101.6			64.0			65.2			(31.3)			52.1
Basic earnings (loss) per share	$	0.50		$	(0.52)		$	0.60		$	0.54		$	0.34		$	0.35		$	(0.17)		$	0.28
Diluted earnings (loss) per share	$	0.50		$	(0.52)		$	0.60		$	0.54		$	0.34		$	0.35		$	(0.17)		$	0.28
Net cash provided by operating activities	$	150.2		$	195.2		$	184.6		$	170.4		$	119.1		$	143.6		$	97.8		$	128.2
Net cash used in investing activities		(19.0)			(34.5)			(1.8)			(344.5)			(33.5)			(56.3)			(285.3)			(89.4)
Net cash provided by (used in) financing activities		34.8			(77.5)			(142.6)			(133.9)			241.4			(84.7)			182.5			(33.8)
Average Gold Price⁽³⁾	$	1,711		$	1,583		$	1,480		$	1,474		$	1,310		$	1,304		$	1,228		$	1,213
GEOs sold⁽⁴⁾		104,330			134,941			153,396			133,219			107,774			122,049			104,877			120,021
Cash Costs⁽⁵⁾ attributable to GEOs sold	$	27.0		$	41.5		$	44.1		$	36.8		$	25.6		$	31.0		$	21.5		$	29.9
Cash Costs⁽⁵⁾ per GEO sold	$	259		$	308		$	287		$	276		$	238		$	254		$	208		$	254
Adjusted EBITDA⁽⁵⁾	$	158.1		$	192.7		$	201.7		$	192.9		$	137.9		$	140.9		$	118.7		$	134.7
Adjusted EBITDA⁽⁵⁾ per share	$	0.83		$	1.02		$	1.07		$	1.03		$	0.74		$	0.75		$	0.64		$	0.72
Margin⁽⁵⁾		80.9	%		80.1	%		78.1	%		81.8	%		80.9	%		78.4	%		80.1	%		79.0	%
Adjusted Net Income⁽⁵⁾	$	91.8		$	109.2		$	110.8		$	101.6		$	64.0		$	65.2		$	44.7		$	54.6
Adjusted Net Income⁽⁵⁾ per share	$	0.48		$	0.58		$	0.59		$	0.54		$	0.34		$	0.35		$	0.24		$	0.29

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 of $271.7 million and $76.0 million recorded in Q1/2020 and Q4/2018, respectively.

3	Based on LBMA Gold Price PM Fix.

GEOs include production from our Mining assets and do not include Energy 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 mining commodities are converted to GEOs by dividing associated revenue, which includes settlement adjustments, by the relevant gold price. The 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 price for the month, quarter, or year in which the mining commodity was produced or sold. For illustrative purposes, please refer to the average commodity price table on page 11 of this MD&A for indicative prices which may be used in the calculation of GEOs for the three and six months ended June 30, 2020 and 2019, respectively.

5	Cash Costs, 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 the “Non-IFRS Financial Measures” section of this MD&A.

Balance Sheet Review

Summary Balance Sheet and Key Financial Metrics


	At June 30,			At December 31,
(expressed in millions, except debt to equity ratio)	2020		2019
Cash and cash equivalents	$	378.5	$	132.1

Current assets		515.7		278.7
Non-current assets		4,666.5		5,001.9
Total assets	$	5,182.2	$	5,280.6

Current liabilities		38.1		53.4
Non-current liabilities		73.7		165.0
Total liabilities	$	111.8	$	218.4

Total shareholders’ equity	$	5,070.4	$	5,062.2

Debt	$	—	$	80.0
Total common shares outstanding		190.6		189.4
Key Financial Metrics
Working Capital	$	477.6	$	225.3
Debt to equity		—		0.02:1


2020 Second Quarter Management’s Discussion and Analysis	21

Assets

Total assets were $5,182.2 million at June 30, 2020 compared to $5,280.6 million at December 31, 2019. Our asset base is primarily comprised of non-current assets such as our royalty, stream and working interests, equity investments and loan receivable, while our current assets primarily comprise cash and cash equivalents, and accounts receivable. The decrease in non-current assets reflects a decrease in the carrying amount of the Company’s royalty, stream and working interests as a result of impairment charges recognized in Q1/2020 and depletion and depreciation expense, as well as a decrease in the fair value of equity investments. These decreases were partly offset by the acquisitions of the Island Gold royalty interest and investments in the Royalty Acquisition Venture with Continental.

Liabilities

Total liabilities as at June 30, 2020 primarily comprise $35.3 million of accounts payable and accrued liabilities and $69.4 million deferred income tax liabilities. The decrease in non-current liabilities reflects the repayment of $80.0 million of debt the Company had outstanding at December 31, 2019, which was repaid during Q1/2020.

Shareholders’ Equity

Shareholders’ equity increased by $8.2 million as at June 30, 2020 compared to December 31, 2019, reflecting a net loss of $4.4 million and net proceeds of $112.3 million from issuances under the ATM Program and the previous at-the-market equity program, after agent commission costs of $1.1 million and other share issuance costs $0.8 million. Declared dividends reduced shareholders’ equity by $97.0 million, but were partly settled through the issuance of $21.0 million in common shares pursuant to the DRIP. Shareholders’ equity also includes a gain on the fair value of investments of $1.7 million, and a loss of $34.2 million in currency translation adjustment in H1/2020.

Liquidity and Capital Resources

Cash flow for the three and six months ended June 30, 2020 and 2019 was as follows:


	For the three months ended				For the six months ended
	June 30,				June 30,
(expressed in millions)	2020		2019		2020		2019
Net cash provided by operating activities	$	150.2	$	119.1	$	345.4	$	262.7
Net cash used in investing activities		(19.0)		(33.5)		(53.5)		(89.8)
Net cash provided by (used in) financing activities		34.8		241.4		(42.7)		156.7
Effect of exchange rate changes on cash and cash equivalents		2.7		(0.7)		(2.8)		(0.4)
Net change in cash and cash equivalents	$	168.7	$	326.3	$	246.4	$	329.2

Operating Cash Flow

Net cash provided by operating activities was $150.2 million in Q2/2020 (Q2/2019 - $119.1 million) and $345.4 million in H1/2020 (H1/2019 - $262.7 million), respectively. Operating cash flow increased due to higher revenue primarily as a result of higher commodity prices compared to the corresponding 2019 period. Also reflected in operating cash flow are proceeds from the sale of gold bullion the Company receives as settlement for certain of its royalties.

Investing Activities

Net cash used in investing activities was $19.0 million in Q2/2020 (Q2/2019 - $33.5 million), consisted mostly of the issuance of a $15.0 million loan to SolGold. For the six months ended June 30, 2020, net cash used in investing activities of $53.5 million (H1/2019 – $89.8 million) included the acquisition of the Island Gold royalty for a gross purchase price of $13.4 million (C$19.0 million), the funding of Franco-Nevada’s share in the Royalty Acquisition Venture with Continental of $24.4 million and issuance of a $15.0 million loan to SolGold.

Comparatively, investing activities in the prior year periods included primarily of funding of Franco-Nevada’s share in the Royalty Acquisition Venture with Continental, the acquisition of the Salares Norte and Valentine Lake royalties.

Financing Activities

Net cash provided by financing activities of $34.8 million in Q2/2020 (Q2/2019 - $241.4 million net cash used) included net proceeds from the ATM Program of $66.8 million, partially offset by dividend paid in cash of $39.8 million. For the H1/2020, net cash used in financing activities of $42.7 million (H1/2019 - $156.7 million) included $80.0 million repayment of amounts borrowed against the Corporate Term Loan and dividends paid in cash of $76.0 million, partially offset by net proceeds of $110.3 million from the ATM Program and the previous at-the-market equity program.

Comparatively, financing activities in the three and six months ended June 30, 2019 included the drawdown of $275.0 million to fund the acquisition of the Marcellus royalty interest, repayment of the balance outstanding under the Corporate Revolver and payment of cash dividends.


2020 Second Quarter Management’s Discussion and Analysis	22

Capital Resources

Our cash and cash equivalents totaled $378.5 million as at June 30, 2020 (December 31, 2019 – $132.1 million). In addition, we held investments and loan receivables of $194.9 million as at June 30, 2020 (December 31, 2019 – $183.2 million), of which $137.3 million was held in publicly-traded equity instruments (December 31, 2019 – $141.7 million).

As at August 5, 2020, the Company also has a total of approximately $1.1 billion available under its two revolving credit facilities.

The Corporate Revolver is a $1.0 billion unsecured, revolving credit facility with a five-year term maturing March 22, 2024. Advances under the Corporate Revolver bear interest depending upon the currency of the advance and the Company’s leverage ratio. Funds are generally drawn using LIBOR 30-day rates plus 100 basis points. As at June 30, 2020, the Company has two standby letters of credit in the amount of $17.0 million (C$23.1 million) against the Corporate Revolver in relation to the audit by the CRA of its 2013–2015 taxation years, as referenced in the “Contingencies” section of this MD&A. The standby letters of credit reduce the available balance under the Corporate Revolver.

The FNBC Revolver is a $0.1 billion unsecured, revolving credit facility. As at June 30, 2020, the available balance under the FNBC Revolver was $0.1 billion. The FNBC Revolver was amended on March 10, 2020 to extend the term by an additional year, such that the maturity date is currently March 20, 2021. Under the amendment, funds are generally drawn using LIBOR 30-day rates plus 125 basis points.

