Home Stock Market Royal Gold: Impressive Revenues And Free Cash Flow (NASDAQ:RGLD)

Royal Gold: Impressive Revenues And Free Cash Flow (NASDAQ:RGLD)

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Terrane Metals Corp.

Image: Mt Milligan

Investment Thesis

The Denver-based Royal Gold Inc. (RGLD) released its first quarter fiscal 2021 on November 4, 2020. The quarter’s total revenues were impressive at $146.88 million, up 23.7% from the same quarter a year ago. While the gold equivalent production was lower year over year, the price of gold jumped from $1,472 to $1,909 per ounce. The company generated strong free cash flow this quarter.

Royal Gold divested its ownership interest in the Peak Gold project this month.

Company has entered into an agreement to sell its ownership interest in the Peak Gold Project in Tok, Alaska and its common share position in Contango Ore, Inc. (OTC: CTGO) (“Contango”) for total cash consideration of $61.3 million and increased royalty interests. All conditions precedent to closing have been satisfied and the transactions are expected to close on or before October 1, 2020

The investment thesis is quite simple. Royal Gold is an excellent long-term investment, and I recommend accumulating on any weakness.

The two leading players in this segment, called the streamers and royalty, are Franco-Nevada (NYSE: FNV) and Wheaton Precious Metals (NYSE: WPM) that I own long term. However, Royal Gold and two smaller streamers, Osisko Gold Royalties (NYSE: OR) and Sandstorm Gold (NYSE: SAND), are important in this specific segment:

ChartData by YCharts

Royal Gold: Balance Sheet And Production In 3Q 2020 (Fiscal 4Q’20)

Royal Gold 3Q’19 4Q’19 1Q’20 2Q’20 3Q’20
Total Revenues in $ Million 118.77 123.64 136.44 119.97 146.88
Net Income in $ Million 70.45 41.32 38.55 49.01 106.94
EBITDA $ Million 86.90 93.85 100.31 96.79 152.47
EPS diluted in $/share

1.07

0.63

0.59

0.75

1.63

Operating cash flow in $ Million 71.24 78.26 99.70 91.56 94.15
Capital Expenditure in $ Million 4.36 68.06 35.44 48.13 11.30
Free Cash Flow in $ Million 66.88 10.20 64.26 43.43 82.85
Total cash in $ Million

122.0

80.50

93.72

319.13

413.12

Long-term debt in $ Million 164.60 129.87 100.15 300.44 270.70
Dividend per share in $ 0.28 0.28 0.28 0.28 0.28
Shares outstanding (diluted) in Million 65.62 65.61 65.60 65.69 65.63
Gold Production 3Q’19 4Q’19 1Q’20 2Q’20 3Q’20
Gold Equivalent ounce Production K Geo 80.7 83.5 86.2 70.1 76.9
Gold price realized $/ Oz 1,472 1,481 1,583 1,711 1,909

Data Source: Company material and Fun Trading.

Analysis: Revenues, Earnings Details, Free Cash Flow, Debt, And Production Details

1 – Revenues were $146.88 million in Fiscal 1Q’21

Royal Gold reported total revenues of $146.88 million in the fiscal first quarter of 2021, up 23.7% from the $118.774 million reported in the same quarter last year.

Royal Gold indicated a net income of $106.939 million or $1.63 per share. RGLD reported adjusted earnings per share of $0.82 or $53.788 million.

As of September 30, 2020, the Company had $725 million available and $275 million outstanding under the revolving credit facility.

2 – Free cash flow of $82.848 million in fiscal 1Q’21

Note: The free cash flow is the cash from operating activities minus CapEx.

The quarterly free cash flow was $82.848 million this quarter, and FCF for the fiscal year 2020 is $200.7 million.

The company pays a quarterly dividend of $0.28 per share or a yield of 0.92%. It is quite weak, and shareholders were disappointed because the quarterly was not raised this quarter. Bill Heissenbuttel, President and CEO of Royal Gold, said in the press release:

Consistent performance from across our operating portfolio combined with strong metal prices led to record revenue this quarter… We also strengthened our balance sheet

Highlights this quarter:

  • The company divested its interests in the Peak Gold Project to Kinross.
  • Royal Gold helped facilitate Golden Star’s sale of the Prestea and Bogoso mines by splitting out those assets from its stream interest on the Wassa mine.
  • Kinross Gold (NYSE:KGC) is the new operator at the Peak Gold Project and Future Global Resources Ltd. as the new operator at the Prestea and Bogoso mines.
  • Progress continued at the Khoemacau Project (“Khoemacau”) during the first quarter, and the project reached approximately 70% of construction completion as of September 30, 2020, with 87% of the capital committed. On October 5, 2020, the Company made the fifth advance payment of $32.5 million towards the silver stream acquisition, which brings the total contribution to $179.3 million.

3 – Net debt and liquidity, going down significantly

The total debt is now $270.695 million as of September 30, 2020. Royal Gold is net debt-free, as we can see above. Further development after the end of the quarter.

On October 2, 2020, and after closing of the sale of the Peak Gold Project interest, the Company repaid a further $75 million of the outstanding borrowings under the credit facility, reducing the amount outstanding to $200 million. After this repayment the amount available under the revolving credit facility was $800 million.

Note: The revolving credit facility is $725 million, with now an outstanding $200 million.

4 – Production in gold equivalent ounce and details

Royal Gold reported a low production volume of 76.9K GEOs (Gold Equivalent Troy Ounces), a decrease of 4.7% from the same quarter a year ago, and up 8.6% sequentially.

The company announced a cost of sales of $21.9 million in the fiscal 1Q’21, down from the year-ago quarter’s $20.1 million.

Details below:

Stream K Au Oz K Ag Oz K Ag Oz
Mount Milligan 11.8 0 4.1
Pueblo Viejo 11.1 451.2 0
Wassa and Prestea 4.9 0 0
Andacollo 12.2 0 0
Total 44.40 474.4 4.1
Royalty K Au Oz K Ag Oz Cu Mlbs Pb Mlbs Zc Mlbs
Penasquito 130.7 6.4 0 41.7 98.0
Cortez 37.6 0 0 0 0
Total 168.3 6.4 0 41.7 98.0

Source: From Fun Trading files.

This quarter’s average gold price was up 29.7% to $1,909 per ounce from the year-ago quarter.

Conclusion And Technical Analysis (Short Term)

Royal Gold’s recent earnings results were in-line with expectations, despite a small gold equivalent production. The gold price was $1,909 per ounce and turned the company into an impressive free cash flow machine.

Unfortunately, the company is not increasing the quarterly dividend, as many other gold miners have done recently. The dividend yield is now below 1%, and it is a great disappointment.

Technical Analysis

RGLD forms a descending triangle pattern with resistance between $117-$120 and support range $115-$115.25.

In RGLD, the descending triangle is bullish because it has been entered from bottom to top.

The close yesterday may indicate a breakout at least to the 50MA around $124.25, but volume is not strong enough.

The short-term strategy that I recommend is to sell about 25% between $121 and $124.5 and then wait for a retracement at the old resistance turning now support at $117-$117.50.

RGLD trend will be highly correlated to the gold price. If the gold turns bullish, we may cross the 50MA and go all the way to $145 again, but it is not likely. If gold continues to be bearish and goes below $1,800 per ounce, we may break down and go as low as $105-$110.

Watch gold like a hawk.

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Disclosure: I am/we are long FNV, WPM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.