Gold has staged quite a comeback in 2014, rising 10.8%
year-to-date. But a select few
have done even better.
has been a particularly strong performer, rising 13% so far this
year. A recent pull-back in the stock has opened up the door for
investors to buy a great stock that I expect to reverse course
and head higher in the coming weeks.
The pull-back was initiated by a Q4 loss due to asset
impairments. The impairments came from two nickel producing mines
that have been placed on hold until the economics make sense to
mine them again. There is no cash impact from the impairments,
and the assets still have value.
With management guiding for as much as a 10% increase in gold
production this year and a 35% increase within the next five
years, I suggest investors take the above adjustment with a grain
of salt and focus on the meat of the investment here.
Franco-Nevada is a strong and stable gold streaming company with
a diversified asset base of over 350 projects.
The company is one of the few dividend-paying gold companies
out there that I like. The royalty and streaming business carries
considerably less risk than pure
. I believe that makes dividend payments from a company like
Franco-Nevada more reliable, and raises the likelihood of
dividend increases over time.
And in fact, Franco-Nevada just announced its latest dividend
hike. The 11% increase in the company's quarterly dividend will
bring annual payments up to $0.80, meaning the stock yields 1.7%
at today's price of $46.00. This increase also marks the third
dividend hike since 2012.
Franco-Nevada avoids various risks associated with developing
and operating gold mines. Yet investors still get exposure to the
upside of commodity price, reserve and production increases.
In exchange for an initial investment, which helps a miner
fund exploration or mine development, Franco-Nevada receives the
rights to a portion of future
. This royalty is usually around 2% of the extracted gold.
Royalty companies are not subject to cash calls to fund
exploration, development or mine closures. And they do not
provide operational or mine development management, so a large
and diversified portfolio can be assembled without the need for
significant corporate overhead. As I stated earlier,
Franco-Nevada owns a royalty interest in more than 300 different
The hard work is deciding which projects to buy into,
negotiating the terms and figuring out how much to pay.
Franco-Nevada has a proven history of doing this well, and I
believe the current environment offers up several new
Hundreds of junior gold miners are sitting on too few dollars
to stay in business. With their share prices obliterated, they
can't even tap the equity markets to raise cash. Franco-Nevada
can sweep in and buy up assets at fire-sale prices.
A recent royalty purchase was a 2.5% royalty on Kirkland Lake
Gold's (KGI.TO) properties in exchange for $50 million. Kirkland
Gold owns some of the best gold properties in Ontario, but the
company's share price has been slashed by more than 50% over the
past two years. With little cash and a depressed equity value,
one of Kirkland's few options was to bring in a partner like
I recommended Franco-Nevada to subscribers of my
Top Stock Insights
advisory service in July. We're up around 18% since then and I
still rate Franco-Nevada as a "buy." Franco is one of the few
gold companies out that offers investors income and growth in one
relatively low-risk investment.
Buy Gold for $400 an Ounce
Most gold miners are lucky to get their gold out of the ground
for less than $1000 an ounce - which is great if gold is $1400 or
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