The big three royalty and streaming companies have just reported results; all three had good quarters — close to expectations and maintaining annual production guidance, reports Adrian Day, editor of Global Analyst.
All three have also undertaken small transactions in recent months, and all three are now debt free, with rock-solid balance sheets.
Wheaton Precious (WPM) reported broadly in line with expectations, though sales were a little stronger on slightly weaker production, due to sales from inventory. Production was affected by maintenance and heavy rains at its largest streaming asset, Salobo. The expansion at that mine is now 90% complete, and Wheaton reiterated its guidance for the year of between 700,000 and 760,000 gold-equivalent ounces (GEOs).
Debt free, Wheaton increased its cash balance to $376 million, with liquidity of $2.4 billion. Under its dividend policy of distributing about 30% of the prior year’s free cash flow, the dividend remains for the next two quarters but may increase thereafter; the current yield is 1.36%. If you do not own Wheaton, this is a good price level, but, given the near-term uncertainly on the gold price, we would look for addition weakness to add.
Franco-Nevada (FNV) reported slightly higher than expected, mainly due to better-than-expected oil & gas revenues. It maintained its full-year guidance of between 680,000 and 740,000 GEOs (which now include the oil and gas).
Like Wheaton, Franco did a few small transactions in the last couple of quarters, but no large deals. Also like Wheaton, Franco has some growth “baked in” from existing assets, in its case the ongoing ramp-up at its largest asset, the gold stream on the Cobre Panama copper mine.
Franco has $1.7 billion in available liquidity, including $723 million in cash and no debt. Franco remains a core holding, but we would look for additional weakness before buying, especially if the broad market is weak.
Royal Gold (RGLD) also reported slightly better than expected, due in its case to higher gold from its major asset, Mt Milligan. It is maintaining its full-year guidance of between 315,000 and 340,000 GEOs. Like the other two, Royal has built-in growth this year, from the ramp up in the new Khoemacau copper mine in Botswana, on which Royal has a silver stream.
Having paid of its debt in the last quarter, it too is debt free, with $184 million in cash, and $1 billion on its credit facility. Royal’s stock had the largest increase earlier in the year––for reason––and has retreated less. We would wait to add to positions.
The Foundation of our Gold Portfolio
These three royalty and streaming companies tend to be expensive, with valuations multiples above the miners. But the balance sheets are stronger for the most part, with the certainty of cash flow higher and the exposure to inflation –– as well as other costs and risks –– lower.
Wheaton is now trading lower than Franco on all metrics: 3.1 times price-to-book vs 3.7 times; cash flow of 24 times vs 30; and free cash flow 66 versus 74. Royal, at 19 times, is lower on cash flow, and in the middle on price-to-book at 3.4 times.
Royal Gold is the smallest of the three, with a market cap of $8.5 billion with Wheaton at $20 billion and Franco at almost $29 billion. Franco has the highest cash, the most diversified portfolio, and the deepest pipeline, but all three rate highly on all these criteria.
All of the “big three” royalty and streaming companies are long-term holdings for us, and form the foundation of our gold portfolio. We are holders, but looking for lower prices to add.