The Company also had a Corporate Term Loan, which was a $160.0 million unsecured, non-revolving credit facility. On February 14, 2020, funds borrowed under the Corporate Term Loan were repaid in full. The Corporate Term Loan is a non-revolving facility, and is therefore no longer available to draw.

Management’s objectives when managing capital are to:

(a)

when capital is not being used for long-term investments, ensure its preservation and availability by investing in low risk investments with high liquidity; and

(b)

ensure that adequate levels of capital are maintained to meet the Company’s operating requirements and other current liabilities.

As at June 30, 2020, 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 maturities upon acquisition of three months, or 92 days or less, were classified as term deposits within cash and cash equivalents on the statement of financial position.

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 rates 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 general and administrative expenses and depletion of Mining and Energy interests incurred in our Canadian and Australian entities due to their respective functional currencies. During Q2/2020, the Canadian dollar traded in a range of $0.7034 to $0.7472, closing the quarter at $0.7338, and the Australian dollar traded between $0.6002 and $0.6993, closing the quarter at $0.6878.

Our near-term cash requirements include funding of our commitments towards the Royalty Acquisition Venture with Continental, the acquisition of Alpala Royalty, corporate administration costs, certain costs of operations, payment of dividends and income taxes directly related to the recognition of royalty, stream and working interest revenues. As a royalty and stream company, there are limited requirements for capital expenditures other than for the acquisition of additional royalties or streams and capital commitments for our working interests. 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 facilities. We believe that our current cash resources, available credit facilities and future cash flows will be sufficient to cover the costs of our commitments, operating and administrative expenses, and dividend payments for the foreseeable future.

Purchase Commitments

The following table summarizes Franco-Nevada’s commitments to pay for gold, silver and PGM pursuant to the associated precious metals agreements:


	Attributable Payable
	Production to be Purchased						Per Ounce Cash Payment ^(1),(2)								Term of		Date of
Interest	Gold		Silver		PGM		Gold			Silver			PGM		Agreement⁽³⁾		Contract
Antamina	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 Fixed Payment Stream	—	% ⁽¹¹⁾	—	% ⁽¹²⁾	0	%	$	418	⁽¹³⁾	$	6.27	⁽¹⁴⁾		n/a	40 years		19-Jan-18
Cobre Panama Floating Payment Stream	—	% ⁽¹⁵⁾	—	% ⁽¹⁶⁾	0	%		20	% ⁽¹⁷⁾		20	% ⁽¹⁸⁾		n/a	40 years		19-Jan-18
Karma	4.875	% ⁽¹⁹⁾	0	%	0	%		20	% ⁽²⁰⁾		n/a			n/a	40 years		11-Aug-14
Guadalupe-Palmarejo	50	%	0	%	0	%	$	800			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	%	$	400			n/a			n/a	40 years	⁽²³⁾	2-Mar-12
Cooke 4	7	%	0	%	0	%	$	400			n/a			n/a	40 years		5-Nov-09
Sudbury⁽²⁴⁾	50	%	0	%	50	%	$	400			n/a		$	400	40 years		15-Jul-08


2020 Second Quarter Management’s Discussion and Analysis	23

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 has 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 has 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 have 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 have 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.

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 until 1,716,188 ounces of gold delivered. Thereafter, 63.4% of the gold in concentrate.

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 until 29,731,000 ounces of silver delivered. Thereafter, 62.1% of the silver in concentrate.

After 1,341,000 ounces of gold delivered, purchase price is the greater of 50% of spot and $418.27 per ounce. As the mill throughput for 30 consecutive days commensurate with annual capacity of 58 million tonnes per annum was not reached by January 1, 2019, Franco-Nevada will receive a 5% annual rate of return until such mill throughput was achieved, through a reduction of the applicable fixed gold price of $100 per ounce or a delivery of additional ounces for no consideration.

14	After 21,510,000 ounces of silver delivered, purchase price is the greater of 50% of spot and $6.27 per ounce.

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 until 429,047 ounces of gold delivered. Thereafter, 15.85% of the gold in concentrate.

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 until 7,432,750 ounces of silver delivered. Thereafter 15.53% of the silver in concentrate.

After 604,000 ounces of gold delivered, purchase price is 50% of the spot price of gold. As the mill throughput for 30 consecutive days commensurate with annual capacity of 58 million tonnes per annum was not reached by January 1, 2019, Franco-Nevada will receive a 5% annual rate of return until such mill throughput was achieved, through a reduction of the applicable fixed gold price of $100 per ounce or a delivery of additional ounces for no consideration.

18	After 9,618,000 ounces of silver delivered, purchase price is 50% of the spot price of silver.

Gold deliveries are fixed at 15,000 ounces per annum from March 31, 2016 until February 28, 2021 (exclusive of an aggregate 5,625 gold ounces, or 703 gold ounces per quarter, to be delivered as a result of the exercise by the operator of its option to increase the upfront deposit). 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.

The Company is committed to purchase 50% of the precious metals contained in ore from the properties. Payment is based on gold equivalent ounces. For McCreedy West, the fixed price per gold equivalent ounce was increased to $800 per ounce (with no annual inflationary adjustment), effective July 1, 2018 until December 31, 2021.

Acquisition of Royalty Rights with Continental Resources, Inc.

As described in the Corporate Developments section above, the Company has a strategic relationship with a subsidiary of Continental to jointly acquire royalty rights in the SCOOP and STACK plays of Oklahoma. As at June 30, 2020, Franco-Nevada has remaining commitments of up to $124.5 million to be funded in future periods. In the first half of the year, Franco-Nevada and Continental have collectively agreed to reduce their capital funding commitments to the Royalty Acquisition Venture for 2020 to approximately total $30 million to $40 million, with $19.3 million expensed in the first half of 2020.

Contingencies

Canada Revenue Agency Audit

The CRA is conducting an audit of Franco-Nevada’s 2012-2015 taxation years.

Canadian Domestic Tax Matters (2014-2015):

In October 2019, certain wholly-owned Canadian subsidiaries of the Company received Notices of Reassessment for the 2014 and 2015 taxation years (the “Domestic Reassessments”) in which the CRA is seeking to increase income by adjusting the timing of the deduction of the upfront payments which were made in connection with precious metal stream agreements. The CRA’s position is that the upfront payment should be deducted for income tax purposes in a similar manner to how such upfront payment is expensed for financial statement purposes. Consequently, the CRA’s position results in a slower deduction of the upfront payment and an acceleration of the payment of Canadian taxes. This results in the Company being subject to an incremental payment of Federal and provincial income taxes for these years of $1.0 million (C$1.4 million) plus interest and applicable penalties (after applying available non-capital losses and other deductions). The Company has filed formal Notices of Objection with the CRA against the Domestic Reassessments.

If the CRA were to audit and reassess the particular Canadian subsidiaries of the Company for taxation years 2016 through 2019 on the same basis, the Company estimates that it would be subject to an incremental payment of Canadian tax for these years of approximately $23.1 million (C$31.4 million) plus interest and applicable penalties (after applying available non-capital losses and other deductions).

Mexico (2013-2015):

In December 2018, the Company received a Notice of Reassessment from the CRA for the 2013 taxation year (the “2013 Reassessment”) in relation to its Mexican subsidiary. The reassessment was made on the basis of the transfer pricing provisions in the Income Tax Act (Canada) (the “Act”) and asserts that a majority of the income earned by the Mexican subsidiary should have been included in the income of the Company and subject to tax in Canada. The 2013 Reassessment


2020 Second Quarter Management’s Discussion and Analysis	24

results in additional Federal and provincial income taxes of $8.0 million (C$10.8 million) plus interest and applicable penalties but before any relief under the Canada-Mexico tax treaty.

In December 2019, the Company received Notices of Reassessment for the 2014 and 2015 taxation years (the “2014 and 2015 Reassessments”, and collectively with the Domestic Reassessments and the 2013 Reassessment, the “Reassessments”) on the same basis as the 2013 Reassessment, resulting in additional Federal and provincial income taxes of $10.3 million (C$14.1 million) plus interest and applicable penalties but before any relief under the Canada-Mexico tax treaty. The Company has filed formal Notices of Objection with the CRA against the 2013 Reassessment and the 2014 and 2015 Reassessments and has posted security in the form of a standby letter of credit for 50% of the reassessed amounts of tax, interest and penalties. Further, the Company has commenced an appeal in the Tax Court of Canada with respect to the 2013 Reassessment and the 2014 and 2015 Reassessments.

For taxation years 2013 through 2015, the Company’s Mexican subsidiary paid a total of $30.3 million (419.4 million Pesos) in cash taxes, at a 30% tax rate, to the Mexican tax authorities on income earned in Mexico. If required, the Company intends to seek relief from double taxation under the Canada-Mexico tax treaty.

If the CRA were to audit and reassess the Company for taxation years 2016 through 2019 on the same basis, the Company estimates that it would be subject to additional Canadian tax for these years of approximately $3.4 million (C$4.6 million) plus interest and applicable penalties but before any relief under the Canada-Mexico tax treaty. During the years 2016 through 2019, the Company’s Mexican subsidiary paid $3.8 million (71.0 million Pesos) in cash taxes, at a 30% tax rate, to the Mexican tax authorities on income earned in Mexico.

