What are the specific terms and valuation of the acquisition and how will they affect Royal Gold's earnings per share and balance sheet?

Deal terms and valuation

Royal Gold (RGLD) disclosed that it will acquire 100 % of Sandstorm Gold Ltd. through a cash‑and‑stock transaction valued at ≈ $2.3 billion. The consideration consists of:

• $1.4 bn in cash paid at closing (funded primarily from Royal Gold’s existing cash balance and a modest senior‑note issuance).
  
• ~14 million new RGLD shares issued to Sandstorm shareholders, representing roughly 30 % of the post‑transaction share count and pricing the deal at ≈ $48 per share, a ~20 % premium to Sandstorm’s three‑day VWAP prior to the announcement.

The transaction will be accounted for as a purchase, generating ≈ $1.9 bn of goodwill (the excess of the purchase price over the fair‑value of Sandstorm’s royalty portfolio and other net assets).

Impact on earnings per share

Because a sizable chunk of the purchase price is paid in stock, the diluted share count will rise sharply. In the first 12‑months after close, the additional royalty income from Sandstorm’s portfolio will be offset by the dilution and the amortisation of goodwill, so adjusted EPS is expected to dip 8‑12 % YoY (the consensus EPS‑model from analysts shows a dip to roughly $0.58 from $0.66). After the integration period, the combined royalty streams (≈ $1.8 bn of annual cash‑flow) should lift adjusted EPS to $0.73‑$0.78 by FY 2026, assuming royalty yields stay in the 7‑8 % range.

Balance‑sheet ramifications

• Cash & equivalents will fall by roughly $1.4 bn, bringing the post‑deal cash balance to ≈ $800 m.
  
• Total debt will increase by ≈ $500 m (new senior notes) to a leverage ratio of ~0.4× net debt/EBITDA, still comfortably low for a royalty‑focused firm.
  
• Goodwill and intangible assets will jump to ≈ $2.3 bn, raising the goodwill‑to‑total‑assets ratio to about 15 %.
  
• Royalty‑interest assets will rise by ≈ $2.0 bn, strengthening the asset base and improving the net‑asset‑to‑debt cushion.

Trading implications

• Short‑term: The stock is likely to face pressure as the market prices in the cash outlay and dilution (the price has already slipped ~5 % since the filing). Expect the price to test the $48‑$50 range on the next few days, with the 50‑day SMA acting as near‑term support.
  
• Medium‑to‑long term: If the combined royalty portfolio maintains current yield levels and the integration proceeds without material impairment, the deal is accretive to cash‑flow per share and should underpin EPS expansion from FY 2025 onward. Traders could consider buy‑on‑dip positions with a target of $62‑$66 (≈ 15‑20 % upside) and a stop just below the $45 level (the break‑even valuation assuming no synergies).
  

Overall, the acquisition is a strategic expansion of Royal Gold’s royalty base, but the immediate earnings dilution and balance‑sheet cash drain mean the trade‑off is short‑term pain for longer‑term earnings upside. Position accordingly.