2010 Annual Report Delivering superior returns to gold investors GOLD PGMs OIL & GAS Tasiast, Mauritania Contents Tasiast is a world-class 2010 Results 2 gold discovery on which 2010 Highlights 3 Franco-Nevada has a 2% Letter to Our Shareholders 4 revenue-based royalty. Kinross Gold is expanding Asset Portfolio 6 operations with the potential Global Assets (map) 8 for 1.5 million ounces Royalties & Streams 10 per annum by 2015. Assets 11 Corporate Responsibility 23 Directors 24 Management’s Discussion and Analysis 25 Auditors’ Report 51 Consolidated Financial Statements 52 Corporate Information 76 Annual and Special Meeting Franco-Nevada Corporation will hold its Annual and Special Meeting at the TMX Broadcast Centre, Exchange Tower, 130 King Street West, Toronto on Wednesday, May 18, 2011 at 4:30 pm (Toronto time). uture Our fi nancial results and other dollar references are in U.S. dollars unless otherwise indicated. As our shares trade only on the Toronto Stock Exchange, references to our share price performance are in Canadian dollar terms. “Royalty Revenue”, “Free Cash Flow”, “Adjusted Net Income” and “Margin” are non-GAAP measures and are defi ned and reconciled to GAAP in Management’s Discussion and Analysis. Our Annual Report is supported by further information and explanatory notes in our Annual Information Form available on www.sedar.com and our ur F website www.franco-nevada.com. All our disclosure should be read with reference to the cautionary language regarding reliance on forward-looking information and property information contained in our Annual Information Form and Management’s Discussion and Analysis. O Franco-Nevada Corporation is a gold-focused royalty and stream company with additional interests in platinum metals, oil & gas and other assets. It is the leading gold royalty and stream company by both gold revenues and number of gold assets. The Company trades under the symbol FNV on the Toronto Stock Exchange and is part of the S&P/TSX Composite Index. Since its IPO in late 2007, Franco-Nevada has delivered superior returns to investors through its diversifi ed portfolio of high-margin, cash fl ow producing assets located principally in North America. The Company also has a growing pipeline of development projects and interests in some of the largest new gold discoveries in the world. Franco-Nevada provides more yield and upside than a gold ETF with less risk than an operating gold company. Its proven business model provides exposure to exploration discoveries while providing protection from cash calls and cost infl ation. Franco-Nevada has a strong, debt-free balance sheet and is generating growing cash fl ows that are being used to add to the portfolio and to increase dividends. Management and the Board are signifi cant shareholders and are dedicated to the maximization of Franco-Nevada’s share price. Franco-Nevada Corporation 1 2010 Results US$ millions (except per share and %s) 2010 2009 2008 Revenue $ 233.3 $ 199.7 $ 151.0 Royalty Revenue* 205.4 142.8 150.6 Net Income 74.2 80.9 40.3 Adjusted Net Income* 58.9 32.0 47.3 Adjusted Net Income* per share $ 0.52 $ 0.30 $ 0.48 Free Cash Flow* 184.8 124.3 131.7 Free Cash Flow* per share 1.62 1.16 1.34 Margin* 90% 87% 87% Dividends Paid 33.3 28.2 21.8 Dividends Paid per share C$ 0.30 C$ 0.28 C$ 0.24 (as at December 31) Cash & Cash Equivalents $ 413.9 $ 122.6 $ 73.2 Long-Term Debt nil nil nil Total Shareholders’ Equity 2,102 1,930 1,434 Market Capitalization* $ 3,830 $ 3,201 $ 1,743 * Non-GAAP measures Growing Gold Revenues 80 70 60 50 40 Oil & Gas and Other ($ millions) 30 20 PGM Gold 10 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2008 2009 2010 2 Franco-Nevada Corporation 2010 Highlights Another year of strong fi nancial performance: • $205 million of Royalty Revenue – up 44% • $185 million of pre-tax Free Cash Flow – up 49% • 90% margin • Over $400 million in cash and cash equivalents • No debt or hedges A growing gold business: • 50% growth in gold Royalty Revenue over 2009 • Strong performance from core assets • Precious metals now 81% of Royalty Revenues and growing • Tasiast and Detour now +20 million ounce projects • Gold Wheaton streams added in Q1 2011 Maximizing Franco-Nevada’s share price: • Share price up 135% since IPO • Over $83 million of dividends paid in our fi rst 3 years • Strong track record of successful acquisitions • Well capitalized for future opportunities Outperforming Markets and Gold since our December 2007 IPO 250% FNV Gold S&P 200% 150% IPO 100% 50% 0% Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2007 2008 2009 2010 2011 Franco-Nevada Corporation 3 Letter to