Analyst: Victor Sula, Ph.D. Initial Report March March 27th, 27, 2009
RGLD daily
27/03/09 50 48 46 44 42 40 38 36
© BigCharts.com
2 1.5
Royal Gold Inc. 1660 Wynkoop Street Suite 1000 Denver, CO 80202
1 0.5
09
Phone: +1-303-5731660 Fax: +1-303-5959385 E-mail: info@baldeagleoil.com
Millions
volume
Feb
Mar
MARKET DATA
Share Statistics (03/23/09) Symbol Current price Low/ High 52 weeks Average Volume Market Capitalization Shares Outstanding
2007 2008 %Chg
H1
H1
%Chg
2008 2009 RGLD
Revenues, $ Mn.
$45.37
Gross margin
93.2%
94.5% 1.3 b.p. 93.6% 95.2% 1.6 b.p.
$22.75 –
Operating margin
59.0%
49.7% -9.3 b.p. 49.4% 35.3% -14.1
Net margin
40.8%
36.3% -4.5 b.p. 37.3% 88.4%
49.81
48.4
66.3 37.0%
27.2
30.7
686,906 $1,542 Mn
12.9%
b.p. 51.1 b.p.
EPS, $
34.01 Mn
0.79
0.61 -22.8%
0.30
0.79 163.3%
Source: Reuters.com, SEC Filings. Year-
Recommendation Royal Gold Inc.’s (RGLD) business model is very sensitive to the movements of gold prices, which positions the company to grow higher than its peers as long as metals prices cooperate. We believe the stock is quite attractive as a long-term play and we rate it as a Speculative Buy.
Highlights Increasing revenue stream RGLD has reported strong growth over the years, despite the volatility in gold, copper and other metal prices. Annual revenue for the fiscal year ended June 2008 was a record $66.3 million, compared to revenue of $48.4 million for the fiscal year ended June 2007, an increase of 37%. For the first half of fiscal 2009, the Company recognized total royalty revenue of $30.7 million as compared to $27.2 million for the same period of fiscal 2008. The increase Royal Gold Inc. (NASDAQ: RGLD)
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Analyst: Victor Sula, Ph.D. Initial Report March 27th, 2009
RGLD is the largest U.S.-based precious metals royalty company engaging in the acquisition and management of precious metal — most of which contain gold and silver - royalties. The Company seeks to acquire existing royalties or to finance projects that are in production or near production in exchange for royalty interests. RGLD also funds exploration on properties thought to contain precious metals and seek to obtain royalties and other carried ownership interests in such properties through the subsequent transfer of operating interests to other mining companies.
resulted primarily from an increase in the average gold price and production from the recently acquired Barrick Gold Corp. royalty. Royalty Revenue, $ millions 70
Net Income
40 30 20 10
12.3 6.0
3 Mo.
1 Yr.
Price Change
-7.34
47.91
Last Qtr. -0.60 463.00
12 Mo.
RGLD
Ind Avg
8.47 7.56
0.46 9.95
30.90 65.85
3 Yr. (Ann) 12.8%
3 Yr CAGR 37.86 4.11
RETURN ON EQUITY (%) S&P 500 25.54 20.74
P/E comparision 40,39 17,24
RGLD
0,19
0,11
10.7
15.8 6.7
8.9
11.5
28.4 19.7
24.0
11.4
1.1 2002
2003
2004
2005
2006
2007
2008
Source: SEC filings.
STOCK PERFORMANCE (%)
q. 2 2009. ttm 5 Yr. avg.
25.3
21.4
2001
Revenues EPS
48.4
50
0
GROWTH (%)
66.3
Royalty Revenue
60
13,36
Ind Avg
0,12
0,21
S&P 500
0,17
Agreement with Barrick Gold Corp. added royalties on more than 70 new properties Effective October 1, 2008, the Company completed its agreement to acquire a portfolio of royalties from Barrick Gold Corp. in exchange for net cash of approximately $150.0 million. The Barrick royalty portfolio consists of royalties on 72 properties, including nine producing royalties, three development stage royalties, and 60 exploration stage royalties. Eighteen of the exploration stage projects are considered to be in an evaluation stage, as these properties are engaged in the search for reserves but currently contain additional mineralized material. More than 75% of the portfolio consists of precious metals royalties. Initial revenue contributions from the producing properties acquired in the Barrick transaction totaled $4 million during the first quarter after transaction was completed. Solid Dividend payments Strong operating fundamentals and a diversified portfolio of royalties gave the Company the ability to deliver dividend payout, and it continues to maintain a capital surplus that ensures longterm financial strength. RGLD has been paying a dividend to shareholders since 2000. The Company’s dividends have steadily increased for each of the previous consecutive nine years. According to the dividend history of RGLD, the Company issued dividends of $0.05/share that grew to $0.32/share in 2009.
Q1FY08 Q2FY08 Q3FY08 Q4FY08 Q1FY09 Q2FY09 Fiscal year ending June 30.
