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Shares of Franco-Nevada Corp. (NYSE: FNV) slumped 7.03% on the Toronto Stock Exchange, or nearly 3% on the NYSE, in June, giving up most of its gains from May. In fact, June turned out to be the worst month so far for the precious-metals streaming company. The reason? Nothing. Seriously, there was absolutely no news from the company last month, but a combination of macro factors appears to have hit the stock.
Franco-Nevada might not be into the mining side of gold and silver, but it is equally exposed to gold and silver prices like any other miner. That's because while Franco-Nevada buys precious-metal streams from mining companies instead of extracting them, it ultimately sells the metals in the market to make money.
So with gold and silver prices weakening last month, especially after the Federal Reserve raised interest rates for the second time this year, Franco-Nevada shares slipped along with most other gold and silver stocks. Higher interest rates drive the opportunity cost of owning gold higher and dilute the yellow metal's attractiveness as a hedge against uncertainty and inflation.
Meanwhile, oil prices slumped as well last month, which may have spooked investors further as Franco-Nevada has also forayed into oil and gas royalties and is expanding its oil portfolio.
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So does that mean that Franco-Nevada is headed for tougher days ahead and you should sell the stock? Certainly not.
As a precious-metals streaming company, Franco-Nevada finances miners up front to support their capital projects and gets the right to purchase metal streams from them at low costs in return. So the company is not only immune to mining-related costs and risks but also enjoys hefty margins and cash flows thanks to low purchase costs. So, for instance, Franco-Nevada's cost of sales (or purchase costs) was only around 17% of revenues last year.
Franco-Nevada is growing at a rapid pace, having hit record production and revenues for its first quarter in May. Management also increased dividend by 10%, marking the 10th straight year of dividend increases. That makes it one of the top gold dividend stocks to invest in.
Putting it all together, Franco-Nevada is one of the best ways to play gold regardless of where metal prices are. In short, investors may even consider any drop in shares a great long-term opportunity.
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