Barbados (2014-2015):

The 2014 and 2015 Reassessments also reassess the Company in relation to its Barbadian subsidiary. The reassessments were made on the basis of the transfer pricing provisions in the Act and assert that a majority of the income relating to certain precious metal streams earned by the Barbadian subsidiary should have been included in the income of the Company and subject to tax in Canada, resulting in additional Federal and provincial income taxes of $4.8 million (C$6.5 million) plus interest and applicable penalties. The Company has filed formal Notices of Objection with the CRA against the 2014 and 2015 Reassessments and has posted security in the form of a standby letter of credit for 50% of the reassessed amounts of tax, interest and penalties. Further, the Company has commenced an appeal in the Tax Court of Canada with respect to the 2014 and 2015 Reassessments.

Barbados (2012-2013):

In July 2020, the Company received a letter from the CRA (the “Proposal Letter”) proposing to reassess the 2012 and 2013 taxation years in relation to its Barbadian subsidiary. The Proposal Letter asserts that a majority of the income relating to precious metal streams earned by the Barbadian subsidiary, in those years, should have been included in the income of its Canadian parent company and subject to tax in Canada as Foreign Accrual Property Income (“FAPI”). The Company does not agree with the Proposal Letter and has responded to the CRA requesting that the proposed reassessments not be issued. If the CRA issues the reassessments proposed and is successful, the Company’s preliminary estimate is that it would be subject to additional Federal and provincial income taxes of $7.0 million plus interest and applicable penalties before applying available non-capital losses and other deductions. The Proposal Letter notes that CRA’s position may not extend beyond the 2013 taxation year.

Management believes that the Company and its subsidiaries have filed their tax returns and paid all applicable taxes in compliance with Canadian and applicable foreign tax laws and, as a result, no amounts have been recorded in the financial statements of the Company for the Reassessments, or for any potential tax liability that may arise in respect of these matters. The Company does not believe that the Reassessments are supported by Canadian tax law and jurisprudence and intends to vigorously defend its tax filing positions.

The CRA audit is ongoing and there can be no assurance that the CRA will not further challenge the manner in which the Company or any of its subsidiaries has filed its income tax returns and reported its income. In the event that the CRA successfully challenges the manner in which the Company or a subsidiary has filed its tax returns and reported its income, this could potentially result in additional income taxes, penalties and interest, which could have a material adverse effect on the Company.

Critical Accounting Estimates

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.

The areas of judgment and estimation are consistent with those reported in the annual consolidated financial statements for the year ended December 31, 2019 and include measurement uncertainty in assessments of impairment of royalty, stream and working interests which are impacted by the following developments during the first half of 2020:


2020 Second Quarter Management’s Discussion and Analysis	25

Impact of the COVID-19 Pandemic

The COVID-19 (coronavirus) global health pandemic is significantly impacting the global economy and commodity and financial markets. The full extent and impact of the COVID-19 pandemic is unknown and to date has included extreme volatility in financial markets, a slowdown in economic activity, extreme volatility in commodity prices (including gold, silver, palladium and oil and gas) and has raised the prospect of an extended global recession. As well, as efforts are undertaken to slow the spread of the COVID-19 pandemic, the operation and development of mining projects have been impacted. During H1/2020, a number of mining projects, including certain of those in respect of which Franco-Nevada has assets, were suspended globally for precautionary purposes or as governments have declared a state of emergency, but many operations have restarted since then. If the operation or development of one or more of the properties in which Franco-Nevada holds a royalty, stream or other interest and from which it receives or expects to receive significant revenue becomes or remains suspended for an extended period of time, it may have a material adverse impact on Franco-Nevada’s profitability, results of operations, financial condition and the trading price of Franco-Nevada’s securities. The broader impact of the COVID-19 pandemic on investors, businesses, the global economy or financial and commodity markets may also have a material adverse impact on Franco-Nevada’s profitability, results of operations, financial condition and the trading price of Franco-Nevada’s securities.

b)Impact of Recent Global and Market Developments on Oil and Gas Prices

In addition, a number of geopolitical and market factors impacting global energy markets (including those related to the COVID-19 pandemic) have contributed to extreme volatility and a significant decrease in the price of oil and gas (WTI, WCS and NYMEX). Excess supply relative to current demand and a lack of available storage have also created significant downward pressure on global energy markets, with oil prices and futures contracts reaching historic lows. Prices have since partially rebounded. If these conditions continue for a prolonged period, the oil and gas operations in which Franco-Nevada holds oil and gas royalties and working interests are expected to be materially adversely affected, including potentially requiring temporary or permanent suspension or reductions in production. The lower oil and gas prices (WTI, WCS and NYMEX) may adversely impact potential future development as well as operators’ cashflow, ability to access additional capital and financial condition. The continuation of low oil and gas prices (WTI, WCS and NYMEX) for a prolonged period may have a material adverse impact on Franco-Nevada’s profitability, results of operations, financial condition and the trading price of Franco-Nevada’s securities.

As a result of reduced production and capital spend by the operators of the Company’s Energy assets due to lower market expectations for oil and gas prices, the Company recorded impairments of $271.7 million at March 31, 2020 related to its interests in the SCOOP/STACK and Weyburn, as detailed in the “Impairment Charges” section of this MD&A.

There is heightened potential for further impairments or reversal of these and possibly other impairments over the remainder of 2020. In the current environment, assumptions about future commodity prices, interest rates and levels of supply and demand of commodities are subject to greater variability than normal, which could significantly affect the valuation of the Company’s financial and non-financial assets.

New and Amended Standards Adopted by the Company

The following standard was effective and implemented for the annual period as of January 1, 2020.

Amendments to IFRS 3 Business Combinations

In October 2018, the IASB issued amendments to the definition of a business in IFRS 3 Business Combinations (“IFRS 3”). The amendments are intended to assist entities to determine whether a transaction should be accounted for as a business combination or as an asset acquisition. The amendments clarify the minimum requirements for a business, remove the assessment of whether market participants are capable of replacing any missing elements, add guidance to help entities assess whether an acquired process is substantive, narrow the definitions of a business and of outputs, and introduce an optional fair value concentration test. While it is generally expected that the application of the amendments will result in more acquisitions being accounted for as asset acquisitions, the Company will evaluate the impact of the amendments based on the nature and terms of acquisitions the Company may complete in future.

Outstanding Share Data

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 August 5, 2020, the number of common shares outstanding or issuable pursuant to other outstanding securities is as follows:


Common Shares		Number
Outstanding		190,588,491
Issuable upon exercise of Franco-Nevada options⁽¹⁾		710,946
Issuable upon vesting of Franco-Nevada RSUs		107,971
Diluted common shares		191,407,408

There were 710,946 stock options under our share compensation plan outstanding to directors, officers, employees and others with exercise prices ranging from C$33.12 to C$129.32 per share.


2020 Second Quarter Management’s Discussion and Analysis	26

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.

For the three and six months ended June 30, 2020, 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.

Non-IFRS Financial Measures

Cash Costs attributable to GEOs sold and Cash Costs per GEO

Cash Costs attributable to GEOs sold and Cash Costs per GEO sold are non-IFRS financial measures. Cash Costs are calculated by starting with total costs of sales and removing depletion and depreciation, costs not attributable to GEOs sold such as our Energy operating costs, and other non-cash costs of sales such as costs related to our prepaid gold purchase agreement. Cash Costs per GEO sold are calculated by dividing Cash Costs by the number of GEOs sold in the period, excluding prepaid GEOs.

Management uses Cash Costs and Cash Costs per GEO sold to evaluate the Company’s ability to generate positive cash flow from its mining royalty, stream and working interests. Management and certain investors also use this information to evaluate the Company’s performance relative to peers in the mining industry who present this measure on a similar basis. Cash Costs and Cash Costs per GEO 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.

Reconciliation of Cash Costs and Cash Costs per GEO sold:


	For the three months ended				For the six months ended
	June 30,				June 30,
(expressed in millions, except per GEO amounts)	2020		2019		2020		2019
Total costs of sales	$	80.3	$	86.3	$	188.3	$	179.6
Depletion and depreciation		(52.3)		(58.9)		(116.7)		(119.8)
Energy operating costs		(1.0)		(1.8)		(3.1)		(3.2)
Cash Costs attributable to GEOs sold	$	27.0	$	25.6	$	68.5	$	56.6
GEOs, excluding prepaid ounces		104,330		107,774		239,271		229,823
Cash Costs per GEO sold	$	259	$	238	$	286	$	246


2020 Second Quarter Management’s Discussion and Analysis	27

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. Management believes that in addition to measures prepared in accordance with IFRS such as Net Income and EPS, 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.

