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On Monday, Stifel analysts maintained their Buy rating on Franco-Nevada Corporation (FNV:CN) (NYSE: FNV), a $24.78 billion market cap mining royalty company, with a steady price target of Cdn$215.00. The company, known for its impressive 87.37% gross profit margins according to InvestingPro data, recently entered into a $300 million royalty agreement that will provide funding for merger and acquisition activities. This deal includes a long-duration royalty on the Porcupine Complex in Canada and supports Discovery (NASDAQ:WBD) Silver in a significant transaction aimed at enhancing the operations at the Porcupine Complex.
The analysts view the transaction as neutral, noting that while the internal rate of return (IRR) is less than flashy at sub-5% on their price deck, the cash-on-cash return is approximately 11%. The agreement is expected to contribute around 12,000 gold equivalent ounces (GEOs) annually over the next five years to Franco-Nevada's production profile, which signifies a 2% increase.
Franco-Nevada's involvement in the deal provides immediate cash flow and secures long-term optionality of the well-recognized Canadian asset. Stifel's analysis indicates that Franco-Nevada's support of Discovery Silver's M&A deal will increase the focus on unlocking the full potential of the asset. This includes the Dome project, which is not currently included in the royalty IRR calculation, but is seen as a potential future upside.
The agreement is part of Franco-Nevada's strategy to fund M&A by offering long-duration royalties, a transaction type that the company is familiar with. The deal not only provides immediate financial benefits but also positions Franco-Nevada as a strategic partner in the ongoing development and expansion of the Porcupine Complex.
Franco-Nevada's stock rating and price target reaffirmation by Stifel reflects the firm's confidence in the company's recent strategic moves and its potential for future growth. The stock has demonstrated strong momentum with a 10.57% year-to-date return and is currently trading near its 52-week high. The royalty deal is an integral part of Franco-Nevada's broader efforts to enhance its asset portfolio and generate sustainable long-term value for its shareholders, as evidenced by its 17-year track record of consecutive dividend increases. According to InvestingPro's Fair Value analysis, the stock is currently fairly valued, making it an interesting watch for investors seeking exposure to the mining royalty sector.
In other recent news, Franco-Nevada Corporation has been involved in significant developments. The company recently announced a new precious metals stream agreement with Sibanye-Stillwater Limited's mining operations in South Africa, leading H.C. Wainwright to adjust its price target for Franco-Nevada to $155 from $200, while maintaining a Buy rating. Additionally, UBS initiated coverage on Franco-Nevada, setting a price target of $160 per share, and highlighting the potential growth from the anticipated restart of the Cobre Panama mine.
Franco-Nevada has also reported mixed results for the third quarter of 2024. Despite record gold prices leading to increased revenues, EBITDA, and earnings, the company sold fewer gold equivalent ounces (GEOs) primarily due to the halted contributions from the Cobre Panama mine. The company's revised revenue guidance for 2024 is now set between $1 billion and $1.1 billion, with total GEOs sold projected between 445,000 and 465,000.
Furthermore, Franco-Nevada is actively exploring diversification opportunities, including a potential acquisition in potash. The company also anticipates an active year for transactions in precious metals, with medium-sized deals starting at $300 million. However, ongoing transfer pricing audits with the Canada Revenue Agency may pose potential tax exposure into 2024. Lastly, discussions with President Mulino's administration regarding the resumption of operations at the Cobre Panama mine are expected in early 2024.
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