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Franco-Nevada Rides on Cobre Panama Project & Energy Revenues

Zacks Equity Research

On Aug 14, we issued an updated research report on Franco-Nevada Corporation FNV. The company appears to be on a promising long-term trajectory, aided by its healthy portfolio of streaming and royalty agreements. Further, Franco-Nevada is well placed to gain from the Cobre Panama project and solid energy revenues.
Franco-Nevada delivered stellar earnings results for the June-end quarter. The company delivered adjusted earnings of $64 million or 34 cents per share, up from the prior-year quarter’s $53.7 million or 29 cents per share. In addition, the earnings per share figure surpassed the Zacks Consensus Estimate of 31 cents.
Also, the company generated revenues of $170.5 million in the reported quarter, reflecting year-over-year improvement of 5.7%.

Energy Revenues to Stoke Growth

Energy revenues in second-quarter 2019 benefited from the company's investment in the Royalty Acquisition Venture with Continental. The company now anticipates to generate $100-$115 million in revenues from its energy assets compared with the prior estimate of $70-$85 million, driven by the Marcellus royalty acquisition and stellar performance of energy assets. With the continued development of its U.S. oil & gas assets, the company forecasts energy assets to contribute 16-17% of revenues by 2023.

Strategic Relationship With Continental Resources A Key Catalyst

Last October, Franco-Nevada contributed $214.8 million to close its transaction with Continental Resources, Inc., in order to acquire the Oil & Gas mineral rights in the SCOOP and STACK plays of Oklahoma — two of the most economic and attractive plays in North America. The company has also committed, subject to satisfaction of agreed upon development thresholds, to spend up to $300 million over the next three years to acquire additional mineral rights through a newly-formed entity. This represents a new business-development opportunity for Franco-Nevada. It gets an acquisition vehicle, which provides the ability to acquire assets at the grassroots level or directly from individual owners.

Cobre Panama Project Bodes Well

Franco-Nevada has completed its $1-billion commitment for the Cobre Panama project. In July, Cobre Panama commenced production of initial gold and silver stream and will likely produce 140,000-175,000 tons of copper in the current year. Further, the project is anticipated to be a major growth driver for the second half of this year. For 2019, the company estimates to produce upper end of the prior guidance of 20,000-40,000 ounces gold from the project.
Franco-Nevada expects Gold Equivalent Ounces (GEOs) to be at the upper end of the previously-issued guidance of 465,000-500,000 GEOs, driven by strong results so far, and increase in expected deliveries from the project.

Poised Well for the Long Run

Franco-Nevada, along with B2Gold Corp. BTG, Alamos Gold Inc. AGI and Royal Gold, Inc. RGLD, belongs to the Mining-Gold industry. With precious metals generating around 83.8% of Franco-Nevada’s revenues during the April-June quarter, the company has the flexibility to consider diversification opportunities outside of the precious metals’ space and increase exposure to other commodities while maintaining its long-term target.

Furthermore, Franco-Nevada appears to be on a promising long-term trajectory backed by a sound portfolio of streaming and royalty agreements put in place years ago. With more mines coming online over the next several years, it will benefit from higher levels of precious metal sales and higher prices.

Franco-Nevada Corporation Price and Consensus

Franco-Nevada Corporation Price and Consensus

Franco-Nevada Corporation price-consensus-chart | Franco-Nevada Corporation Quote

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