This Top Pick gold royalty company was recently upgraded to “overweight” by Morgan Stanley, with an increased price target of $61.
Franco-Nevada (FNV)
from Adrian Day’s Global Analyst
Gold mining is a notoriously difficult business, even when the price of gold is strong. Royalty companies mitigate many of these risks. Like operators (and unlike bullion itself) they pay dividends, have leverage to a rising price, and exposure to exploration potential. But unlike operators, they have reduced exposure to capital and operating costs. When something goes wrong at a mine, the royalty owner is not responsible for fixing.
Franco-Nevada (FNV) is the largest gold royalty company and the strongest. It holds about 340 royalties, 40 of which are currently paying. This provides good diversification, and plenty of upside as the price of gold rises and more development projects become profitable and are put into production.
It has taken advantage of the recent downturn in the sector to acquire assets cheaply, buying 35 royalties for $1 billion over the past year. It still has a rock-solid balance sheet with over $600 million cash, no debt, and strong free cash flow.
Management is recognized as the best in the business. If you want exposure to gold and its upside but at low risk, Franco-Nevada is the company to buy.
Adrian Day, Adrian Day’s Global Analyst, www.adriandayglobalanalyst.com, 410-224-8885, January 10, 2015