2023-11-06 05:00:00 ET
Summary
- Royal Gold, Inc. reported 3Q23 earnings of $49.34 million, or $0.75 per diluted share, with operating cash of $98.12 million.
- The Peñasquito strike affected 3Q23 production, with operations expected to reach full capacity by the end of 4Q23.
- The Company has a solid debt profile, with $217.85 million in net debt and $768 million in liquidity.
- I recommend buying RGLD between $104 and $102 with possible lower support at $100.
Introduction
Denver-based Royal Gold, Inc. ( RGLD ) is a credible streamer that I have been following on Seeking Alpha since September 2018.
The 3Q23 earnings, which were made public on November 1, 2023, are covered in this article together with all the newly available data. This article updates my preceding article on RGLD, published on September 6, 2023.
The Peñasquito strike , which forced the suspension of operations and resulted in no royalty payments for the quarter (and a large part of 4Q23), was one significant news story that affected 3Q23.
During the three months ended September 30, 2023, no royalty production from Peñasquito was reported due to the suspension of operations resulting from a strike action on June 7, 2023 by the National Union of Mine and Metal Workers of the Mexican Republic. According to Newmont Corporation ( NEM ), on October 13, 2023, a definitive agreement was reached between Newmont and the Union that also received approval from the Mexican Labor Court, ramp-up of operations has since commenced, and operations at Peñasquito are expected to reach full operating capacity by the end of the fourth quarter of 2023 .
As of June 30, 2023, RGLD owned 181 properties and six principle-producing mines, resulting in a strong asset portfolio. The map that follows is from the presentation in August.
RGLD Assets Map (RGLD Presentation)
1 - 3Q23 Results Snapshot and recent activity
As opposed to $45.79 million, or $0.70 per basic and diluted share, in the third quarter of 2022, Royal Gold reported a net income of $49.34 million, or $0.75 per diluted share, in 3Q23. The third quarter of 2023 had adjusted earnings per share of $0.76 . Operating cash was $98.12 million.
Royal Gold reported $138.62 million in revenue for the third quarter. This amount consisted of stream revenue of $99.0 million and royalty revenue of $39.6 million , with an average price of $1,928 per ounce for gold, $23.57 per ounce for silver, and $3.79 per pound for copper.
RGLD Revenue Detail (RGLD Presentation)
Gold equivalent production, or GEO, was down sequentially and YoY in 3Q23 with 71.9K GEOs. Metal production was 39.0K Au ounces, 551.9K Ag ounces, and 2.4 Moz of copper.
As previously mentioned, the Peñasquito strike and the ensuing lack of royalty were the reasons for the lower GEO output in 3Q23; this could have an important effect on 4Q23 as well. consequent lack of royalty; this could have a significant effect on 4Q23 as well.
Furthermore, we find that the anticipated gold production at Mount Milligan has decreased from earlier estimates, with an estimated 150K to 160K Au ounces.
Royal Gold still has an excellent debt profile, with a net debt of $217.85 million and $768 million in liquidity. In September, the company repaid $75 million of the $325 million drawn from the $1 billion revolving credit facility.
In contrast, the company's 2023 projection indicates that sales could fall within or marginally under the previously provided guidance range of 320K to 345K GEOs.
2: Investment Thesis
Royal Gold, Inc. is an attractive long-term investment with ample liquidity remaining after funding three big projects, as I have stated repeatedly in my prior reports. Furthermore, the company distributed a $0.375 quarterly dividend per share in 3Q23, yielding 1.37% , in line with its peers FNV and WPM.
RGLD's strength is in its diversified portfolio, primarily focused on gold, both geographically and operationally. 78% of income came from gold, 11% from silver, and 10% from copper in 3Q23.
RGLD Quarterly Revenue details (RGLD Presentation)
CEO Bill Heissenbuttel said in the conference call:
Our capital allocation strategy of using non-dilutive financing to acquire high-quality assets has been effective over the long term and our commitment to that strategy helps explain why we have the lowest share count in the GDX index.
Ultimately, I think the outlook for gold prices is improving. I predict that gold will trade above $2,000 an ounce and possibly even pass $2,100, which will greatly benefit Royal Gold.
But, to rephrase the French philosopher Blaise Pascal, as always, the market has its motivations, which reason ignores. Therefore, we can't eliminate any surprise downsides.
Because of the volatility of the streams and royalties industry as well as the fluctuations in the price of gold, I thus advise short-term trading LIFO, or 40% of your long-term position.
3: Stock Performance
Since May 2023, Royal Gold, Inc. has experienced a sharp decline as a result of the Fed's hawkish mindset and indications of additional rate increases. RGLD is now changing direction since the outlook has shifted.
In one year, Royal Gold has increased by 27% . WPM performed quite well, but FNV sharply declined and joined the chronically lagging SAND.
