Will Royal Gold Impress Investors With Its Second Quarter Results?

Royal Gold (NASDAQ: RGLD  ) will release its second quarter earnings report and its full fiscal year results early next month. In anticipation of this release, let's review some of the main issues that could impact the company's valuation in the near term.  

Reaching production goals
In the coming quarterly report, this gold and silver royalty company will present adjustments to production guidance based on updates from its partners. In the first quarter of this year, the company showed a 12% growth in attributed production, mostly due to the Cortez, Peñasquito, and Canadian Malartic projects.

SourceRoyal Gold

The table above shows the changes in its attributed output of gold in the first quarters of 2013 and 2014. In the past quarter, Royal Gold also recorded a decline in its attributed yield of gold in the Andacollo, Mulatos, and Robinson projects. Over the course of the year, Royal Gold expects to see a drop in the Andacollo and Mulatos mines.

The Cortez project, located in Nevada, is operated by Barrick Gold (NYSE: ABX  )  This gold producer keeps allocating most of its capital expenditures toward expanding its operations in Nevada, including development of the Goldrush deposit. Royal Gold holds a small royalty agreement for this deposit and will likely keep expanding its reach in Nevada, a rapidly growing region.

In the coming quarters, Royal Gold also expects to see a sharp increase the amount of gold received from the Mt. Milligan project. It received roughly 10,000 ounces of gold in the first quarter, and the company expects that output will reach 170,000 during this year.

The company also has a royalty contract on the Peñasquito mine, which is operated by Goldcorp (NYSE: GG  ) . Royal Gold reported a delay in opening 25 new production wells in this mine. It projects construction to start in the middle of this year, and completion is expected by mid-2015. Despite this reported delay, it shouldn't have a direct impact on the company's attributed yield of gold and silver in the coming years.

The expected rise in attributed output in the Cortez, Peñasquito, and Mt. Milligan projects will more than offset the potential decline in production from other projects. Based on its 2014 guidance and its output in the first quarter, Royal Gold's attributed production may have reached over 565,000 ounces of gold during the second quarter (based on a simple average for the last three quarters of the year). If it reached this number, it will result in an over 77% gain in its gold operations, as presented in the table below.

SourceRoyal Gold

Keep in mind that the company also has royalty contracts in silver, copper, lead, and zinc. Since gold accounts for more than 70% of its operations, this table presents the lion's share of Royal Gold's precious metals attributed production. 

Gold price
The other side of the equation will be the realized price of gold. In the past quarter, the average market price of gold reached $1,285 per ounce; this is only 0.5% below the average price during the first quarter of 2014 and 9.2% below the price of gold in the same quarter last year. 

Based on the above, the sharp rise in attributed production is likely to offset any drop in the price of gold during the second quarter. 

Bottom line
Royal Gold is likely to show an increase in its revenue due mainly to a rise in attributed production in its Cortez, Peñasquito, and Mt. Milligan projects. The modest decline in the price of gold isn't likely to have a substantial adverse effect on its revenue, however.

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