Franco-Nevada Corp. (FNV:TSX; FNV:NYSE), a gold-focused royalty and streaming company, wrote that it uses its free cash flow to expand its portfolio and pay dividends and expects to grow in 2024 with contributions from the completion of several of its gold mines.
“In late 2023, we were challenged by the unprecedented production halt at Cobre Panama.
We are hopeful that the issues can be resolved, although we have taken a prudent approach for the carrying value of the asset”, stated Paul Brink, CEO. “Despite the issue at Cobre Panama, our business remains robust and we continue to benefit from a longduration, diversified portfolio.” The company finished 2023 with no debt and $1.4 billion in cash and cash equivalents, stated that the balance of its business performed well in 2023 and said it is expected to grow in 2024 with contributions from the completion of the Tocantinzinho, Greenstone and Salares Norte gold mines. “Franco remains our top holding in the gold space, with a solid balance sheet and management, broadly diversified assets, and a deep pipeline,” reported Adrian Day in one of his recent Global Analyst reports. Day noted that Franco-Nevada reported mixed results for the fourth quarter, though it met its revised full-year guidance and analyst expectations following the closure of the Cobre Panama mine (its largest asset), as residual sales from that mine were higher than anticipated (though oil & gas fell). "We have moved Wheaton and Franco-Nevada higher on our pecking order to reflect the recent share price corrections of both royalty/streamers, their alignment with 'risk off' preferences of investors (after near-term challenges at Salobo and Cobre Panama are already fully reflected in WPM and FNV, respectively) and the potential for growth opportunities," BMO Capital Markets Analyst Jackie Przybylowski wrote in a March research report.
The Catalyst: Gold Rebound
Kitco News’ Neils Christensen points out that gold recently went on a tear for many days, eclipsing an all-time high of over 2,200 per ounce. Christensen noted that Carley Garner of DeCarley Trading said she expects investors will get another chance to take advantage of its new momentum. “The nice thing about breakouts is they have a habit of retesting the breakout area. I Think gold is going much higher; my weekly charts and monthly charts are telling me somewhere around $2,600, maybe even a little more than that,” she said. Elsewhere, analyst Clive Maund notes that “in response to the strong rise in gold prices this month, Franco-Nevada has attempted to break out of a large base pattern that has formed at a cyclical low following a severe decline from its highs of May last year, when it briefly touched $160.” He continues by saying that “while a minor short-term reaction back from the resistance at the top of the base pattern is possible first, it is believed to be on course to break out of it before long, with the strong volume on the breakout attempt this month and improving momentum (MACD) pointing to this outcome.” Maund rates Franco-Nevada a strong conservative buy, especially on any minor short-term dip.
Solid 2023 Results, Sustainable Long-Term Growth
In its current press release, the company reported some highlights. Franco-Nevada generated close to $1 billion in operating cash flow in 2023; its quarterly dividend increased nearly 6% to $0.36/share effective the first quarter of 2024; core precious metal streams on world-class copper assets are outperforming acquisition expectations; mine expansions and new mines are driving its 5-year growth profile; and the company has a strong pipeline of precious metal and diversified opportunities. CEO Brink stated that its growth outlook through 2028 is driven by numerous new mines and mine expansions. He believes that “$2.4 billion of available capital positions us well for attractive acquisitions in an environment where many project developers are capital constrained.” “The company also continues to add to some existing royalties and bought a new royalty portfolio on Haynesville gas properties,” noted Day. In addition, Franco-Nevada reported that it plans for expansions at several major mines on which it holds streams, including Antamina, Candelaria and Detour Lake, according to Day. Some high-quality mines on which the company holds royalties or streams are coming on stream over the next couple of years, and several expansions are planned for major mines in the years ahead, while Cobre is now all upside potential, either from a mine restart or an arbitration award. Day believes the lows in Franco-Nevada’s price were a “gross exaggeration”, and he reiterates a buy rating on the stock.
Ownership and Share Structure
