Franco-Nevada (FNV) isn’t some overlooked gem that no one knows about. But it is very cheap and you can buy it at 2012 prices today, explains Nick Hodge, resource sector expert and editor of Wall Street's Underground Profits.
And that’s because gold equities across the board have been thrashed. Most major gold mining stocks are down 50% to 85% in the past 10 years. But one company is up more than 30% over that time — Franco Nevada.
And it’s because of the way it operates. It doesn’t own, operate, develop, or explore for gold mines. Instead, it owns a large portfolio of royalties and streams on some of the best gold mining projects in the world.
You’ll recognize some of them instantly. For example, FrancoNevada bought a 2%-4% net smelter return (NSR) royalty and a 2.6%-6% net profit interest (NPI) royalty on Goldstrike — the largest gold mine in North America, owned and operated by Barrick (BRK). From those alone FrancoNevada generates around $20 million in revenue annually.
It owns hundreds of royalties on projects in various development and production stages and various geographic locales, including more that you’ll recognize.
FrancoNevada has a deal to receive 6% of production from the Sabodala mine. That mine is owned and operated by Teranga Gold, which is a recommendation of this publication.
FrancoNevada also owns a 1.7% NSR on future production from the Stibnite mine in Idaho. This project is owned by Midas Gold, which happens to be one of our top recommendations. In total, it has 211 deals in the precious metals space, 84 “other” mining deals, and 82 in the oil and gas space.
You also get a bit of diversification because around 7% of the company’s revenue comes from oil and gas deals. That’s not a bad place to be with America’s shale basins now cranking out record barrels. In fact, Franco estimates 2018 revenue from oil and gas will be upwards of $75 million, well above the $47 million generated in 2017.
Guidance for 2022 is a 17% increase in gold equivalent ounces sold per year from 2017 and a 155% increase in oil and gas revenues. Mining would still be over 85% of the business.
And you also get a dividend. It’s 1.55% annually at last check. I like the timing at this point in the cycle, with FrancoNevada stock trading at the same price it was in 2012. I like the commodity and geographic diversification. I like the oil and gas kicker.
