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TABLE OF CONTENTS Apr 14 - 20, 2014 Volume 100 Number 9 - 0 comments

Franco-Nevada hikes dividend despite losses

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2014-04-09

Franco-Nevada (TSX: FNV; NYSE: FNV) isn’t letting paper losses get in the way of pushing cash back to investors.

The gold royalty and streaming company is increasing its dividend despite mounting losses in the fourth quarter.

Net losses for the period came in at $80.6 million, or 55¢ a share — up from a $33.1-million loss, or 23¢ a share the same period last year.

Much of the loss, however, was related to a $107-million non-cash impairment charge on the McCreedy precious metal stream after KGHM International said it would stop production at the mine in Sudbury.

It also took a $24.2-million impairment for its interest in Falcondo nickel laterite mine in the Dominican Republic after Glencore Xstrata (LSE: GLEN) put the traditional swing producer back on care and maintenance.

Once the non-cash charges were stripped out, the financials looked better, with the company showing a quarterly adjusted net income of $30.5 million, or 21¢ per share, on revenues comprised of precious-metal royalties (83% of all revenues), oil and gas royalties (13%), and base metals and other assets (4%).

Attributable gold-equivalent ounces for the quarter climbed nearly 18% to 69,741 oz.

For the year the company expects to receive between 245,000 and 265,000 equivalent oz. gold and between $60 million and $70 million from its oil and gas assets.

The numbers bolstered the company’s confidence to boost its dividend by 11%. Franco said the dividend payout schedule would be switched to quarterly from monthly, and the effective annual payout would rise to 80¢ a share from 72¢.

“The dividend increase appears logical given Franco-Nevada’s strong balance sheet, with roughly US$1.4 billion in available capital,” BMO Capital Markets analyst David Haughton writes in a research note. “Franco-Nevada distinguishes itself from the senior gold producers group given the recent industry trend of dividend cuts.”

BMO rates Franco-Nevada’s stock as an “outperform,” with a $60 price target.

Franco-Nevada provides streaming deals, whereby it gives a producer or near-producer an upfront payment for future production at a set price in the future and buys royalties from producers, which are generally based on a mine’s revenue or profit.

The company also announced a new royalty and streaming deal. On the royalty side it came to terms with AngloGold Ashanti (NYSE: AU) to acquire its 2% net smelter return royalty on Yamana Gold’s (TSX: YRI; NYSE: AUY) Cerro Moro project for $23.5-million cash.

It also struck up a gold purchase agreement for 38,000 oz. gold and a 2.5% net smelter return royalty from Klondex Mines’ (TSX: KDX; US-OTC: KLNDF) Fire Creek and Midas properties. It paid US$35 million for those assets.

On March 20 — the day the dividend news was released — the company’s shares were trading for $53.02.



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