Royal Gold Inc. was upgraded to outperform from market perform at Raymond James, as Centerra Gold Inc.’s purchase of Thompson Creek Metals Co. means there will be a much more financially secure owner-operator of the Mt. Milligan mine.
Alongside that transaction, Royal has agreed to alter its deal for the B.C.-based project, replacing its 52.25 per cent gold streaming interest with a 35 per cent gold stream and an 18.75 per cent copper stream.
Royal will continue to pay US$435 per ounce of gold and 15 per cent of the spot price of copper.
“Despite largely neutral amended terms, greater certainty with Mt. Milligan cash flow warrants greater investor confidence,” Raymond James analyst Phil Russo told clients, raising his target price on Royal shares to US$85 from US$72.
Shipment of the metal under the revised deal won’t come into effect until five to six months after the merger closes, which is expected in the fall of 2016.
However, Russo noted that payments related to Mt. Milligan account for one-third of Royal’s cash flows, so this removes a significant overhang on the shares given previous concerns about Thompson Creek’s ability to service its debt.
The analyst also pointed out that the stream on Mt. Milligan remains the largest component of Royal’s net asset value at $829 million, or roughly 26 per cent of gross asset value.