Royal Gold Inc. (NASDAQ: RGLD)
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Analyst: Victor Sula, Ph.D. Initial Report March 27th, 2009
Strong gross margins due to costless business model
INCOME STATEMENT Net Sales ($mil) EBITDA ($mil) EBIT ($mil) Net Income ($mil) BALANCE SHEET Cash & Equiv. ($mil) Total Assets ($mil) Total Debt ($mil) Equity ($mil) PROFITABILITY EBITDA Margin Operating Margin Sales Turnover Return on Assets Return on Equity DEBT Current Ratio Debt/Capital Interest Expense ($mil) Interest Coverage SHARE DATA Shares outstand.(mil) EPS Book value / share Institutional Own % Avg Daily Volume
Q2 FY 2008 31-Dec-07
Q2 FY 2009 31-Dec-08
14.7 10.0 6.4 4.6
14.6 10.9 2.4 21.4
195.6 542.1 15.75 480.90
55.0 582.6 19.3 507.7
As for gross margins, RGLD is one of the most gainful companies in any industry. The Company’s gross margins continued to improve over the last quarters with a slight decrease in Q1 2009. RGLD succeeds to achieve margins of more than 90%, mainly due to its business model, which avoids the rising cost structures that miners are experiencing in the current environment and allows the Company to efficiently grow royalty revenue without adding significant overhead costs. RGLD’s gross margin tends to remain stable over time. Gross Margin, % 25 20 15
67.95% 43.43% 0.03 3.40% 3.83%
74.71% 16.32% 0.03 14.69% 16.86%
25.0 0.03
3.6 0.04
0.4 17.8
0.8 3.0
30 0.11 18.0 NA 610,908
34 0.62 17.1 NA 771,031
10
Royalty Revenue, $millions 19.5
Gross Margin, %
12.8
14.7
95.6% 18.9
94.6%
95.8% 94.7% 16.1
96,0% 95,5% 95,0%
14.6
94,5% 94,0%
93.9%
93,5%
93.3%
93,0%
5
92,5%
0
92,0% Q1 08Q
2 08
Q3 08Q
4 08
Q1 09Q
2 09
Source: SEC filings; analyst estimates.
Cash and cash equivalents significantly decreased after Barrick acquisition Over the time, the Company had a strong balance sheet with solid cash and cash equivalents resources. RGLD’s liquidity allowed the Company to compete for royalty acquisitions by means of a purchase, by providing financing, or by entering into a strategic exploration alliance in exchange for a royalty. As a consequence of Barrick’s acquisition for net cash on hand of $150 million, RGLD’s cash and cash equivalents decreased to $55 million by the end Q2 2009 from $210 million by the Q1 2009. Selected consolidated balance sheet data, $Mn
Total Assets, including Cash and short term investments Liabilities, including Debt Equity
30June-08
30Sep-08
31Dec-08
545.9 192.0 62.6 15.8 483.2
556.9 209.8 69.9 19.3 486.9
682.6 55.0 74.9 19.3 507.7
Source: SEC Filings; year-ending June, 30.
Royal Gold Inc. (NASDAQ: RGLD)
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Analyst: Victor Sula, Ph.D. Initial Report March 27th, 2009
Steady gold prices Since August 2007, gold prices have steadily climbed to reach new records. In March 2008, gold prices hit the record $1,009 per ounce on the New York Mercantile Exchange before slipping back. The current turmoil in the financial markets is creating enormous confusion, and demand for dollars is rising as investors head for cash, all of which is weighing on gold. The recent bailouts and added money from the government have raised the concerns of inflation once again, and many investors have taken the recent government actions as simply one more reason to invest in gold or gold producers. Experts think gold prices will climb back above $1,000 per ounce this year, as inflationary pressures and financial turmoil prompt investors to seek safe havens. Overall, analysts expect the bulk of trading in 2009 to be within the $700/oz to $1,300/oz range. Consensus Estimates RGLD
FY 2009 30-Jun-09
FY 2010 30-Jun-10
EPS, $ Revenue, $Mil
0.68 82.2
0.97 97.3
consensus estimates are provided by Thomson Financial
Ticker Symbol
EPS consensus estimates
2009
2010
%Chg
AEM ABX AU GG NEM Peers Median
0.79 1.72 2.53 0.58 2.01
2.02 1.75 1.74 0.82 2.41
156% 2% -31% 41% 20% 20%
RGLD
0.68
0.97
43%
Royal Gold Inc. (NASDAQ: RGLD)
Analyst opinion RGLD is engaged in the acquisition of existing royalties or financing projects that are in production or in development stage in exchange for royalty interests. The Company holds royalty interests in properties located in the United States, Canada, Mexico, Africa, Argentina, Chile, Australia, the Russian Federation, Finland, Columbia and Central America. Its royalty portfolio consists of 119 properties, 22 of which are producing properties, six development stage properties, 27 evaluation properties and 64 exploration stage properties. The Company recently paid $150 million to Barrick Gold Corp. in exchange for a royalty portfolio consisting of 72 properties at various stages. In connection with the Barrick transaction, RGLD recorded a $31.5 million gain resulting from the restructuring of its royalties at the Cortez Mine. The Barrick portfolio pitched in $4 million in revenue for the first quarter after the transaction was closed. On the other hand, the acquisition left a deep hole in the Company’s balance sheet, and implicitly in its cash and cash equivalents. RGLD portfolio is concentrated in gold, and during the past six months, 81% of revenue came from gold. Meanwhile, gold is seen as a safe haven against inflation and the current economic environment. In addition, recent bailouts from the government have raised the concerns about inflation once again. Analysts consider that prices could achieve a fresh all-time high in 2009 as net investment surges. 4
Analyst: Victor Sula, Ph.D. Initial Report March 27th, 2009
Through its portfolio of royalty interests, the Company holds investments in a number of properties without incurring ongoing capital or operating costs. RGLD has generated a track record of strong performance blending the operational risk with strong long-term growth potential. In addition, because of its long-term investment strategy and dedication to the fundamentals of its business, the Company is able provide an increasing dividend, while maintaining the company’s financial strength.
