Royal Gold Reports Record 2025 Results Amid Elevated Valuation and Execution Risks

What happened

Royal Gold announced record revenue and cash flow for the fourth quarter and full year 2025, driven by high gold prices and recent strategic acquisitions like Kansanshi and Sandstorm/Horizon. This performance aligns with the bullish market narrative highlighted in the DeepValue report, which frames the company as a transformed, capital-light platform with strong margins. However, the report critically notes that at a $293 share price, Royal Gold trades at a rich 40x P/E and 35x EV/EBITDA, capitalizing on peak gold prices with limited valuation buffer. Underlying risks include increased leverage from $775 million in revolver borrowings, potential capex overruns at the Hod Maden project, and sensitivity to gold price normalization below $3,500/oz. While the record results may temporarily sustain investor enthusiasm, they do not mitigate the structural challenges of deleveraging, integration complexity, and project execution that threaten forward returns.

Implication

The record results validate Royal Gold's operational leverage to high gold prices, but they are already priced into the stock's elevated multiples, offering little incremental upside. High leverage from recent acquisitions requires disciplined cash flow to repay debt by mid-2027, a path that could be derailed by gold price declines or integration hiccups. Project-specific risks, such as Hod Maden's capital calls and Kansanshi delivery shortfalls, pose direct threats to cash flow and could slow deleveraging, straining relaxed covenants. Gold price sensitivity means any normalization toward $3,200/oz would compress margins and revenue, challenging the assumption of sustained >80% EBITDA margins. Given the stock's premium valuation and crowded bullish sentiment, investors should trim or avoid new positions until either price corrects or balance-sheet risks diminish, as downside scenarios imply material correction potential.

Thesis delta

The DeepValue report's 'POTENTIAL SELL' thesis, based on overvaluation and heightened risks from leverage and project exposure, remains unchanged by the record earnings announcement. These results are consistent with the high gold price environment and strategic moves already embedded in the valuation, but they do not address core concerns like Hod Maden capex creep or deleveraging failure. Thus, the thesis delta is minimal; the news reinforces the narrative that supports current prices without altering the fundamental risk-reward skew toward downside.