Franco-Nevada Corp. (FNV) just held its annual investor day. The company laid out its strengths, including consistent returns, disciplined capital management, financial flexibility, and its adaptable approach, highlights Adrian Day, editor of Global Analyst.
Company officials also discussed their willingness to provide debt and equity in addition to royalty and stream financing, as well as to make large investments in resources other than precious metals.
Franco-Nevada Corp. (FNV)
Franco called the current deal environment “healthy” – and the company clearly has the means to transact. It has also indicated that it would like its next major transaction to be in gold, but the company has typically been cautious when prices are high.
FNV has room to meaningfully increase its non-gold exposure, with a soft cap of 20% of revenues (last year saw 14% in non-gold revenues). This was partly due to relative price appreciation, particularly with the oil price declining modestly last year while the gold price jumped 70%.
The company also noted the recent approval by the Panamanian government to allow processing and export of stockpiled ore at Cobre Panama, which will give Franco about 27,000 ounces over the next 12 months. The report of an environmental audit is expected this month. That will be a positive step towards the eventual resumption of operations.
Excluding that mine, Franco is guiding to between 510k and 570k GEOs this year, with five-year guidance of 555k to 615k, likely somewhat conservative. The company noted that beyond 2030, it has existing optionality from over 230 different assets currently not in production.
Franco is in the best financial condition of all of the royalty companies, with $1.5 billion in cash plus $1.5 billion available on its credit line. It is a core holding for us because of its management, balance sheet, diversified asset base, and counter-cyclical approach to the highly cyclical resource business.
Recommended Action: Hold FNV.
