Tuesday, December 24, 2013

Seeking Alpha: Weak Prices, Operational Uncertainties Pressuring Royal Gold

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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