Royal Gold Reports Record Annual Revenue, Cash Flow and Volume
DENVER--(BUSINESS WIRE)--Royal Gold, Inc. (NASDAQ: RGLD) (together with its subsidiaries, “Royal Gold” or the “Company,” “we” or “our”) reports a fiscal year 2018 net loss of $113.1 million, or ($1.73) per basic share, on record revenue of $459.0 million and record operating cash flow of $328.8 million. Reported earnings included the negative impact of US tax reform legislation totaling $0.47 per share and several non-cash items (including a non-cash impairment of $239.1 million relating to the Pascua Lama project) totaling $3.03 per share. Absent these items, adjusted net income1 was $115.1 million, or $1.76 per share, up 14% from the prior year.
Fiscal 2018 Highlights Compared to Fiscal 2017:
- Record revenue of $459.0 million, an increase of 4%
- Record operating cash flow of $328.8 million, an increase of 23%
- Record volume of 354,000 GEOs2, an increase of 1%
- Final $250.0 million outstanding on revolving credit facility paid off
- Dividends paid of $64.1 million, an increase of 4%
- Average gold price of $1,297 per ounce, in line with the prior year
The Company reports net income of $26.7 million, or $0.41 per share, on revenue of $116.2 million in its fiscal fourth quarter ended June 30, 2018 (“fourth quarter”). Reported earnings included further impacts of US tax reform legislation totaling $0.01 per share and a non-cash functional currency election totaling $0.01 per share. Absent these items, adjusted net income1 was $27.6 million, or $0.43 per share, up 39% from the prior year quarter.
Fourth Quarter Highlights Compared to Prior Year Quarter:
- Revenue of $116.2 million, an increase of 7%
- Operating cash flow of $77.0 million, an increase of 17%
- Volume of 89,000 GEOs2, an increase of 3%
- Dividends paid of $16.4 million, an increase of 4%
- Repaid remaining $75.0 million outstanding under revolving credit facility
- Average gold price of $1,306 per ounce, up 4%
Adjusted Net Income is a non-GAAP measure. Please see Schedule A for reconciliation.
Gold Equivalent Ounces (“GEOs”) are calculated as revenue divided by the average gold price for the same period. GEOs net of stream payments were 289,300 in fiscal 2018 and 72,000 in the fourth quarter, compared to 280,800 in the prior fiscal year and 71,000 in the prior fourth quarter, respectively.
“Fiscal 2018 performance was solid, steady, and successful as evidenced by the second straight year of record revenue, cash flow and volume,” commented Tony Jensen, President and CEO. “Looking forward to fiscal 2019, we anticipate several positive catalysts, including the beginning of production at Cortez Crossroads, the early deployment of the Peñasquito Pyrite Leach Project, production improvements at Rainy River, and progress at the pilot pre-oxidation plant at Pueblo Viejo, as well as a preliminary economic assessment at the Peak Gold joint venture (“Peak Gold”).
As previously reported, Centerra Gold Inc. (“Centerra”) temporarily suspended mill operations at Mount Milligan on December 27, 2017 due to insufficient fresh water. Mill operations restarted on February 5, 2018 with a single ball mill, and the second ball mill restarted on March 23, 2018. For the quarter ended June 30, 2018, mill throughput averaged 47,000 tonnes per calendar day (roughly 52,000 tonnes per operating day), and the process plant operated for 30 consecutive days averaging greater than 60,000 tonnes per day.
Our fourth quarter results were not impacted by the temporary shutdown of the mill processing facility. Due to the timing of shipments and deliveries of gold and copper, we expect the impact of the temporary shutdown to be reflected in Royal Gold’s first fiscal quarter 2019 results, as some of the deliveries of gold and copper that were expected in July and August 2018 have been deferred to a later date.
On August 1, 2018, Centerra reported that Mount Milligan continues to face potential limitations due to water supply, a situation exacerbated by minimal inflow from snow melt and less than expected precipitation experienced in 2018, and that it applied to British Columbia regulators to access additional water sources through July 2020. Centerra also reported that if regulatory approvals to access water sources are not received as expected, the Mount Milligan mill would need to reduce production to conserve water. In that case, Centerra reported that one ball mill would be operated at a throughput of approximately 30,000 tonnes per day for the fourth calendar quarter of 2018.
Repayment of Golden Star Loan Facility
On June 29, 2018, a subsidiary of Golden Star Resources, Ltd. repaid its $20 million term loan obligation to Royal Gold, including accrued interest, well in advance of its May 2019 maturity.
Separate from the term loan facility, Royal Gold’s wholly-owned subsidiary RGLD Gold AG has a streaming interest on 10.5% of the gold at Wassa and Prestea until 240,000 ounces are delivered and 5.5% thereafter. Through March 31, 2018, Wassa and Prestea have delivered approximately 61,500 ounces of gold to Royal Gold.
