Royal Gold, Inc. RGLD has entered into an agreement with Kinross Gold Corporation KGC to sell its shareholding interest in the Peak Gold joint-venture project in Alaska as well as common share holding in Contango Ore, Inc. for cash proceeds of total $61.3 million and increased royal interests.
Royal Gold will receive $49.2 million for the sale of a 40% ownership interest in Peak Gold, LLC, the owner of the Peak Gold project and $12.1 million for selling its holding of 809,744 shares in Contango, Royal Gold’s partner in Peak Gold, LLC.
Additionally, Royal Gold will receive an incremental 28% net smelter return (NSR) royalty on silver produced from the current resource area and an incremental 1% NSR royalty on certain State of Alaska mining, owned by Contango. This will increase Royal Gold’s royalty in this area from 2% to 3%.
Following the deal’s completion, Kinross will be the Peak Gold Project operator, with 70% ownership of the project, while the remaining 30% will be owned by Contango.
Kinross’ expertise and responsible mining record in Alaska positions it as the ideal operator for advancement of the Peak Gold project’s production. Kinross expects to integrate the Peak Gold Project with the existing Fort Knox mine operation, which will aid Royal Gold to enhance value of royalty interests. In fact, the deal will enable Royal Gold to focus on its core royalty and streaming business.
On Aug 5, Royal Gold reported fourth-quarter fiscal 2020 (ended Jun 30, 2020) results. Adjusted earnings per share of 53 cents beat the Zacks Consensus Estimate of 50 cents and also marked year-over-year improvement of 20%. Despite the COVID-19 crisis, Royal Gold reported record revenues, operating cash flow and earnings in fiscal 2020.
Gold continues to be the most significant revenue driver, accounting for 84% of Royal Gold’s total revenues in fourth-quarter fiscal 2020. Gold prices have surged 24.2% so far this year, fueled by the pandemic. The combination of lower mined gold supply and higher demand, and geopolitical tensions are likely to drive prices north. This bodes well for Royal Gold.
The company’s revenues are derived entirely from stream and royalty interests in properties owned and operated by third parties. The Peñasquito property will continue to be a significant revenue generator for Royal Gold. After a temporary suspension due to the pandemic, production from Peñasquito mine has gone back to the pre-COVID levels in June. Peñasquito mine’s operator Newmont Corporation NEM provided the full-year 2020 production guidance of 510,000 ounces of gold, 28 million ounces of silver, 360 million pounds of zinc, and 190 million pounds of lead. Moreover, Barrick Gold Corporation GOLD continues to advance feasibility study for the process plant expansion and proposed tailings storage facility for extension of the mine life at Pueblo Viejo mine.
Over the past year, Royal Gold has depreciated 4.9%, as against the industry’s rally of 49.4%.
Royal Gold currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.