Reconciliation of Net Income to Adjusted EBITDA:


	For the three months ended				For the six months ended
	June 30,				June 30,
(expressed in millions, except per share amounts)	2020		2019		2020		2019
Net Income (loss)	$	94.4	$	64.0	$	(4.4)	$	129.2
Income tax expense (recovery)		11.5		13.7		(33.4)		26.7
Finance expenses		0.8		2.5		1.9		5.0
Finance income		(1.0)		(1.2)		(1.9)		(1.9)
Depletion and depreciation		52.3		58.9		116.7		119.8
Impairment of royalty, stream and working interests		—		—		271.7		—
Foreign exchange (gains)/losses and other (income)/expenses		0.1		—		0.2		—
Adjusted EBITDA	$	158.1	$	137.9	$	350.8	$	278.8
Basic weighted average shares outstanding		190.2		187.2		189.6		187.1

Basic earnings (loss) per share	$	0.50	$	0.34	$	(0.02)	$	0.69
Income tax expense (recovery)		0.06		0.07		(0.18)		0.14
Finance expenses		—		0.02		0.01		0.03
Finance income		(0.01)		—		(0.01)		(0.01)
Depletion and depreciation		0.28		0.31		0.62		0.64
Impairment of royalty, stream and working interests		—		—		1.43		—
Adjusted EBITDA per share	$	0.83	$	0.74	$	1.85	$	1.49

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 six months ended
	June 30,				June 30,
(expressed in millions, except Margin)	2020		2019		2020		2019
Net Income (loss)	$	94.4	$	64.0	$	(4.4)	$	129.2


2020 Second Quarter Management’s Discussion and Analysis	28

Income tax expense (recovery)		11.5			13.7			(33.4)			26.7
Finance expenses		0.8			2.5			1.9			5.0
Finance income		(1.0)			(1.2)			(1.9)			(1.9)
Depletion and depreciation		52.3			58.9			116.7			119.8
Impairment of royalty, stream and working interests		—			—			271.7			—
Foreign exchange (gains)/losses and other (income)/expenses		0.1			—			0.2			—
Adjusted EBITDA	$	158.1		$	137.9		$	350.8		$	278.8
Revenue		195.4			170.5			435.9			350.3
Margin		80.9	%		80.9	%		80.5	%		79.6	%

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 EPS, 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 six months ended
	June 30,				June 30,
(expressed in millions, except per share amounts)	2020		2019		2020		2019
Net Income (loss)	$	94.4	$	64.0	$	(4.4)	$	129.2
Impairment of royalty, stream and working interests		—		—		271.7		—
Foreign exchange (gains)/losses and other (income)/expenses		0.1		—		0.2		—
Tax effect of adjustments		(2.7)		—		(66.5)		—
Adjusted Net Income	$	91.8	$	64.0	$	201.0	$	129.2
Basic weighted average shares outstanding		190.2		187.2		189.6		187.1

Basic earnings (loss) per share	$	0.50	$	0.34	$	(0.02)	$	0.69
Impairment of royalty, stream and working interests		—		—		1.43		—
Foreign exchange (gains)/losses and other (income)/expenses		—		—		—		—
Tax effect of adjustments		(0.02)		—		(0.35)		—
Adjusted Net Income per share	$	0.48	$	0.34	$	1.06	$	0.69


2020 Second Quarter Management’s Discussion and Analysis	29

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, audits being conducted by the CRA, the expected exposure for current and future assessments and available remedies, the remedies relating to and consequences of the ruling of the Supreme Court of Panama in relation to the Cobre Panama project, the aggregate value of Common Shares which may be issued pursuant to the ATM program, and the Company’s expected use of the net proceeds of the ATM program, if any, and the acquisition of the SolGold royalty interest. 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 statement, including, without limitation: the price at which Common Shares are sold in the ATM program and the aggregate net proceeds received by the Company as a result of the ATM program; 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 Energy); fluctuations in the value of the Canadian and Australian dollar, 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; access to sufficient pipeline capacity; 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 disease; the impact of the COVID-19 (coronavirus) pandemic; 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; risks related to the completion of the acquisition of the SolGold royalty interest; the expected application of tax laws and regulations by taxation authorities; the expected assessment and outcome of any audit by any taxation authority; 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; 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. In addition, there can be no assurance as to the outcome of the ongoing audit by the CRA or the Company’s exposure as a result thereof. 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.


2020 Second Quarter Management’s Discussion and Analysis	30

Exhibit 99.3

Franco-Nevada Corporation

Condensed Consolidated Statements of Financial Position

(unaudited, in millions of U.S. dollars)


	At June 30,		At December 31,
	2020		2019
ASSETS
Cash and cash equivalents (Note 4)	$	378.5	$	132.1
Receivables		78.4		97.8
Loan receivable (Note 5)		15.0		—
Prepaid expenses and other (Note 6)		43.8		48.8
Current assets	$	515.7	$	278.7

Royalty, stream and working interests, net (Note 7)	$	4,423.8	$	4,797.8
Investments and loan receivable (Note 5)		179.9		183.2
Deferred income tax assets		54.0		6.8
Other assets (Note 8)		8.8		14.1
Total assets	$	5,182.2	$	5,280.6

LIABILITIES
Accounts payable and accrued liabilities	$	35.3	$	41.8
Current income tax liabilities		2.8		11.6
Current liabilities	$	38.1	$	53.4

Debt (Note 9)	$	—	$	80.0
Deferred income tax liabilities		69.4		82.4
Other liabilities		4.3		2.6
Total liabilities	$	111.8	$	218.4

SHAREHOLDERS’ EQUITY (Note 15)
Share capital	$	5,531.9	$	5,390.7
Contributed surplus		15.1		14.2
Deficit		(265.8)		(164.4)
Accumulated other comprehensive loss		(210.8)		(178.3)
Total shareholders’ equity	$	5,070.4	$	5,062.2
Total liabilities and shareholders’ equity	$	5,182.2	$	5,280.6


Contingencies (Note 19)

The accompanying notes are an integral part of these condensed consolidated financial statements.


2020 Second Quarter Financial Statements	2

Franco-Nevada Corporation

Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)

(unaudited, in millions of U.S. dollars and shares, except per share amounts)


	For the three months ended				For the six months ended
	June 30,				June 30,
	2020		2019		2020		2019
Revenue (Note 10)	$	195.4	$	170.5	$	435.9	$	350.3

Costs of sales
Costs of sales (Note 11)	$	28.0	$	27.4	$	71.6	$	59.8
Depletion and depreciation		52.3		58.9		116.7		119.8
Total costs of sales	$	80.3	$	86.3	$	188.3	$	179.6
Gross profit	$	115.1	$	84.2	$	247.6	$	170.7

Other operating expenses (income)
Impairment of royalty, stream and working interests (Note 7)	$	—	$	—	$	271.7	$	—
General and administrative expenses		11.7		5.6		17.9		12.5
Gain on sale of gold bullion		(2.4)		(0.4)		(4.4)		(0.8)
Total other operating expenses	$	9.3	$	5.2	$	285.2	$	11.7
Operating income (loss)	$	105.8	$	79.0	$	(37.6)	$	159.0
Foreign exchange gain (loss) and other income (expenses)	$	(0.1)	$	—	$	(0.2)	$	—
Income (loss) before finance items and income taxes	$	105.7	$	79.0	$	(37.8)	$	159.0

Finance items (Note 13)
Finance income	$	1.0	$	1.2	$	1.9	$	1.9
Finance expenses		(0.8)		(2.5)		(1.9)		(5.0)
Net income (loss) before income taxes	$	105.9	$	77.7	$	(37.8)	$	155.9

Income tax expense (recovery) (Note 14)		11.5		13.7		(33.4)		26.7
Net income (loss)	$	94.4	$	64.0	$	(4.4)	$	129.2

Other comprehensive income (loss)

Items that may be reclassified subsequently to profit and loss:
Currency translation adjustment	$	29.4	$	14.1	$	(34.2)	$	28.1

Items that will not be reclassified subsequently to profit and loss:
Gain on changes in the fair value of equity investments at fair
value through other comprehensive income (loss) ("FVTOCI"),
net of income tax (Note 5)		37.0		24.8		1.7		47.7
Other comprehensive income (loss)	$	66.4	$	38.9	$	(32.5)	$	75.8

Comprehensive income (loss)	$	160.8	$	102.9	$	(36.9)	$	205.0

Earnings (loss) per share (Note 16)
Basic	$	0.50	$	0.34	$	(0.02)	$	0.69
Diluted	$	0.50	$	0.34	$	(0.02)	$	0.69
Weighted average number of shares outstanding (Note 16)
Basic		190.2		187.2		189.6		187.1
Diluted		190.6		187.5		189.6		187.4

The accompanying notes are an integral part of these condensed consolidated financial statements.


2020 Second Quarter Financial Statements	3

Franco-Nevada Corporation

Condensed Consolidated Statements of Cash Flows

(unaudited, in millions of U.S. dollars)


	For the six months ended
	June 30,
	2020		2019
Cash flows from operating activities
Net (loss) income	$	(4.4)	$	129.2
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depletion and depreciation		116.7		119.8
Share-based payments		2.5		2.6
Impairment of royalty, stream and working interests		271.7		—
Unrealized foreign exchange loss (gain)		0.4		(0.1)
Deferred income tax (recovery) expense		(57.9)		5.3
Other non-cash items		(5.6)		(1.9)
Acquisition of gold bullion		(17.6)		(15.6)
Proceeds from sale of gold bullion		28.1		17.9
Operating cash flows before changes in non-cash working capital	$	333.9	$	257.2
Changes in non-cash working capital:
Decrease in receivables	$	19.4	$	4.7
Decrease (increase) in prepaid expenses and other		2.3		(5.4)
(Decrease) increase in current liabilities		(10.2)		6.2
Net cash provided by operating activities	$	345.4	$	262.7

Cash flows from investing activities
Acquisition of royalty, stream and working interests	$	(38.3)	$	(95.6)
Acquisition of energy well equipment		(0.2)		(0.5)
Issuance of loan receivable		(15.0)		—
Proceeds from sale of investments		—		6.3
Net cash used in investing activities	$	(53.5)	$	(89.8)

Cash flows from financing activities
Repayment of revolving credit facilities	$	—	$	(210.0)
Proceeds from draw of credit facilities		—		275.0
(Repayment) proceeds from draw of term loan		(80.0)		160.0
Proceeds from at-the-market equity offering		107.3		—
Credit facility amendment costs		—		(0.8)
Payment of dividends		(76.0)		(70.0)
Proceeds from exercise of stock options		6.0		2.5
Net cash (used in) provided by financing activities	$	(42.7)	$	156.7
Effect of exchange rate changes on cash and cash equivalents	$	(2.8)	$	(0.4)
Net change in cash and cash equivalents	$	246.4	$	329.2
Cash and cash equivalents at beginning of period	$	132.1	$	69.7
Cash and cash equivalents at end of period	$	378.5	$	398.9

Supplemental cash flow information:
Cash paid for interest expense and loan standby fees	$	1.3	$	4.4
Income taxes paid	$	33.5	$	25.1

The accompanying notes are an integral part of these condensed consolidated financial statements.


