Franco-Nevada Corp. (FNV, Financial) and Continental Resources, Inc. have struck a deal to jointly acquire mineral rights in gas plays in the Anadarko basin of Oklahoma.
The two companies are expected to purchase rights to the South Central Oklahoma Oil Province, known as SCOOP, and the Sooner Trend Anadarko Basin Canadian and Kingfisher Counties, or STACK. Continental operates in those locations while its subsidiary is the owner of the existing mineral rights.
Franco-Nevada Corp. has committed an initial $220 million for the investment. The agreement also requires that Franco-Nevada Corp. annually invest up to $100 million for the purchase of additional mineral rights over three years.
The agreement with Continental Resources is important to shareholders of Franco-Nevada Corp. It now means that the Canadian gold royalty and streaming company can proceed with its strategy of increasing its engagement in the oil and gas industry.
Franco-Nevada is now drawing about 10% to 15% of its total revenue from the oil & gas business segment. Franco-Nevada has the opportunity to profit from mineral rights in two of the most prolific areas of the Anadarko basin. The SCOOP and STACK areas are also providing operators and streaming companies with bright perspectives for excellent economics and growth. The region is rich in hydrocarbon accumulations.
The existence of nearness infrastructure improves the picture further.
In the first quarter of 2018, the SCOOP & STACK contributed to the company’s total revenue of $173.1 million for 1.3% and to the Oil & Gas segment’s revenue of $19 million for nearly 12%.
In addition, Franco-Nevada expects that the significant growth in the oil & gas business segment will be matched by meaningful growth in the revenue from the precious metals business segment.
In 2019, Cobre Panama, one of the largest copper-gold-silver porphyry deposits in the world, is expected to ramp up production. Franco-Nevada is expected to benefit from the Panamanian metallic deposit. It has two precious metals streams.
Franco-Nevada is a solid company. The balance sheet has a lot of cash on hand and securities of $87.8 million and no debt. Furthermore, the company can generate over $500 million cash flow from annual operations. GuruFocus indicates a financial strength of 9 out of a total of 10. Franco-Nevada is strong enough to fund strategic collaborations and mineral projects, as well as survive economic recessions and slowdowns.
Franco-Nevada is trading at $72.48 per share. It has a market capitalization of $13.57 billion.
The share price is underneath the 200-SMA line and slightly above the 50 and 100-SMA lines.
The stock is flat for the 52 weeks through Aug. 6 and the current share price is below the midst of the 52-week range of $66.19 to $86.06 per share.
Franco-Nevada is distributing dividends to its shareholders. The forward dividend is 96 cents, granting 1.31%.
The recommendation rating is 2.8 out of 5 and the average target price is $81.27 per share.
(Disclosure: I have no positions in any security mentioned in this article.)
