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Royal Gold (RGLD) Gains on Higher Gold Prices & New Mine Projects

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On Dec 28, we issued an updated research report on Royal Gold, Inc. (RGLD - Free Report) . The company is expected to benefit from the rally in gold prices and the ramping up of new projects. Focus on acquisitions and new business investments, aided by a strong balance sheet, bodes well. However, the pandemic-induced suspension of mining operations might impact the company's results in the forthcoming quarters.

Higher Gold Prices to Drive Top Line

Gold continues to be the most significant revenue driver for Royal Gold and accounted for 75% of its total revenues in the fiscal first quarter. Gold prices have rallied 23.4% 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 boost prices. 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 investments in new businesses. 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 - Free Report) 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 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 Penasquito mine will continue to be a significant revenue generator for Royal Gold. The mine’s operator, Newmont Corporation (NEM - Free Report) , 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 - Free Report) continues to advance feasibility study for the process plant expansion and proposed tailings storage facility for extension of the mine life at the 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’s shares have declined 13.2% against the industry’s growth of 21.1%. 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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