As a primarily precious metals royalty company, Royal Gold (RGLD)
would have more than enough trouble just from the freefall in gold
prices over the last fifteen months. Making matters worse, a significant
percentage of Royal Gold's value and future revenue streams are tied to
projects like Thompson Creek's (TC) Mt. Milligan and Barrick Gold's (ABX) Pascua-Lama that are facing some real stress and uncertainty.
With
that, Royal Gold is another precious metals stock that is trading well
below past valuation norms, currently trading around $45 per share.
There is definitely potential downside in these shares, as my estimates
of NAV would slide below $40/share at $1,000 gold and below $30 at gold
prices of $750/ounce. I'm well aware that metal prices frequently
overshoot on both the high and low points of the curve, but the global
cost curve of gold production would suggest that a large percentage of
supply would disappear below $1,000 and that should be supportive of
long-term prices. Although I don't disagree that the challenges at
Thompson Creek and Barrick do merit some discount to past multiples
(likewise for the current price of gold), I'm starting to think the
re-rating on these shares might have gone far enough.
Continue reading here:
Weak Prices, Operational Uncertainties Pressuring Royal Gold
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