Franco-Nevada President/CEO David Harquail
Source: Franco-Nevada Corp.
- Canadian regulations and resource politics detract investment, Franco-Nevada's CEO argues
- U.S. regulatory changes are attractive
- Franco-Nevada avoids companies in jurisdictions like China and Russia
As a resource investing destination, Canada is losing sway to the U.S., says David Harquail, president and CEO of Franco-Nevada Corp., a resource royalty company. In a recent interview with S&P Global Market Intelligence, Harquail rails against regulation in Canada and praises the relative ease of making some investments in the U.S. He also criticizes Canada in its bid to reshape the permitting process, a contentious issue where there are differing views. The following is an edited and condensed version of the interview.
S&P Global Market Intelligence: What's your view of resource investing, Canada versus the U.S., where in both countries the federal governments are pushing changes to regulations?
David Harquail: A switch started two and a half years ago. Western Canada became unfriendly for oil and gas investments. The problem is you have NDP governments, carbon taxes being put on by Justin Trudeau, all these pipeline problems and potential border restrictions. So you sit there realizing no one is going to put capital in the ground in western Canada when there are better places to put it.
And so we looked and asked, "If you were an oil and gas company where would you invest capital?" It was absolutely clear: Texas and Oklahoma. So we started looking in Texas and did our first deal about 18 months ago.
I have to say it was refreshing. You go out there and you realize you can buy the mineral rights. And the typical royalty in Oklahoma and Texas is 25% on top of the gross. So when someone like Exxon Mobil Corp. pays out US$6 billion for oil on a ranch, the royalties left behind are worth another US$6 billion, for example. And they're all owned by individuals.
The biggest thing the mining industry faces is every government just changes what their tax rate will be on mine rights because there's no political support. It's easy to take from companies. But if any congressman or senator tried to propose that in the U.S. you'd have 12 million people (with royalty rights) after them with guns to defend their constitutional rights to own them.
Further, in the U.S. you don't have price differentials because you can get product to market, unlike in Canada where there's a US$20-a-barrel discount. Trump has also facilitated deregulation. So we've now deployed US$450 million on U.S. oil and gas assets in the past 18 months. Everything is being developed faster and with more productivity than what we expected. I expect we'll be picking up our pace there.
On greater investment interest in the U.S., would you include metals and mining?
Oil and gas is easy because there's so much out there. We bought some metal royalties in Nevada on Gold Standard Ventures Corp. land. We're happy with that. There tends to be more competition on gold royalties because they are fewer and far between. But we're bidding on everything that is out there.
Coming back to a point you made about your view on Canada in comparison to the U.S., what's your view of new environmental legislation in the works in Canada?
I was just reading a statement about it and it said your feasibility study has to address the overall cumulative impact of projects, assess benefits to communities, sustainability and diversity in terms of how a company involves different segments of the population. And to me — it's not politically correct to say — it's not the job of the business people to be doing these types of things.
And now they're doing the strategic metals push in the U.S., saying, "If you have something strategic we're going to push your permitting forward." To me I'm sitting here saying — I don't want to sound like a Trump fan — on a relative place to put capital the U.S. is far better than Canada right now. It's unfortunate.
Is there a country you wouldn't invest in?
Turn it around. The biggest risk the mining industry faces is basically extortion by governments. There's no political constituency. If you're in a country like Tanzania, or in the DRC, or Dominican Republic, the governments just say, "We need more money. And the resources belong to us. And we're going to change the tax rate, despite agreements. We're just going to do it."
And the mining companies really have no recourse. They try to save the best they can. It used to be in the old days, such as when you had the Latin American revolutions 30 years or so ago, they would expropriate. No one expropriates anyone anymore. What they do now is throttle you to the point where you're about to leave the country.
What we want to do is have the operator beholden to us to pay us regardless of what happens in the country. We tend to work with Western operators. We have our contracts in courts of law that respect property rights, be it the U.S., the U.K., Canada or Australia. I can follow a Western operator anywhere in the world.
What we won't do is a royalty with a Russian company in Russia, because then we have no recourse, or a Chinese company in China because again we don't have the teeth of a legal agreements to enforce our rights.