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Royal Gold Updates on Q3 Operations & Coronavirus Impact

Zacks Equity Research

Royal Gold, Inc. RGLD has issued an update for its third-quarter fiscal 2020 (ended Mar 31, 2019) operations. During the quarter, RGLD Gold AG — the fully-owned subsidiary of Royal Gold — sold 62,000 gold equivalent ounces consisting of 50,000 gold ounces, 466,000 silver ounces and 1,900 tons of copper related to its streaming agreements. Stream sales during the fiscal third quarter were in line with guidance.

The company ended the fiscal third quarter with 27,000 gold equivalent ounces in inventory, including 22,000 ounces of gold and 436,000 ounces of silver. The average realized price of gold and silver was $1,569 and $17.79 per ounce sold, respectively, in the quarter. Notably, the same for the prior quarter was $1,482 and $17.38 per ounce, respectively. Average realized copper prices were $5,493 per ton, down from the previous quarter’s $5,920 per ton.

In the fiscal third quarter, cost of sales was around $355 per gold equivalent ounce compared with the prior-quarter figure of $349 per gold equivalent ounce. The cost of sales is based on the quarterly average silver-gold ratio of roughly 94 to 1 and copper-gold ratio of 0.28 tons per ounce.

Mining Operations on Suspension

Several operating counterparties of Royal Gold have announced the temporary suspension of their mine operations due to the coronavirus pandemic. On Apr 1, Mount Milligan mine’s operator Centerra Gold Inc. ("Centerra") declared to cut the mine’s manpower and throughput to 50,000 tons per day for a 14-day period effective Apr 6. Royal Gold has the right to purchase 35% of Mount Milligan’s payable gold for cash price for $435 per ounce of gold or the spot price at the time of delivery, whichever is less. It also has the right to purchase 18.75% of copper production from Mount Milligan for a cash payment of 15% of the spot price for copper, at the time of delivery. During the quarter ended Dec 31, 2019, the company recognized revenues of $30.6 million, or 24.8% of total revenues from the mine.

On the same date, Newmont Corporation NEM announced to ramp down the Peñasquito mining operations due to the Mexican federal government’s mandate to temporarily suspend all non-essential activities in the country until Apr 30. Royal Gold holds 2% net smelter return (NSR) royalty on production from the Peñasquito mine. Notably, the mine contributed 6.1% of total revenues to the company during the December-end quarter.

New Gold Inc. NGD announced the ramp-up of the Rainy River mine operations has started, following the completion of a voluntary 14-day suspension. Royal Gold holds 6.5% of the gold produced from Rainy River until 230,000 ounces have been delivered, and 3.25% of the gold thereafter. Apart from this, the company owns silver production of 60% from the mine until 3,100,000 ounces have been delivered, and 30% thereafter. The company pays 25% of the spot price per ounce of gold and silver at the time of delivery. Rainy River contributed to 6.1% of Royal Gold’s total revenues in fourth-quarter 2019.

Previously, other operators, Vale S.A VALE, Agnico Eagle Mines and Calibre Mining temporarily halted their mining operations, in which Royal Gold has royalty interests.

Financial Position

Recently, the company drew an additional $200 million on the revolving credit facility, resulting in a total of $305 million outstanding with a remaining available credit facility of $695 million. The drawdown is a precautionary measure to support the company’s financial liquidity and business activity during this crisis. Royal Gold believes its current financial resources will be adequate to cover the anticipated expenses associated with debts, general and administrative costs and capital expenditures in the near term.

Gold prices have been up 14.3%, so far this year, fueled by the slowdown in manufacturing activities, rate cuts, lower oil prices, geopolitical tensions and uncertainties related to the coronavirus outbreak. The combination of lower mined-gold supply and higher demand, and geopolitical tensions are likely to drive prices north. This, in turn, will boost Royal Gold’s margins.

Share Price Performance

Royal Gold currently carries a Zacks Rank #2 (Buy). The company’s shares have gained 13.3% over the past year compared with the industry’s growth of 40.7%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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