Royal Gold (RGLD) Poised for Earnings Growth Driven by Volume and Incremental Royalties from Mt. Milligan and Pascua-Lama Mines

Wall Street Transcript

67 WALL STREET, New York - April 12, 2013 - The Wall Street Transcript has just published its Metals and Mining Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs and Equity Analysts. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Precious Metals, Global Iron Ore Production, Emerging Market Infrastructure Construction, Midcap and Small-Cap Consolidation Activity

Companies include: Companhia Vale do Rio Doce (VALE), Cliffs Natural Resources Inc. (CLF), Freeport-McMoRan Copper & Gold (FCX), Newmont Mining Corp. (NEM), Royal Gold, Inc. (RGLD), Teck Resources Limited (TCK), Thompson Creek Metals Company (TC), Plains Exploration & Productio (PXP), McMoRan Exploration Co. (MMR), Barrick Gold Corporation (ABX) and many more.

In the following excerpt from the Metals and Mining Report, an expert analyst discusses the outlook for the sector for investors:

TWST: What are your top two picks right now and why are you recommending each of those stocks?

Mr. Nelson: I have "buy" ratings on four stocks: Royal Gold, Freeport, Newmont and Teck, but my top two picks at the moment would have to be Royal Gold and Freeport.

Royal Gold is poised to realize extraordinary earnings growth over the next few years with the impending start up of a couple of mines in which they have very large royalty interests - Thompson Creek's Mt. Milligan mine in Canada and Barrick Gold's (ABX) Pascua-Lama mine in Chile.

Importantly, this earnings growth is not dependent on gold prices, although higher gold prices would certainly help produce additional royalty revenue and act as an additional tailwind for the stock - the growth is driven by volume and the incremental royalties they'll collect when those two mines start up.

They have a great business model where the company has no direct exposure to the cost side of the equation amid gold industry production and capital costs which have skyrocketed in recent years. They also have very low overhead with less than two dozen employees, allowing the company to generate EBITDA margins of greater than 90%. The management team knows the mining landscape better than anyone, and time and time again they've successfully crafted favorable and accretive royalty agreements.

The cash flows from Mt. Milligan and Pascua-Lama should help fund additional royalty agreements and dividend increases down the road. The stock is down from a 52-week high of just over $100 to levels where the valuation is very attractive. Also, historically this is a stock that's outperformed both physical gold prices and senior gold producer equities by a wide margin, so we view RGLD as the best way to play gold that's available to investors...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

View Comments