Global analyst Adrian Day examines the first quarter results of three resources companies and recaps Franco's annual 'investor day'. Overall, he believes the results have been positive.
Société Franco-Nevada (FNV:TSX; FNV:NYSE) organized its “investor day” a few days ago, with an overview of the activity and prospects for this year and beyond. It expects minor growth in gold equivalent ounce (“GEO”) production, driven by new mines (including Tocantinzinho in Brazil and Greenstone in Canada) and two major mine expansions.
Last year, the company had more than $950 million in cash flow from 488,000 GEOs, down from more than 510,000 in 2022. For this year, the company is targeting between 480,000 and 540 000 ounces. The forecast excludes Cobre Panama, which it delisted. Given the Cobre Panama incident, the company has focused on its diversification, by asset, geography, operator and commodity; with 118 cash assets, no single asset should contribute more than 15% of its revenue.
Cobre contributed almost 20% before it was shut down by the Panamanian government. May elections are expected to bring a more business-friendly government; new discussions are expected but the restart of the mine will not be soon. Franco also initiated international arbitration.
Oil and gas and a strong balance sheet help Franco
The company said it did not intend to grow its oil and gas business beyond 20% of its revenue; last year it contributed 21% of revenue, excluding Cobre Panama. None of this was new, since Franco had already provided his forecast for 2024 (see last Bulletin, #906). The company has $1.4 billion in cash, no debt and nearly $1 billion available under revolving credit facilities.
I will note, however, that once again, the company started its “investor day” with a presentation on ESG, which in my opinion puts the cart before the horse. Franco, with a strong balance sheet, strong management, diversified assets and a significant pipeline, remains a key stock for us.
It sells at very low long-term valuation levels and can be purchased by investors who do not own it.
Royal's partial results in line with forecasts
Royal Gold Inc. (RGLD: NASDAQ; RGL: TSX) announced first-quarter stream production results totaling nearly 50,000 GEO at the midpoint of its guidance. Streams represent approximately 70% of the company's production.
The company also said that at the end of the quarter it held 16,800 ounces of gold, nearly 350,000 ounces of silver and 400 tons of copper in inventory. The company will release its royalty production and financial results next month. Royal probably has more leverage in the face of rising gold prices than other major royalty companies.
It can be purchased if you do not own it.
Osisko Tracking Guide and New Upcoming Royalties
Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE) reported its first quarter operating results with revenue of $60.7 million from 22.3 thousand GEO. This was a 4% decline from the previous quarter, as expected, but higher than the annual forecast and analyst consensus. Osisko has cash of CA$71 million at the end of the quarter, after a repayment of $44 million on its credit facility.
The company said it plans to continue reducing its outstanding balance. Later this year, Osisko will start production at two new mines on which it holds royalties, including Tocantinzinho. The full financial statements will be published next month. Osisko has solid growth ahead and is even a potential takeover candidate.
Socket.
Fortuna Beats Estimates, But Not for Gold or Silver
Fortuna Silver Mines Inc. (FSM: NYSE; FVI: TSX; FVI: BVL; F4S: FSE) reported first-quarter production of 112,000 gold equivalent ounces, higher than analyst estimates. Although gold and silver were slightly lower than estimated, the byproducts lead and zinc were higher. Overall production is in line with the company's annual forecast.
Gold production fell 16% from the previous quarter, but increased 49% from last year, boosted by the Séguéla mine, which started production mid-year. It continues to work well, with a flow rate above the rated capacity.
The company paid down another $40 million in debt ($121 million since the third quarter) and repurchased more than 1 million shares. Overall, these are solid results. Fortuna continues to be a favorite, with a re-evaluation underway as he continues to perform well.
However, after a 75% rise in the share price since the end of February, we are holding for now.
BEST BUYS this week, in addition to the above, include Nestlé SA (NESN: VX; NSRGY: OTC), Gladstone Investment Corp. (GAIN: NASDAQ), Orogen Royalties Inc. (OGN: TSX.V), And (LRA:TSX.V).
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- As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their households) hold securities of Franco-Nevada Corp., Osisko Gold Royalties Ltd., Fortuna Silver Mines Inc., Orogen Royalties Inc ., and Lara Exploration Ltée.
- Adrian Day: I, or members of my immediate household or family, hold titles of: All. My company has a financial relationship with: All. I determined which companies would be included in this article based on my research and understanding of the industry.
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