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Franco Will Increase Production Without Cobre Panama
Contributed Opinion

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Adrian Day Global Analyst Adrian Day looks at first-quarter results from three resource companies, as well as recaps Francos annual "investor day." Overall, he believes the results were positive.

Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) held its "investor day" a few days ago, with an overview of the business and an outlook for this year and beyond. It is looking for minor growth in gold-equivalent ounces ("GEO") production, driven by new mines (including Tocantinzinho in Brazil and Greenstone in Canada) and two major mine expansions.

Last year, the company had over $950 million in cash flow from 488K GEOs, which was down from over 510K in 2022. For this year, the company is guiding to between 480K and 540K ounces. The guidance excludes Cobre Panama, which it has written off. Given the Cobre Panama incident, the company emphasized its diversification, by asset, geography, operator and commodity; with 118 cash-flowing assets, no single asset is expected to contribute more than 15% of its revenue.

Cobre was contributing almost 20% before it was shut down by the Panamanian government. An election in May is expected to bring in a more business-friendly government; new discussions are expected but a mine restart won’t be soon. Franco has also initiated international arbitration.

Oil and Gas and Strong Balance Sheet Help Franco

The company said it did not intend to grow its oil and gas business beyond 20% of revenues; last year, it contributed 21% of revenues, excluding Cobre Panama. None of this was new, as Franco had previously provided its 2024 guidance (see last Bulletin, #906). The company has $1.4 billion in cash, no debt, and almost 1 billion available on revolving credit facilities.

I will note, however, that once again, the company started its "investor day" with a presentation on ESG, which is putting the cart before the horse, in my mind. Franco, with a rock-solid balance sheet, strong management, and diversified assets and deep pipeline, remains a core holding for us.

It is selling at long-term valuation lows, and can be bought by investors who do not own.

Royal’s Partial Results Within Guidance

Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX) reported first-quarter stream production results totaling almost 50,000 GEOs at the midpoint of its guidance. Streams represent about 70% of the company’s production.

The company also said that, as of the quarter end, it held 16,800 ounces of gold, almost 350,000 ounces of silver, and 400 tonnes of copper in inventory. The company will report its royalty production and financials next month. Royal probably has more leverage to higher gold prices than other major royalty companies.

It can be bought if you do not own.

Osisko Tracking Guidance, With New Royalties Ahead

Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE) reported its first-quarter operating results with revenue of $60.7 million from 22.3K GEOs. This is down 4% from the previous quarter, as expected, but tracking above annual guidance and above analyst consensus. Osisko has CA$71 million in cash at the end of the quarter, after a $44 million repayment of its credit facility.

The company said it plans to continue to reduce its outstanding balance. Later this year, Osisko has two new mines on which it holds royalties start production, including Tocantinzinho. Full financials will be released next month. Osisko has solid growth ahead and is even a potential take-over candidate.


Fortuna Beats Estimates, but Not From Gold or Silver

Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) reported first-quarter production of 112k gold-equivalent ounces, above analyst estimates. Though both gold and silver were slightly below estimates, by-products lead and zinc were above. Overall production is on track for the company’s annual guidance.

Gold production was down 16% on the previous quarter, but up 49% from a year ago, boosted by the Séguéla mine, which commenced production in mid year. It continues to perform well, with throughput above nameplate capacity.

The company repaid another $40 million on its debt ($121 million since the third quarter) and repurchased over 1 million shares. Overall, these are solid results. Fortuna continues to be a favorite, with a re-rating underway as it continues to execute well.

However, following a 75% jump in the stock price since the end of February, we are holding for now.

TOP BUYS this week, in addition to above, include Nestlé SA (NESN:VX; NSRGY:OTC), Gladstone Investment Corp. (GAIN: NASDAQ), Orogen Royalties Inc. (OGN:TSX.V), and Lara Exploration Ltd. (LRA:TSX.V).

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Important Disclosures:

  1. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Franco-Nevada Corp., Osisko Gold Royalties Ltd., Fortuna Silver Mines Inc., Orogen Royalties Inc., and Lara Exploration Ltd.
  2. Adrian Day: I, or members of my immediate household or family, own securities of: All. My company has a financial relationship with: All. I determined which companies would be included in this article based on my research and understanding of the sector.
  3. Statements and opinions expressed are the opinions of the author and not of Streetwise Reports, Street Smart, or their officers. The author is wholly responsible for the accuracy of the statements. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Any disclosures from the author can be found  below. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy. 
  4.  This article does not constitute investment advice and is not a solicitation for any investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Each reader is encouraged to consult with his or her personal financial adviser and perform their own comprehensive investment research. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company. 

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Adrian Day Disclosures

Adrian Day’s Global Analyst is distributed for $990 per year by Investment Consultants International, Ltd., P.O. Box 6644, Annapolis, MD 21401. (410) 224-8885. Publisher: Adrian Day. Owner: Investment Consultants International, Ltd. Staff may have positions in securities discussed herein. Adrian Day is also President of Global Strategic Management (GSM), a registered investment advisor, and a separate company from this service. In his capacity as GSM president, Adrian Day may be buying or selling for clients securities recommended herein concurrently, before or after recommendations herein, and may be acting for clients in a manner contrary to recommendations herein. This is not a solicitation for GSM. Views herein are the editor’s opinion and not fact. All information is believed to be correct, but its accuracy cannot be guaranteed. The owner and editor are not responsible for errors and omissions. © 2023. Adrian Day’s Global Analyst. Information and advice herein are intended purely for the subscriber’s own account. Under no circumstances may any part of a Global Analyst e-mail be copied or distributed without prior written permission of the editor. Given the nature of this service, we will pursue any violations aggressively.

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