Khoemacau Expansion And New Gold Mines Will Propel Revenue And Earnings Growth

Key Takeaways

• Completion of feasibility studies and new producing assets are expected to boost Royal Gold's revenue and mine life.
  
• Debt-free status and significant liquidity enable strategic acquisitions, enhancing future growth and earnings.
  
• Changes in SEC reporting, market dynamics, operational challenges, and geopolitical risks may affect Royal Gold's investor confidence, revenue predictability, and earnings growth.

Catalysts

Acquires and manages precious metal streams, royalties, and related interests.

• The expected completion of feasibility studies, such as the study at Mount Milligan and the expansion at Khoemacau, could lead to production increases and extended mine life, which are likely to boost Royal Gold's future revenue streams.
  
• Several new producing assets, such as Bellevue, Mara Rosa, Wonder North, and Cote Gold, are beginning to contribute to revenue, and continued ramp-up at these sites is anticipated to drive revenue growth.
  
• Plans for production expansion, such as the development of the Zone 5 mine and the Mango Northeast deposits at Khoemacau, will likely enhance earnings and operating cash flow in the long term once operational.
  
• The high gold price environment boosts financial results and provides an opportunity for Royal Gold to invest in new projects that could drive future growth, potentially increasing earnings as these projects come to fruition.
  
• The company’s improved financial position, with being debt-free and having significant liquidity, allows for strategic acquisitions and investments that could lead to enhanced future revenue and earnings.

Royal Gold Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Royal Gold's revenue will grow by 11.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 43.4% today to 56.1% in 3 years time.
• Analysts expect earnings to reach $517.4 million (and earnings per share of $7.88) by about December 2027, up from $287.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.2x on those 2027 earnings, down from 33.0x today. This future PE is greater than the current PE for the US Metals and Mining industry at 16.2x.
• Analysts expect the number of shares outstanding to decline by 0.06% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.99%, as per the Simply Wall St company report.

Royal Gold Future Earnings Per Share Growth

Risks

• Changes in SEC reporting standards (Regulation S-K 1300) could impact investor confidence and transparency regarding the company's reported reserves and resources, potentially affecting the company's perceived stability and future revenue forecasts.
  
• Timing uncertainties of metal deliveries under streaming agreements, particularly with assets like Mount Milligan, could lead to inconsistent quarterly revenues, impacting earnings predictability.
  
• Production and delivery challenges related to weather conditions or other operational factors, such as water availability at Andacollo, may affect future revenue streams as these factors can disrupt production.
  
• Political changes and risks in certain jurisdictions, such as recent government changes in Botswana, could pose operational and financial risks to the company's interest in these regions, possibly affecting future earnings from affected operations.
  
• An intensely competitive market environment, requiring more complex deal structures to secure investments, could increase costs or lead to less favorable financial terms, thereby impacting net margins and earnings growth prospects.

Valuation

• The analysts have a consensus price target of $170.27 for Royal Gold based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $186.0, and the most bearish reporting a price target of just $140.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $921.5 million, earnings will come to $517.4 million, and it would be trading on a PE ratio of 26.2x, assuming you use a discount rate of 7.0%.
• Given the current share price of $144.27, the analyst's price target of $170.27 is 15.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.