Natural resources streaming and royalty specialist Franco-Nevada (FNV +1.11%) came into 2017 on a high note, having posted extremely good returns in 2016. Despite some nervousness about what might happen with the price of gold, Franco-Nevada sought to implement a massive shift in its strategic vision, re-emphasizing the role of oil and natural gas development projects in its portfolio of assets. As it turned out, Franco-Nevada's timing was good, and that helped power a 34% gain for the stock during the course of 2017.
With strong prospects ahead, Franco-Nevada has high hopes for 2018 and beyond. Now's a good time to look more closely at how the streaming giant succeeded in 2017, with an eye toward gaining insight into which strategies will produce the best results going forward.
The durability of Franco-Nevada's business model
One misconception that many people have about the precious metals streaming business is that it's dependent on rising gold and silver prices. Favorable market environments do help boost profits, but in many cases, it's what Franco-Nevada does in periods of challenging markets that define its future success.
That phenomenon showed itself throughout the year. Even though precious metals prices oscillated upward and downward, Franco-Nevada's production levels reflected ongoing efforts to bring in lucrative new deals and find ways to exploit them more fully. Properties like the Antamina mine in Peru have been instrumental in helping to accelerate growth recently, and the company has sought ways to invest further in some of its best plays to take maximum advantage of their potential.
Franco-Nevada also sustained its impressive history of dividend growth. For the 10th consecutive year, the streaming specialist boosted its payout, giving shareholders a 4.5% increase to $0.23 per share quarterly. Given the extent to which the share price has risen lately, Franco-Nevada's dividend yield of just 1.2% isn't all that high. But in an industry that routinely has mining companies paying no dividends at all, Franco-Nevada continued to stand out among investors looking for income from their natural resources holdings.
Stats on Franco-Nevada
|
Revenue, Past 12 Months |
$663.1 million |
|
1-Year Revenue Growth |
15.7% |
|
Net Income, Past 12 Months |
$146.7 million |
|
1-Year Net Income Growth |
54% |
Data source: Franco-Nevada investor relations.
The most important thing Franco-Nevada's did in 2017
Yet despite its reputation for gold, silver, and platinum-group metals projects, Franco-Nevada's most noteworthy achievement in 2017 was its continued pursuit of promising royalty agreements in the oil and natural gas industry. In the third quarter, Franco-Nevada added exposure through a royalty interest on an oil-sands project in Alberta, as well as a portfolio of royalty interests covering the promising West Texas formation known as the Delaware Basin. That added to existing assets that included exposure to the Midland Basin in Texas, the STACK play in Oklahoma, and various properties in western Canada.
Image source: Franco-Nevada.
Franco-Nevada CEO David Harquail's strategy to get more deeply into energy was a risky proposition at the time, given the extreme volatility that the sector has seen in recent years. Yet the streaming specialist rightly identified that there would be a greater number of potential partnership opportunities to provide financing to struggling oil and gas exploration and production companies given the tough industry environment. The deals that the company has done show just how extensive the opportunities have been in the energy sector, and the positive impact on Franco-Nevada's financial results only began to make itself visible during 2017.
How will Franco-Nevada fare in 2018?
Franco-Nevada has enjoyed a long period of sustained growth, navigating shifting conditions in precious metals and other natural resources markets to find ways to profit. As energy markets start to rebound more fully, Franco-Nevada will be in an even better position to see its strategic shift pay off in the years to come.