Royal Gold Inc: Balance Sheet And Production History Ending In 3Q23: The Raw Numbers
Royal Gold | 3Q22 | 4Q22 | 1Q23 | 2Q23 | 3Q23 |
Total Revenues in Millions | 131.43 | 162.98 | 170.39 | 144.04 | 138.62 |
Net Income in Millions | 45.79 | 56.37 | 63.88 | 63.45 | 49.34 |
EBITDA $ Million | 103.46 | 124.54 | 135.45 | 112.45 | 107.64 |
EPS diluted in $/share | 0.70 | 0.86 | 0.97 | 0.97 | 0.75 |
Operating cash flow in millions | 94.99 | 101.03 | 108.66 | 107.93 | 98.12 |
Capital Expenditure in Millions | 677.99 | 206.33 | 0.00 | 0.00 | 0.00 |
Free Cash Flow in the Million | -583.00 | -105.30 | 108.66 | 107.93 | 98.12 |
Total cash in $ Million | 122.24 | 118.59 | 126.82 | 106.16 | 102.90 |
Long-term debt in millions | 446.33 | 571.57 | 496.82 | 395.53 | 320.75 |
Dividend per share in $ | 0.35 | 0.375 | 0.375 | 0.375 | 0.375 |
Shares outstanding (diluted) in millions | 65.66 | 65.66 | 65.71 | 65.76 | 65.76 |
Gold Production | 3Q22 | 4Q22 | 1Q23 | 2Q23 | 3Q23 |
Gold Equivalent ounce Production K Geo | 76.0 | 94.3 | 92.0 | 72.9 | 71.9 |
Gold price realized: | 1,729 | 1,726 | 1,869 | 1,976 | 1,928 |
Data Source: Company Release and Fun Trading
Analysis: Revenues, Earnings Details, Free Cash Flow, Debt, And Production Details
1: Revenues Were $138.62 Million in 3Q23
RGLD Quarterly Revenue History (Fun Trading)
At an average gold price of $1,928 per ounce, an average silver price of $23.57 per ounce, and an average copper price of $3.79 per pound, Royal Gold reported total revenues of $138.62 million as of September 30, 2023. These revenues consist of stream revenue of $99.0 million and royalty revenue of $39.6 million.
Higher gold production from the Cortez Legacy Zone , the additional Cortez royalties received in 2022, and higher gold, silver, and copper prices relative to the previous year's period were the primary drivers of the rise in total revenue.
The union strike that led to the closure of Peñasquito on June 7, 2023, partially offset this gain by generating no royalty revenue recorded for the three months ending September 30, 2023.
The quarter's net income increased from $45.79 million, or $0.70 per diluted share, to $49.34 million, or $0.75 per diluted share, over the same period last year.
Net cash provided by operating activities totaled $98.12 million for the third quarter, compared to $94.99 million for the prior year.
2: Free Cash Flow was $98.12 million in 3Q23
RGLD Quarterly Free Cash Flow History (Fun Trading)
Note: The free cash flow is the cash from operating activities minus CapEx.
In 3Q23, the trailing 12-month free cash flow was $209.41 million , while the quarterly free cash flow was $98.12 million . For 3Q23, the quarterly dividend is $0.375 per share. In 2024, I anticipate a dividend increase.
3: The debt situation is improving fast.
RGLD Quarterly Cash versus Debt History (Fun Trading)
RGLD had a debt of $320.75 million in 3Q23. Liquidity was $768 million , with total cash of $102.90 million at the end of September 2023.
RGLD extended the maturity of its $1 billion revolver to June 2028, of which $675 million is still undrawn after repaying $75 million in 3Q23.
CFO Paul Libner said in the conference call:
During the quarter, we repaid $75 million on our revolving credit facility, and reduced the amount drawn to $325 million. As Bill mentioned, we have repaid $250 million of our revolver balance so far this year. And in keeping with our approach, to capital allocation we expect to repay the remaining $325 million before the end of 2024 absent significant business development activity and as cash flow allows.
4: Production In Gold Equivalent Ounce And Details
RGLD Quarterly GEO Production History (Fun Trading)
In comparison to 76.0K GEOs in the same quarter the previous year, Royal Gold recorded a quarterly production volume of 71.9K GEOs (Gold Equivalent Troy Ounces).
As had been established, the union strike that led to Peñasquito's closure on June 7, 2023, had a negative impact on production.
Gold, silver, and copper commodity prices in the third quarter.
- $1,928 per ounce for gold.
- $23.57 per ounce for silver.
- $3.79 p er pound for copper
RGLD Quarterly Gold Price History (Fun Trading)
Technical Analysis and Commentary
RGLD TA Chart (Fun Trading StockCharts)
Note: The chart is adjusted for the dividend.
RGLD forms a descending channel pattern with resistance at $111.9 and support at $102.6.
Descending channel patterns are short-term bearish in that a stock moves lower within a descending channel, but they often form within longer-term uptrends as continuation patterns. Higher prices usually follow The descending channel pattern but only after an upside penetration of the upper trend line.
The short-term trading approach is still the same as it was in my previous post. I would advise you to trade LIFO for roughly 40% of your investments in RGLD.
I recommend selling between $111.75 and $112.50 with potential higher resistance at $119.1 and waiting for a retracement to buy back RGLD between $104 and $102 with possible lower support at $100.
When you trade LIFO, you can sell your most recent purchases and profit while holding onto your long-term position, which can often be underwater, until the stock has increased to the point where you can sell your core position and realize your greatest gain.
Thus, watch Gold like a hawk.
Warning: For the TA chart to remain current, it must be updated often. The above chart may be valid for up to one week. Keep in mind that the TA chart is just a tool to assist you in choosing the best course of action. It is not an absolute method of forecasting precisely the future. Nothing and nobody can.
For further details see:
Royal Gold: The Penasquito Strike Hurt