PROTECTION AND WEALTH BUILDING STRATEGIES 209It’s not an ETF or a gold miner. In fact, compared to bul-
lion, a gold ETF or a gold miner, this play is a superior way to
get exposure to gold.
As a rule of thumb, it’s better to limit your portfolio to gold
stocks with low financial risk. Many gold mining companies,
for example, are poorly managed and expanded too aggressive-
ly in 2010–11. After sinking billions of dollars into exploration
and mine development, most deliver disappointing returns.
That’s why it’s better to look for low-risk gold stock plays.
Royalty companies tend to have the lowest financial risk. That’s
because they don’t have the high costs that mine operators have.
A royalty company spends shareholders’ money to finance
gold miners’ operations. In return, the royalty company gets a
percentage, or “royalty,” from the mine’s revenue.
Franco-Nevada Corp. (FNV: NYSE) is an example of an
expertly managed gold royalty company. Chairman Pierre
Lassonde and CEO David Harquail lead FNV’s executive team.
They’ve delivered exceptional results for shareholders.
As you can see compared with bullion or a gold ETF, Franco-
Nevada is a vastly superior vehicle to get exposure to gold.
Franco-Nevada’s business model benefits from rising commodi-
ty prices and new mining discoveries. At the same time, it limits
your exposure to gold miners’ large capital and operating costs.
FNV has lots of cash, no debt and rising cash flow. That
means it has lots of dry powder to add to its long track record
of smart business deals.
Since its 2007 initial public offering, Franco-Nevada has
generated almost $1 billion in revenue. Over the same period,
FNV also expanded its proven and probable gold reserves by
more than 102%. Unlike a regular miner which must spend
heavily to replace revenue with new mines, FNV only has to
acquire new royalties.
In terms of revenues and number of gold assets, Franco-
Nevada is the largest royalty company. Its 380 royalty interests