Denver-based Royal Gold Inc. has become one of North America’s best-performing gold stocks this year without producing a single ounce of the metal.
The company, which has 13 employees, invests in mines operated by companies such as Placer Dome Inc. and receives a percentage of revenue as a royalty. Royal Gold has benefited from gold prices’ surge to 17- year highs without having the expense of production costs, such as fuel.
“Most of the operators have experienced pretty high cost increases, and we’re not burdened with that,” said Stanley Dempsey, Royal Gold’s chief executive. “I don’t have all the headaches, but I have all the benefits.”
Investors such as Darko Kuzmanovic of David W. Tice & Associates are skeptical of the company’s prospects. They said Royal Gold faces declining production from its primary source of revenue, a property in Nevada known as the Pipeline Mining Complex.
Even with its share of doubters, the stock has risen 43 percent this year, the third-biggest advance in the 37-member Amex Gold Miners Index. Royal Gold’s stock closed Wednesday at $24.80, down $1.26.
Royal Gold said in August that fiscal 2005 revenue climbed 18 percent to a record $25.3 million, and earnings increased to 54 cents a share from 42 cents.
Dempsey, who became CEO in 1986, said he helped transform the company from a miner and driller after realizing “we ended up with a marquee royalty.” The company held the lease on the Pipeline property and performed the initial mining in 1987.
Royal Gold sold its interest to Placer Dome, based in Vancouver, British Columbia, for a royalty in 1991 “because we didn’t have enough money to keep it going,” Dempsey said.
The deal with Placer Dome, Canada’s second-largest gold producer, provided a “sliding- scale” entitlement to the gold extracted from the mine. The amount rises and falls along with the metal’s price.
“It’s just pure cash,” said John Hathaway, manager of the $577 million Tocqueville Gold Fund in New York, which had 100,000 Royal Gold shares as of Sept. 30. “There’s no mining. It’s a business model that investors like.”
Placer Dome runs Pipeline through a joint venture with London-based Rio Tinto Group, the world’s third-largest miner.
Placer Dome’s share of production last year was 630,000 ounces, 17 percent of its worldwide total of 3.65 million ounces.
Gold averaged $427 an ounce for the fiscal fourth quarter that ended in June, giving Royal Gold a 4.25 percent entitlement at Pipeline, the company said. The amount rose from 4 percent a year earlier, when gold averaged $393.
Royal Gold’s revenue has more than quadrupled during the past four years as a rising gold price boosted its claim to Pipeline’s production.
