Throughout 2024 gold has been one of the strongest performing asset classes. In this edition of ‘This or That’ we will explore two of the largest gold stocks on the TSX.

Business Focus

Franco Nevada Corp. (FNV)

FNV is a gold-focused royalty and streaming company operating through two segments: Mining and Energy. FNV is focused on gold mining making up 75% of its portfolio, however, the remaining 25% is attributed to other precisions metals as well as oil and gas. The company has numerous international assets but primarily operates in North and South America. We will note that FNV is a royalty gold miner which means that it has interests in cash generating assets (mines). This differs from a traditional miner who owns and operates its mining assets.

Barrick Gold Corp. (ABX)

ABX is a traditional miner who explores, mines, produces, and sells gold and copper properties. ABX also sells silver and energy materials. For the full year ended 2023, gold was ~91% of total revenue, copper 7%, and other  ~2%. Geographically, gold properties were derived 50% from North America, 37% Africa and Middle East, and 13% Latin America and Asia Pacific. For copper properties, the geographic distribution was 79% Africa and Middle East, and 21% Latin America and Asia Pacific.

Looking at valuation between the two names first, we can see that FNV is significantly more expensive than ABX. We attribute this to the business model differences where royalty companies will typically be lower, risk higher margin businesses warranting higher multiples. FNV has evidently outperformed over the last five years, but we can see that ABX is catching up on strong performance over the last year. ABX is up 24.5% over the past year while FNV is relatively flat. This is due to ABX being more closely leveraged to gold spot prices and FNV having more diverse operations. Lastly, on the yield front, ABX looks more attractive, with its yield nearly being double that of FNV’s.

Financial Metrics and Forward Estimates

The table below compares a few key stats and estimates for both companies. We can see that solid growth is projected next year, but ABX has the edge in both revenue and EPS expansion expectations. On ROE and Net Margins, we will note that FNV took on a large impairment charge in Q4 2023 which is skewing these stats lower than they typically would be. The gross margin differential and debt/equity ratio are reflective of FNV’s capital light business model. FNV has no debt on its balance sheet and a net cash balance of $1.42 billion compared to ABX with $688 million in net debt.

Investment Outlook

Both FNV and ABX offer attractive ways for investors to get exposure to gold. For more direct leverage to spot prices of gold we would recommend ABX. Recent performance has been stronger, the yield is higher, and it is still valued cheap at 11x forward earnings. Over the long term however, FNV does have the more attractive business model due to its royalty focus. FNV is also more of a diversified commodities play with exposure to a variety of other precious metals and energy. If gold continues its strong price action, ABX will likely outperform in the short-term, but FNV will be more resilient in downward price cycles. 

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