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Royal Gold Hits 52-Week High: What's Driving the Rally?

Zacks Equity Research

Shares of Royal Gold, Inc. RGLD scaled a fresh 52-week high of $102.62 during the Jun 26 trading session, later retracing a bit to close trading at $101.26.

Royal Gold, a Zacks Rank #3 (Hold) stock, has a market cap of $6.62 billion. Over the last three months, its average volume of shares traded has been approximately 421M. It has an expected long-term earnings per share growth rate of 10%.

Interestingly, gold price is currently trending above $1,400 an ounce — at levels last seen in 2013. This upswing has been fueled by the safe-haven demand, triggered by the U.S.-China tensions and geopolitical uncertainties. This apart, a weaker greenback and slumping bond yields have further escalated prices. So far this year, gold prices have gained 10.6%. The yellow metal had witnessed a 2.1% drop in prices last year.

The Gold Mining industry has rallied 33% year to date compared with the S&P 500’s growth of 16.4%. Going by the EV/EBITDA multiple (a preferred valuation metric for mining companies that have high capital expenditures), this industry has a trailing 12-month EV/EBITDA multiple of 9.9, much lower than the S&P 500’s EV/EBITDA multiple of 11.3.

Notably, Royal Gold’s stock has appreciated 11.7% in a year’s time, higher than the S&P 500’s gain of around 9%.

Driving Factors

For fiscal 2019, Royal Gold expects improved results, backed by several positive catalysts, including the beginning of production at Cortez Crossroads, early deployment of the Peñasquito Pyrite Leach Project and production improvements at Rainy River. Long-hole drilling at the Wassa and Prestea mines will likely continue, which will support production in the current fiscal year. Royal Gold is focused on allocating its strong cash flow toward dividend payouts, debt reduction and new businesses.

Royal Gold announced that the Peak Gold joint venture, in which its subsidiary Royal Alaska holds a 40% interest, has completed a Preliminary Economic Assessment (PEA) on the Peak Gold Project located near Tok, Alaska. The company is focused on maximizing the value of interest in this project.

This February, Royal Gold entered into a silver mine life-purchase agreement with Khoemacau Copper Mining Limited (“KCM’’). The agreement highlights the purchase and sale of silver, produced from the Khoemacau Copper Project in Botswana. The deal is expected to act as a catalyst for the company.

Also, on Feb 27, Centerra Gold Inc. received an amendment to the Mount Milligan environmental assessment certificate that permits access to additional sources of surface water and groundwater sources until November 2021. Mount Milligan commenced accessing water from the newly-permitted sources in the beginning of April this year. Further, Centerra expects mill throughput to be at a full capacity of 55,000 tons per day, starting mid-May and to remain at that level throughout the remainder of the current calendar year. Centerra expects these additional sources to supply enough water to relieve constraints on the mill operations, which have been hit since late 2017.

Positive Growth Projections: The Zacks Consensus Estimate for Royal Gold’s fiscal fourth-quarter 2019 earnings is currently pegged at $0.50, reflecting expected year-over-year growth of 16.28%. 

Royal Gold, Inc. Price and Consensus

Royal Gold, Inc. Price and Consensus

Royal Gold, Inc. price-consensus-chart | Royal Gold, Inc. Quote

Stocks to Consider

A few better-ranked stocks in the Basic Materials space are Materion Corporation MTRN, Flexible Solutions International Inc FSI and AngloGold Ashanti Limited AU, all currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Materion has an expected earnings growth rate of 27.3% for 2019. The company’s shares have gained 22.7% in the past year.

Flexible Solutions has an outstanding projected earnings growth rate of 342.9% for the current year. The company’s shares have soared 158.9% in a year’s time.

AngloGold has an estimated earnings growth rate of 90.6% for the ongoing year. Its shares have surged 117.7% in the past year.

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