The Northern Miner, first published in 1915, during the Cobalt Silver Rush, is considered Canada’s leading authority on the mining industry.
VANCOUVER — It’s hard to find a better value-builder over the past decade than Franco-Nevada (TSX: FNV; NYSE: FNV), which essentially pioneered the royalty-stream finance model and has seen its share price rocket 362% over the past seven years to trade at one of the premier multiples in the gold space.
Since an initial public offering (IPO) in December 2007 — which valued the company at around $15 per share — Franco-Nevada has outperformed both gold and other gold equities, and closed near a 52-week high of $69.71 at the time of writing.
President and CEO David Harquail’s keynote speech at the Association for Mineral Exploration BC’s (AMEBC) annual Round-Up conference reflected on his career and the current state of mine finance, gold prices and exploration prospects.
Harquail began with a retrospective on his thirty odd years in the business, including an anecdote about growing up when his father worked with renowned mine-finder Thayer Lindsley at the Ventures group. Harquail would cut his teeth in a similar project evaluation role with the prolific Pierre Lassonde and Seymour Schulich, and make his way through a number of iterations of Franco before finding himself at the helm of the company.
“What strikes me is that going back to that time in the 1980s, I don’t think a lot has changed in the business. The distribution of mining outcomes is about the same as it has always been,” Harquail commented. “Around one in twenty projects provides good returns. I think the biggest factor in determining the outcome of projects is just more sampling and drilling of the ore bodies. It requires a lot of money up front, but investors need to be cognizant of how much it does affect the outcome.”
He said that historically large companies like Falconbridge and Noranda understood the need for “low-quartile cost assets with long mine lives,” since the industry so often “gets the timing wrong” in terms of commodity cycles.
The idea hinges on the fact that longer mine lives allow miners to take advantage of at least “a couple” of strong commodity cycles to produced decent returns. Harquail said that during the bull market of the 2000s a lot of that “wisdom” was lost, leading to a string of poor project development decisions, which in turn has further eroded investor confidence.
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