Royal Gold's Q3: Struggling To Get To The Pre-Crisis Levels
Summary
- Royal Gold's gold equivalent sales equaled 79,500 toz in Q3.
- The revenues, operating cash flow and net income declined.
- The net debt declined too, moreover, after the end of Q3, Royal Gold eliminated its remaining debt.
- First silver deliveries from the Khoemacau mine should start soon.
- Franco-Nevada and Wheaton Precious Metals made some big deals lately, it's Royal Gold's turn now.
Royal Gold (NASDAQ:RGLD) is the first of the precious metals royalty & streaming big three that reported the Q1 2021 (Royal Gold's financial Q3 2021) financial results. Compared to the previous quarter, the gold equivalent sales, as well as revenues, operating cash flow, and net income decreased. Royal Gold still hasn't returned to the pre-COVID-19 sales volumes.
In its financial Q3, Royal Gold's attributable gold equivalent sales amounted to 79,500 toz. It is 5.9% below the Q2 levels and 7.8% below the Q3 2020 levels. The main reason for the quarterly decline was lower deliveries from Centerra Gold's (OTCPK:CAGDF) Mount Milligan mine. It delivered 16,900 toz gold in Q2, but only 9,200 toz gold in Q3. A notable decline could be seen also in the case of Teck's (TECK) Andacollo mine, which delivered 9,500 toz gold in Q2 and only 7,100 toz gold in Q3. Moreover, a meaningful portion of received gold remained unsold. Therefore, Royal Gold's gold inventories grew from 21,500 toz to 28,600 toz. On the other hand, the silver inventories declined from 484,500 toz to 319,800 toz, and the copper inventories were depleted completely.
Source: Own processing, using data of Royal Gold
Not only the gold equivalent sales volumes but also the average realized gold price declined. It equaled $1,874/toz in Q2, and $1,794/toz in Q3, which means a 4.2% decline. As a result, the revenues declined to $142.6 million, or by 10%. On the other hand, compared to the same period of last year, the revenues increased by 4.5%. The operating cash flow declined to $92.2 million. In this case, the decline was recorded in comparison to Q2, as well as in comparison to Q3 2020. The operating cash flow declined by 7.7% and 7.5%, respectively. The net income declined too. It amounted to $54 million, which is 9.9% less than in the previous quarter, but 39.9% more than in the same period of last year. The EPS declined to $0.82.
Source: Own processing, using data of Seeking Alpha and Royal Gold
Royal Gold's cash position declined slightly, from $381.9 million as of the end of Q2 to $370.3 million as of the end of Q3. But the total debt declined too, from $204.6 million to $146.3 million. The net debt improved to -$224 million. Royal Gold has a healthy balance sheet, a strong cash position, and what is important, together with undrawn debt facilities, the available liquidity amounts to approximately $1.2 billion. Royal Gold's closest peers made some sizeable acquisitions lately. Wheaton Precious Metals (WPM) acquired the Cozamin silver stream for $150 million and the Santo Domingo gold stream for $290 million. Franco-Nevada (FNV) paid $538 million to acquire a package of iron ore, copper, and gold royalties on some of Vale's (VALE) operations. It's Royal Gold's turn now. 
Source: Own processing, using data of Seeking Alpha and Royal Gold
Royal Gold's valuation metrics remained almost unchanged in comparison to the end of Q2. The price-to-earnings ratio stands at 28.06, the price-to-operating cash flow ratio stands at 20, and the price-to-revenues ratio stands at 13.27. The numbers are still high, however, Royal Gold is notably cheaper than several quarters ago.
Source: Own processing
Several important events occurred in Q3. Royal Gold announced that the Khoemacau project, where it owns an 80% silver stream, is more than 92% completed, and the first production is expected in Q3, with ramp-up to the full capacity by the end of this year. And at Barrick Gold's (GOLD) Pueblo Viejo mine, the expansion progresses well.
In April, after the end of Q3, Royal Gold repaid the remaining debt and became debt-free.
After peaking just below $148 in early August, Royal Gold's share price started declining. It found its bottom near the $100 level and in April, it grew back to $120. Right now, the share price stands at $115.34. The RSI is slightly above 50, the 10-day moving average is situated above the 50-day one and also the share price is safely above the 50-day moving average. If the gold price continues to grow, Royal Gold's shares should follow. After breaking the $120 level, the next resistance should be found near $126, then at $140, and finally at the all-time highs in the $148 area. On the other hand, if the gold price starts falling, Royal Gold should find technical and also psychological support in the $100 area.
What I like about Royal Gold's Q3:
- The net debt declined once again.
- The Khoemacau stream should start generating cash flows soon.
What I don't like about Royal Gold's Q3:
- The gold equivalent sales, revenues, operating cash flow, and net income decreased.
- Unlike its closest peers, Royal Gold remains passive. It hasn't made any major deals since February 2019, when it acquired the Khoemacau silver stream for $212 million.
This article was written by
I am an associate professor at the University of Economics in Bratislava, Department of Banking and International Finance. My dissertation was focused on commodity markets and my habilitation was focused on the calendar anomalies. I have more than 15 years of investing experience. My investments mostly focus on small- and mid-cap companies in the resource sector. Since May 2019, I have been preparing regular monthly reports focused on the precious metals royalty & streaming industry. Based on positive feedbacks and numerous inquiries, I decided to launch a Marketplace Service named "Royalty & Streaming Corner", which provides an in-depth analysis of this exciting market segment, as well as investment ideas from the mining industry.
Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Recommended For You
Comments (7)
