Franco-Nevada Corp. (FNV:TSX; FNV:NYSE 71.68) is the bluest of blue-chip gold companies, an originator of the
royalty model for the gold industry. Royalties, and their cousin streams,
provide exposure to gold mining without the high costs and risks of mining,
but with leverage and dividends, unlike bullion. They are my favorite way to
invest in the sector for more conservative and longer-term investors, though
no one would confuse the leading royalty companies with "Graham and
Dodd"-type value investments.
Record revenues
Franco continues to perform well, with record ounces and revenues (up 38%) in
its latest quarter, only partly due to the addition of two major streams,
from Antamina and Antapaccay copper mines. The balance sheet remains very
strong, with debt taken on last year for stream acquisitions now paid off;
there is $226 million cash plus $1 billion in available credit lines.
Currently about 94% of the company's revenues come from precious
metals (of which 72% is gold). Its large portfolio has seen increased
exploration activities as the price of gold has recovered.
But is it cheap?
One could argue that Franco is trading at its fair value, and as large
existing holders we would wait for better prices before adding to positions.
However, Franco has a habit of providing consistent growth, with fair value
constantly increasing. Yes, Franco (they said) was overvalued at $40 in
mid-2015 and at $30 in 2011 and at $20 in 2009. I have often said that if one
could buy only one gold company, and lock it away, the choice would be Franco
without question.
The company has now instituted a DRIP program, available
to U.S. holders, whereby dividends can be automatically reinvested, at a 3%
discount to the market, making it a great vehicle for long-term investors.
The recent drop in the stock price, from an early-July high over $80,
presents a good opportunity to add to positions for those underweight.
Methodical, disciplined work generates success
Midland Exploration Inc. (MD:TSX.V 1.15) is our favorite exploration company. Following the
prospect-generator model in Quebec, it continues to acquire land, generate
prospects, and make joint venture deals.
It has land in all the key areas in the province, with a
large land package in the high-potential James Bay area (the site of
Virginia's �l�onore discovery). Its partners include companies such as Teck
Resources Ltd. (TCK:TSX; TCK:NYSE), Agnico Eagle Mines Ltd. (AEM:TSX;
AEM:NYSE) and SOQUEM, a subsidiary of Ressources Qu�bec; its latest deal is a
50/50 joint venture with Osisko combining land and expertise (including the
former Virginia exploration team) on land in the Cheechoo area (an active
area in James Bay). Most of its joint-venture agreements have already been
renewed, indicating some success. It has continued making discoveries, such
as recently at the nickel and PGE La Flame property, and strong gold showings
at its wholly owned Willbob Project in the Labrador Trough. It has also just
initiated an aggressive exploration program at the James Bay �l�onore Gold
project, which is highly prospective.
Diversification and the necessary cash
In all, Midland has 11 active projects, including eight joint ventures, with
a $5 million 2016 exploration budget. With over $15 million the bank, it has
a rock-solid balance sheet that puts it in a position to do sufficient initial
exploration on its projects to get the best deals from partners, and also to
fund opportunities that arise without going back to market.
All in all, with the land, balance sheet, partners, and top management,
Midland is well positioned for discovery and success. Few are better
positioned, and none with such broad exposure to different metals and
different partners.
What kind of investor are you?
With top managements and strong balance sheets, these two companies offer
solid cash flow from Franco's royalties as well as leverage from that
company's pipeline and Midland's exploration; they offer exposure to a broad
range of properties and other companies-Franco with royalties or streams on
over 30 producing mines and over 300 projects in various stages of development,
with partners including Barrick Gold Corp. (ABX:TSX; ABX:NYSE), Newmont
Mining Corp. (NEM:NYSE), Goldcorp Inc. (G:TSX; GG:NYSE) and Glencore
International Plc (GLEN:LSE); and Midland with joint-venture or option
agreements on eight different properties with a range of partners. They also
offer exposure to multiple resources: for Franco, PGMs, oil and copper, in
addition to gold; and for Midland, base metals, rare earths and PGMs, as well
as gold.
Buy these two and put them away for the duration of the bull market. Some
may do better with constant trading from one hot thing to the next, but few
will do as well and let you sleep at night. Hitching a ride with the best
managements is as close to a sure thing as one gets.
Disclosure: 1) Adrian Day: I, or members of my immediate household or
family, own shares of the following companies mentioned in this article:
Franco-Nevada Corp. I personally am, or members of my immediate household or
family are, paid by the following companies mentioned in this article: None.
My company has a financial relationship with the following companies
mentioned in this article: None. Funds controlled by Adrian Day Asset
Management hold shares of the following companies mentioned in this article:
Franco-Nevada Corp. and Midland Exploration Inc. I determined which companies
would be included in this article based on my research and understanding of
the sector.
2) The following companies mentioned in this article are sponsors of
Streetwise Reports: None. The companies mentioned in this article were not
involved in any aspect of the article preparation. Streetwise Reports does
not accept stock in exchange for its services. The information provided above
is for informational purposes only and is not a recommendation to buy or sell
any security.
3) Statements and opinions expressed are the opinions of the author and not
of Streetwise Reports or its officers. The author is wholly responsible for
the validity of the statements. The author was not paid by Streetwise Reports
for this article. Streetwise Reports was not paid by the author to publish or
syndicate this article.
4) This article does not constitute investment advice. Each reader is
encouraged to consult with his or her individual financial professional and
any action a reader takes as a result of information presented here is his or
her own responsibility. By opening this page, each reader accepts and agrees
to Streetwise Reports' terms of use and full legal disclaimer.
This article is not a solicitation for 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. Streetwise Reports does not endorse or recommend the business,
products, services or securities of any company mentioned on Streetwise
Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers,
employees or members of their families, as well as persons interviewed for
articles and interviews on the site, may have a long or short position in
securities mentioned. Directors, officers, employees or members of their
families are prohibited from making purchases and/or sales of those securities
in the open market or otherwise during the up-to-four-week interval from the
time of the interview/article until after it publishes.
