Franco-Nevada (FNV) — the large-cap gold royalty streamer — reported first-quarter earnings that were slightly better than expected, with Gold Equivalent Ounces (GEOs) up over 10%, compared with a year ago, observes Adrian Day, resources sector expert and editor of Global Analyst.

It has withdrawn its full year guidance due to COVID-related the shutdown of some of its mines; about 30% of its production has been affected, primarily at Cobre Panama and Antamina. The timing of the restart in Panama is uncertain, although work is ongoing towards a restart. Another 11 assets had announced stoppages, though five of those have since resumed activities.

Franco has also been hurt by the low oil price and consequent reduced production, and the company took some write-downs on its oil assets. G&A costs were less than 3% of revenues in first quarter.

In two signs of confidence, however, Franco paid off its remaining $80 million in debt; the company has always been debt averse. And it increased its quarterly dividend by a penny to 0.26, for its 13th consecutive annual dividend increase.

Both of these moves contrast with most mining companies that have drawn down on the credit facilities and cut their dividends.

The pipeline is “healthy," with Franco looking at a wide range of assets, including opportunities in base metals and bulk materials. A particular opportunity is with base metals producers, who are hurt by lower prices and looking to monetize precious metals by-product.

Various government restrictions make on-the-ground due diligence difficult, and in the near term, we would expect smaller transactions to close first.

Franco now has $200 million in cash with $1 billion un-drawn on its revolver, and it has increased to $300 million the amount authorized under its “ATM," the ability to issue small amounts of shares “at the market," which is more than sufficient for any near-term transactions.

The stock fell to under $90 in March, so it has had a very strong recovery, moving to all-time highs. It is trading at 5.6x and with a price-to-cash flow of 40x, which is well above even Franco’s historically rich valuations. Based on historical norms, Franco-Nevada is not cheap. But it belongs in every gold investor’s portfolio.