Franco-Nevada Corp.
(FNV-N, FNV-T) US$156.09 | C$199.18
Q1/22: Non-precious Metals Businesses Drive Strong Quarter Event
FNV reported Q1/22 adjusted EPS of $0.93, slightly better than TD at $0.92 but below consensus at $0.96. Adjusted EBITDA for the quarter was $286.6mm (TD: $275mm; consensus $283mm).
Impact: NEUTRAL
FNV reported Q1/22 total delivered GEOs (including oil and gas) of 178.6 kozs (TD: 173.5 kozs) and total revenue of $338.8mm (TD: $326mm). Precious metal GEOs sold for the quarter were 128.6 kozs (TD: 130 kozs) - tracking towards the low end of the annual guidance range of 510k-550kozs.; 71.7% of revenue was sourced from precious metal assets.
FNV recorded total revenue of $16.8mm from the Vale royalty (TD $13.8mm), which included $4.5mm of revenue related to H2/21 production, reflecting retroactive volume adjustments and higher prices. The oil and gas business generated total revenue of $75.6mm (TD $58.8mm), a quarterly record.
Subsequent to the quarter-end, FNV agreed to acquire an effective 0.4582% NSR royalty on the Caserones copper-molybdenum mine in Northern Chile (operated by JX Nippon Mining and Metals) for a purchase price of $37.4mm. In conjunction, FNV completed an $10mm private placement into EMX Royalty Corp; EMX used the proceeds to acquire an NSR on Caserones on similar terms to FNV. Caserones produces ~150kt of copper and 3kt of molybdenum annually. At current prices, we estimate the FNV's annual royalty revenue would be ~$7mm.
FNV ended Q1/22 with $723mm in cash, zero long-term debt, and ~$1.7bln of available liquidity. The quarterly dividend was maintained at $0.32/share.
2022 guidance is unchanged. FNV is projecting 2022 total GEOs produced between of 680-740 kozs and 765-825 kozs by 2026. For the 2022 and five-year outlook, FNV is assuming prices of: $1,800/oz Au, $23.00/oz Ag, $1,000/oz Pt, $2,100/oz Pd, $125/tonne Fe 62% CFR China, $85/bbl WTI oil, and $3.75/mcf Henry Hub natural gas.
TD Investment Conclusion
We are maintaining our BUY recommendation and $195.00 target price. We continue to believe that FNV's royalty/streaming business model provides excellent precious metal exposure without the inflationary cost pressures that gold producers are experiencing in 2022.