Company Name
Ticker Symbol
Agnico-Eagle Mines Ltd. Barrick Gold Corp. AngloGold Ashanti Ltd. Goldcorp Inc. Newmont Mining Corp. Peers Median
AEM ABX AU GG NEM
Royal Gold, Inc.
RGLD
Price per Share, $ 57.75 33.03 38.09 34.93 46.9
46.22
P/E
Mrkt. Cap. $ Mn
2009
2010
8,940 28,830 13,620 25,490 22,940
73.10 19.20 15.06 60.22 23.33
28.59 18.87 21.89 42.60 19.46
23.33
21.89
67.97
47.65
1,570
Source: Yahoo Finance!
Though the recent volatility in gold prices has made some investors uncertain about future growth for RGLD, we believe that the Company will outperform the market due to solid portfolio of gold properties, a low-cost business model that is heavily replicated by other gold players, and uncertainties about the credit crunch resolution. RGLD business model is very sensitive to the movements of gold prices and positions the company well to grow higher than its peers as long as metals prices cooperate. Some analysts expect $1,300 for an oz. of gold by the end of 2009. All above mentioned makes the stock quite attractive as a longterm play and we rate it as a Speculative Buy.
Royal Gold Inc. (NASDAQ: RGLD)
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Analyst: Victor Sula, Ph.D. Initial Report March 27th, 2009
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These forward looking statements are subject to a number of known and unknown risks and uncertainties outside of our control that could cause actual operations or results to differ materially from those anticipated. Factors that could affect performance include, but are not limited to, those factors that are discussed in each profiled company’s most recent reports or registration statements filed with the SEC. You should consider these factors in evaluating the forward looking statements included in the report and not place undue reliance upon such statements. We are committed to providing factual information on the companies that are profiled. However, we do not provide any assurance as to the accuracy or completeness of the information provided, including information regarding a profiled company’s plans or ability to effect any planned or proposed actions. We have no first-hand knowledge of any profiled company’s operations and therefore cannot comment on their capabilities, intent, resources, nor experience and we make no attempt to do so. Statistical information, dollar amounts, and market size data was provided by the subject company and related sources which we believe to be reliable. To the fullest extent of the law, we will not be liable to any person or entity for the quality, accuracy, completeness, reliability, or timeliness of the information provided in the report, or for any direct, indirect, consequential, incidental, special or punitive damages that may arise out of the use of information we provide to any person or entity (including, but not limited to, lost profits, loss of opportunities, trading losses, and damages that may result from any inaccuracy or incompleteness of this information). We encourage you to invest carefully and read investment information available at the websites of the SEC at http://www.sec.gov and FINRA at http://www.finra.org. All decisions are made solely by the analyst and independent of outside parties or influence. I, Victor Sula, Ph.D, the author of this report, certify that the material and views presented herein represent my personal opinion regarding the content and securities included in this report. In no way has my opinion been influenced by outside parties, nor has my compensation been either directly or indirectly tied to the performance of any security listed. I certify that I do not currently own, nor will own and shares or securities in any of the companies featured in this report. Victor Sula, Ph.D. - Senior Analyst Victor Sula, Ph.D. has held the position of Senior Analyst with several independent investment research firms since 2004. Prior to 2004, Mr. Sula held Senior Financial Consultant positions within the World Bank sponsored Agency for Restructuring and Enterprise Assistance and TACIS sponsored Center for Productivity and Competitiveness of Moldova, where he was involved in corporate reorganization and liquidation. He is also employed as Associate Professor at the Academy of Economic Studies of Moldova. Mr. Sula earned his Ph.D. degree in 2001 and bachelor’s degree in Finance in 1997 from the Academy of Economic Studies of Moldova. Mr. Sula is currently a level III candidate in the CFA program.
Royal Gold Inc. (NASDAQ: RGLD)
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