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Royal Gold Down to Strong Sell - Analyst Blog

Posted: 1/15/2014 7:00:00 PM
Referenced Stocks: AXU;GG;GSS;RGLD

On Jan 14, Zacks Investment Research downgraded gold-focused royalty company Royal Gold Inc. ( RGLD ) to a Zacks Rank #5 (Strong Sell).

Why Downgraded?

Royal Gold's royalty revenues stood at $56.5 million in the first quarter of fiscal 2014 (ending Sep 20, 2013), reported on Nov 7, 2013, down 27.5% from $77.9 million in the first quarter of fiscal 2013 and also missing the Zacks Consensus Estimate.

The results were impacted by a lower average gold price of $1,326 per ounce, down 20% year over year, and lower production at Voisey's Bay, Penasquito, Las Cruces, Robinson (copper), Leeville and Cortez. There are a number of economic factors that influence gold prices. Over the past few years, the price of gold has shown a high inverse correlation with the U.S. dollar.

Royal Gold posted earnings of 23 cents in the quarter, down 43.9% from the year-ago quarter. It matched the Zacks Consensus Estimate.

The Pascua Lama project faced more challenges due to halt of construction activities at the mine, except those required for environmental protection and regulatory compliance. The restart will depend on improved project economics.

Moreover, the guidance for the last quarter of calendar year 2013 for the Penasquito mine operated by Goldcorp Inc. ( GG ) has been narrowed to 370,000-390,000 ounces of gold as Goldcorp expects higher grade ore to be processed during the quarter.

Royal Gold has delivered negative earnings surprises in the trailing three of the four quarters with an average negative surprise of 16.81%.
Following the first quarter earnings release, the Zacks Consensus Estimate for Royal Gold for fiscal 2014 fell 9.4% to $1.25 per share. The Zacks Consensus Estimate for fiscal 2015 also declined 9.4% to $1.73.

Other Stocks to Consider

Other companies in the mining industry worth considering include Alexco Resource Corporation ( AXU ) and Golden Star Resources, Ltd.  ( GSS ). While Alexco Resource holds a Zacks Rank #1 (Strong Buy), Golden Star retains a Zacks Rank #2 (Buy).

ALEXCO RESOURCE (AXU): Free Stock Analysis Report

GOLDCORP INC (GG): Free Stock Analysis Report

GOLDEN STAR RES (GSS): Free Stock Analysis Report

ROYAL GOLD INC (RGLD): Free Stock Analysis Report

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Zacks Investment Research