Although this gold miner is experiencing operations difficulties at one of its locations, Wall Street is bullish, forecasting growth of more than 34% annually over the next five years.
Royal Gold (RGLD)
From Adrian Day’s Global Analyst
Royal Gold (RGLD) had a mixed quarter. Most of the news ranged from positive to very positive: solid cash flow with earnings meaningfully higher than expectations, and continued debt reduction.
New Gold’s Rainy River is ramping up and first revenue contributions are expected in the current quarter, becoming Royal’s 40th producing asset. The pipeline is strong, with, following Rainy River, Cortez Crossroads commencing production next year. Currently, 87% of revenue comes from precious metals, of which 77% is from gold.
Currently, all cash flow—over $70 million last quarter—is going to debt reduction and dividends. It has $88 million in cash and around $900 million of liquidity. The company is still looking at (and bidding on) new assets, although such would more likely be in the $100 million to $500 million range rather than the half to one billion of 18 months ago.
The one negative, but a very significant one, is the ongoing operations difficulties at Mt Milligan, at which operator Centerra Gold just reduced full year guidance. It does not appear that the difficulties are yet resolved, so we can expect lower production (and revenue to Royal) for the time being. This is significant since that single mine represents 27% of Royal’s Net Asset Value.
We like Royal Gold for its reasonably diverse asset portfolio; strong geographic risk profile; solid cash-flow; and good management, but there is an ongoing risk with Mt Milligan and valuations remain somewhat rich. The stock is down from over $94 in late August primarily on Mt Milligan; we will look to buy but on any addition pullback.
Adrian Day, Adrian Day’s Global Analyst, www.adriandayglobalanalyst.com, 410-224-8885, November 4, 2017