2020 Second Quarter Financial Statements	4

Franco-Nevada Corporation

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(unaudited, in millions of U.S. dollars)


					Accumulated
					Other
	Share Capital		Contributed		Comprehensive
	(Note 15)		Surplus		Income (Loss)		Deficit		Total Equity
Balance at January 1, 2020	$	5,390.7	$	14.2	$	(178.3)	$	(164.4)	$	5,062.2
Net loss		—		—		—		(4.4)		(4.4)
Other comprehensive loss		—		—		(32.5)		—		(32.5)
Total comprehensive loss	$	—	$	—	$	—	$	—	$	(36.9)
At-the-market equity offering		112.3		—		—		—		112.3
Exercise of stock options		7.9		(1.9)		—		—		6.0
Share-based payments		—		2.8		—		—		2.8
Dividend reinvestment plan		21.0		—		—		—		21.0
Dividends declared		—		—		—		(97.0)		(97.0)
Balance at June 30, 2020	$	5,531.9	$	15.1	$	(210.8)	$	(265.8)	$	5,070.4

Balance at January 1, 2019	$	5,158.3	$	15.6	$	(220.3)	$	(321.7)	$	4,631.9
Net income		—		—		—		129.2		129.2
Other comprehensive income		—		—		75.8		—		75.8
Total comprehensive income	$	—	$	—	$	—	$	—	$	205.0
Acquisition of Salares Norte		27.0		—		—		—		27.0
Loss on disposal of equity investments at FVTOCI		—		—		2.3		(1.3)		1.0
Exercise of stock options		3.3		(0.8)		—		—		2.5
Share-based payments		—		3.0		—		—		3.0
Dividend reinvestment plan		22.3		—		—		—		22.3
Dividends declared		—		—		—		(92.3)		(92.3)
Balance at June 30, 2019	$	5,210.9	$	17.8	$	(142.2)	$	(286.1)	$	4,800.4

The accompanying notes are an integral part of these condensed consolidated financial statements.


2020 Second Quarter Financial Statements	5

Franco-Nevada Corporation

Notes to the Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2020 and 2019

(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)

Note 1 – Corporate Information

Franco-Nevada Corporation (“Franco-Nevada”) is incorporated under the Canada Business Corporations Act. The Company is a royalty and stream company focused on precious metals (gold, silver, and platinum-group metals) and has a diversity of revenue sources with a target of no more than 20% of revenue from energy (oil, gas and natural gas liquids). The Company owns a portfolio of royalty, stream and working interests, covering properties at various stages, from production to early exploration located in Latin America, United States, Canada, Australia, Europe and Africa.

The Company’s shares are listed on the Toronto Stock Exchange and the New York Stock Exchange and the Company is domiciled in Canada. The Company’s head and registered office is located at 199 Bay Street, Suite 2000, Toronto, Ontario, Canada.

Note 2 – Significant accounting policies

(a)	Basis of presentation

These unaudited condensed consolidated interim financial statements include the accounts of Franco-Nevada and its wholly-owned subsidiaries (its “subsidiaries”) (hereinafter together with Franco-Nevada, the “Company”). These unaudited condensed consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) applicable to the preparation of condensed interim financial statements, including IAS 34 Interim Financial Reporting. These condensed consolidated interim financial statements should be read in conjunction with the Company’s annual consolidated financial statements for the year ended December 31, 2019 and were prepared using the same accounting policies, method of computation and presentation as were applied in the annual consolidated financial statements for the year ended December 31, 2019, except as referenced in Note 2(c). These condensed interim consolidated financial statements were authorized for issuance by the Board of Directors on August 5, 2020.

The financial information included herein reflects all adjustments, consisting only of normal recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the full year. Seasonality is not considered to have a significant impact over the condensed consolidated interim financial statements. Taxes on income in the interim period have been accrued using the tax rates that would be applicable to expected total annual income.

(b)	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. The areas of judgment and estimation are consistent with those reported in the annual consolidated financial statements for the year ended December 31, 2019 and include measurement uncertainty in assessments of impairment of royalty, stream and working interests which were impacted by the following developments during the first half of 2020.

Impact of the COVID-19 pandemic

The COVID-19 (coronavirus) global health pandemic is significantly impacting the global economy and commodity and financial markets. The full extent and impact of the COVID-19 pandemic is unknown and to date has included extreme volatility in financial markets, a slowdown in economic activity, extreme volatility in commodity prices (including gold, silver, palladium and oil and gas) and has raised the prospect of an extended global recession. As well, as efforts are undertaken to slow the spread of the COVID-19 pandemic, the operation and development of mining projects have been impacted. In March and April 2020, a number of mining projects, including certain of those in respect of which Franco-Nevada has assets, were suspended for precautionary purposes or as governments declared a state of emergency or taken other actions, but several operations have restarted since then. If the operation or development of one or more of the properties in which the Company holds a royalty, stream or other interest and from which it receives or expects to receive significant revenue remains suspended for an extended period, it may have a material adverse impact on the Company’s profitability, results of operations, financial condition and the trading price of the Company’s securities. The broader impact of the COVID-19 pandemic on investors, businesses, the global economy or financial and commodity markets may also have a material adverse impact on the Company’s profitability, results of operations, financial condition and the trading price of the Company’s securities.


2020 Second Quarter Financial Statements	6

Franco-Nevada Corporation

Notes to the Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2020 and 2019

(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)

Impact of recent global and market developments on oil and gas prices

In addition, a number of geopolitical and market factors impacting global energy markets (including those related to the COVID-19 pandemic) have contributed to extreme volatility and a significant decrease in the price of oil and gas (WTI, WCS and NYMEX). Excess supply relative to current demand and a lack of available storage have also created significant downward pressure on global energy markets, with oil prices and futures contracts reaching historic lows in April 2020. Prices have since rebounded from the lows. The lower oil and gas prices (WTI, WCS and NYMEX) may adversely impact potential future development as well as operators’ cashflow, ability to access additional capital and financial condition. The continuation of low oil and gas prices (WTI, WCS and NYMEX) for a prolonged period may have a material adverse impact on Franco-Nevada’s profitability, results of operations, financial condition and the trading price of Franco-Nevada’s securities.

There is heightened potential for further impairments of these assets or impairments of other assets or a reversal of these impairments over the remainder of 2020. In the current environment, assumptions about future commodity prices, interest rates and levels of supply and demand of commodities are subject to greater variability than normal, which could significantly affect the valuation of the Company’s financial and non-financial assets.

(c)	New and amended standards adopted by the Company

The following standard was effective and implemented for the annual period as of January 1, 2020.

Amendments to IFRS 3 Business Combinations

Note 3 – Acquisitions and other transactions

(a)	Acquisition of Alpala Royalty – Northern Ecuador

On May 11, 2020, the Company entered into an agreement with SolGold plc (“SolGold”) to acquire a 1% NSR with reference to all minerals produced from the Alpala copper-gold-silver project in northern Ecuador for $100.0 million. The Alpala project is owned by Exploraciones Novomining SA, which is held 85% by SolGold and 15% by Cornerstone Capital Resource Inc. SolGold has the option to increase the size of the transaction to $150 million for a 1.5% NSR until January 11, 2021 and also has the option to buy-back 50% of the royalty for a period of time. Franco-Nevada is entitled to receive certain minimum royalty payments from 2028 and the Company also has the option to convert the NSR to a gold NSR for a period of time once Alpala is producing. The closing of the acquisition is subject various conditions. In May 2020, the Company provided SolGold with a bridge loan of $15 million for a period of up to 8 months. The royalty interest has not been recorded as at June 30, 2020 as the transaction has not yet closed.

(b)	Acquisition of Island Gold Royalty – Ontario, Canada

On March 20, 2020, the Company acquired an existing 0.62% NSR on Alamos Gold Inc.’s Island Gold project in Finan Township in the Province of Ontario for $13.4 million (C$19.0 million).

The acquisition of the Island Gold royalty has been accounted for as an asset acquisition.

(c)	Acquisition of U.S. Oil & Gas Mineral Rights with Continental Resources, Inc. (“Continental”) – SCOOP and STACK, Oklahoma, USA

The Company, through a wholly-owned subsidiary, has a strategic relationship with Continental to acquire, through a jointly-owned entity (the “Royalty Acquisition Venture”), royalty rights in the SCOOP and STACK plays of Oklahoma.


2020 Second Quarter Financial Statements	7

Franco-Nevada Corporation

Notes to the Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2020 and 2019

(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)

In the three and six months ended June 30, 2020, the Company recorded contributions to the Royalty Acquisition Venture of $2.5 million and $19.3 million, respectively (Q2/2019 - $35.1 million and $86.5 million, respectively for three and six months ended June 30, 2019), which includes $0.5 million included in accrued liabilities funded after period-end. As at June 30, 2020, the cumulative investment in the Royalty Acquisition Venture totalled $395.5 million and Franco-Nevada has remaining commitments of up to $124.5 million to be funded in future periods. In the first half of the year, Franco-Nevada and Continental have collectively agreed to reduce their capital funding commitments to the Royalty Acquisition Venture for 2020 to approximately total $30 million to $40 million.

