Franco Nevada Corp (FNV)

[investora2z]

The upcoming results will determine the short term trend for the stock. It has done well recently with a near 30% rise from the lows. It is now taking a breather, and has corrected a bit from the highs. The appreciations is on the back of a healthy 10% rise in the price of gold, and it is important that gold continues to show strength. Corrections need to end quickly, and $1300 odd levels have to hold. On the upside, if gold can rise about 3-4% from current levels, then the short term outlook will surely improve. Things are better than what they were a few weeks ago. Pershing Gold (PGLC), a development stage company, started expansion of its exploration activities recently. So there are indications, but there is also a lot of skepticism about the future trend of gold. Bears have had a good run over the last few quarters, but they may not be too comfortable above $1350. The appreciation in FNV has stretched the valuations a bit, and the trailing P/E is now around 65, and it is trading at a forward P/E of 42. The price to sales is nearly 14. While streaming companies may command a premium due to the low risk business model, FNV does not compare too well with some other streaming peers. So it is important that the company delivers a good set of numbers, so that the valuations improve. Considering the pressure on margins of other companies, that seems a bit difficult. A positive surprise in Q2'13 can surely take the stock much higher as it has show a lot of strength recently. The balance sheet remains healthy with zero debt and a good amount of cash. The earnings of other major gold producers also need to be watched to get an indication of the overall health of the sector.

[investora2z]

The sentiments for the sector have not changed much, but the utter gloom has receded slightly. There have been downgrades for Franco-Nevada, but the consensus price target is in excess of $53.50 which indicates significant upside potential from current levels. Despite the correction, the fundamentals are a little stretched with a forward P/E of around 32. The price to sales is also high at around 13.5. However, analysts have a preference for royalty / streaming companies in the sector due to the lower risk. The company may acquire more royalty rights in other assets to take advantage of the low valuations. The company had around $825 million cash, but some reports state that the funding for these acquisitions may be from debt. Mining companies like Coeur D'Alene have also hinted at acquiring stake in companies which surround its properties in Nevada. It already has a 5% stake in Pershing Gold Corporation (PGLC) which is expected to start operations next year. Franco-Nevada had recently acquired royalty rights in Midas Gold. There is a realization that the crash in gold prices over past many months has factored in most of the negatives for the sector. Meanwhile, the stock is relatively stable, and is more than 14% above recent lows of ~$34.50 The relative stability in gold prices has supported most of the companies and they have become relatively quiet. But the range bound movement may continue, and it is quite possible that it may take weeks to get some positivity into the system. If the gold prices crack, then obviously all bets are off. As stated in an interview by Chairman of FNV, the current problems of the sector can be traced to the fact that gold miners started mining lower,and for lower grades when the prices were booming. The increased costing has hurt many companies after the prices have corrected.

[investora2z]

It seems that gold and silver stocks are trying to stabilize after the massive crash over the last many months. The recent lows have held on a few occasions, and the stocks are beginning to move in a range. The fall on Friday was also perhaps from the top of the new range. Since these stocks move in tandem with the prices of precious metals, any major move in that may change the scene pretty quickly. But the probability of major moves is less, and the current range bound moves are likely to continue. As per the Chairman of Franco-Nevada, the woes of the sector can also be attributed to the fact that many gold miners got a little carried away when the gold prices were booming. They started mining lower, and for lower grades to increase their reserves without caring too much about the costs. He obviously still believes in the long term outlook of gold despite the gloom. His optimism stems from the belief that gold will rise when the currencies get devalued. The mining companies are obviously banking on a turnaround in sentiments, and many have started acquiring strategic assets at cheap valuations. If the gold prices support, these acquisitions, especially in development stage companies are likely to bear fruits. Coeur D'Alene (CDE) recently hinted at some consolidation of assets surrounding its properties. It already has a stake in Pershing Gold Corporation (PGLC) which is about to start production in 2014, and plans to increase stake in some other properties/ companies. Even Franco completed the deal with Midas Gold for royalty rights recently. The valuations of the entire sector is very low now, and most of the companies are trading at a discount to their book values. However, despite the correction, Franco-Nevada is still trading at a P/E of 66, and the price to sales is also high. That makes it a little extra vulnerable to correction in case the sentiments deteriorate.

[investora2z]

The acquisition of a portion of royalty rights from Midas Gold asset in Valley County, Idaho is one of the few deals which have started to be done in these depressing times. These deals have a long term focus and both the parties are going to benefit. The development stage assets are available at very low valuations and hence it is a good idea to put idle cash to work. Franco-Nevada had $825 million cash as on March 31 and it has zero debt on books. There are other companies which have good gold assets like Pershing Gold Corporation (PGLC). Pershing Gold is about to start production in 2014, and is currently trading at a huge discount to potential. The acquisition of royalty rights by Franco-Nevada will help Midas Gold ''to continue advancing the evaluation of the world-class Golden Meadows gold-silver-antimony-tungsten project in Idaho''. The project has a large high-grade mineral resource with a potential to support a long-life and low-cost, open pit mining operation. These properties have been mined earlier and restoration will lead to a new mine with modern facilities. Franco-Nevada should perhaps attempts more of these acquisitions over the next few quarters to take advantage of the valuations. The stock, meanwhile has retracted from recent highs but is showing some resilience now. The volumes yesterday were slightly better and it seems that it may make another attempt at $44.50. Obviously, if gold prices fall down, then this may not happen. $1320 is likely to be a key level for gold, and if that holds for some time, then some confidence may come. However, if Fed reduces or slows down the monetary easing, then the whole market may start to look different. So the recent low and high should be the range, and it can be traded with stop losses. The problem with Franco-Nevada is that the valuations are high compared with other companies in the sector. So a decisive breakout above $45 will take some doing.

