Source: Adrian Day for Streetwise Reports 11/13/2017
In his latest dispatch, Adrian Day of Adrian Day Asset Management reflects on the prospects and performance of a pair of gold companies.
Advancing the Next Major Project for Franco
Franco-Nevada Corp. (FNV:TSX; FNV:NYSE, US$83.99) had another outstanding quarter, and has outperformed its peers handily this year. Significant development: It has invested for an additional 10% interest in Cobre Panama, the large copper deposit under construction by First Quantum, with commissioning scheduled for the second half of next year. The financing was in syndication with a unit of CK Hutchison of Hong Kong. Although the syndication was small, Franco used the deal to work through the details of such financing so it is prepared for a larger deal.
Cobre now represents nearly 15% of Franco’s NAV, its largest single asset. The next two represent around 10% each; oil & gas in total is nearly 17% after the addition of two more relatively small assets. It has a total of 47 producing royalties and streams.
Franco also said it was confident in the structure it uses for offshore transactions, commenting (without names) on the dispute Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE) has with the Canadian tax authorities. Assuming the same fact pattern, it would owe $10 million to $15 million for existing deals, an insignificant amount for Franco, though any negative ruling going forward would hit future revenues meaningfully. The company has $630 million in working capital, with available capital of $1.6 billion and no debt.
This is the one to own
We repeat what we have said many times: If you are to own only one gold company and hold it for a while, Franco is that company without question. While clearly demonstrating growth potential, it also has one of the lowest risk profiles of any gold stock. One analyst headed its recent report on the company “Commanding the safe-haven bid”. While we would not see today’s price—up from under $70 in early July—as a particularly bargain price to add to positions, nor for a trade, if you do not own, it’s as good as any.
Mixed Results at Osisko
Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE, US$12.13) is the fourth largest of the “big four” royalty and streaming companies. It had mixed results in its latest quarter. Malartic (its largest royalty) was up, and will increase in the medium term following a successful expansion. Eleonore, however, will decline longer term on a reduction in its reserve estimate, though there will be a major increase in Q3/18 as the ramp-up continues. The newly acquired Renard Diamond mine had a rough first quarter for Osisko, on lower production.
The company is achieving exploration success at several of the companies in its “accelerator program,” including Osisko Mining (in which it acquired an additional royalty). Under the program, Osisko funds exploration companies …read more
Source:: The Gold Report