Shares of Franco-Nevada Corporation (FNV) are up more than 34% so far in 2012. This move is very impressive when, as shown by the chart below, Franco-Nevada is compared to other big gold mining stocks - Barrick Gold Corporation (ABX), Newmont Mining Corp (NEM), Agnico-Eagle Mines Limited (AEM), and the gold miner ETF, Market Vectors Gold Miners ETF (GDX).
Click to enlarge
Royalty and Streaming Company
Unlike most traditional gold miners, but similar to silver streaming company Silver Wheaton Corp. (SLW), Franco-Nevada is a gold royalty and streaming company. In short, this means that Franco-Nevada gives mining companies working capital in exchange for a stake in the revenues that a venture will produce. Right now, the company has 342 assets in all commodities at all stages of development.
Of the 342 assets, 170 of them are gold assets. Currently, 39 of the assets are in production, 20 assets are in the advanced stage with the potential of production within the next five years, and 117 assets are in the exploration stage. Clearly, Franco-Nevada is a company with a lot of potential over the long term.
In late August, Franco-Nevada announced a $1-billion financing deal with Inmet Mining Corporation for a precious metals stream on the Cobre Panama copper project in Panama, one of the world's largest copper-gold-silver-molybdenum porphyry deposits currently being constructed.
Option Monster reported on the high level of bullish options activity recently: 2,000 April 40 puts were sold for $1.05. This position is a bullish one as the puts were sold. The large block trade likely represents institutional money. Institutional money is usually smarter, thus worth following. In summary, the recent options activity points to more upside ahead for Franco-Nevada over the medium term.
Due to its unique business model, Franco-Nevada has avoided many of the problems, such as rising costs, declining ore grades, mining strikes, and other problems, that other gold miners have faced. Because of this, Franco-Nevada has proved to be a very good way of trading gold and I believe will remain a good way to trade gold going forward. However, the long-term outlook for Franco-Nevada is dependent on the success of the 117 assets in the exploration phase.