Purchase of 1.75% NSR on Mara Rosa
On June 29, 2018, Royal Gold’s wholly-owned subsidiary RG Royalties, LLC, acquired a 1.75% Net Smelter Return (“NSR”) royalty on Amarillo Gold’s Mara Rosa gold project in Goias State, Brazil for $10.8 million. This interest is in addition to the 1.00% NSR royalty previously acquired by another wholly-owned subsidiary of Royal Gold. The new Mara Rosa royalty agreement includes a right of first refusal on future financing opportunities based on production from the project.
Purchase of Shares of Contango Ore
On June 28, 2018, Royal Gold acquired 682,556 shares of common stock of Contango ORE, Inc. (“CORE”) for consideration of $26 per share, pursuant to a Stock Purchase Agreement entered into on April 5, 2018 between Royal Gold and certain individual stockholders of CORE. Royal Gold expects to acquire a second and final tranche of 127,188 shares of CORE common stock pursuant to the Stock Purchase Agreement at a subsequent closing.
Fiscal 2018 Overview
Fiscal 2018 record revenue of $459.0 million included stream revenue of $324.5 million and royalty revenue of $134.5 million. The Company had inventory of approximately 22,000 ounces of gold and 573,000 ounces of silver at June 30, 2018, as previously announced, compared to 14,000 ounces of gold and 537,000 ounces of silver at June 30, 2017.
Fiscal 2018 cost of sales was approximately $83.8 million, compared to $87.3 million in fiscal 2017. The decrease was primarily due to decreased gold sales from Mount Milligan and Andacollo. Cost of sales is specific to our stream agreements and is the result of the purchase of gold, silver and copper for a cash payment.
General and administrative expenses increased to $35.5 million in fiscal 2018 from $33.4 million during the prior year. The increase during the current period was primarily due to an increase in legal and litigation costs.
Exploration costs, which are specific to exploration and advancement of Peak Gold, decreased to $8.9 million in fiscal 2018, from $12.9 million in fiscal 2017. As of June 30, 2018, Royal Gold held a 40% membership interest in Peak Gold.
Depreciation, depletion and amortization expense increased to $163.7 million in fiscal 2018, from $159.6 million in fiscal 2017. The increase was primarily attributable to higher gold sales from Wassa and Prestea.
Interest and other income decreased to $4.2 million in fiscal 2018 from $9.3 million in fiscal 2017. The decrease was primarily due to a gain on a former interest, as well as consideration received as part of a legal settlement and termination of a non-principal royalty during fiscal 2017.
Interest and other expense decreased to $34.2 million in fiscal 2018 from $36.4 million in the prior year as the Company paid off the outstanding balance under our revolving credit facility.
We recognized income tax expense totaling $14.8 million in fiscal 2018, compared with $26.4 million during fiscal 2017. Given the fiscal 2018 accounting loss, this resulted in an effective tax rate of (14.1%) for the fiscal year, compared with 22.2% in the prior period.
At June 30, 2018, we had current assets of $125.8 million compared to current liabilities of $51.4 million resulting in working capital of $74.4 million. This compares to current assets of $143.6 million and current liabilities of $34.3 million at June 30, 2017, resulting in working capital of $109.3 million. The decrease in our current assets primarily resulted from a decrease in our income tax receivable due to a tax refund received from a foreign taxing authority of approximately $21 million during the fiscal year.
During fiscal 2018, liquidity needs were met from $375.2 million in net revenue and our available cash resources. The Company repaid the remaining $250.0 million balance outstanding under the revolving credit facility, and as of June 30, 2018, the full $1.0 billion in borrowing capacity was available. Working capital, combined with the Company’s undrawn revolving credit facility, resulted in approximately $1.1 billion of total liquidity at June 30, 2018.
Fourth Quarter Overview
Fourth quarter revenue was $116.2 million compared to $108.9 million in the prior year quarter. Stream and royalty revenue totaled $83.5 million and $32.7 million, respectively, for the fourth quarter. Revenue increased due to higher gold and copper prices as well as increased stream sales from Mount Milligan and Pueblo Viejo, partially offset by lower metal sales from Wassa and Prestea, and Andacollo.
Fourth quarter ending inventory was comprised of 22,000 gold ounces and 573,000 silver ounces, reflecting a slight inventory drawdown from the prior quarter, offsetting the deferral of certain deliveries from Mount Milligan associated with the temporary shutdown which occurred in early calendar 2018.
Fourth quarter cost of sales of $22.2 million was above the $19.7 million recorded in the prior year quarter, driven by higher portfolio gold and silver sales.
General and administrative expenses increased to $10.9 million in the fourth quarter, compared to $9.9 million in the prior year quarter. The increase was primarily related to an increase in legal and litigation costs.
