EXPLANATION OF ROYALTIES, STREAMS AND OTHER INTERESTS

A royalty is a payment to a royalty holder by a property owner or an operator of a property and is typically
based on a percentage of the minerals or other products produced or the revenues or profits generated from
the property.

The granting of a royalty to a person usually arises as a result of: (i) paying part of the consideration
payable to land owners, prospectors or junior mining companies for the purchase of their property interests;
(ii) providing capital in exchange for granting a royalty; or (iii) converting a participating interest in a joint
venture relationship into a royalty.

Royalties are not working interests in a property. Therefore, the royalty holder is generally not responsible
for, and has no obligation to contribute, additional funds for any purpose, including, but not limited to,
operating or capital costs, or environmental or reclamation liabilities. Typically, royalty interests are
established through a contract between the royalty holder and the property owner, although many
jurisdictions permit the holder to also register or otherwise record evidence of a royalty interest in
applicable mineral title or land registries.

The unique characteristics of royalties provide royalty holders with special commercial benefits not
available to the property owner because the royalty holder enjoys the upside potential of the property with
reduced risk. The key types of revenue-based royalties are described below:

Net Smelter Return (“NSR”) royalties are based on the value of production or net proceeds received by
the operator from a smelter or refinery. These proceeds are usually subject to deductions or charges for
transportation, insurance, smelting and refining costs as set out in the royalty agreement. For gold royalties,
the deductions are generally minimal, while for base metal projects the deductions can be much more
substantial. This type of royalty provides cash flow that is free of any operating or capital costs and
environmental liabilities. A smaller percentage NSR in a project can effectively equate to the economic
value of a larger percentage profit or working interest in the same project.

Gross Royalties (“GR”) or Gross Overriding Royalties (“GOR”) are based on the total revenue stream
from the sale of production from the property with few, if any, deductions. Some contracts refer to Gross
Proceeds (“GP”) which have been characterized as comparable to Gross Royalties in this document.

Overriding Royalties (“ORR”) and Lessor or Freehold Royalties (“FH”) are based on the proceeds
from gross production and are usually free of any operating, capital and environmental costs. These terms
are usually applied in the oil and gas industry.

Profit-based Royalties: These royalties are based on a portion of its revenues from royalties that are
calculated based on profits, as described below:

Net Profit Interest (“NPI”) is based on the profit realized after deducting costs related to production as set
out in the royalty agreement. NPI payments generally begin after payback of capital costs.

Although the royalty holder is not responsible for providing capital, covering operating losses or
environmental liabilities, increases in production costs will affect net profits and royalties payable. The
royalty types listed above can include additional provisions that allow them to change character in different
circumstances or have varying rates. Some examples are as follows:

Minimum Royalty (“MR”) is a provision included in some royalties that requires fixed payments at a
certain level even if the project is not producing, or the project is producing at too low a rate to achieve the
minimum.

Advance Minimum Royalty (“AMR”) is similar to an MR except that, once production begins, the
minimum payments already paid are often credited against subsequent royalty payments from
production that exceeds the minimum.
Sliding Scale Royalty (“Sliding Scale” or “ss”) refers to royalties where the royalty percentage is
variable. Generally this royalty percentage is indexed to metal prices or a production threshold.
Generally, a minimum or maximum percentage would be applied to such a royalty.

Capped Royalty (“Capped”) refers to royalties that expire or cease payment after a particular
cumulative royalty amount has been paid or a set production volume threshold or time period has been
reached.

Royalties can be commodity specific and, for instance, apply only to gold or hydrocarbons or have varying
royalty structures for different commodities from the same property. Royalties can be restricted or varied
by metallurgy, ore type or even by stratigraphic horizon. Generally, the contract terms for royalties in the
oil and gas business are more standardized than those found in the mineral business.

Streams: Streams are distinct from royalties. They are metal purchase agreements where, in exchange for
an upfront deposit payment, a company has the right to purchase all or a portion of one or more metals
produced from a mine, at a preset price. In the case of gold, the agreements typically provide for the
purchase price to be the spot price at the time of delivery with a fixed price per ounce payable in cash and
the balance paid by applying the upfront deposit. Once the upfront deposit is fully applied, the purchase
price is the fixed price per ounce payable in cash (with a small inflationary adjustment).

Gold streams are well suited to co-product production providing incentive to the operator to produce the
gold. The stream structure also helps maintain the borrowing capacity for the project. Streams can provide
higher leverage to commodity price changes as a result of the fixed purchase price per ounce.

Working Interests (“WI”): A working interest is significantly different than a royalty or stream in that a
holder of a WI owns an undivided possessory interest in the land or leasehold itself, and is liable for its
share of capital, operating and environmental costs, usually in proportion to its ownership percentage, and
it receives its pro rata share of revenue. Minority working or equity interests are not considered to be
royalties because of the ongoing funding commitments, although they can be similar in their calculations to
NPIs.

Example of a Royalty (NSR or NPI) versus a Stream:

Assume for one ounce of gold, a sales price of $1200 and “all in” operating and ongoing capital costs of
$800. Also assume that the royalty holder has a 4% NSR, a 4% NPI or WI or a 4% stream with a pre-
determined $400 per ounce purchase cost.

NSR Stream NPI or WI

One ounce sold at $1200 $1200 $1200
Applicable cost - $400 $800
Margin for calculation $1200 $800 $400
NSR, Stream or NPI % 4% 4% 4%
Revenue per ounce to Royalty holder $48 $32 $16

Based on the above economics, a comparable percentage NSR is three times more valuable than an
equivalent NPI or WI and 50% more valuable than a stream interest. With changes to the gold price, the
NPI or WI would demonstrate the most leverage while the NSR would provide the most down side
protection. The stream provides commodity price leverage similar to a low cost operating company with
more certainty as to future costs.

Franco-Nevada Corporation Annual Information Form - March 24, 2011