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Why 2019 Could Be Franco-Nevada's Golden Year

Dan Caplinger, The Motley Fool

Franco-Nevada (NYSE: FNV) has made a name for itself in the gold and natural resources industry. Rather than engaging in mining and drilling activity to try to find precious metals and energy products, Franco-Nevada instead provides financing to miners and energy exploration and production companies. In exchange for the money it provides, Franco-Nevada takes on streaming and royalty interests that allow it to share in the success of its partners. That's been a lucrative strategy for a long time, and Franco-Nevada has identified new opportunities in energy that it's pursued to diversify its holdings.

Franco-Nevada expects to release its fourth-quarter financial results on March 19, but it recently gave a preview of how it fared to finish 2018. Moreover, the streaming giant also announced a new deal that could help bolster its growth in the coming year. Combined, that information could give investors new reason for optimism about Franco-Nevada's long-term future.

Stats on Franco-Nevada


Latest Stat

Analyst EPS estimate


Change from year-ago EPS


Revenue estimate

$162.2 million

Change from year-ago revenue


Earnings beats in past 4 quarters


Source: Yahoo! Finance.

Can Franco-Nevada post solid earnings?

Investors have generally been encouraged by how Franco-Nevada has done lately. Since early November, the stock is up nearly 20%, and some improving fundamentals in the precious metals markets have pointed toward greater potential for success for the streaming giant.

Franco-Nevada's third-quarter results revealed some of the headwinds that the natural resources financier has faced lately. Revenue was down a fraction of a percentage point, and net income was lower by 13%. Production levels were weak, with modest gains in gold production getting offset by declines in silver and platinum group metals. Mining of base metals also suffered, and the rising energy segment was able to produce only a limited amount of supporting revenue to keep overall sales from falling more sharply.

Mine refining facility on a coastline with a terminal jutting into the water.

Image source: Franco-Nevada.

Many of those challenges appeared to continue into the fourth quarter. In its preliminary release of financial performance for 2018, Franco-Nevada said that total gold and gold equivalent production should be between the company's previous guidance of 445,000 to 450,000 gold equivalent ounces. On the oil and gas front, revenue of $85 million to $88 million will be slightly higher than the previous forecast, but the processing of lower-grade materials as well as a delay in year-end deliveries at the Candelaria mine weighed on performance. Moreover, less mining activity occurred on the portions of the Guadalupe mine on which Franco-Nevada has streaming interests, hurting production further.

Will 2019 be better for Franco-Nevada?

Franco-Nevada foresees some continued difficulties ahead. The Levack-Morrison mine in Sudbury will be put on care and maintenance at the end of March, although the company hopes that the restart of the nearby McCreedy mine will offset any downward pressure from Levack's shuttering.

More promising news came more recently, when the company announced the purchase of a royalty interest in a gold mine in Newfoundland owned by Marathon Gold. Franco-Nevada spent 18 million Canadian dollars on the royalty, reaffirming its commitment to precious metals amid its broader strategic shift toward energy plays. Marathon hopes to work quickly to get the project moving toward completion, although it could be years before the mining company can move through prefeasibility studies and environmental assessments to begin production.

The most essential element of Franco-Nevada's near-term success will be how the Cobre Panama mine performs. The key asset is expected to see rising production in 2019, with the eventual goal of providing a huge portion of the streaming company's overall revenue. Those numbers won't appear on the company's fourth-quarter report, but comments about progress will be instrumental in determining how shareholders react.

With favorable moves in the precious metals markets, investors in Franco-Nevada appear to be excited about the future. The stock's recovery from significant declines during the market swoon in December is encouraging, and long-term prospects look good for Franco-Nevada's business.

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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.