The Royalty Acquisition Venture is accounted for as a joint operation in accordance with IFRS 11 Joint Arrangements.

Note 4 – Cash and cash equivalents

As at June 30, 2020 and December 31, 2019, cash and cash equivalents were primarily held in interest-bearing deposits.

Cash and cash equivalents comprised the following:


	At June 30,		At December 31,
	2020		2019
Cash deposits	$	369.4	$	118.7
Term deposits		9.1		13.4
	$	378.5	$	132.1

Note 5 – Investments and loan receivable

Investments comprise the following: (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; (iii) a loan receivable extended to SolGold in May 2020 for a period of up to 8 months as part of the Alpala Royalty acquisition transaction; and (iv) a loan receivable extended to Noront Resources Ltd. as part of the Company’s acquisition of royalty rights in the Ring of Fire mining district of Ontario, Canada, in April 2015. The loan to Noront has a maturity date of September 30, 2022.

Investments and loan receivable comprised the following:


	At June 30,		At December 31,
	2020		2019
Loan receivable - current	$	15.0	$	—
	$	15.0	$	—

Equity investments	$	141.1	$	145.6
Loan receivable		35.9		34.6
Warrants		2.9		3.0
	$	179.9	$	183.2

The change in the fair value of equity investments recognized in other comprehensive income (loss) for the periods ended June 30, 2020 and 2019 were as follows:


	For the three months ended				For the six months ended
	June 30,				June 30,
	2020		2019			2020		2019
Gain on change in the fair value of equity investments at FVTOCI	$	42.6	$	28.2		$	1.9	$	54.5
Deferred tax expense in other comprehensive income		(5.6)		(3.4)			(0.2)		(6.8)
Gain on change in the fair value of equity investments at FVTOCI, net of tax	$	37.0		24.8		$	1.7	$	47.7


2020 Second Quarter Financial Statements	8

Franco-Nevada Corporation

Notes to the Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2020 and 2019

(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)

Note 6 – Prepaid expenses and other current assets

Prepaid expenses and other current assets comprised the following:


	At June 30,		At December 31,
	2020		2019
Gold bullion	$	20.0	$	26.2
Prepaid expenses		22.7		17.5
Stream ounces inventory		0.5		4.4
Debt issue costs		0.6		0.7
	$	43.8	$	48.8

Note 7 – Royalty, stream and working interests

(a)	Royalties, stream and working interests

Royalty, stream and working interests, net of accumulated depletion and impairment charges, comprised the following:


			Accumulated
As at June 30, 2020	Cost		Depletion⁽¹⁾		Impairment		Carrying Value
Mining royalties	$	1,038.0	$	(632.4)	$	—	$	405.6
Streams		4,349.9		(1,622.5)		—		2,727.4
Energy		1,745.0		(406.8)		(267.7)		1,070.5
Advanced		199.8		(32.1)		—		167.7
Exploration		64.7		(12.1)		—		52.6
	$	7,397.4	$	(2,705.9)	$	(267.7)	$	4,423.8

Accumulated depletion includes previously recognized impairment charges.


			Accumulated
As at December 31, 2019	Cost		Depletion⁽¹⁾		Impairment		Carrying Value
Mining royalties	$	1,035.7	$	(620.1)	$	—	$	415.6
Streams		4,346.3		(1,542.3)		—		2,804.0
Energy		1,756.4		(402.8)		—		1,353.6
Advanced		203.2		(32.3)		—		170.9
Exploration		66.2		(12.5)		—		53.7
	$	7,407.8	$	(2,610.0)	$	—	$	4,797.8

Accumulated depletion includes previously recognized impairment charges.

Changes in royalty, stream and working interests for the periods ended June 30, 2020 and December 31, 2019 were as follows:


	Mining
	Royalties		Streams		Energy		Advanced		Exploration		Total
Balance at January 1, 2019	$	450.1	$	2,967.6	$	966.6	$	129.8	$	41.5	$	4,555.6
Additions		—		—		419.0		46.0		11.9		476.9
Transfers		5.9		—		—		(5.9)		—		—
Depletion		(46.0)		(163.6)		(49.0)		(0.9)		(0.2)		(259.7)
Impact of foreign exchange		5.6		—		17.0		1.9		0.5		25.0
Balance at December 31, 2019	$	415.6	$	2,804.0	$	1,353.6	$	170.9	$	53.7	$	4,797.8
Additions (Note 3)		13.4		(0.1)		21.3		—		—		34.6
Impairments		—		—		(267.7)		—		—		(267.7)
Depletion		(17.1)		(76.5)		(21.5)		(0.4)		—		(115.5)
Impact of foreign exchange		(6.3)		—		(15.2)		(2.8)		(1.1)		(25.4)
Balance at June 30, 2020	$	405.6	$	2,727.4	$	1,070.5	$	167.7	$	52.6	$	4,423.8

Of the total net book value as at June 30, 2020, $3,430.1 million (December 31, 2019 - $3,743.8 million) is depletable and $993.7 million (December 31, 2019 - $1,054.0 million) is non-depletable.

(b)	Impairments of royalties, stream and working interests


2020 Second Quarter Financial Statements	9

Franco-Nevada Corporation

Notes to the Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2020 and 2019

(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)

March 31, 2020 and carried out an asset impairment analysis of its Energy assets. Impairments in the carrying value of each cash-generated unit (“CGU”) were measured and recorded to the extent that the carrying value of each CGU exceeds its estimated recoverable amount, which was the higher of fair value less costs of disposal (“FVLCD”) and value-in-use (“VIU”), which is generally calculated using an estimate of future discounted cash-flows.

The Company recorded impairment charges at March 31, 2020 with respect to the following CGUs:

SCOOP/STACK

Weyburn

The Company holds a 11.71% NRI, a 0.44% ORR and a 2.56% WI in the Weyburn Unit, which is located 129km southeast of Regina, Saskatchewan. The 11.71% NRI was acquired on November 13, 2012.

The following table summarizes the impairment losses recorded at March 31, 2020 and estimated recoverable amount by CGU:


		Impairment		Recoverable
		Amount		Amount
Royalty, stream and working interests, net
SCOOP/STACK	$	207.2	$	309.2
Weyburn		60.5		162.8
Other assets
Oil well equipment	$	4.0	$	4.7
	$	271.7	$	476.7

Key assumptions and sensitivity analysis

The Company’s management made assumptions of future West Texas Intermediate (“WTI”) prices to estimate future revenues, based on long-term consensus price estimates obtained from a sample of independent reserve evaluators. For the Weyburn CGU, the differential to Edmonton Light prices assumption was $8.55/barrel, and the U.S. dollar to Canadian dollar foreign exchange rate assumption was $0.72. Forecasted WTI prices as at March 31, 2020 used to determine future cash flows were as follows:


											Average
											Annual
	Remainder of										Increase
	2020		2021		2022		2023		2024		Thereafter
WTI oil price (US$/barrel)	$	30.00	$	41.18	$	49.88	$	55.87	$	57.98	2	%

A sensitivity analysis showing the impact of a change, in isolation, in the WTI oil price and discount rate assumptions is shown below:


	Increase (Decrease) to Impairment Charges
	1% Increase		1% Decrease		10% Decrease		10% Increase
	in the		in the		in WTI Oil		in WTI Oil
	Discount Rate		Discount Rate		Price		Price
SCOOP/STACK	$	34.1	$	(39.9)	$	37.8	$	(37.3)
Weyburn, including oil well equipment		16.9		(19.1)		39.8		(39.0)
	$	51.0	$	(59.0)	$	77.6	$	(76.3)


2020 Second Quarter Financial Statements	10

Franco-Nevada Corporation

Notes to the Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2020 and 2019

(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)

Note 8 – Other assets

Other assets comprised the following:


	At June 30,		At December 31,
	2020		2019
Energy well equipment, net	$	4.8	$	9.3
Right-of-use assets, net		2.1		2.5
Furniture and fixtures, net		0.4		0.4
Debt issue costs		1.5		1.9
	$	8.8	$	14.1

Note 9 – Debt

Changes in obligations related to the Company’s credit facilities were as follows:


		Corporate		Corporate		FNBC
	Revolver			Term Loan		Revolver		Total
Size of facility	$	1,000.0	$	160.0	$	100.0	$	1,260.0
Balance at January 1, 2019	$	210.0	$	—	$	—	$	210.0
Drawdowns		275.0		160.0		—		435.0
Repayment		(485.0)		(80.0)		—		(565.0)
Balance at December 31, 2019	$	—	$	80.0	$	—	$	80.0
Repayment		—		(80.0)		—		(80.0)
Balance at June 30, 2020	$	—	$	—	$	—	$	—

(a)	Corporate Revolver

The Company has a $1.0 billion unsecured revolving term credit facility (the “Corporate Revolver”). The Corporate Revolver has a maturity date of March 22, 2024.

The Company has two standby letters of credit in the amount of $17.0 million (C$23.1 million) against the Corporate Revolver in relation to the audit by the Canada Revenue Agency (“CRA”) of its 2013–2015 taxation years, as referenced in Note 19.

