Franco-Nevada: The Drop Is an Opportunity

Franco-Nevada (FNV) is down 13% year-to-date. In fact, in the last one year, it has lost 20% of its market capitalization due to weakness in gold and silver prices. But, in my opinion, the drop in gold prices has corrected the stock that was once overpriced.

Hence, now might be a good time for investors to build their position in the stock as Franco-Nevada’s business is seeing a recovery. In addition, Franco-Nevada doesn’t have any debt, carries robust margins, and is making the right moves to increase its production.

Decent second-quarter results

Franco-Nevada reported revenue of $109.4 million, an increase of 2% from $107.7 million, in the second quarter of 2014.
Also, its adjusted net income for the quarter came in at $21.6 million, or $0.15 per share, which was in line with Wall Street’s expectations.

Moreover, Franco-Nevada had reported production of 83,040 ounces of gold equivalent, an increase of 28.3% as compared to 64,734 in the same quarter last year. The increase in gold equivalents was a result of its acquisition of Creek & Midas and higher production at Marigold, Bald Mountain, and Gold Quarry. Looking ahead, it expects an 18% increase in its production for the year to 335,000 to 355,000 ounces of gold equivalent over last year.

Growth opportunities

Franco-Nevada continues making smart investments in the low gold pricing environment that should drive its growth in the long run. The company is constantly expanding its operations with new deals such as the acquisition of the Candelaria mine in Chile. This asset delivered 24,000 gold equivalent ounces last quarter.

Looking ahead, Franco-Nevada should benefit from the first gold coming out of Phoenix and Rubicon. The company expects Barrick Gold to ramp up the production at the project. In the third category, it should benefit from its new construction at mines such as South Arturo, Brucejack, Cerro Moro, and Sissingue.

In addition, the recent start of construction at Karma should lead to better production in the coming years. Also, Franco-Nevada has received sponsorship of $300 million from Centerra for its Hardrock and Monument Bay that should boost its production going forward. So, the company looks well-positioned for new growth opportunity that will enhance its free cash flow and deliver returns in the long run.

In fact, Franco-Nevada expects its new projects to enhance its production by 18% to 335,000 to 355,000 ounces of gold equivalent this year over 2014. Moreover, in the long run, the company expects its gold equivalent production to grow to 385,000 million to 415,000 million ounces by 2019.

Hence, the company has a strong production profile that will allow it to get better in the long run.


Franco-Nevada is trading at an attractive valuation. It has a forward P/E ratio of 62.10, which is well below its trailing P/E ratio of 88.72 that reflects an increase in the earnings going forward. Moreover, it has profit and operating profit margins of 16.74% and 27.09%, respectively. Additionally, Franco-Nevada’s balance sheet carries total cash of $610.80 million with no debt. Thus, Franco-Nevada is a fundamentally strong company that investors should consider for the long run and take advantage of the recent dip in its stock price.
Published on Sep 18, 2015
By Yaggyaseni Mittra

Copyrighted 2020. Content published with author's permission.

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