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Franco-Nevada: "Peace of Mind" in Gold
02/15/2016 7:00 am EST
The underdog play of the year—gold—is shining. I haven’t recommended precious metals since late 2011, but now looks like a good time to jump aboard, explains Mark Skousen, editor of Forecasts & Strategies.
Franco-Nevada (FNV), the Toronto-based royalty company, is one of the few gold mining firms that fit most of our criteria for “peace of mind” investing.
Franco-Nevada is a finance company. It finances miners in exchange for the right to a portion of the gold, silver, or other metals produced by them in the future.
It is what’s known as a streaming company. A mining company owns a physical asset—a mine—and has to face the complexities and costs of operating what it owns.
Franco-Nevada doesn’t own or operate any mines. It provides cash to the mining company and receives a cut of the value of the metal when it is produced.
FNV has done surprisingly well with this moneymaking formula over the years. Unlike the vast majority of mining companies, it is making money.
Although revenues and earnings were down last year, it succeeded in making $57 million in profits on $445 million in revenues, a 13% profit margin.
The finance company is conservatively managed. It has $613 million in cash and no debt right now. It has streaming deals with 246 mineral assets in the United States, Canada, and Latin America.
It also owns 136 oil and gas assets, so to some extent it is a play on the recovery of oil as well.
The stock price has been surprisingly stable over the past five years while gold has been in a bear market. It even managed to raise its dividend last year to 21 cents per share each quarter.
FNV is selling significantly above its book value. It is also selling at a high 95 times this year’s projected earnings. But with gold prices rising, expect earnings to move up. Let’s add Franco-Nevada to our portfolio.
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