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Royal Gold (RGLD) Rides on Metal Prices Amid Coronavirus Woes

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Royal Gold, Inc. (RGLD - Free Report) is likely to benefit from the rising metal prices and ramping up of new projects by its operators. Focus on acquisitions and new business investments, aided by a deleveraged strong balance sheet, bode well. However, given that the company’s revenues are derived entirely from stream and royalty interests in properties owned and operated by third parties, the impact of the pandemic on their operations might impact the company's results in the upcoming quarters.

Better-Than-Expected Q3 Earnings

Earlier this month, Royal Gold reported adjusted earnings per share of 84 cents in third-quarter fiscal 2021, beating the Zacks Consensus Estimate of 81 cents. The bottom line also improved 23.5% year over year.

Higher Metal Prices to Boost Top Line

The company will benefit from higher metal prices this year. Silver and copper are gaining on pickup in industrial activity. Copper prices are also riding on supply concerns due to the threat of a strike at mines in Chile, which is the biggest producer, while demand in China remains strong.

Earlier this year, gold prices had dipped below the $1,700 on successful vaccine roll-out and massive stimulus package. However, it has picked up up lately, gaining on safe haven demand on account of the coronavirus crisis in India. A weaker dollar and the US Federal Reserve signaling that it will keep interest rates low despite signs of rising inflation have also aided gold. However, this volatility in gold prices remains a concern.

Solid Balance Sheet to Aid Growth

Royal Gold is focused on allocating its strong cash flow to dividends, debt reduction and new business. Last November, the company’s board increased annual dividend by 7% to $1.20 per share. Notably, it has steadily increased annual dividend for 20 years. In April, Royal Gold repaid the $150 million outstanding balance under the credit facility, ending up with a debt free balance sheet. After this repayment, the amount available under the revolving credit facility was $1 billion.

Operators’ Mines Back on Track But COVID-induced Uncertainty Persists

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. The pandemic could disrupt operators’ supply or distribution chains or access to workers, which in turn could adversely impact their production or sales. These factors are likely to hurt Royal Gold’s revenues until the situation stabilizes.

The Peñasquito mine will continue to be a significant revenue generator for Royal Gold. Newmont Corporation (NEM - Free Report) , which operates the Peñasquito mine, has been focusing on improving its performance. Compared to 2020, Newmont's production guidance for 2021 is higher for all metals. Newmont’s exploration activities is expected to extend the mine's life by almost 10 years to 2040.

Meanwhile, 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 Pueblo Viejo mine. The 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.

Golden Star Resources Ltd (GSS - Free Report) released an updated mineral reserve on Mar 1, 2021 which outlines a six-year mine life with average annual gold production of 177,000 ounces. It also issued a Preliminary Economic Assessment on the Southern Extension of the Wassa orebody. The PEA supports an 11-year mine life with average annual gold production of 294,000 ounces for total gold production of 3.5 million ounces. In calendar 2021, Golden Star expects Wassa to produce between 165,000 ounces and 175,000 ounces, in line with the calendar 2020 actual production performance.

Price Performance

Over the past six months, Royal Gold has gained 15.7% compared with the industry’s growth of 8.2%.

Royal Gold 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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