On Nov 30, we issued an updated research report on
Royal Gold, Inc.
RGLD
. The company is likely to benefit from the rally in gold prices and ramping up of new projects. Focus on acquisitions and new business investments, aided by a deleveraged strong balance sheet, bode well. However, suspension of mining operations due to the pandemic might impact the company’s results in the forthcoming quarters.
Solid Q1 Results
Last month, Royal Gold reported first-quarter fiscal 2021 (ended Sep 30, 2020) results. Adjusted earnings per share came in at 82 cents, beating the Zacks Consensus Estimate of 80 cents and also marked a year-over-year improvement of 36.7%. Royal Gold reported record revenues of $147 million in the quarter, reflecting year-over-year growth of 23.7%. The top line benefited from continued performance across its operating mines coupled with solid metal prices.
Higher Gold Prices to Boost Top Line
Gold continues to be the most significant revenue driver for Royal Gold and accounted for 75% of the company’s total revenues in the fiscal first quarter. Gold prices have gained 17%, so far this year, fueled by the coronavirus pandemic. Going forward, the combination of lower mined gold supply and higher demand, and geopolitical tensions are likely to drive prices north. This bodes well for Royal Gold.
Solid Balance Sheet to Aid Growth
Royal Gold is focused on allocating its strong cash flow to dividends, debt reduction and new business. As of Oct 2, the company had $800 million available and $200 million outstanding under the revolving credit facility aided by the diversification of the Peak Gold Project.
On Sep 30, Royal Gold entered into an agreement with Kinross Gold Corporation
KGC
to sell its interest in the Peak Gold Project and its shareholding in Contango Ore, Inc. for cash proceeds of $61.3 million and increased royal interests. Additionally, Royal Gold will receive net smelter return (NSR) royalty on silver produced from the current resource area and as well as on certain State of Alaska mining, owned by Contango. The deal will enable Royal Gold to focus on its core royalty and streaming business.
Operators’ Mines Back on Track, COVID-19 Impact Prevails
The company’s revenues are derived entirely from stream and royalty interests in properties owned and operated by third parties. Several operating counterparties had to temporarily suspend mine operations in adherence to government mandates due to the pandemic. Even though the mines have resumed operations lately, considering the resurgence of cases and the uncertainty of the situation, they might have to cease operations again. These factors are likely to hurt Royal Gold’s revenues and financials until the situation stabilizes.
The Peñasquito mine will continue to be a significant revenue generator for Royal Gold. Newmont Corporation
NEM
which operates the Peñasquito mine, provided calendar-year 2020 production guidance of 510,000 ounces of gold, 28 million ounces of silver, 360 million pounds of zinc, and 190 million pounds of lead.
Barrick Gold Corporation
GOLD
continues to advance feasibility study for the process plant expansion and proposed tailings storage facility for extension of the mine life at Pueblo Viejo mine. The company estimates that the process plant and tailings expansion project is likely to significantly boost the throughput and allow the mine to maintain an average annual gold production of approximately 800,000 ounces after calendar-year 2022. For calendar-year 2020, Barrick Gold indicated attributable production at Pueblo Viejo mine is expected in the range of 530,000-580,000 ounces of gold.
Price Performance
Over the past year, Royal Gold has declined 5.8% against the
industry
’s growth of 28.2%. The company currently carries a Zacks Rank #3 (Hold). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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