We own several resource-based royalty streaming stocks in our portfolio; these companies have just reported record revenues, observes Adrian Day, editor of Global Analyst — and a participant in Money, Metals & Mining Virtual Expo on August 24-26. Register here for free.
Franco-Nevada (FNV) had record production and revenue, with several mines producing above expectations, including their largest and newest major asset, Cobre Panama.
Franco is the most diversified of all the major royalty companies. Cobre Panama accounts for 19% of revenue, Candaleria 10%, with the rest all less than 10%. Following recent major investments in oil & gas and more recently iron ore, the company’s focus is now on precious metals.
With a rock-solid balance sheet, and low costs — G&A accounts for just 3% of revenue, while the company has a margin of 83% thanks to its large number of royalties (as opposed to streams), the company is in top financial shape.
The valuation looks high, but Franco — like the other large royalty companies — has always traded at high multiples because of the low-risk business model and the ability to increase revenues consistently over time.
Franco will be the gold investment of choice for generalists when they return to the market largely because of its long-term history of success. It remains a core holding for us.
Wheaton Precious Metals (WPM) reported record revenues and cash flows, broadly in line with estimate, for a good quarter. It reported a slight delay in the construction of the third phase at Salobo, its largest asset; it added a small gold stream; and increased its dividend for the fourth consecutive quarter for a yield of 1.4%.
Its policy is to pay around 30% of the prior four quarters cash flow. Wheaton, debt free, increased cash to $235 million; it has $2 billion on its line of credit. Wheaton is a long-term holding for us. If you do not already own it, you can buy it here.
Royal Gold (RGLD) also achieved record revenues. Two large assets are in the ramp-up phase — Cortez (as far as RGLD’s royalty ground) and Khoemacau (with first delivery in July) — and these could see the company beat its full-year guidance.
Their two largest assets, each a little under 20% of revenues, had mixed results. Pueblo Viejo had low silver recoveries, though the operators expect that to improve in coming quarters.
Mount Milligan’s operator said water access had improved and they expected the mine to perform well for the balance of the year as they continue to seek a long-term solution.
The company made two significant acquisitions during and after the quarter, including two on producing mines, a 1% royalty on Red Chris, and a large stream on producing NX mine.
The company remains in strong financial shape with $226 million cash, $100 million in debt, and around $1 billion available on its line of credit. It can be bought by those underinvested in the sector.
Osisko Gold Royalties (OR) reported record royalty ounces. Though 75%-owned Osisko Development (OD) reported some promising exploration results, particularly at Cariboo, that division affected Osisko’s financial results negatively. (Osisko consolidates OD results.)
The company made a couple of small but interesting royalty acquisitions, including a package of royalties over exploration properties in the Western U.S., and a royalty on a Brazilian project that Eldorado subsequently sold, potentially setting up the project for development.
Another new investment, initially a small one, is in a private company, Carbon Streaming, but gives Osisko the right to participate at 20% in all new transactions, with potentially mid-teen returns.
Cash declined as did debt, though by a smaller amount. Osisko, ex-OD, has $88 million in cash. It increased its credit facility to C$550 million, and increased its dividend by 10% (for a yield of 1.4%). Osisko is trading at a small discount in valuation to similar royalty companies. Buy, under $12.50, if you do not own.