Royal Gold Stock Forecast

Royal Gold Stock Forecast: As the Covid-19 contagion precipitates the market’s downward spiral, quickly obliterating  one of the longest bull-market runs, investors have become extremely cautious with respect to their future investment strategies.

The U.S. unemployment rate surged to a staggering 14.7% in April, a level seen not since the Great Recession.  Experts warn that things will get worse before they get better, causing fear to skyrocket among investors.

As Covid-19 cases and deaths show little signs of abating, the economy continues to receive merciless battering, even as experts claim that we have already entered recession.

However, investors with a long and successful track record know well that money can be made during both good and bad economic conditions, with a little bit of knowledge, prudence, and good luck. Precious metals like gold and silver are generally perceived as safe-haven investments during times of extreme market volatility and uncertainty. Investors consider these stocks to better withstand market volatility.

And as confidence diminishes in government bonds thanks to massive Federal Reserve intervention, we could witness a surge in precious metal stocks over the coming months and years.

Keeping all these factors in mind, we evaluate the rewards and risks of investing in Royal Gold Stock, a precious metals company which acquires and manages precious metal streams and royalty interests, with a primary focus on gold.

Royal Gold, Inc Company Profile

Royal Gold, Inc. [NASDAQ: RGLD], together with its subsidiaries, is engaged in acquiring and managing precious metals streams, royalties, and related interests.

The Company operates through two segments:

• Acquisition and Management of Stream Interests, and
• Acquisition and Management of Royalty Interests

It seeks to acquire existing stream and royalty interests, or to finance projects that are in production or near production in exchange for royalty interests, primarily consisting of gold, silver, lead, cobalt, copper, nickel, zinc, and molybdenum.

Royal Gold’s gold-focused portfolio contains royalties ranging from those in production and development to those in the evaluation and exploration stages. Its assets are located in the United States, Canada, Chile, the Dominican Republic, Ghana, Africa, and Mexico.

The Denver, Colorado-based company also holds stream and royalty interests in mines and projects in several countries, including Russia, Brazil, Spain, Macedonia, Nicaragua, Peru, Argentina and Australia among others.

Is Royal Gold Stock A Buy?

The market is in a state of turmoil and a familiar defensive approach to adopt under such circumstances is to invest in gold.

The metal gold is often seen as a safer bet for investors and more valuable in turbulent times, since it retains its value, unlike fiat currencies or other assets bearing credit risk, which run the risk of losing all or majority of their value during times of financial or political uncertainty.

Investors often taken refuge in the precious yellow metal during times of geopolitical turmoil, but it does not imply you should start hoarding gold coins.

There are different other ways to gain exposure to the yellow metal, and one that seems to be particularly appealing is to invest in a royalty and streaming company such as Royal Gold.

Making capital available to mining companies for their projects, which is highly capital-intensive, turns out to be a lucrative business model for royalty and streaming companies like Royal Gold.

The capital they provide upfront bestows on them the rights to buy a present quantity of gold, or whichever metal is being mined, at a discounted price. They also have the option of receiving a certain percentage of mineral from the total mineral production.

As the S&P 500 dropped 38%, Royal Gold jumped 45%, significantly outperforming the 19% rise in the price of gold.

The company generated revenues of $136.4 million, up 24.3% year over year, in its fiscal third quarter ended March 31, 2020. It reported a net income of $38.6 million, or $0.59 per share, marginally beating estimate of 58 cents.

The company had reported earnings per share of 42 cents in the prior-year quarter. Stream revenues jumped 25.3% to $97.5 million, while royalty revenues rose to $39 million, an upswing of up 22% year over year.

Revenue augmentation can be attributed to rising gold and silver prices, as well as a rise in copper sales at the Mount Milligan mine, and gold sales at the Andacollo and Pueblo Viejo mines.

Royal Gold Stock Buy or Sell?

Royal Gold’s large and diverse gold-based operating portfolio, continues to perform well, allowing it to deliver solid quarter of operating and financial results, despite pandemonium caused by the Covid pandemic.

The company has a fortified balance sheet and its strong liquidity position puts it in a strong position to navigate through the coronavirus-induced crisis. Its overall debt was down to 100.2 million, from the $214.5 million at the end of fiscal 2019, and it paid out dividends worth $18.4 million during the reported quarter.

What makes Royal Gold more alluring is the fact that gold isn’t the only metal to which the company has exposure.

In 2019, for example, 80% of the company’s revenue was generated by gold, while silver and copper each accounted for 10% of revenue. What it means is that investors tend to benefit from rise in prices of other metals as well.

The future prospects look bright for the company with the number of projects it has currently under development and in the pipeline.

Royal Gold currently has 43 properties producing minerals, while more than a dozen are in the development phase. Looking further down the road, it has 47 projects in the evaluation phase and close to double than that in the exploration phase.

Risks of Investing in Royal Gold Stock

While the company to a greater extent has managed to keep its production isolated from impact of Covid-19, it is difficult to predict how its future or ongoing suspensions will be affected and what impact it will have on its revenue stream.

It would also be interesting to see how long it is able to keep it isolated from the uncertain economic outlook facing the mining industry despite a robust balance sheet and continued access to liquidity position.

Also, Royal Gold, though more insulated from the risks of mine development, unlike Yamana Gold and Hecla Mining, because it’s a streaming company, still finds itself exposed to swings in selling prices.

That structure should limit the negative impact of dwindling silver prices, though some risks remain of the streaming interests being impacted and the business suffering owing to supply disruptions at the mines. Additionally, valuation metrics show that Royal Gold Inc may be overvalued.

Royal Gold Stock Forecast: The Bottom Line

In an economy battered by the Covid pandemic, it makes a lot of sense for investors to adopt a defensive approach and invest in safe-haven stocks. One stock that might be a good choice for investors right now, seeking to protect their portfolios against a recession is Royal Gold, Inc.

This is because this security in the Mining-Gold space has delivered a solid quarterly result boosting security across the board. Royal Gold looks on solid footing and analysts are becoming a bit more bullish on the firm’s prospects in both the short and long term. They are also expecting an above average return from the RGLD shares relative to the market in the next few months.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.