Oct 9 (Reuters) - Brokerage TD Securities downgraded gold-focused royalty company Franco-Nevada Corp to "hold", saying investors looking for increased leverage to gold prices are shifting back to miners.
Franco-Nevada shares, which have risen 51 percent so far this year, fell 4 percent to C$57.07 on the Toronto Stock Exchange on Tuesday.
"If the upcoming third-quarter reporting season is relatively uneventful for the gold producers, investors could take this as a sign that the worst of the bad news is behind the producers," analyst Greg Barnes wrote in a note to clients.
Barnes said cost inflation that has plagued the industry is starting to flatten out and gold prices are widely expected to rise.
Gold prices have gained more than 13 percent year-to-date, in large part because of the world's major central banks' efforts to keep monetary policy loose.
"Franco has outperformed gold bullion and gold producer equities for most of the past two years, but we sense a change," said Barnes, who had a "buy" rating earlier.
Royalty companies such as Franco-Nevada and Silver Wheaton Corp , which fund mining projects in return for a portion of future revenue, generated huge amounts of cash from such deals even as the price of gold remained volatile.
The analyst, however, maintained his C$67.00 price target on the stock.
(Reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Sriraj Kalluvila)
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Keywords: FRANCONEVADA RESEARCH/TDSECURITIES