Royal Gold Upgraded To Outperform At Raymond James On Mt Milligan Deal

Raymond James has upgraded Royal Gold, Inc (USA) RGLD to Outperform from Market Perform, and increased its target price to $85.00 from $72.00 following Mt Milligan deal.

Centerra Gold announced the acquisition of all of the issued and outstanding shares of Thompson Creek Metals. Concurrently, Royal Gold has signed an amended term sheet with Centerra relating to its streaming interest.

Under the amended terms, Royal Gold's previous 52.25 percent gold streaming interest at Mt Milligan will be replaced with a 35 percent gold stream and an 18.75 percent copper stream.

Royal Gold will continue to pay US$435/oz of gold delivered and will pay 15 percent of the spot price of copper delivered. The amended terms will take effect on closing of Centerra Gold's acquisition of Thompson Creek, which is anticipated to occur in the fall of 2016.

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"Despite largely neutral amended terms, greater certainty with Mt Milligan cash flow warrants greater investor confidence. The certainty in receipt of payments going forward, however, which accounts for one-third of Royal's cash flows, removes a significant overhang in the stock," analyst Phil Russo wrote in a note.

Russo also revised his NPV discount rate for Mt Milligan to 8 percent from 10 percent. The stream on Mt Milligan continues to be the largest component of Royal Gold's NAV at $829 million, or about 26 percent of the gross asset value.

Shares of Royal Gold closed Tuesday at $74.80. In the pre-market hours Wednesday, the stock gained 4.21 percent to $77.95.