Gold has had a difficult few months. After a modestly upward trend until mid-April, gold then started its downward trajectory, falling from $1,350 to under the psychologically important $1,200 mark, notes Adrian Day, resource sector expert and editor The Global Analyst.

The U.S. economy, stock market, and particularly dollar, have all been broadly positive for most of the year, making it a difficult environment for gold, with demand for the metal sliding.

Amid this gold decline and a collapse in sentiment, mutual fund company Vanguard decided to get out of the gold market. The largest precious metals fund by far — virtually twice the size of the next largest — is to change its name and mandate from the Precious Metals Fund to the Global Capital Cycles Fund.

Vanguard shunning gold at this point may prove to be a contrary indicator of historical proportions. This gives us the opportunity to buy great companies on sale, as well as to make some short-term trades is grossly oversold stocks.

Our friend and commodity expert Rick Rule likes to say “don’t buy hamburger when filet is on sale.” The filet, nay, the wagyu of the gold market is Franco-Nevada (FNV) on sale now at its lowest price in over a year.

The royalty business model limits risk in the gold mining business, but does not eliminate it, and certainly does not mean that royalty companies are not exposed to lower gold prices. Thus, in latest results just released, Franco said its “gold equivalent ounces” declined on the previous year, and revenue was also marginally lower.

The decline in ounces resulted primarily from lower grades and recoveries at one of its major assets, the Candelaria mine. Franco expects this to be a short-term problem, while also pointing out that the mine is now delivering more ounces than originally expected at the time of Franco’s acquisition of a royalty on the mine.

Another of its major assets, the Antamina mine, delivered fewer silver ounces than expected. These are two of Franco’s cornerstone assets, four large copper mines from which the company receives gold and silver by-product streams, which together account for some 50% of total revenues.

The average gold price in the second quarter was also the lowest of the past five quarters, driving down the metals revenue received. Offsetting that were the oil and gas revenues, which saw a very strong quarter with both increased production and higher prices than both the previous quarter and the year-ago quarter.

With its cash at low levels — just $72 million — Franco will draw into its $1 billion credit facility for the acquisition as well as the final payment due later this year on the Cobre Panama stream acquisition. Next year, with revenue starting from that large copper mine in Panama, as well as other revenue, Franco expects to “easily pay off” the credit line.

This will be only the second time in its history that Franco has gone into debt, and, as with the last time, it will be only for a very short-term. Franco’s objective remains to generate at least 80% of its revenue from precious metals, and despite the recent acquisitions in oil and gas, it is still above that goal today.

We consider Franco-Nevada to be the premier gold company around. Diversified assets, a deep pipeline, a strong balance sheet, and disciplined, counter-cyclical management make Franco a sleep-well-at-night gold stock. Down from $75 at the beginning of last month, Franco is a strong buy under $67.

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