Franco-Nevada (FNV) — my top conservative investment idea for the coming year — is a leading royalty company in the gold space, suggests resource sector specialist Adrian Day, editor of Global Analyst.
Despite a consistently strong stock price in recent years, through thick and thin in the gold mining business — the stock is up from under $40 at the end of 2015 — we are returning to Franco for the simple reason that it is best-of-class, a true “sleep-well-at-night” investment.
Franco’s business model gives it upside exposure but downside protection in the notoriously challenging and volatile mining industry. It acquires royalties (and their cousin, the “stream”) from mining companies. The mining company might need development capital, or it could want to repair its balance sheet.
In short, Franco makes an upfront payment and in return receives a percentage of the production that comes form the mine. It has been a very successful business, with another record of GEOs (“gold equivalent ounces”) received.
Although primarily holding gold assets, Franco also generates revenue from other resources, including silver and even oil.
Significantly, Franco’s newest and largest stream investment, Cobre Panama, a copper mine from which Franco receives the gold by-product, made first deliveries after announcing commercial production September 1st, ahead of guidance. This removes lingering caution on the $1 billion plus recent investment.
Franco has the best management in the mining business. There is currently a changing of the guard at the top, with CEO David Harquail becoming chairman of the board in May, while founder Pierre Lassonde becomes chairman emeritus. Paul Brink, president and chief operating officer, will become CEO.
Both Lassonde and Harquail have outstanding reputations in the gold industry, and will still be heavily involved with the company, while Mr. Brink has certainly proven himself over the years with the very strong transactions he has supervised.
Franco may not be the top-performing gold stock over the next 12 months, but in a positive environment, I envision returns that will satisfy any conservative investor, while the downside for the low-risk business model remains far lower than for the typical gold stock.
Any conservative investor wanting exposure to the gold sector — and I believe this is a good time to be buying gold — should look no further than Franco-Nevada.
(Editor's Note: Adrian Day's Top Pick for conservative investors in 2019 was Gladstone Investment (GAIN) which rose 60% plus a 9.7% yield. He continues to hold the stock noting that insiders are buying, and the stock is an attractive investment for an above-average and growing income stream.)