Advances under the Corporate Revolver can be drawn as follows:

U.S. dollars

●

Base rate advances with interest payable monthly at the Canadian Imperial Bank of Commerce (“CIBC”) base rate, plus between 0.00% and 1.05% 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 1.00% and 2.05% 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 0.00% and 1.05% 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 1.00% and 2.05%, 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 Corporate Revolver are guaranteed by certain of the Company’s subsidiaries and are unsecured.

The Corporate Revolver is subject to a standby fee of 0.20% to 0.41% per annum, depending on the Company’s leverage ratio, even if no amounts are outstanding under the Corporate Revolver.


2020 Second Quarter Financial Statements	11

Franco-Nevada Corporation

Notes to the Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2020 and 2019

(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)

(b)	Corporate Term Loan

On April 17, 2019, the Company entered into an unsecured credit facility (the “Corporate Term Loan”) in the amount of $160.0 million to pay down amounts previously borrowed under the Corporate Revolver. The Corporate Term Loan had a maturity date of April 17, 2021. Advances were drawn as a one-month LIBOR loan with interest payable at a rate of LIBOR plus 0.85%. The Company has fully repaid the amount borrowed against the Corporate Term Loan. The Corporate Term Loan is a non-revolving facility, and is therefore no longer available to draw.

(c)

FNBC Revolver

The Company’s subsidiary, Franco-Nevada (Barbados) Corporation (“FNBC”), has an unsecured revolving term credit facility (the “FNBC Revolver”). The FNBC Revolver provides for the availability of up to $100.0 million in borrowings over a one-year period.

On March 10, 2020, the FNBC Revolver was amended to provide an extension of the maturity date by an additional year to March 20, 2021. Advances, under the amended terms of the FNBC Revolver, can be drawn in U.S. dollars as follows:

●

Base rate advances with interest payable monthly at the CIBC base rate, plus 0.25% per annum; or

●

LIBOR loans for periods of 1, 2, 3 or 6 months with interest payable at a rate of LIBOR plus 1.25% per annum.

All loans are readily convertible into loans of other types on customary terms and upon provision of appropriate notice.

The FNBC Revolver is subject to a standby fee of 0.25% per annum, even if no amounts are outstanding.

Note 10 – Revenue

Revenue classified by commodity, geography and type comprised the following:


	For the three months ended				For the six months ended
	June 30,				June 30,
	2020		2019		2020		2019
Commodity
Gold⁽¹⁾	$	136.6	$	105.9	$	303.6	$	219.9
Silver		20.2		16.6		42.3		36.6
Platinum-group metals⁽¹⁾		21.4		14.7		44.0		33.8
Other mining commodities		2.6		5.7		4.9		11.6
Mining	$	180.8	$	142.9	$	394.8	$	301.9
Energy		14.6		27.6		41.1		48.4
	$	195.4	$	170.5	$	435.9	$	350.3
Geography
Latin America	$	80.4	$	60.9	$	198.0	$	135.9
United States		44.7		36.0		89.7		68.9
Canada⁽¹⁾		35.7		39.7		82.1		78.5
Rest of World		34.6		33.9		66.1		67.0
	$	195.4	$	170.5	$	435.9	$	350.3
Type
Revenue-based royalties	$	65.1	$	56.4	$	133.5	$	112.8
Streams⁽¹⁾		112.6		88.1		263.4		192.8
Profit-based royalties		14.1		17.3		30.3		26.9
Other		3.6		8.7		8.7		17.8
	$	195.4	$	170.5	$	435.9	$	350.3

Includes revenue of $0.0 million and $0.1 million of provisional pricing adjustments for gold and platinum-group metals, respectively for the three months ended June 30, 2020 (Q2/2019–$0.3 million and $0.8 million, respectively). For the six months ended June 30, 2020, includes revenue of $0.2 million and $3.2 million of gold and platinum-group metals, respectively. (H1/2019 – nil and $3.4 million, respectively).


2020 Second Quarter Financial Statements	12

Franco-Nevada Corporation

Notes to the Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2020 and 2019

(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)

Note 11 – Costs of sales

Costs of sales comprised the following:


	For the three months ended				For the six months ended
	June 30,				June 30,
	2020		2019		2020		2019
Costs of stream sales	$	26.2	$	25.0	$	67.0	$	55.4
Mineral production taxes		0.8		0.6		1.5		1.2
Mining costs of sales	$	27.0	$	25.6	$	68.5	$	56.6
Energy costs of sales		1.0		1.8		3.1		3.2
	$	28.0	$	27.4	$	71.6	$	59.8

Note 12 – 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:


	For the three months ended				For the six months ended
	June 30,				June 30,
	2020		2019		2020		2019
Short-term benefits⁽¹⁾	$	0.6	$	0.8	$	1.4	$	1.6
Share-based payments⁽²⁾		6.4		2.0		8.0		3.4
	$	7.0	$	2.8	$	9.4	$	5.0

Includes salary, benefits and short-term accrued incentives/other bonuses earned in the period.

Represents the expense of stock options and restricted share units, and mark-to-market charges on deferred share units during the period.

Note 13 – Finance income and expenses

Finance income and expenses for the periods ended June 30, 2020 and 2019 were as follows:


	For the three months ended				For the six months ended
	June 30,				June 30,
	2020		2019		2020		2019
Finance income
Interest	$	1.0	$	1.2	$	1.9	$	1.9
	$	1.0	$	1.2	$	1.9	$	1.9
Finance expenses
Interest	$	—		1.7	$	0.3	$	3.6
Standby charges		0.5	$	0.6		1.0		0.9
Amortization of debt issue costs		0.3		0.2		0.5		0.4
Accretion of lease liabilities		—		—		0.1		0.1
	$	0.8	$	2.5	$	1.9	$	5.0

Note 14 - Income taxes

Income tax expense for the periods ended June 30, 2020 and 2019 was as follows:


	For the three months ended				For the six months ended
	June 30,				June 30,
	2020		2019		2020		2019
Current income tax expense	$	10.1		11.7	$	24.5	$	21.4
Deferred income tax (recovery) expense		1.4		2.0		(57.9)		5.3
	$	11.5	$	13.7	$	(33.4)	$	26.7


2020 Second Quarter Financial Statements	13

Franco-Nevada Corporation

Notes to the Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2020 and 2019

(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)

Note 15 – Shareholders’ equity

(a)	Share capital

The Company’s authorized capital stock includes an unlimited number of common shares (190,588,491 common shares issued and outstanding as at June 30, 2020) having no par value and preferred shares issuable in series (issued - nil).

Changes in share capital in the six months ended June 30, 2020 and year ended December 31, 2019 were as follows:


	Number
	of shares		Amount
Balance at January 1, 2019	186,692,481	$	5,158.3
At-the-market equity offering	1,433,400		136.0
Acquisition of Salares Norte	366,499		27.0
Exercise of stock options	283,863		17.3
Vesting of restricted share units	46,375		3.3
Dividend reinvestment plan (Note 15(c))	558,770		48.8
Balance at December 31, 2019	189,381,388	$	5,390.7
At-the-market equity offering (Note 15(b))	909,900		112.3
Exercise of stock options	124,404		7.9
Dividend reinvestment plan (Note 15(c))	172,799		21.0
Balance at June 30, 2020	190,588,491	$	5,531.9

(b)	At-the-Market Equity Program

On May 11, 2020, the Company established an at-the-market equity program (the “ATM Program”) permitting the Company to issue up to an aggregate of $300 million worth of common shares from treasury at prevailing market prices to the public through the Toronto Stock Exchange, the New York Stock Exchange or any other marketplace on which the common shares are listed, quoted or otherwise trade. The volume and timing of distributions under the ATM Program is determined at the Company’s sole discretion, subject to applicable regulatory limitations and blackout periods. The ATM Program will be effective until May 28, 2022 unless terminated prior to such date by the Company. The Company’s previous at-the-market equity program established July 19, 2019 that allowed the Corporation to issue up to $200 million worth of common shares was terminated on April 28, 2020.

During the three months ended June 30, 2020, the Company issued 474,900 common shares under the ATM Program at an average price per common share of $143.58. The gross proceeds to the Company from these issuances were $68.2 million, and the net proceeds were $66.8 million after deducting agent commission costs of $0.7 million and other share issuance costs of $0.7 million.

During the six months ended June 30, 2020, the Company issued 909,900 common shares under the ATM Program as defined and the previous at-the-market equity program at an average price per common share of $125.54. The gross proceeds to the Company from these issuances were $114.2 million, and the net proceeds were $112.3 million after deducting agent commission costs of $1.1 million and other share issuance costs of $0.8 million.

(c)	Dividends

The Company declared dividends of $0.26 and $0.51 per common share respectively in the three and six months ended June 30, 2020 (Q1/2019 and H1/2019 - $0.25 and $0.49 per common share respectively).

