Franco-Nevada Corporation’s (FNV - Free Report) mining operators have been facing the unfavorable impact of the coronavirus outbreak, with temporary suspension of operations and production curtailment. Consequently, the company has revoked its gold equivalent ounce (GEO) sales guidance for the current year. Previously, the company had anticipated attributable royalty and stream sales to total 550,000-580,000 GEOs from its mining assets.
Franco-Nevada has royalties and streams on many properties mined by some of the most reputed mining companies in the world. The company has a healthy and diversified portfolio of 56 producing assets, comprising four larger cash-flowing assets, Antamina, Antapaccay, Candelaria and Cobre Panama, and 52 smaller cash-flowing assets. Two of its large assets — Candelaria and Antapaccay — contributed 12% of its revenues individually for 2019, followed by Cobre Panama with a contribution of 8%.
Cobre Panama’s operator, First Quantum announced the temporary suspension of its operations, while the Antamina, Antapaccay and Candelaria mines continue to perform near expectations based on the recent information provided by their operators. Moreover, out of the 52 smaller cash-flowing assets in the company’s portfolio, 11 have already temporarily halted their operations and reduced production.
Further, the company has withdrawn its energy-revenue guidance for 2020, given the sluggish energy prices. Previously, it had anticipated revenues between $80 million and $95 million from its energy assets. The guidance assumed the WTI oil price of $45 per barrel and a Henry Hub natural gas price of $2.00 per mcf.
The company’s strong financial and liquidity position places it well to navigate through this turbulent period, while also enabling to make further investments to grow the diversified asset portfolio. Franco-Nevada had cash in hand of $205 million and outstanding credit facilities of $1.1 billion as of Mar 31, 2020. The company continues to pay sustainable dividends to its shareholders. It has increased its dividend in each of the past 12 years and expects to announce the second-quarter 2020 dividend on May 6.
The company is adopting precautionary measures for health and safety of its employees, with the staff working remotely. It is also closely monitoring the impact of the coronavirus pandemic on its assets portfolio.
Coronavirus has become a major threat to public health worldwide. Several mining companies like Newmont Corporation (NEM - Free Report) , Freeport-McMoRan Inc. (FCX - Free Report) , Vale S.A. (VALE - Free Report) and others are halting their operations as governments across the globe are imposing restrictions to contain the spread of the virus.
Franco-Nevada’s revenues will likely be affected by changes in the market price of the commodities underlying the royalties, streams, working interests and investments. The company’s revenues are particularly sensitive to changes in the prices of gold, silver, oil, natural gas, PGM and copper.
While gold has gained from its safe-haven demand, other commodities are bearing the brunt of the pandemic. In fact, gold prices have been up 9.6%, so far this year, fueled by the slowdown in manufacturing activities, rate cuts, lower oil prices, geopolitical tensions and uncertainties regarding the coronavirus outbreak. The combination of lower mined-gold supply and higher demand, and geopolitical tensions are likely to drive prices north. This, in turn, will drive margins for Franco-Nevada.
Share Price Performance
Franco-Nevada currently carries a Zacks Rank #2 (Buy). The company’s shares have appreciated 43.9% over the past year, outperforming the industry’s growth of 25.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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