Why Royal Gold Stock’s Recovery Is Not Surprising

Shares of Royal Gold have started recovering over the past month after the company released its fiscal third-quarter results. Though Royal Gold’s performance was not that great during the quarter, there were a few positive takeaways that have turned the tide in the company’s favour.

Let’s take a look.

A Mixed Performance

Royal Gold missed Wall Street’s revenue expectations. The company reported revenue of $109.8 million during the quarter, down 5.3% year over year and $5.5 million below what analysts were expecting. Royal Gold’s earnings of $0.44 per share were in line with what analysts were expecting, and that was a major improvement over the prior-year period’s loss of $2.35 per share.

The decline in Royal Gold’s revenue was a result of lower volumes during the quarter. The company reported sales of 84,200 gold equivalent ounces, which was a decrease of 3.6% from the year-ago period. At the same time, the average realized price of gold went down 1.9% year over year to $1,304 an ounce.

However, Royal Gold managed to offset the lower volumes and weak pricing by keeping a lid on costs. The company’s cost of sales during the third quarter came in at $19.1 million, down over 10% as compared to the year-ago quarter. Similarly, general and administrative expenses were also down 16% year over year.

Moreover, Royal Gold had incurred a heavy impairment charge in the year-ago period to the tune of nearly $240 million. Taking that out of the equation, it becomes evident that the company’s business was hit on account of lower prices and volumes. Still, investors seem to be upbeat since the company’s indicating that it is on track to get better.

Better Times Ahead for Royal Gold

Royal Gold has announced a string of streaming agreements of late that should boost its production going forward.

For instance, in February this year, Royal Gold acquired a silver stream in the Khoemacau Copper Project in Botswana. The company will make an advance payment of $212 million in exchange for 80% of the silver that is produced at this mine. It also has the option to pay another $53 million to acquire the remaining 20%.

According to the terms of the streaming agreement, Royal Gold will be paying 20% of the spot price of silver for each ounce delivered. According to the mine’s development plans, Royal Gold can end up with “average annual silver deliveries of 1.5 million ounces at a stream rate of 80%, or 1.9 million ounces based on a stream rate of 100%,” the latter occurring in case the option is exercised.

Analysts expect Royal Gold’s revenue to drop this fiscal year along with its earnings.

Royal Gold expects initial deliveries from the streaming agreement to begin in the first half of 2021. So, until and unless the company gets new production streams, its top and bottom line performance will remain constrained.

Analysts, for instance, expect Royal Gold’s revenue to drop this fiscal year along with its earnings. But a turnaround is expected next year as the company’s top line is expected to increase in the double digits, while earnings will also increase substantially. As such, investors should consider taking advantage of the drop in Royal Gold stock before it starts making a comeback.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan
Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects.

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