Franco Nevada is the leading gold-focused royalty and stream company. It is the largest company by both gold revenue and the number of gold assets. The company provides financing to miners in exchange for the right to buy gold at contractually discounted rates in the future and in return gets access to precious metals without any mining work.
Franco Nevada is the world’s largest and most successful gold royalty company. The company’s portfolio is highly diversified by commodity, geography, revenue type and projects. Franco Nevada has interests in 227 exploration stage mineral properties including 202 precious metals assets and 25 other exploration assets.
Over 88% of Franco’s revenue (Q1 2019) was derived from gold and gold equivalents (63% gold, 11% silver, 11% PGM and 3% other mining assets) and 12% from energy (oil, gas, and NGLs). Geographically, Americas is its largest market accounting for over 80% of total revenues – 42% Latin America, 18% U.S. and 20% Canada, followed by the rest of the world. The company has low exposure to operating risks and provides investors with gold price and exploration optionality.Investment Data
- Opportunity Score: 54
- Ticker: TSE:FNV
- Sector: Basic Materials
- Industry: Metals & Mining
- Market Cap: 24.28B
- P/E: 92.09
- Dividend Yield: 1.03
- Dividend Payout Ratio: 94.68
- Chowder Score: Dividend Snapshot Members Only
- 3, 5, 10-year Revenue Growth: Dividend Snapshot Members Only
- 3, 5, 10-year Dividend Growth: Dividend Snapshot Members Only
Revenue Growth & Market Exposure
Franco Nevada strives to generate 80% of revenue from precious metals such as gold, silver, and PGM over the long term. The balance 20% will be sourced from energy business, which provides a good diversification from its precious metals business especially at the time of weakness in pricing.
Franco Nevada’s revenues have compounded at 15.7% per annum over the last decade. The company is expecting a good growth rate in its gold equivalent ounces over the next five years on the back of improved production from its key assets, primarily in Latin America. It is also in a good position to benefit from an increasing number of gold investment opportunities. Franco Nevada’s Cobre Panama, which is its largest investment has now begun milling ore. The company is expecting this project will reach its initial 85 million tonnes per year mill throughput capacity before 2023 with no additional expansion. Franco Nevada is also anticipating its U.S. energy royalties to grow over the next five years. In numbers, the company expects royalty and stream production to total 465,000 to 500,000 GEOs from its mining assets. That is a growth of 7.7% from 2018 actual production.
Franco Nevada’s business model does not involve costs other than the initial investment and limits the risks associated with operating companies. The company is a gold investment firm. Gold is regarded as the safest form of investment and investors look at gold when they seek a safe haven. Investors generally hold a certain portion of gold in their portfolios to seek a safe and good diversification option.
Franco Nevada is a Canadian Dividend Achiever. The company has increased its dividend for the 12th consecutive year since its IPO in 2007. It sports an average annual dividend yield of 1.2% with a high payout ratio. It last raised its dividend payout by more than 4% and has an impressive 10-year dividend CAGR of 14.7%. A high payout ratio indicates that dividend is covered by earnings.
Franco Nevada’s earnings have grown at more than 50% CAGR in the last five years. The company is debt free and uses its free cash flow to fund its capital expenditures. Its business model provides high margins and low overheads which enables to generate ample free cash flow.
Franco Nevada’s business is a free cash-flow business that is capable of generating cash through the entire commodity cycle. It is a high margin business characterized by a strong balance sheet which enables it to sustain investments even during commodity cycle downturns. The company uses its free cash flow to expand its portfolio and pay dividends.
Franco Nevada competes with the likes of Newmont Gold Corp., Wheaton Precious Metals and Royal Gold. Wheaton Precious Metals is the world’s largest pure streaming company with exposure to silver and gold. Newmont is a leading gold producer headquartered in Colorado, while Royal Gold is another precious metals stream and royalty company focusing on gold. However, Franco Nevada’s unique business model sets it apart from peers.
|ABX||Barrick Gold||Basic Materials||Metals & Mining||28||22.41||30.03||38.20||38.20||0.59||1.18||44.93||4||0.20||1.18||1|
|FNV||Franco-Nevada Corp||Basic Materials||Metals & Mining||54||128.76||24.28||92.09||92.09||1.40||1.03||94.68||4||1.00||5.63||1|
|AEM||Agnico Eagle Mines||Basic Materials||Metals & Mining||29||80.00||14.47||0.00||0.00||-1.43||1.16||100.00||4||0.70||1.16||1|
|WPM||Wheaton Precious Metals Corp||Basic Materials||Metals & Mining||24||36.16||12.20||805.17||805.17||0.04||1.32||999.99||4||0.36||1.32||1|
|TECK.B||Teck Resources||Basic Materials||Metals & Mining||40||21.19||11.75||7.29||7.29||2.91||0.94||6.87||4||0.20||0.94||1|
|FM||First Quantum Minerals Ltd.||Basic Materials||Metals & Mining||34||12.96||8.93||26.50||26.50||0.49||0.08||2.04||2||0.01||0.08||1|
|PAAS||Pan American Silver Corp||Basic Materials||Metals & Mining||13||26.32||4.15||999.99||999.99||0.02||0.71||927.83||4||0.14||0.71||1|
|CCO||Cameco Corp.||Basic Materials||Metals & Mining||22||12.97||3.87||48.65||48.65||0.27||0.62||29.63||1||0.08||0.62||1|
Franco Nevada is expecting increased production from its Cobre Panama project and at Candelaria, which should support the company’s overall production to increase through 2022. The company is anticipating gold equivalent ounces of production in the range of 570,000 to 610,000, with oil and gas revenue climbing to $140 million to $160 million by 2023. Franco Nevada should continue its dividend growth streak in the low to mid-single digit range in lieu of improving oil prices and building tension in the markets over the looming international trade war. Its streaming and royalty focus provides a much better approach to investing in precious metals.
Even with its impressive performance, basic materials is not a sector I invest in as I do not really grasps the nuances of the business. Regardless of the potential of gold, I am staying away.
DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.