Customer Service 1 (888) 261-2693
Advanced Search

Checking in on One of the World's Greatest Gold Companies

By Matt Badiali, editor, S&A Resource Report
Monday, October 1, 2012

The gold royalty business is incredible these days... just look at what's happening to Royal Gold.
 
Just over a year ago, I explained how Royal Gold shares could jump 120%. My thesis is on its way to coming true...  
 
Shares are up 75% since its bottom in May 2012... and 39% since I wrote that essay.
 
Most Stansberry & Associates readers are familiar with Royal Gold... It's one of the world's best, most diversified ways to profit from rising gold prices... 
 
Rather than owning gold mines or exploring for gold itself, Royal Gold helps finance mining companies... and earns a "royalty" on their gold production.  
 
Royal Gold doesn't take on typical gold-company risk, like an unsuccessful drilling program or problems with a single mine. Instead, it collects royalties on more than 36 producing mines... and has royalties on 25 development projects.
 
This "fingers in many different pies" business model makes Royal Gold a diversified and leveraged way to play rising gold prices. You can see the success of this model in the chart below...
 
Royal Gold (RGLD) Shares Up 122% in Two Years
 
As you can see, shares of Royal Gold are up 122% since their January 2011 low of near $45.
 
But I believe the run is far from over. Royal Gold still has big gains ahead of it. Here's why...
 
Below is a table that shows Royal Gold's results in its fiscal years 2011 and 2012. The right-hand column is the percentage change from 2011 to 2012. As you can see, revenue and profits are surging.
 
Measure 
2012 
2011 
Change 
Revenue 
$263.1 million 
$216.5 million 
+22% 
EBITDA* 
$237.6 million 
$190.2 million 
+25% 
Net Profit 
$92.5 million 
$71.4 million 
+30% 
Realized Gold Price 
$1,673 per oz.
$1,369 per oz.
+22% 
* EBITDA is earnings before interest, taxes, depreciation, and amortization 
 
The growth from 2011 to 2012 is critical to the rest of the story: How Royal Gold will soar in value over the next few years.
 
The price of gold is on the rise again, up 15% since its low in May 2012. Today, it's trading around $1,775 per ounce. It is already 6% higher than Royal Gold's average price last year. And with the endless money printing promised by the U.S. and other governments, the price should rise further.
 
Royal Gold's share of gold production should increase to nearly 175,000 ounces in 2013. That means even if the price of gold remains the same as this year, the company's earnings will jump 11%. However, if the price of gold goes up, those earnings will climb, too. If we see an average price of $1,900 per ounce, Royal Gold's earnings will grow by 30%.
 
And it gets better through 2015... when some big new royalties kick in. Royal Gold's share of gold production will climb to 330,000 ounces. So even if the price of gold remains flat, earnings will grow by 110%.
 
With shares up so much in the past few months, Royal Gold is due for a healthy pullback. If shares correct to the $90-$95 area, it's a good opportunity to buy this elite gold stock.
 
Good investing, 
 
Matt Badiali




Further Reading:

Investing in royalty businesses is one of our favorite ways to gain exposure to gold and silver. And the strategy is working... As Dan Ferris said earlier this month, "It's boom times for gold-royalty businesses right now" – especially Royal Gold.
 
Learn more about these companies – and how they top mining companies – here: The World's Most Valuable Asset.

In The Daily Crux
Market Notes
Overhyped IPOs continue to slide... Pandora, Groupon, Zynga, and Facebook are all down an average of 55% since going public.
 
Drug store giant Walgreen soars... shares are up 25% since July.
 
Natural gas surges... prices are up 54% over the last five months.
 
Internet companies are in an uptrend... Comcast and Verizon are up 25%-plus over the past 12 months.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1440.67 -0.5% +25.2%
Oil (USO) 34.12 -0.1% +9.2%
Gold (GLD) 171.89 -0.3% +10.0%
Silver (SLV) 33.48 -0.3% +16.0%
U.S. Dollar 79.95 +0.1% +2.7%
Euro 1.28 -0.9% -5.4%
Volatility (^VIX) 15.73 +6.0% -61.7%
Gold Stocks (^HUI) 513.81 -0.6% -1.2%
10-Year Yield 1.64 +0.0% -18.0%

World ETFs
Symbol Price
Change
52-Wk
USA (SPY) 143.97 -0.5% +27.7%
S. Korea (EWY) 59.13 -0.8% +25.6%
Singapore (EWS) 13.41 -0.8% +24.0%
Taiwan (EWT) 13.38 -0.3% +15.5%
S. Africa (EZA) 66.75 -0.7% +15.4%
Canada (EWC) 28.49 -0.7% +13.1%
Lat.America (ILF) 42.58 -1.2% +9.7%
China (FXI) 34.60 -0.4% +9.4%
Russia (TRF) 15.34 -0.7% +2.2%
Israel (ISL) 12.89 +2.3% -0.2%
India (IFN) 23.24 +0.1% -0.5%
Japan (EWJ) 9.17 -1.9% -1.8%

Sector ETFs
Symbol Price
Change
52-Wk
Construction (PKB) 15.75 -0.8% +55.5%
Media (PBS) 16.56 -0.2% +37.6%
Financials (IYF) 58.31 -0.3% +33.3%
Consumer Svcs (IYC) 86.52 -0.5% +32.3%
Insurance (PIC) 16.90 -0.2% +31.6%
Health Care (IYH) 84.59 -0.4% +31.0%
Real Estate (IYR) 64.38 -0.2% +30.4%
Biotech (PBE) 24.16 -0.3% +30.4%
Retail (PMR) 25.24 -0.3% +29.0%
Industrials (IYJ) 70.61 -0.1% +28.3%
Water (PHO) 19.49 +0.3% +27.4%
Telecom (IYZ) 25.53 -0.9% +27.3%
Big Tech (QQQQ) 68.57 -0.8% +27.1%
Software (PSJ) 27.74 +0.2% +24.9%
Defense (PPA) 19.88 -0.3% +22.1%
Basic Mat (IYM) 67.71 -0.8% +17.8%
Transportation (IYT) 87.09 -0.9% +15.3%
Semis (PSI) 14.09 +2.3% +8.9%
Utilities (XLU) 36.39 +0.5% +12.2%
Oil Service (OIH) 40.24 -0.9% +0.0%
Big Pharma (PPH) 41.00 -0.4% +0.0%
Nanotech (PXN) 6.24 -2.7% -2.1%
Alt. Energy (PBW) 4.16 -1.4% -24.4%

Recent Articles