Goldcorp Inc. (USA) (GG), Royal Gold, Inc USA) (RGLD): Is the Golden Era of Gold Over?

Nonetheless, Royal Gold, Inc USA) (NASDAQ:RGLD) still has a very high profit margin because it doesn’t produce gold mines, only buys them and collects royalty payments for them. The company’s operating profitability was 60% in 2012.

This means that even after the price of gold lost 16% of its value, the company’s profit margin is likely to have remained in the black. But the recent drop in the price of gold might lead Royal Gold, Inc USA) (NASDAQ:RGLD) to cut back on its business developments or at least reevaluate them.

The situation is much different for Goldcorp Inc. (USA) (NYSE:GG). The company’s operating profitability is lower than that of Royal Gold, Inc USA) (NASDAQ:RGLD), and in 2012 reached 39%. The company’s total cost in cash (dollar per ounce) to produce gold sharply rose in 2012 by 34% compared to 2011 and reached $874 per ounce.

If the cost of production rises again to a range of $1,000 and $1,100 per ounce, the company’s profit margin will likely decline substantially considering the price of gold is currently trading at around $1,380 per ounce.

Perhaps the only silver lining for these companies is that the sharp drop in their stocks raised their dividend yield: Royal Gold, Inc USA) (NASDAQ:RGLD)’s current dividend yield is nearly 1.5%; Goldcorp Inc. (USA) (NYSE:GG)’s is around 2.2%. This is one of the few advantages these companies have over holding gold or investing in a gold SPDR Gold Trust (ETF) (NYSEMKT:GLD).

Another advantage is that both companies are expected to augment their operations in 2013. If gold doesn’t fall any further and these companies remain profitable, a rise in operations might offset the adverse effect the price of gold will have on corporate revenue during the year.

The bottom line

The golden era of gold might be behind us but some gold companies, such as Royal Gold, Inc USA) (NASDAQ:RGLD), will remain in business. These companies’ profit margins and revenue growth are likely to dwindle, but at least they will offer higher dividend yields. Alas, I don’t think the dividend yield will be enough to make these companies a worthy investment; especially if the demand for gold as an investment falls further, which will keep dragging gold price down.

The article Is the Golden Era of Gold Over? originally appeared on Fool.com is written by Lior Cohen.

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