Our Shareholders “Franco-Nevada has thrived through the ups and downs of the last three years.” It is with great pleasure that we present to you, our shareholders, 3. Our large portfolio provides a perpetual discovery option. our 2010 Annual Report. This marks the third full year since Franco-Nevada has over 340 royalty and stream property Franco-Nevada was reborn as a public company. These three years interests covering over six million acres of mineral lands. Any have been anything but normal! In that time, the developed world discovery made by the operators on these lands comes at no has witnessed the most severe fi nancial crisis since the Great cost, yet can create signifi cant value. Real wealth in the resource Depression. Developed world governments and central banks industry is created by the drill bit. Our three most valuable have turned to easy money policies to fi nance record defi cits. royalties (Goldstrike, Tasiast and Detour) should generate over During the same period, commodity prices were only temporarily $2 billion of royalties over their life of mines. All three were impacted and are now hitting all time highs. It is clear that today’s originally acquired for less than $7 million combined! This global economy is no longer defi ned by the U.S. and Europe. goes to show how valuable the discovery option really is. The pace of urbanization in the developing world is driving the construction of cities comparable in scale to Toronto, with fi ve 4. Management is focused on growth. As a royalty and stream million people, every three to four months. This is very capital holder, Franco-Nevada is not focused on day to day operational intensive and will continue to drive the need for commodities. or development issues. We have the luxury of working as a small team with little overhead and can stay focused on Franco-Nevada has thrived through the ups and downs of the how to grow the Company and add shareholder value. last three years. We were able to make very accretive asset acquisitions during the crisis. We have also benefi ted from 2010 was a great year for Franco-Nevada. Royalty Revenue the strong equity markets which have provided capital to the increased to $205 million, a 44% increase above the level operators of our properties. As a result, our producing assets in 2009. Royalty Revenue was over 80% from precious metals are benefi ting from added capital investment and expansions. refl ecting growth from our original portfolio, new acquisitions On our advanced and exploration properties, we are seeing and, of course, from higher gold prices. Our pre-tax Free Cash projects now being fi nanced into production and new world Flow margin remains one of the highest of any business. During class discoveries. With all this good news, Franco-Nevada’s the year we again increased our dividend and moved from share price has risen in each of the past three years and is now semi-annual to monthly dividend payments. over 135% higher than when we launched the IPO. Our market The outlook for 2011 and the next fi ve years is excellent. On capitalization is now over $4 billion. Our balance sheet is strong top of our 37 currently producing mineral assets, there are 23 and our outlook has never been stronger. We continue to benefi t advanced projects that have the potential to start contributing from a business model that has proven to deliver value for our revenues to Franco-Nevada. Among the larger advanced projects, shareholders through both up and down markets. Here’s why: two stand out because of their +20 million ounces of gold 1. Our fi rst money is our last. The majority of our inventory. The Tasiast mine in Mauritania which is operated by royalties and streams are not subject to capital and Kinross Gold starts royalty payments to Franco-Nevada in 2011. operating cost infl ation. We are effectively free of Kinross has projected that production could reach 1.5 million gold traditional operating cash calls, commitments and related ounces per year by 2015. The Detour project in Ontario operated liabilities. Ours is truly a free cash fl ow business. by Detour Gold is now fi nanced and construction has started with production expected in 2013. A third signifi cant project with a 2. This is a high margin business. Franco-Nevada’s pre-tax 10 million ounce potential is the Subika mine operated by Free Cash Flow margin in 2010 was over 90% of Royalty Newmont in Ghana. On all three of these projects, Revenues. High margins mean we can generate cash through Franco-Nevada has a 2% revenue royalty. the entire business cycle allowing us to buy attractive assets when few others can.