2023-04-24 09:32:15 ET
Summary
- Royal Gold reported a quarterly streaming sales volume of 60.8K GEOs compared to 63.1K in the preceding quarter. Streaming sales were better than expected.
- RGLD expects FY 2023 total gold equivalent sales of 320K-345K oz, including 235K-250K gold oz. The market was disappointed with the guidance.
- I recommend buying RGLD between $128.5 and $125.6 with possible lower support at $120.
Introduction
Denver-based Royal Gold Inc. ( RGLD ) is one of the reliable streamers I have regularly covered on Seeking Alpha since September 2018.
This article covers the 1Q23 streaming sales released on April 11, 2023, and full-year 2023 sales guidance on April 20, 2023. This article is an update of my preceding article on RGLD, published on March 13, 2023.
RGLD has a solid asset portfolio with six principle-producing mines and 182 properties as of December 31, 2022.
RGLD Map Assets 2022 (RGLD Presentation)
1 - Investment Thesis
Royal Gold is an excellent long-term investment and can be compared with Franco-Nevada ( FNV ) or Wheaton Precious Metals ( WPM ) in this category.
The streamer still has excellent liquidity despite funding three large projects in 2022. Among them Cortez's complex royalty acquisition and the Bear Lake project. Also, the Khoemacau mine is ready to deliver its first full year of production based on 10K TPG.
The company increased its quarterly dividend to $0.375 per share in 4Q22, or a dividend yield of 1.15%, and is generating solid cash flow with gold and silver prices trading at a record level now.
RGLD 1-Year chart Gold Silver Copper (Fun Trading StockCharts)
Despite a slight setback with the 2023 Guidance due to lower production at the Mount Milligan mine, the company continues delivering a yearly stable output.
RGLD Yearly GEO Production history (Fun Trading)
I do not own RGLD long-term because I already own FNV, WPM, and SAND, but it is one of the safest with Franco Nevada and Wheaton Precious Metals.
However, gold and silver streamers like RGLD are notoriously volatile and subject to wild swings, which are excellent for a trading strategy combining long-term investment and short-term LIFO trading.
Thus, I recommend short-term trading LIFO, 40-50% of your long-term position.
2 - Stock Performance
Royal Gold dropped significantly last week due to lower production expected in 2023. Royal Gold is down 7% on a one-year basis.
3 - Royal Gold Inc: Balance Sheet And Production history ending in 4Q22 - The Raw Numbers
Royal Gold | 4Q21 | 1Q22 | 2Q22 | 3Q22 | 4Q22 | 1Q23 |
Total Revenues in $ Million | 168.52 | 162.36 | 146.44 | 131.43 | 162.98 | - |
Net Income in $ Million | 68.16 | 65.68 | 71.14 | 45.79 | 56.37 | - |
EBITDA $ Million | 132.30 | 130.15 | 110.82 | 103.46 | 124.54 | - |
EPS diluted in $/share | 1.04 | 1.00 | 1.08 | 0.70 | 0.86 | - |
Operating cash flow in $ Million | 118.90 | 101.13 | 120.20 | 94.99 | 101.03 | - |
Capital Expenditure in $ Million | 16.07 | 37.80 | 0.04 | 677.99 | 206.33 | - |
Free Cash Flow in $ Million | 102.83 | 63.33 | 120.16 | -583.00 | -105.3 | - |
Total cash in $ Million | 143.55 | 183.71 | 280.62 | 122.24 | 118.59 | - |
Long-term debt in $ Million | 0 | 0 | 0 | 446.33 | 571.57 | - |
Dividend per share in $ | 0.35 | 0.35 | 0.35 | 0.35 | 0.375 | - |
Shares outstanding (diluted) in Million | 65.62 | 65.65 | 65.68 | 65.66 | 65.66 | - |
Gold Production | 4Q21 | 1Q22 | 2Q22 | 3Q22 | 4Q22 | 1Q23 |
Gold Equivalent ounce Production K Geo | 93.9 | 86.5 | 78.3 | 76.0 | 94.3 | 60.8* |
Gold price realized $/ GEO | 1,794 | 1,877 | 1,871 | 1,729 | 1,726 | 1,869 |
Data Source: Company release and Fun Trading
* Production for 1Q23 represents only the stream segment sales. The total GEO production will be much higher.
