Going for Gold
by Russ MacKay
With the Olympics still fresh in our minds I thought I’d highlight one of the positions we’ve been adding to as of late – Franco-Nevada (FNV).
FNV is a gold royalty company with a strong balance sheet – with no debt and current cash of US$1.1B ($6.90 per share) and unused credit lines of US$175M. Given that a number of gold mining companies are facing cost overruns on developing new mines and tight equity and debt markets they are likely to seek financing from players such as FNV who can then in return receive an attractive royalty stream and/or convertibles. FNV sees doing 7-8 under $100M deals and one $500M deal over the next year.
Secondly, given that both the US Federal Reserve and the European Central Bank are still in easing mode and weak economic growth globally, further quantitative easing by both banks is a very strong possibility over the next few months which should benefit gold and in turn FNV.
Finally, in October FNV will switch its dividend from quarterly to monthly. While it has a current yield of 1.3%, we would not be surprised to see an increase in the next twelve months.