If you want to profit from precious metals but don't want to deal with the ins and outs of mining operations, then Franco-Nevada (FNV 0.98%) is worth a closer look. The company chooses to enter into streaming and royalty agreements with natural resources companies rather than owning its own mines, profiting indirectly when its mining partners are successful and when prices of gold and silver rise. In recent years, that's been a recipe for success, and even when precious metals haven't behaved as well as many had hoped, Franco-Nevada has found ways to keep growing.
Over the past month, Franco-Nevada stock has reached new highs. The company's second-quarter earnings report early last month played a key role in building more positive momentum for the streaming specialist, but other developments have also contributed. Now more than ever, investors in Franco-Nevada seem optimistic about the company's future.
Franco-Nevada keeps growing
What investors saw from Franco-Nevada in the second quarter of 2017 was similar to results from previous quarters. Revenue climbed 8% from the year-ago quarter to $163.6 million, and net income climbed at the same 8% rate to $45.6 million. Adjusted pre-tax operating earnings were up at a more sedate 4% pace, but production climbed to more than 122,500 ounces.
Within the precious metals complex, Franco-Nevada's results were mixed. The company saw a rise of nearly 7,000 ounces of gold to just over 92,700 ounces, and platinum group metals production jumped by almost 1,750 ounces to 8,800. However, silver eased downward slightly to just over 18,100 ounces. A near-doubling in production of other minerals helped add incremental growth.
Franco-Nevada has continued to see a lot of success in the Western Hemisphere. Close to half of its revenue comes from Latin America, and Canada's 20% figure exceeds the 16% that it gets from the U.S. market. Latin America hasn't seen as much growth recently, with flat year-over-year results in the second quarter, but key plays like the Antapaccay and Antamina precious-metals streams have been important factors in the company's most recent growth spurt. Meanwhile, Franco-Nevada has been able to enjoy faster production gains in Canada and the U.S., with roughly 15% to 16% growth in gold-equivalent ounce output.
What's to come for Franco-Nevada
The future looks even brighter for Franco-Nevada. In Canada, the Brucejack mine just finished pouring its first gold back in June, and although Franco-Nevada won't start seeing royalty income until the mine hits the 500,000 ounce mark, investors are optimistic about its eventual success. Similarly, the streaming company has seen positive news from several properties, including a ramp-up in mining rates at the Hollister mine in the U.S. and favorable exploration news from several Canadian mining assets.
Image source: Franco-Nevada.
Also encouraging is the extent to which oil and gas royalty revenue is rising. Quarterly revenue from oil and gas was up by nearly a quarter compared to the year-ago period, and the new energy assets in the Stack and Midland plays in Oklahoma and Texas should contribute even further to growth come 2018. Following its second-quarter results, CEO David Harquall boosted Franco-Nevada's expectations on production, saying that the company expects final figures to come in at the high end of previous guidance.
A weight off shareholders' shoulders
Finally, Franco-Nevada succeeded in getting a potentially dilutive event behind it. The company said it had warrants for nearly 6.4 million shares get exercised during the second quarter. Based on the pricing of the warrants, Franco-Nevada collected more than $356 million in capital. That will more than pay for the purchases that the company has made in the energy market recently, and more importantly, it leaves shareholders to enjoy more of the fruits of Franco-Nevada's success going forward.
Precious metals have been performing very well, with gold climbing above $1,330 per ounce and both platinum and palladium flirting with the $1,000 per ounce level. Those gains will give Franco-Nevada some quick profits on its existing assets. Yet the even better news is that Franco-Nevada's efforts to find assets in the energy market have been paying off, and continued volatile conditions in the oil and gas arena should leave exploration and production companies eager to do business with the streaming and royalty specialist going forward. Based on its past success, Franco-Nevada should be able to keep taking advantage of favorable conditions and find new ways to profit.
