For Franco-Nevada Corp., the best time to take on debt is at the bottom of a market. The day may be approaching for the Canadian royalty and streaming company as the commodity rout boosts demand for alternative funding.
“There are so many opportunities out there, we might have to dip into our credit lines,” Chief Executive Officer David Harquail said in an interview last week from his Toronto offices. “The ideal is you lever yourself up at the very bottom of the bear market and hopefully, if you’ve called it right, then you really benefit as the market turns around.”
Streaming companies like Franco-Nevada, Silver Wheaton Corp. and Royal Gold Inc. give miners upfront payments in exchange for the right to buy metals at a discount in the future. Franco-Nevada also does royalty agreements, tying portions of production to land titles.
Plunging metal prices, with copper down 24 percent and gold 11 percent in the past year, combined with surging credit costs and volatile stock markets, have made streaming attractive even for majors such as Barrick Gold Corp. and Freeport-McMoRan Inc., giving the business more credibility.
“It’s something that’s gone from being seen as kind of hokey, to where now every major company and their CFO has to consider it among their financing options,” Harquail said.
The company’s shares have risen 17 percent over the past two years, compared with a 29 percent drop in the Standard & Poor’s/TSX Composite Materials Sector Index. Franco-Nevada fell 1 percent to C$55.71 at 10:01 a.m. Tuesday in Toronto.
Harquail, 58, prides himself on keeping things lean. Overseeing a company valued at C$8.73 billion ($6.59 billion), he eschews personal assistants, books his own travel and sends his executives to do business armed with subway tokens. “We call those the Franco limos,” he said.
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