Royal Gold, Envy of Chartists & Gold Bugs (RGLD, ABX, MFN, GG, NEM, GDX)

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In the current climate, there are hardly any stocks which are hitting new 52-week highs.  If you go to the gold sector, the leaders are very far under their highs.  Apparently, it seems that Royal Gold Inc. (NASDAQ: RGLD) did not get the memo that its peers are well off of highs and that there are problems with the stock market.  Shares of Royal Gold are at 52-week and all-time highs.  There may be good reason too.

Yesterday, Ihad a chance to speak with Karen Gross, Vice President and CorporateSecretary, about about thecompany’s prospects.

For starters, she noted that the company is not a gold producer.  It is aroyalty company that makes money off of many projects it has investedin or owns, and the royalty stream has silver and other metals in it as well.  So it gets a piece of the action from mining gold withouthaving to assume the operational costs and arguably without at leastsome of the risks of commodity prices.  This can be good and can be baddepending on which industry you are looking at, but Royal Gold isproving that its model is one of the successful ones.

What is interesting is that there has been no news toaccount for this run-up in Royal Gold. It is possible that the future value of the new total underlying assets may be much greater than appears on the books. In fact, if you just look at the last balance sheet and try to apply today’s climate toit you will miss the whole show. 

As of September 30, the company had more than $209.8 million incash.  What is not reflected there is that in October the companyclosed on a transaction with Barrick Gold Corporation (NYSE: ABX) whereit purchased about 72 properties for some $150 million.  If this was being evaluated as a biotech stock, an analyst would say the company just bought a serious future pipeline.  The companyhas also recently redone its credit facility which had just been withHSBC to now include HSBC and Scotia.  That credit facility has not beenused so far.  The company’s current cash balance is now roughly $60 millionafter factoring in the acquisition transaction.

The company also has two separate projects in Mexico with Minefinders Corp.Ltd. (AMEX: MFN) and Goldcorp Inc. (NYSE: GG) that are scheduled to come on line within the next year.

The good news for gold stocks is that some of the majors have bouncedsharply off of last month’s lows.  Newmont Mining (NYSE: NEM) hasrecovered almost 100%, but at $40+ it is still well off of its 52-weekhigh of $57.55.  Barrick Gold Corp. (NYSE: ABX) is up more than 100%from the October lows, but at $36+ it is still well off of the 52-weekhighs of $54.74.  The Market Vectors Gold Miners ETF (NYSE: GDX) at$33.50 has also doubled from lows, but is still incredibly well off ofthe 52-week highs of $56.87.

There is one metric that might make Royal Gold the envy of everypublic and private company in the world.  The company has 16employees.  So with a market cap of roughly $1.5 billion, eachemployee’s market cap contribution is nearly $100 million.  With fiscalJune-2008 revenues at more than $66 million, that is more than $4million in the last year’s revenue per employee.  Sure enough, RoyalGold is equally royal and equally gold if you just use today and lastweek as the measuring stick. 

This stock is now up 3.5% at $44.90today, and that is off the intra-day highs of $46.68.  Its prior52-week trading range was $22.75 to $43.54.

Jon C. Ogg
December 17, 2008