4 - Production in Gold Equivalent Ounce And Details
RGLD Quarterly production history (Fun Trading)
Royal Gold reported a quarterly streaming sales volume of 60.8K GEOs (Gold Equivalent Troy Ounces) compared to 63.1K GEOs the preceding quarter. Streaming sales were better than expected.
Note: Royal Gold expected stream segment sales of 54K-59K GEOs for the first quarter of 2023.
However, the production did not include the royalties segment, which will be indicated soon with the full results. However, based on the streaming sales, I have estimated the total GEO production at 92.0K GEOs.
Streaming sales volumes were 42.1K Au Oz, 808,100 Ag Oz, and 2,000 Tonnes of Copper. The cost of sales was approximately $411 per GEO for the first quarter.
Gold, silver, and copper commodity prices increased significantly in the fourth quarter.
This quarter's average prices:
- $1,869 per ounce for Gold
- $22.66 per ounce for Silver
- $4.01 per pound for Copper
RGLD Quarterly Gold price history (Fun Trading)
5 - 2023 Full-year Guidance
RGLD 2023 Guidance (RGLD press release)
for FY 2023, total gold equivalent sales of 320K-345K oz , including 235K-250K gold oz, and DD&A of $490-$540 per GEO. I was a bit surprised by the market reaction on Friday.
The 2023 production is expected to be 332.5K Oz (mid-point), nearly the same as the 2022 production of 335.1K GEOs.
2023 Guidance was lower than expected, and RGLD dived on Friday.
A few highlights:
- RGLD expects the first full year of production at the target throughput rate of 10,000 tonnes per day at the Khoemacau mine.
- The 2023 Guidance included gold production at the Cortez mine from the Legacy Royalty area of 450K-480K oz and estimated production from the Cortez Complex Zone of approximately 535K oz.
- The company expects lower production at the Mount Milligan mine in H1 2023 compared to H2 2023, which should affect sales in H2 due to the normal lag in timing between concentrate shipments and stream deliveries.
- Also, the company expects continued mining of lower-grade ore from the Andacollo mine through 2023, as well as the remaining impact of extreme weather and unplanned maintenance in the third quarter of 2022, which is expected to affect sales in 2023 due to the normal-course lag in timing between concentrate shipments and stream deliveries.
- RGLD indicated lower gold production from the Peñasquito mine due to lower grade and harder ore mined from the Chile Colorado pit and continued stripping of the subsequent phases of the Peñasco and Chile Colorado pits.
- Finally, continued variable deliveries of silver ounces from Barrick's Pueblo Viejo mine ramp up in 2023.
Technical Analysis (Short Term) And Commentary
RGLD TA Chart short-term (Fun Trading StockCharts)
Note: The chart is adjusted for the dividend.
RGLD forms a descending triangle pattern with resistance at $146 and support at $128.
Ascending channel patterns or rising channels are short-term bullish in that a stock moves higher within an ascending channel, but these patterns often form within longer-term downtrends as continuation patterns. The ascending channel pattern is often followed by lower prices, but only after a downside penetration of the lower trend line.
The short-term trading strategy remains the same as in my preceding article. I suggest trading LIFO for about 40%-50% of your position regularly.
I recommend selling between $145 and $146 with potential higher resistance at $147.35 and waiting for a retracement to buy back RGLD between $128.5 and $125.6 with possible lower support at $120.
Trading LIFO allows you to sell your most recent purchases, assuming a profit (of course) while keeping your long-term position until the stock has appreciated enough to consider selling your entire position.
Trading LIFO is about taking small profits using the chart pattern and Fundamentals by repeating the process as often as possible.
Watch gold like a hawk.
Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.
For further details see:
Royal Gold: I See This Stock Weakness As An Opportunity