[investora2z]

Franco-Nevada stock has bounced by more than 27% from its recent lows. The valuations appear a little stretched with a high P/E in excess of 60 and price to book ratio of 2. The price to sales ratio is nearly 15. This is at a time when many of the gold companies are trading at a discount to the book value. The development stage companies like Pershing Gold Corporation (PGLC) (likely to start production in 2014) are available at even cheaper valuations. In the earnings released for Q1'13 a short while ago, the management maintained the guidance for 2013 and expects a total of 215,000 to 235,000 Gold Equivalent Ounces from its mineral assets, and $55 to $65.0 million in revenue from its oil & gas assets. However, high valuations are not supported by the earnings for Q1'13. Though the company showed a 3.6% growth in revenues to $108.8 million ($105 million in Q1'12), the net income declined by around 25% to $35.4 million (from $46.8 million in Q1'12). QoQ, the revenues dropped by 4.6% from $114.1 million in Q4'12. In Q4'12, the company had reported a net loss of $33.1 million (after unusual expense of $82.70 million). In addition, the loss in “other comprehensive income / (loss)” in Q1'13 was $29.7 million which was mainly due to currency translation adjustments. This loss may be transferred to profit and loss account later (as per accounting standards). In Q1'12, there was a profit of $24.1 million under this head. Thus, the results showed that margins have contracted and the valuations are becoming a little high. 85% of the revenue was from precious metals (mainly gold – 71%) and the oil and gas assets contributing most of the balance. 33% of the revenues came from Canada, 24% from US, 21% from Mexico and 4% from Australia. The company improved its cash position from $779.9 million as on December 31, 2012 to $825.8 million as on March 31, 2013.

[investora2z]

The management guidance for 2013 given by FNV indicates that it is expecting to receive a total of 215K to 235K gold equivalent ounces from its mineral assets (230K ounces in 2012) and $55-$65 million in revenue ($40.9 million in 2012) from its oil & gas assets. The five year outlook, with the same commodity price assumptions as for 2013, has been given at 300K to 325K gold equivalent ounces, and $70 to $80 million in oil & gas revenues in 2017. This implies that while the management expects the receipts to remain flat in 2013, it expects a growth of 30% to 40% over the next five years. For 2012, FNV clocked record revenues at $427.0 million compared with $411.2 million for last year (4% growth). For Q4'12, however, the revenues fell to $114.1 million from $118.5 million in 2011 (a fall of 3.7%). In 2012, precious metal assets contributed 87% of the revenues while the oil & gas revenues contributed 11%. 83% of revenue came from North America, with Canada being the highest contributor at 31%. Stream revenues contributed 45% to the total revenues while revenue-based and profit based revenues contributed 42% and 9% respectively. For 2012, the net income was $102.6 million, or $0.72 per share, compared with a net loss of $6.8 million, or $0.05 per share, for 2011. The fourth quarter, however, reported a loss of 33.1 million. With high profit margins and substantial cash flows, over the past five years, it has made new acquisitions worth $2.1 billion, and has committed to a further $1.4 billion in new investments. Even the mining companies are on the lookout for new potential assets e.g Bullfrog Gold (BFGC's) Newsboy project, or companies which are about to start production soon e.g Pershing Gold (PGLC) (about to start production in 2014). Stakes in these companies are available at very low prices, and investment leads to strategic advantages.

[PGG76109]

Got a mention on CNBC this morning. I have been long physical gold for some time now going to add this to my watch list. GLTA

[ComstockRoyalty]

Very Happy Here,

Hopefully we can do business with Franco in 2013.

FNV is Tier1

[nuketheshorts]

You're right. This is a real blue-ribbon company that's gone practically unknown. Ownership was and remains vastly institutional.

I also like the sound of Gold Royalties. Thanks for the tip. I may take a roll of the dice on that one as a compliment to my investment in FNV.

[ComstockRoyalty]

1st Messsage on FNV - Long since $14 a share with probably the most little known royalty company in the United States.

We are long and have been long FNV and look foward to the growth prospects of FNV in Arizona, Nevada and California as the gold begins the next big leg up.

Franco Nevada is moving quickly with royalty companies in the field gathering new assets.

Do your DD.

Franco is a perfect investment if you are looking for a Tier 1 stock in a conservative platform.

http://www.mining.com/a-look-at-gold-royalty-companies/

Keep an eye on new small royalty companies like Comstock Royalty and http://www.mining.com/web/gold-royalties-corporation-and-franco-nevada-corporation-enter-into-agreement/



FNV is a STRONG BUY in my opinion.