Franco-Nevada sees opportunities amidst oil and gas slump

VANCOUVER — Royalty and streaming outfit Franco-Nevada (TSX: FNV; NYSE: FNV) is a money-maker, and it has seen big success through gold and platinum group metal investments.

But the company also has a smaller oil-and-gas division that contributed 17% to its 2014 revenue, and management says it might capitalize on struggling crude oil markets to acquire more assets in the energy space.

During the first quarter Franco reported adjusted net income of US$23 million, or 15¢ per share, while adjusted earnings totalled US$83 million, or 53¢ per share. The company also boosted its dividend by 5% to 21¢ per quarter, which marks the eighth consecutive annual increase.

Franco received 85,081 oz. gold equivalent during the quarter, with US$91.7 million in revenue. The results were a 29% year-on-year improvement, with 88% of attributable equivalent ounces coming from gold assets.

“I am just very pleased how well the mineral assets are performing,” president and CEO David Harquail said during a conference call. “We’re sitting on a lot of liquidity right now. So I think we can fund any deal without having to raise any additional capital. We want to focus on transactions that are proportionate with our overall portfolio, so we want to maintain the 80% precious metals focus.”

By comparison, the company’s oil and gas business accounted for revenues of $5.5 million, with much of that total attributable to its Weyburn unit, 129 km southeast of Regina, Sask. Weyburn chipped in US$5.8 million to Franco’s revenues last year on the back of 715 million barrels of oil equivalent.

In fact, Franco’s quarterly oil-and-gas revenues were down 71% year-on-year from nearly US$19 million in 2014. But part of the royalty and streaming game involves looking at assets trading at a discount, and the energy sector would definitely qualify. July contracts for West Texas Intermediate crude oil have rallied slightly, but are still down nearly 50% year-on-year at US$58 per barrel at press time.

Franco finished the first quarter with US$670 million in working capital, and credit and short-term investments bring the total to US$1.2 billion. Harquail said the company would “ideally” mobilize “the majority” of its available capital this year, and noted opportunities in the struggling oil and gas industries.

“There have been a number of assets already marketed in Western Canada, and there are definitely options in the market right now,” said chief operating officer Geoff Waterman, who runs Franco’s energy division.

“We have a separate business development group just focused on [oil and gas]. One of the great strengths of our company is that we’re diversified by commodity and we continue to look at all the commodity fronts. I’m really optimistic that something will come along that is as competitive as the deals that our mining team is putting to the table,” he added.

Waterman elaborated that the company is on the lookout for any royalty rises in Alberta since the left-leaning New Democratic Party’s victory in the provincial elections, and noted that though Franco is focused on an asset’s “underlying quality,” it will likely wait on any changes before making acquisitions in the province.

This year Franco has only invested US$36 million in a pair of junior-stage assets. This total is far off the US$900 million the company injected into markets last year.

In late April Franco acquired royalty rights to Ontario’s Ring of Fire from Noront Resources (TSXV: NOT; US-OTC: NOSOF) for US$28.5 million, while in mid-January Franco dropped US$7 million on a 2% net smelter return  royalty (NSR) at Victoria Gold’s (TSXV: VIT; US-OTC: VITFF) Eagle deposit in the Yukon.

Meanwhile, Rubicon Minerals (TSX: RMX; NYSE-MKT: RBY) is advancing towards production later this year at the Phoenix project in Red Lake Ontario, where Franco holds a 2% NSR.

The company is negotiating the details of a precious metals stream with First Quantum Minerals (TSX: FM; US-OTC: FQVLF) on the large-scale Cobre Panama copper mine project. Franco expects to fund between US$300 million and US$350 million this year in connection with the agreement.

Franco has traded within a 52-week window of $49.28 to $74.10, and closed at $63.79 per share at press time. The company has 157 million shares outstanding for a $10.2-billion market capitalization.

But the company also has a smaller oil-and-gas division that contributed 17% to its 2014 revenue, and management says it might capitalize on struggling crude oil markets to acquire more assets in the energy space.

During the first quarter Franco reported adjusted net income of US$23 million, or 15¢ per share, while adjusted earnings totalled US$83 million, or 53¢ per share. The company also boosted its dividend by 5% to 21¢ per quarter, which marks the eighth consecutive annual increase.

Franco received 85,081 oz. gold equivalent during the quarter, with US$91.7 million in revenue. The results were a 29% year-on-year improvement, with 88% of attributable equivalent ounces coming from gold assets.

“I am just very pleased how well the mineral assets are performing,” president and CEO David Harquail said during a conference call. “We’re sitting on a lot of liquidity right now. So I think we can fund any deal without having to raise any additional capital. We want to focus on transactions that are proportionate with our overall portfolio, so we want to maintain the 80% precious metals focus.”

By comparison, the company’s oil and gas business accounted for revenues of $5.5 million, with much of that total attributable to its Weyburn unit, 129 km southeast of Regina, Sask. Weyburn chipped in US$5.8 million to Franco’s revenues last year on the back of 715 million barrels of oil equivalent.

In fact, Franco’s quarterly oil-and-gas revenues were down 71% year-on-year from nearly US$19 million in 2014. But part of the royalty and streaming game involves looking at assets trading at a discount, and the energy sector would definitely qualify. July contracts for West Texas Intermediate crude oil have rallied slightly, but are still down nearly 50% year-on-year at US$58 per barrel at press time.

Franco finished the first quarter with US$670 million in working capital, and credit and short-term investments bring the total to US$1.2 billion. Harquail said the company would “ideally” mobilize “the majority” of its available capital this year, and noted opportunities in the struggling oil and gas industries.

“There have been a number of assets already marketed in Western Canada, and there are definitely options in the market right now,” said chief operating officer Geoff Waterman, who runs Franco’s energy division.

“We have a separate business development group just focused on [oil and gas]. One of the great strengths of our company is that we’re diversified by commodity and we continue to look at all the commodity fronts. I’m really optimistic that something will come along that is as competitive as the deals that our mining team is putting to the table,” he added.

Waterman elaborated that the company is on the lookout for any royalty rises in Alberta since the left-leaning New Democratic Party’s victory in the provincial elections, and noted that though Franco is focused on an asset&rs
quo;s “underlying quality,” it will likely wait on any changes before making acquisitions in the province.

This year Franco has only invested US$36 million in a pair of junior-stage assets. This total is far off the US$900 million the company injected into markets last year.

In late April Franco acquired royalty rights to Ontario’s Ring of Fire from Noront Resources (TSXV: NOT; US-OTC: NOSOF) for US$28.5 million, while in mid-January Franco dropped US$7 million on a 2% net smelter return  royalty (NSR) at Victoria Gold’s (TSXV: VIT; US-OTC: VITFF) Eagle deposit in the Yukon.

Meanwhile, Rubicon Minerals (TSX: RMX; NYSE-MKT: RBY) is advancing towards production later this year at the Phoenix project in Red Lake Ontario, where Franco holds a 2% NSR.

The company is negotiating the details of a precious metals stream with First Quantum Minerals (TSX: FM; US-OTC: FQVLF) on the large-scale Cobre Panama copper mine project. Franco expects to fund between US$300 million and US$350 million this year in connection with the agreement.

Franco has traded within a 52-week window of $49.28 to $74.10, and closed at $63.79 per share at press time. The company has 157 million shares outstanding for a $10.2-billion market capitalization.