Nine analysts have increased their earnings estimates for this royalty company in the past 30 days, and they forecast the company will grow by 21.9% annually over the next five years.
Royal Gold, Inc. (RGLD)
From Adrian Day’s Global Analyst
There is a common perception that the royalty—and streaming--companies are defensive in a bear market, but that you don’t want to own them in a bull market since they lack leverage. We disagree, and think the major royalty companies should continue to form cornerstones of a precious metals portfolio in a bull market.
No doubt, we do not expect any of the major royalty companies to be the very top-performing stock in a precious metals portfolio during a bull market. But:
• Royalty companies have plenty of leverage from expansions at existing mines and new mines coming into production on higher gold prices; the royalty company contributes no additional capital to see a dormant asset start generating revenue.
• Royalty companies continue to exhibit, on balance, the lowest risk of any precious metals sector, second only to bullion itself.
• Royalty companies tend to pay dividends above the PM universe average, and with tremendous free cash flow generation, have the ability to increase dividends.
• The royalty companies will attract new money in the gold space; generalists will go to Franco, U.S. retail investors to Royal Gold.
• If not necessarily the best performing stocks in a bull market, the returns from royalty companies will be more than satisfactory.
In short, I will put a portfolio of four or five royalty companies against four or five
miners any day.
Royal Gold, Inc. (RGLD) lost some revenue in the last quarter, both early on from the reduction in operations at Mt Milligan due to water shortages, and from the suspended operations at Penasquito after a road blockade. Both operations are back up to speed now. The result was revenue slightly under expectations.
Mt Milligan saw sequential improvements and next quarter should be a strong one, but the underlying water issue is unresolved, and operator Centerra has indicated that there may be another stoppage this winter. With both Mt Milligan and Penasquito up to normal operation levels, and with the resumption of revenue from Voisey’s Bay following an agreement with Vale, the balance of the year should see strong revenues.
Royal has a strong balance sheet, with $119 million cash, $220 million recently drawn down on its credit line, and available liquidity of $780 million. This puts the company in a strong position for new acquisition. Royal indicated it had been receiving numerous requests for financing, many from earlier stage projects. We expect to see some acquisitions in coming months, but perhaps smaller ones that won’t move the needle much in the near term.
Adrian Day, Adrian Day’s Global Analyst, www.adriandayglobalanalyst.com, 410-224-8885, August 18, 2019