Investors seeking refuge from market volatility and inflation can consider gaining exposure to gold mining stocks. Gold is arguably the oldest and most proven asset class globally. Over time, gold has been used as a store of value and a hedge against inflation while offering portfolio diversification.
Two TSX titans in the precious metals space are Barrick Gold (TSX: ABX) and Franco-Nevada (TSX: FNV), which offer distinct approaches to investing in the precious metal.
Barrick Gold is among the largest gold miners in North America and offers direct exposure to mining operations and production costs. Alternatively, Franco-Nevada is a streaming and royalty company that provides financing to miners in exchange for the right to purchase the yellow metal at pre-agreed prices.
So, let’s see which between Barrick Gold and Franco-Nevada is a good investment right now.
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Is Barrick Gold a good stock to own?
In Q3 of 2024, Barrick Gold reported net earnings of US$483 million, an increase of 33% year over year, as average realized gold prices surged to US$2,494 per ounce from US$1,928 per ounce in the last 12 months.
However, gold production dipped 9% to 943,000 ounces, while copper production was down 6% year over year. Notably, Barrick Gold partially offset lower production by higher margins as it focused on cost efficiencies amid inflationary pressures.
Barrick emphasized that Zambia’s Lumwana Super Pit expansion could transform the operation into a top 25 copper producer, with production expected to double to 240,000 tonnes annually. It also expects a 30% growth in gold-equivalent ounces from existing assets by the end of 2030.
Barrick Gold’s strong balance sheet allowed it to reduce debt and return capital to shareholders in 2024. It reduced net debt by 27% over the last three months to US$500 million, paid a quarterly dividend of US$0.10 per share, and allocated US$95 million towards share buybacks.
Analysts expect Barrick Gold to grow adjusted earnings per share from US$0.84 in 2023 to US$1.78 in 2025. So, priced at nine times forward earnings, the TSX mining stock is cheap and trades at a discount of 50% to consensus price targets.
The bull case for FNV stock
Valued at a market cap of $23 billion, Franco-Nevada stock has returned 244% to shareholders over the past decade after adjusting for dividend reinvestments. Like Barrick Gold, Franco-Nevada benefitted from high gold prices, which allowed it to navigate operational headwinds and lower production volumes.
Franco-Nevada’s cash cost of US$290 per gold equivalent ounce (GEO) allowed it to achieve margins of US$2,200 per ounce in the September quarter, showcasing the asset-light nature of its streaming model. While gold prices rose 28%, Franco’s margins expanded by 35% over the last 12 months.
However, investors should note that the company reduced its 2024 guidance to 455,000 GEOs at the midpoint estimate, below its earlier forecast of 510,000 GEOs. Interestingly, annual revenue is expected to exceed initial guidance and is forecast to be between $1 billion and $1.1 billion in 2024.
While production challenges have prompted a guidance revision, Franco-Nevada’s debt-free balance sheet with US$2.3 billion in available capital and its high-margin business model positions it well for steady growth.
Priced at 32 times forward earnings, the TSX stock trades at a discount of 18% to consensus price targets in January 2025.
The Foolish takeaway
Despite trading at a higher multiple, Franco Nevada’s capital-light business model, expanding profit margins and a debt-free balance sheet makes it a better stock to own than Barrick Gold.
