Franco-Nevada (FNV) is the largest and longest established of the precious metal and oil and gas royalty and streaming companies, with a market cap of almost $38 billion, explains Gavin Graham, a contributing editor to Internet Wealth Builder.
Its portfolio of royalties and streams is diversified geographically and by different types of metals and energy. Having risen over six times since being recommended in 2010, Franco-Nevada is by far the best performing major precious metals mining stock over the last decade.
In the nine months ended Sept. 30, Franco- Nevada produced 546,074 gold equivalent ounces (GEO), unchanged from the previous year. Revenue was up 2% to $995.3 million (the company reports in US dollars).
Net income and adjusted net income were up 4% and 5% respectively to $535.6 million ($2.80 per share) and $532.7 million ($2.78) at a margin of 84.8%. Revenue, GEO, net income, and adjusted net income were all records.
The company generated $232.3 million in operating cash flow for the third quarter, had no debt, and $2 billion in available capital. Year to date, revenues from precious metals were $746.6 million (78.2% of the total), $78.2 million (7.8%) from iron ore and base metals, and $147.5 million from oil and gas (15%).
In October, Franco-Nevada acquired a 2% net streaming return (NSR) royalty on Argonaut Gold’s Magino mine in Ontario for $52.5 million and a $10 million private placement. The mine is approximately 70% complete with the first pour due in April.
FNV also acquired a 2% NSR on Westhaven Gold’s gold claims in southern BC for $6 million after finalizing a $325 million package for G Mining’s Tocantinzinho project in Para Brazil.
Its royalty on the giant copper/gold Cobre Panama mine may be affected by the tax dispute between its operator First Quantum and the government, which has threatened to suspend its mining license. First Quantum has agreed to pay a minimum of $375 million a year in taxes for the next few years, plus a 12-16% royalty.
The dispute is about what reductions may be necessary in the event the copper price falls substantially. Negotiations continue with both sides expressing hopes that a resolution will be found soon.
Action now: Franco-Nevada remains a Buy as the lowest risk way to play an increase in the price of precious metals and oil and gas, with wide geographical and commodity diversification.
