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Franco-Nevada, The Gold Star Royalty/Streaming Company - Part 1

RB Equity profile picture
RB Equity


  • This is part one of a two-part article presenting an alternative investment for gold exposure.
  • Royalty/Streaming companies have several advantages to mining stocks. The industry has two dominant players, FNV and Wheaton Precious Metals.
  • The optionality embedded in their deals is a very large part of their proposition, often difficult to value precisely but in any case, immensely attractive in the long haul.

Why is gold so valuable? On the one hand it is durable, shiny and malleable. It has been coveted since the beginning of history by most civilizations. The prospect of "cities made of gold" drove European exploration and conquering of the American continent five hundred years ago (with somewhat disappointing results on the gold front, given the high expectations).

On the other hand, it has little “practical” or industrial uses. Jewelry takes up roughly half of yearly production, and investment by central banks and private investors just about the other half. Technological uses account for only 10% of demand on a good year. It is scarce, true, but there are “scarcer” elements that do not command such premiums. Astatine earrings anyone? So rare you will only be able to wear them once.

During medieval times, gold was the main portable asset in kingdom´s “portfolios”. Today, it can be an “alternative” asset in our individual portfolios. It is attractive in part due to its low correlation to other traditional - what would be alternative back then - asset classes. I also cannot answer the question just posed in any definitive manner. Our collective love of gold seems to be the product - like so much in society - of a shared belief that is highly ingrained in our collective history and culture.

Here is how I think about the question of whether or not to have some exposure to gold:

  • The unprecedented rate of fiat money creation will have consequences at some point. Be it inflation a weaker USD or a combination of both. When supply (of any item) is forcibly increased – even if policymakers have good reason to do so – this drives up prices of everything else relative to it.
  • Gold will continue to serve as a store

This article was written by

RB Equity profile picture
Striving to compound knowledge. Long-time fan of Warren and Charlie. Always invert. "To finish first, you must first finish". Investing own and family funds for +20 years. Senior finance roles at public and private corporations for most of that time.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in FNV over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (37)

JBTCP profile picture
I like RGLD the best in this space. Surprised you didn't include them as a comparable in the analysis.

It would be helpful if you could explain WHY you prefer RGLD. Without an explanation, not very helpful.

FWIW, going back to 2007, if you'd invested in FNV, you would have roughly twice as much money as if invested in RGLD.
JBTCP profile picture
@Commoncents33 the point of my comment wasn't that RGLD is the better investment (though that is my personal opinion), but rather that it was shocking that an "analyst" can publish a report on FNV without any mention or comparison whatsoever to their primary competitor RGLD. Without a comparative analysis to RGLD, not very helpful. Huge miss there.
02 Mar. 2021
PGM revenue should be sky-rocketing especially from rhodium, however, FNV doesn't give a breakdown of the pgm components.


Has the market missed this ?.
Tim Paul profile picture
@II That is difficult to assess. FNV is so large a company that it would take 1 full time sole analyst to adequately cover. I believe the market might be missing the extent of the upcoming PGM revenue to a degree, I definitely believe they are missing the probability that energy revenues explode over the next several years. China auto demand alone will blow metal prices toward the sky over the next decade in my opinion. It is very difficult to discover, permit, finance, construct a successful mine. This fact tends to keep a lid on production and rising demand pressures prices much higher. I will find time to cover more of their assets in time. It is very time-consuming.
Tim Paul profile picture
@II there has been a sell off that was overdone IMHO, as gold dipped over the past few months. I noticed a nice recovery today on the stock, with only slight rise in gold. Perhaps others felt the stock drop was largely unwarranted by company fundamentals and prospects.
DRAKE01775 profile picture
FNV is the rock of my PM portfolio. While a small part is traded in the medium term, long term it has been a win. Initial position at $38. WPM has been good, however, it has required more trading within ranges.
Tim Paul profile picture
@DRAKE01775 Your timing was impeccable. I see where Cannacord has a $200 price target for Franco-Nevada FWIW.
I own both FNV and WPM. WPM's dividend is higher. I also always remind people that 8% of FNV's revenues is from energy, not pm's.
Tim Paul profile picture
@Uncommon Wisdom 16% of Earnings in 2019. Adds balance and depth which attracts commodity oriented investors.
BlueTower5000 profile picture
@Uncommon Wisdom WPM too has some cobalt now.
@Tim Paul Sure, in that way FNV can be good for someone looking to invest in a hybrid precious metals / hydrocarbon energy R&S company. I prefer more focused investments -- but I bought some FNV shares during recent weakness.
StephanJK profile picture
Gold/Goldminers/Streaming Companies are a “must have” in this totally insane world.
alessandro molinari profile picture
you should explain in more detail why gold mining companies are one of the worst return investments in history. There are many anecdotes about it, for example the nineteenth century "A Gold Mine Is a Hole in the Ground with a Liar at the Top"
@alessandro molinari, have you looked at mighty Newment (NEM)?
Pays a fat dividend of 4% while we wait for the resumption of the Bull.
Tim Paul profile picture
@alessandro molinari Good suggestion for a follow up article. Thanks
alessandro molinari profile picture
@Miners to the Moon Have you looked at the disastrous historical performance of this company despite being one of the best companies in the industry? its price is lower than since 1996, despite the fact that gold prices have multiplied. on the other hand, FNV had an annualized return of 38% on the first listing in the 1980s and 90s, and of 19% on the second listing.
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