The only thing I don't like about RGLD, is the insider selling. And the bulk of their revenues come from one mine.
NEW YORK -- Having lost one third of its stock price to a Barron's article sceptical of its valuation, Royal Gold [RGLD] has fought back, but the damage appears to be semi-permanent.
Much has been made of Barron's reliance on an admitted short-seller for its information; a silly complaint since there is never an outcry when longs benefit from stock punts which are vastly more common in any and every context. Every informant has a vested interest, so full credit to Barron's for disclosing that of its source.
What about Barron's paltry valuation of anything from $4.50 to $9 for Royal? An immediate problem is that none of the top analysts cover Royal. Canadian outfits Canaccord and Griffiths McBurney & Partners used to cover it, but that was way back in 2001. After all [adopt cynical attitude], royalty companies do not generate a lot of investment banking business.
That leaves no comparable benchmarks to draw on, whilst the royalty business is vastly different to conventional mining. Its principal value is in offering a financing option that does not involve equity dilution, hedging or debt which invariably does more harm to resource investors than a royalty, especially in small companies.
In the case of Royal, the situation is more exaggerated since it the sole royalty pure-play left in North America following the departure of Franco-Nevada and Repadre, although the latter retains some of that flavour as a non-operator, but with an exploration portfolio that detracts. If you want a royalty company, you only have one option now and its name is Royal Gold.
As Jim Sinclair noted earlier this week, the only reliable way to value a business is to see what someone might pay to own all of it. In the case of Franco-Nevada, Newmont ended up paying 97 times annual 2001 sales. That would value Royal at $931 million at a gold price of $300 per ounce, or $1.5bn at $350 per ounce. Clearly that is unrealistic without Pierre Lassonde and Seymour Schulich in the driving seat, but it's an indication.
RGLD has outperformed most everyone as well. Over 3 months, GG has been the leader. But over 6 months and 1 year, RGLD has matched GG's performance. Over 2 years, RGLD has underperformed since the stock collapsed around late 2003 due to a negative Barron's article. But over 5 years, RGLD has pretty outperformed 99% of gold stocks. Unlike mining stocks, RGLD doesn't have to deal with high oil prices.