Gold prices are nearing a record high after rising 25% from their November lows, buoyed by a weaker dollar, lower bond yields and worries about the health of the U.S. (and global) banking sector, observes Mike Cintolo, editor of Cabot Top Ten Trader.
Consequently, investors are looking closer at mining firms that tend to outperform when the yellow metal price is strengthening, and Royal Gold (RGLD) is one of them.
The company has always had one of the better stories in the sector. Royal is a streamer, which means it doesn’t engage in physical mining but provides up-front payments to miners in exchange for the right to buy gold, silver, copper and other resources at a set price (or else receive a percentage of the metals’ sales), providing Royal with consistently big margins (36.6% after tax in Q4) and an advantage over CapEx-heavy peers.
Royal’s strategy of adding high-quality assets to its portfolio and focusing on liquidity and capital returns to shareholders is a long-term positive, though prices for gold and other metals still drive results.
In Q4, revenue of $163 million was off 3% from a year ago (73% of sales involved gold, 12% copper and 11% silver), though cash flow increased 70% and per-share earnings of 91 cents beat estimates by 14%.
On the production front, total volume of 335,100 gold equivalent ounces was above the midpoint of Royal’s prior guidance range, prompting management to increase the dividend for the 22nd consecutive year (albeit a modest 1.1% yield), achieving S&P High-Yield Dividend Aristocrat status.
During 2022, Royal also acquired two world-class royalties in Nevada and a royalty in an emerging project in Canada and increased stream rates for two of its major properties. Management expects margins to remain strong this year despite higher costs for most producers, while Wall Street sees revenue jumping 10% and earnings nose out to a new all-time high.
Technically, after soaring almost 50% in last year’s Q1, RGLD was hit hard by the plunge in the physical metal for the seven months that followed. By the time the nadir was seen in early November, the stock had fallen 40% from its peak, but a character change was seen immediately afterward, and by late January, RGLD was back over $130.
The next pullback was far more calm, with shares holding well above their 40-week line — and now shares are out to new recovery highs on solid volume. Minor weakness in the $132 to $135 range would be tempting.
