In the past month, five analysts have increased their EPS estimates for this royalty company.
Franco-Nevada Corporation (FNV)
From Adrian Day’s Global Analyst
Franco-Nevada has expanded into iron ore, buying some of Vale’s outstanding Participating Debentures from the Brazilian government. The debentures provide holders with life-of-mine net sales royalties on Vales’s low-cost iron ore systems in Brazil and some gold and copper operations. The weighted life of the iron ore mines is 30 years with potential for extension for many decades. Based on current economics, the debentures return a 10% yield.
At the same time, Franco announced it had acquired a 9.9% investment in Labrador Iron Ore Royalty Corp., purchased over “a number of years” for an average cost of $14.72; the units are trading today at $38 a share. These investments diversify the commodity exposure and provide “a base of low-risk, long-life cash flow”, according to CEO Paul Brink.
At its recent “analyst day”, Franco emphasized that its focus remains precious metals, but when gold assets become expensive or they see great opportunities in other commodities, the company will look, based more on the individual ore body than the commodity per se.
The pull back in the gold price this year, Brink believes, will provide “a great window” to add more precious metals assets, inferring that the next major transaction may be in gold.
Franco is a cornerstone holding for us: top management, diversified asset base and extensive pipeline, solid balance sheet all make it our go-to gold investment. Given the jump from $105 in the last two months, we are not chasing it. But it you do not own it, look for any opportunity to buy.
Adrian Day, Adrian Day’s Global Analyst, adriandayglobalanalyst.com, 410-224-8885, April 25, 2021