We recognized an income tax expense totaling $4.7 million in the fourth quarter, compared with an income tax expense of $7.7 million in the prior year quarter. This resulted in an effective tax rate of 16% in the current period, compared with 31% in the prior year quarter.
A summary of fourth quarter, annual and historical production reported by operators of our stream and royalty properties can be found on Tables 1, 2 and 3. Calendar year 2018 operator production estimates for certain properties in which we have interests compared to actual production at those properties through June 30, 2018 can be found on Table 4. Results of our streaming business for the fourth quarter, compared to the prior year quarter, can be found on Table 5. Highlights at certain of the Company’s principal producing and development properties during the fourth quarter, compared to the prior year quarter, are detailed in our Annual Report on Form 10-K.
Royal Gold is a precious metals stream and royalty company engaged in the acquisition and management of precious metal streams, royalties and similar production based interests. As of August 1, 2018, the Company owns interests on 191 properties on six continents, including interests on 40 producing mines and 18 development stage projects. Royal Gold is publicly traded on the Nasdaq Global Select Market under the symbol “RGLD.” The Company’s website is located at www.royalgold.com.
Note: Management’s conference call reviewing the fourth quarter and fiscal year results will be held on Thursday, August 9, 2018, at noon Eastern Time (10:00 a.m. Mountain Time). The call will be webcast and archived on the Company’s website for a limited time.
Fourth Quarter Earnings Call Information:
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|Conference Title:||Royal Gold|
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Cautionary “Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995: With the exception of historical matters, the matters discussed in this press release are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from projections or estimates contained herein. Such forward-looking statements include statements about solid, steady and successful performance evidenced by record revenue, cash flow and volume, positive catalysts including the beginning of production at Cortez Crossroads, the early deployment of the Peñasquito Pyrite Leach Project, progress at the pilot pre-oxidation plant at Pueblo Viejo, production improvements at Rainy River, a preliminary economic assessment by Peak Gold, the impact of the temporary shutdown and subsequent restart of mill processing operations at Mount Milligan, the impact of recent and future potential shutdowns and reduced production at Mount Milligan; operators’ production estimates for calendar year 2018 and their estimates of reserves and mineralized material, and the expectation to acquire additional shares of Contango ORE, Inc. common stock. Net gold and metal reserves attributable to Royal Gold’s stream, royalty and other interests are subject to certain assumptions and, like reserves, do not reflect actual ounces that will be produced. Like any stream, royalty or similar interest on a non-producing or not-yet-in-development project, our interests on development projects are subject to certain risks, such as the ability of the operators to bring the projects into production and operate in accordance with their feasibility studies and mine plans, and the ability of Royal Gold to make accurate assumptions regarding valuation and timing and amount of payments. In addition, many of our interests are subject to risks associated with conducting business in a foreign country, including application of foreign laws to contract and other disputes, foreign environmental laws and enforcement and uncertain political and economic environments. Factors that could cause actual results to differ materially from the projections include, among others, precious metals, copper and nickel prices; performance of and production at the Company's stream and royalty properties; the ability of operators to finance project construction to completion and bring projects into production as expected, including development stage mining properties, mine and mill expansion projects and other development and construction projects; operators’ delays in securing or inability to secure or maintain necessary governmental permits; decisions and activities of the operators of the Company's stream and royalty properties; unanticipated grade, environmental, geological, seismic, metallurgical, processing, liquidity or other problems the operators of the Company’s stream and royalty properties may encounter; operators’ inability to access sufficient raw materials, water or power; changes in operators’ project parameters as plans continue to be refined; changes in estimates of reserves and mineralization by the operators of the Company’s stream and royalty properties; contests to the Company’s stream and royalty interests and title and other defects in the properties where the Company holds stream and royalty interests; errors or disputes in calculating stream deliveries and royalty payments, or deliveries or payments not made in accordance with stream and royalty agreements; economic and market conditions; changes in laws governing the Company and its stream and royalty interests or the operators of the properties subject to such interests, and other subsequent events; as well as other factors described in the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and other filings with the Securities and Exchange Commission. Most of these factors are beyond the Company’s ability to predict or control. The Company disclaims any obligation to update any forward-looking statement made herein. Readers are cautioned not to put undue reliance on forward-looking statements.
Statement Regarding Third-Party Information: Certain information provided in this press release, including production estimates for calendar 2018, has been provided to us by the operators of the relevant properties or is publicly available information filed by these operators with applicable securities regulatory bodies, including the Securities and Exchange Commission. Royal Gold has not verified, and is not in a position to verify, and expressly disclaims any responsibility for, the accuracy, completeness or fairness of such third-party information and refers the reader to the public reports filed by the operators for information regarding those properties.