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Royal Gold (RGLD) Inks Deal to Acquire Great Bear Royalties

·4-min read

Royal Gold, Inc.’s RGLD wholly-owned subsidiary, International Royalty Corporation ("IRC") entered into an agreement to buy all of the issued and outstanding common shares of Great Bear Royalties Corp. ("GBR") for a cash payment of C$199.5 million ($153 million), representing C$6.65 per GBR share.

The purchase price includes a premium of 43% on a 20-day volume weighted average trading price of GBR’s shares on the TSVP exchange as to July 8.

GBR’s principal asset is a 2.0% net smelter return (“NSR”) royalty from the Great Bear Project in the Red Lake district of Ontario, owned and operated by Kinross Gold Corporation KGC. The royalty covers the entire project area of approximately 9,140 hectares. The Great Bear Project is Canada's latest major gold discovery, which Kinross acquired for $1.4 billion on Feb 24, 2022. KGC currently predicts a high-grade open-pit followed by a substantial bulk-tonnage underground operation at the LP Fault Zone. The project has the potential for further underground operations in higher-grade Red Lake-style mineralization areas.

The Great Bear Project’s established mining jurisdiction, excellent exploration potential with long-term growth scopes and Kinross’ constant effort to sustainably develop the project make it a strategic fit for Royal Gold.  
IRC entered into support agreements with all directors and officers of GBR who have agreed to vote their shares in favor of the acquisition. Additionally, GBR will pay a termination fee of C$7.0 million to IRC if the former terminates the agreement in certain situations.

Royal Gold remains focused on allocating its strong cash flow to dividends, debt reduction and new business. At the end of the first quarter, the company had cash and cash equivalents of around $184 million. The company remained debt-free with a total undrawn credit facility of $1 billion at the quarter’s end. It has total available liquidity of more than $1.2 billion as of Mar 31, 2022.

Last August, Royal Gold acquired a 1.0% NSR royalty on certain areas of the Red Chris Mine. This royalty acquisition adds another high-quality and long-duration asset to the company’s portfolio. The Red Chris Mine is a world-class copper/gold project in a mining-friendly jurisdiction. This royalty can contribute significant revenues to Royal Gold for decades. Last June, RGLD acquired a gold stream from Ero Copper Corp’s ERO NX Gold Mine in Brazil. Ero expects current-year gold production from the mine to be between 39,000 and 42,000 ounces.

Gold continues to be the most significant revenue driver for Royal Gold. In the March-end quarter, the company generated 71% of revenues from gold, 10% from silver and 14% from copper.  Royal Gold expects a total gold equivalent ounces (GEOs) sales volume of between 315,000 and 340,000 GEOs for the current year. Gold sales volume is expected in the band of 220,000-240,000 ounces, while sales for other metals are estimated in the range of 95,000-100,000 GEOs. RGLD’s revenues are derived entirely from stream and royalty interests in properties owned and operated by third parties.

Price Performance

Over the past six months, Royal Gold has gained 7.5% against the industry’s loss of 7.1%.

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Zacks Investment Research

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Royal Gold currently carries a Zacks Rank #3 (Hold). One better-ranked stock in the basic materials space include Cabot Corporation CBT.

Cabot, currently carrying a Zacks Rank #1 (Strong Buy), has an expected earnings growth rate of 22.5% for the current fiscal year. The Zacks Consensus Estimate for CBT's earnings for the current fiscal has been revised 6% upward in the past 60 days. You can see the complete list of today's Zacks #1 Rank stocks here.

Cabot's earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 16.2%. CBT has gained around 12.9% in the past six months.

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Kinross Gold Corporation (KGC) : Free Stock Analysis Report
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Royal Gold, Inc. (RGLD) : Free Stock Analysis Report
Ero Copper Corp. (ERO) : Free Stock Analysis Report
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