Summary
Franco-Nevada released its FY2021 results last week, reporting 27% growth in annual GEO sales, and a massive beat vs. its FY2021 energy guidance estimates ($209 million vs. $200 million).
This strong growth in GEO sales coupled with higher energy prices helped Franco-Nevada to grow annual EPS by 30% despite lapping difficult comps, lapping 48% growth in FY2020.
While the FY2022 outlook points to a slight decline in annual GEO sales, commodity prices remain elevated, and this should be a tailwind, contributing to another year of earnings growth for Franco-Nevada.
With a diverse asset base, enviable organic growth, and industry-leading returns, FNV is a buy-and-forget company, but at ~2.8x P/NAV and ~40x earnings, I don’t see enough margin of safety to buy at current levels.
Falcor/E+ via Getty Images We’re nearing the end of the Q4 Earnings Season for the Gold Miners Index ( GDX ), and the most recent company to report its results was Franco-Nevada Corporation ( FNV ). Despite a tough year for many miners due to sluggish performance from the gold price, Franco-Nevada had another blow-out year, growing annual EPS by 30%. In fact, it was a record year for the company, with ~84% margins and $1.3 billion in revenue. With a diverse asset base and enviable organic growth, FNV is a buy-and-forget company. However, at ~2.8x P/NAV and ~40x earnings, I don’t see enough margin of safety to justify paying above $158.00 per share. Condestable Mine – Peru (Company Website) As shown in the chart below, Franco-Nevada had a record quarter when it comes to quarterly volume, reporting sales of ~182,500 GEOs, up 12% year-over-year. This strong quarter helped to push annual sales to ~728,200 GEOs, a 27% increase year-over-year, and a record year for the company. The major contributor in H2 was Cobre Panama which reported revenue of $117.8 million. Candelaria also contributed $62.5 million in revenue, an increase year-over-year given that production was negatively impacted by a strike in Q4 2020. Elsewhere, revenue was up sharply at Antamina, which contributed $24.2 million in the quarter, up ~130% year-over-year. Franco-Nevada – Quarterly Gold-Equivalent Ounce Sales (Company Filings, Author’s Chart) Looking at the mine-by-mine performance above, we can see that most of Franco’s assets delivered higher revenue sequentially. This included Detour Lake, Subika, Candelaria, Goldstrike, Bald Mountain, Marigold, Mine Waste Solutions, and Brucejack. The performance from these assets easily offset the decline in revenue from Hemlo, Karma, Stillwater, and Duketon, which saw a decline in revenue. At Hemlo, the lower revenue was due to a decline in production from areas where Franco-Nevada has royalty coverage and higher operating costs, affecting the 50% Net Profits Interest. Franco-Nevada – Quarterly Revenue by Mine (Company Filings, Author’s Chart) Overall, it was a mediocre quarter for the precious metals portfolio, with GEOs sold down 3% to ~138,800 GEOs. On a full-year basis, precious metal GEOs sold increased to ~558,400, up 9% year-over-year, translating to ~77% of total GEOs sold. For investors looking for a pure-play precious metals producer, this figure may be below their ideal or expected threshold. However, it’s important to note that this was largely due to the sharp increase in iron ore and energy prices during a flat year for gold prices.
Within the precious metals portfolio, there were multiple positive developments, which included the following: a new discovery (Koula) at the Seguela Project (construction-stage)
Newcrest’s ( OTCPK:NCMGF ) acquisition of Pretivm (PVG), putting Brucejack in stronger hands, and the Golden Marmot discovery (production)
a massive increase in the M&I resource base at Detour Lake (producing)
the acquisition and construction decision at the Posse Project by Hochschild ( OTCQX:HCHDF ) – (construction-stage)
continued resource/reserve additions at Island Gold (producing)
the consolidation of South Arturo by Nevada Gold Mines LLC (producing)
continued resource additions at Canadian Malartic (producing)
increased production guidance at Cerro Moro (producing)
an impressive initial resource estimate at Copper World (96 million tonnes of indicated material at 0.57% copper) – (development)
While the precious metals portfolio had a mediocre Q4, the energy portfolio picked up the slack in a massive way, with energy revenue hitting a new high ($55.2 million), up 142% year-over-year. This led to a decline in precious metals revenue as a percentage of total revenue in Q4 but was a welcome development given that it helped Franco-Nevada to report meaningful growth in quarterly revenue to $327.7 million (+8% year-over-year). It’s important to note that this 8% revenue growth was despite difficult year-over-year comps due to the lower gold price, highlighting the […]
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