The Gold Report - Thu, Aug 10, 2017

Royalty Company Expects Strong Second Half After Another Solid Quarter

Andrew Kaip, an analyst with BMO Capital Markets, detailed this royalty company's Q2/17 financial results and relayed its expected production for the full year.

Gold bar and dollars

In Q2/17, Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) posted an adjusted earnings per share of $0.26, which was "above our expectation of $0.23 and consensus of $0.24, on the back of stronger GEOs sold," Andrew Kaip of BMO Capital Markets noted in an Aug. 8 report. "Gold equivalent delivered was 123 Koz, above our estimate for 119 Koz."

The company's cash flows also were better than BMO projected. "Operating cash flow of $127M was ahead of our expectation for $112M, benefitting from ~$7M in working capital," Kaip wrote, while free cash flow of "($11M) came in above our estimate for ($53M). . .FNV finished the quarter with $614M in cash and equivalents."

In terms of outlays, Franco, also in Q2/17, passed the halfway mark in its financing for development of the Cobre Panama mine. "FNV contributed $52.4M at Cobre Panama, reaching $564.8M of its $1B commitment," said the BMO analyst.

The company anticipates achieving its previously stated 2017 production guidance for gold equivalent ounces of "470-500 Koz, where it expects to be at the top end of the range," Kaip reported.

As for oil and gas, "revenue of $9.6M was slightly below our estimate for $10.9M," the report explained, however, the company's full year 2017 guidance for revenue from those commodities remains the same at $35-45M.

Summing up the financials, Kaip said, "FNV posted another solid quarter, building off a strong initial start to 2017, and now expects to be at the top end of its GEO guidance range."

The research report additionally provided these corporate development updates:

1. "FNV purchased a second package of mineral titles in the core of the STACK shale play for $27.8M," Kaip indicated. The deal, which was effective as of June 1, is slated to close in November of this year.

2. The second component of Franco's Midland acquisition "is expected to close in Q3/17, with an adjusted purchase price of ~$107M," wrote Kaip. The first portion closed for $89.8M in Q2/17.

Franco-Nevada is currently rated Market Perform and is trading at about $92.08 per share. BMO's target price on the company is $100 per share.

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