Dividends paid in cash and through the Company’s Dividend Reinvestment Plan (“DRIP”) were as follows:


	For the three months ended				For the six months ended
	June 30,				June 30,
	2020		2019		2020		2019
Cash dividends	$	39.8	$	35.1	$	76.0	$	70.0
DRIP dividends		10.1		12.3		21.0		22.3
	$	49.9	$	47.4	$	97.0	$	92.3


2020 Second Quarter Financial Statements	14

Franco-Nevada Corporation

Notes to the Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2020 and 2019

(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)

Note 16 – Earnings per share (“EPS”)


	For the three months ended June 30,
	2020						2019
				Shares	Per Share				Shares	Per Share
		Net income		(in millions)	Amount		Net income		(in millions)	Amount
Basic earnings per share		$	94.4	190.2	$	0.50	$	64.0	187.2	$	0.34
Effect of dilutive securities			—	0.4		—		—	0.3		—
Diluted earnings per share		$	94.4	190.6	$	0.50	$	64.0	187.5	$	0.34


	For the six months ended June 30,
	2020						2019
				Shares	Per Share				Shares	Per Share
		Net loss		(in millions)	Amount		Net income		(in millions)	Amount
Basic (loss) earnings per share		$	(4.4)	189.6	$	(0.02)	$	129.2	187.1	$	0.69
Effect of dilutive securities			—	—		—		—	0.3		—
Diluted (loss) earnings per share		$	(4.4)	189.6	$	(0.02)	$	129.2	187.4	$	0.69

For the three months ended June 30, 2020, there were no stock options (Q1/2019 and H1/2019 – 251,613 stock options) excluded in the computation of diluted EPS due to being anti-dilutive. RSUs totaling 65,360 (Q1/2019 and H1/2019 - 69,442 RSUs) were excluded from the computation of diluted EPS for the three months ended June 30, 2020 due to the performance criteria for the vesting of the RSUs not being measurable as at June 30, 2020.

Note 17 – Segment reporting

The chief operating decision-maker organizes and manages the business under two operating segments, consisting of royalty, stream and working interests in each of the mining and energy sectors.

The Company’s reportable segments for purposes of assessing performance are presented as follows:


	For the three months ended June 30,
	2020						2019
	Mining		Energy		Total		Mining		Energy		Total
Revenue	$	180.8	$	14.6	$	195.4	$	142.9	$	27.6	$	170.5

Income/(expenses)
Costs of sales	$	27.0	$	1.0	$	28.0	$	25.6	$	1.8	$	27.4
Depletion and depreciation		42.1		9.8		51.9		46.7		11.4		58.1
Segment gross profit	$	111.7	$	3.8	$	115.5	$	70.6	$	14.4	$	85.0


	For the six months ended June 30,
	2020						2019
	Mining		Energy		Total		Mining		Energy		Total
Revenue	$	394.8	$	41.1	$	435.9	$	301.9	$	48.4	$	350.3

Income/(expenses)
Costs of sales	$	68.5	$	3.1	$	71.6	$	56.6	$	3.2	$	59.8
Depletion and depreciation		94.0		21.5		115.5		97.3		20.8		118.1
Segment gross profit	$	232.3	$	16.5	$	248.8	$	148.0	$	24.4	$	172.4

For the six months ended June 30, 2020, there were $1.2 million (H1/2019 - $1.7 million) of depreciation expenses on corporate assets.


2020 Second Quarter Financial Statements	15

Franco-Nevada Corporation

Notes to the Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2020 and 2019

(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)

A reconciliation of total segment gross profit to consolidated net (loss) income before income taxes is presented below:


		For the three months ended				For the six months ended
		June 30,				June 30,
		2020		2019		2020		2019
Total segment gross profit	$	115.5	$	85.0	$	248.8	$	172.4

Other operating (income)/expenses
Impairment of royalty, stream and working interests	$	—	$	—	$	271.7	$	—
General and administrative expenses		11.7		5.6		17.9		12.5
Gain on sale of bullion		(2.4)		(0.4)		(4.4)		(0.8)
Depreciation		0.4		0.8		1.2		1.7
Foreign exchange (gain) loss and other (income) expenses		0.1		—		0.2		—
Income before finance items and income taxes	$	105.7	$	79.0	$	(37.8)	$	159.0

Finance items
Finance income	$	1.0	$	1.2	$	1.9	$	1.9
Finance expenses		(0.8)		(2.5)		(1.9)		(5.0)
Net income before income taxes	$	105.9	$	77.7	$	(37.8)	$	155.9

Note 18 - 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 six months ended June 30, 2020.

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 June 30, 2020	(Level 1)		(Level 2)		(Level 3)		Fair Value
Receivables from provisional concentrate sales	$	—	$	16.0	$	—	$	16.0
Equity investments		137.3		—		3.8		141.1
Warrants		—		2.9		—		2.9
	$	137.3	$	18.9	$	3.8	$	160.0


	Quoted Prices in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs		Aggregate
As at December 31, 2019	(Level 1)		(Level 2)		(Level 3)		Fair Value
Receivables from provisional concentrate sales	$	—	$	16.4	$	—	$	16.4
Equity investments		141.7		—		3.9		145.6
Warrants		—		3.0		—		3.0
	$	141.7	$	19.4	$	3.9	$	165.0


2020 Second Quarter Financial Statements	16

Franco-Nevada Corporation

Notes to the Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2020 and 2019

(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)

The valuation techniques that are used to measure fair value are as follows:

(a)	Receivables

The fair values of receivables arising from gold and platinum-group metal concentrate sales contracts that contain provisional pricing mechanisms are determined using the appropriate quoted forward prices from the exchange that is the principal active market for the particular metal. As such, these receivables are classified within Level 2 of the fair value hierarchy.

(b)	Investments

The fair values of publicly-traded investments are determined based on a market approach reflecting the closing prices of each particular security at the statement of financial position date. The closing prices are quoted market prices obtained from the exchange that is the principal active market for the particular security, and therefore are classified within Level 1 of the fair value hierarchy.

The Company holds one equity investment that does not have a quoted market price in an active market. The Company has assessed the fair value of the instrument based on a valuation technique using unobservable discounted future cash flows. As a result, the fair value is classified within Level 3 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.

The fair values of the Company’s remaining financial assets and liabilities, which include cash and cash equivalents, receivables, loan receivables, accounts payable and accrued liabilities, and debt approximate their carrying values due to their short-term nature, historically negligible credit losses, fair value of collateral, or floating interest rate.

The Company has not offset financial assets with financial liabilities.

Note 19 – Contingencies

Canada Revenue Agency Audit:

The CRA is conducting an audit of Franco-Nevada’s 2012-2015 taxation years.

(a)	Canadian Domestic Tax Matters (2014-2015):

(b)	Mexico (2013-2015):


2020 Second Quarter Financial Statements	17

Franco-Nevada Corporation

Notes to the Condensed Consolidated Financial Statements

For the three and six months ended June 30, 2020 and 2019

(expressed in millions of U.S. dollars, except per share amounts, unless otherwise noted)

credit for 50% of the reassessed amounts of tax, interest and penalties, as referenced in Note 9(a). Further, the Company has commenced an appeal in the Tax Court of Canada with respect to the 2013 Reassessment and the 2014 and 2015 Reassessments.

(c)	Barbados (2014-2015):

The 2014 and 2015 Reassessments also reassess the Company in relation to its Barbadian subsidiary. The reassessments were made on the basis of the transfer pricing provisions in the Act and assert that a majority of the income relating to certain precious metal streams earned by the Barbadian subsidiary should have been included in the income of the Company and subject to tax in Canada, resulting in additional Federal and provincial income taxes of $4.6 million (C$6.5 million) plus interest and applicable penalties. The Company has filed formal Notices of Objection with the CRA against the 2014 and 2015 Reassessments and has posted security in the form of a standby letter of credit for 50% of the reassessed amounts of tax, interest and penalties, as referenced in Note 9(a). Further, the Company has commenced an appeal in the Tax Court of Canada with respect to the 2014 and 2015 Reassessments.

(d)	Barbados (2012-2013):

In July 2020, the Company received a letter from the CRA (the “Proposal Letter”) proposing to reassess the 2012 and 2013 taxation years in relation to its Barbadian subsidiary. The Proposal Letter asserts that a majority of the income relating to precious metal streams earned by the Barbadian subsidiary, in those years, should have been included in the income of its Canadian parent company and subject to tax in Canada as Foreign Accrual Property Income (“FAPI”). The Company does not agree with the Proposal Letter and has responded to the CRA requesting that the proposed reassessments not be issued. If the CRA issues the reaassessments proposed and is successful, the Company’s preliminary estimate is that it would be subject to additional Federal and provincial income taxes of $7.0 million plus interest and applicable penalties before applying available non-capital losses and other deductions. The Proposal Letter notes that CRA’s position may not extend beyond the 2013 taxation year.

Management believes that the Company and its subsidiaries have filed their tax returns and paid all applicable taxes in compliance with Canadian and applicable foreign tax laws and, as a result, no amounts have been recorded in the financial statements of the Company for the Reassessments and Proposal Letter, or for any potential tax liability that may arise in respect of these matters. The Company does not believe that the Reassessments and Proposal Letter are supported by Canadian tax law and jurisprudence and intends to vigorously defend its tax filing positions.


2020 Second Quarter Financial Statements	18

***


99.1	Press Release dated August 5, 2020 – Franco-Nevada Reports Q2 Results

99.2	Management’s Discussion and Analysis for the three and six months ended June 30, 2020

99.3	Interim Consolidated Financial Statements for the three and six months ended June 30, 2020

99.4	Certification of Chief Executive Officer

99.5	Certification of Chief Financial Officer

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	XBRL Taxonomy Extension Labels Linkbase Document

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

	FRANCO-NEVADA CORPORATION


	/s/ Lloyd Hong
Date: August 5, 2020	Lloyd Hong

	Chief Legal Officer & Corporate Secretary




(signed) Paul Brink
Paul Brink, President and Chief Executive Officer
Franco-Nevada Corporation




(signed) Sandip Rana
Sandip Rana, Chief Financial Officer
Franco-Nevada Corporation