- Royal Gold announced that it received 22,000 ounces of gold from its Mt. Milligan streaming deal.
- This is 88,000 ounces of gold annualized, which is below my estimate for the company of 130,000 ounces.
- This is fairly normal for a large mine in its early stages as it often takes a while for such operations to begin to run smoothly.
- While I don't perceive this as a negative I would avoid adding to my position at current levels after this year's 64% run-up.
Back in October I recommended that investors buy shares of Royal Gold in anticipation of production commencing at Mt. Milligan (note that investors are also encouraged to read a later project-by-project breakdown I gave at the beginning of the year). This worked out well for those who took the advice, as we see with the aforementioned announcement. Investors should note that the 22,000 ounce figure for Q2 is far less than my 130,000 ounce/year estimate during the first 6 years of Mt. Milligan's life. However I don't think that this means that my estimate was too high. Often large mines will start producing at a lower rate and at higher costs as the kinks are worked out of the operation. Over time costs come down and production reaches its peak. So 22,000 ounces, or 88,000 ounces annualized is fine for now, but if we see this sort of number in the second quarter next year I would become concerned.
Nevertheless I am less bullish on the stock than I was in October given the simple fact that the stock is up 64% while the gold price is up just 5%. Given my confidence in the royalty/streaming business model I am hesitant to take profits, although I would not add to my position without seeing a sizable pullback.