Royal Gold is not a mining company in the traditional sense. It owns precious metal royalties and streaming in 193 properties in 6 continents, including on 38 producing mines and 24 development stage projects.
This allows them to receive a percentage of the mining royalties that are produced at the mine. So it doesn’t have to deal with the actual workings of the mine, including labor issues.
Estimates Rising on New Mt. Milligan Deal
On July 5, Royal Gold announced it was supporting the Centerra Gold acquisition of its largest revenue stream, Thompson Creek’s Mt. Milligan.
“Under the terms of the commitment letter, Royal Gold’s 52.25% gold streaming interest at Mount Milligan will be amended, conditional and effective on closing of Centerra’s acquisition of Thompson Creek, to a 35% gold stream and 18.75% copper stream.”
“Royal Gold will continue to pay $435 per ounce of gold delivered and will pay 15% of the spot price per metric tonne of copper delivered. Royal Gold estimates this amendment to be value neutral on a discounted cash flow basis, and expects about two-thirds of its future net revenue from Mount Milligan will be gold related and one-third copper related over the next ten years.”
“After transition to the amended stream, Royal Gold expects that approximately 85% of its total net revenue will come from precious metals and 15% from base metals.”
This mine, because it was the company’s biggest revenue stream, was a huge overhang on the stock.
But now that the uncertainty has been removed, the analysts are bullish.
2 estimates have been raised since the announcement for Fiscal 2016. The Zacks Consensus Estimate has jumped to $1.15 from $1.01 in the last week.
Earnings are expected to rise 12% in fiscal 2016.
Analysts also raised estimates for fiscal 2017 with 3 moving higher in the past week. Earnings are now expected to jump to $1.63 from $1.42. That is earnings growth of 41%.
Shares Hitting New Highs
In April, Royal Gold reported revenue for fiscal third quarter jumped 26%. It also paid out record quarterly dividends of $15 million, or $0.23, per share.
That dividend is subject to change quarterly, but right now, it’s yielding about 1.1%.
Shares have been on a tear for some time. Look at this crazy 2-year chart.
The gold stocks have been among the best performers on the stock market this year. The Mt. Milligan deal has only boosted the shares further.
They’re not cheap. Royal Gold is trading with a forward P/E of 54. But the double digit growth is expected to be there so you’re paying for that growth story.
For investors who are looking for a gold play, which also pays a dividend, Royal Gold is one to keep on the short list.
Now, which stocks should you sell?
As a Zacks Rank #1 Strong Buy, this Bull of the Day deserves consideration. But today there are 220 Zacks Rank #5 Strong Sells that demand even more urgent attention. If any of these are lurking in your portfolio, they should be removed immediately. Since 1988, such stocks have actually performed more than 11X worse than the S&P 500.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at@TraceyRyniec and she also hosts the Zacks Market Edge Podcast on iTunes.