Royal Gold Reports Third Quarter 2019 Results

DENVER--(BUSINESS WIRE)--Royal Gold, Inc. (NASDAQ: RGLD) (together with its subsidiaries, “Royal Gold” or the “Company,” “we” or “our”) reports net income of $28.8 million, or $0.44 per share, on revenue of $109.8 million in its fiscal third quarter ended March 31, 2019 (“third quarter”).

Third Quarter Key Metrics Compared to Prior Year Quarter:

• Revenue of $109.8 million, a decrease of 5.3%
• Operating cash flow of $77.4 million, a decrease of 25.9%¹
• Volume of 84,200 GEOs², a decrease of 3.6%
• Dividends paid of $17.4 million, an increase of 6.1%
• Average price of $1,304 per gold ounce, a decrease of 1.9%

“We delivered another solid quarter with several positive developments in our portfolio,” commented Tony Jensen, President and CEO. “Most notably, we were pleased that amendments were granted to the Mount Milligan environmental assessment certificate that should relieve water supply constraints on mill operations, which Centerra expects to return to full capacity starting mid-May. We were also pleased to see that improvements at Rainy River continued, with mill availability increasing to 89% and gold recovery at 90% for the quarter.

“In February, we announced an agreement to acquire a silver stream on the Khoemacau Copper Project in Botswana. This is a high-quality and long-life development project that will fit nicely into our portfolio and add another component of growth to our portfolio over the next several years. We expect to fund this acquisition from cash flow or the currently undrawn $1 billion revolving credit facility, which will leave us well positioned with a strong balance sheet as we evaluate more opportunities in what is currently an active business development environment.”

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¹ Operating cash flow for the fiscal third quarter ended March 31, 2018 included a one-time cash refund of a $20.8 million tax receivable from the Servicio de Impuestos Internos, the Chilean tax authority.

² Gold Equivalent Ounces (“GEOs”) are calculated as revenue divided by the average gold price for the same period. GEOs, net of stream payments, were 69,600 in the third quarter, compared to 71,200 in the prior year third quarter.

Recent Developments

Agreement to Acquire Silver Stream on Khoemacau Copper Project

On February 25, 2019, Royal Gold, through its wholly owned subsidiary RGLD Gold AG, announced the acquisition of a silver stream on the Khoemacau Copper Project (“Khoemacau”) in Botswana with Khoemacau Copper Mining (Pty.) Limited (“KCM”), a wholly owned subsidiary of Cupric Canyon Capital LP (together with all its subsidiaries including KCM, “Cupric”), a private company owned by management and funds advised by Global Natural Resource Investments (“GNRI”).

Khoemacau is an advanced stage copper-silver project. Cupric has assembled an experienced board, executive team and project team to develop Khoemacau, and has obtained all permits and approvals required for construction to proceed. Cupric envisions a 21 year mine life, averaging payable production of approximately 62,000 tonnes of copper and 1.9 million ounces of silver per year. Silver represents approximately 7% of the mine’s anticipated revenues at current metal prices.

Royal Gold will make an advance payment of $212 million for 80% of the silver produced from Khoemacau until certain delivery thresholds are met (the “Silver Stream”), and at Cupric’s option, up to an additional $53 million for up to the remaining 20% of the silver produced (the “Option Stream”). Royal Gold will pay 20% of the spot silver price for each ounce delivered. Royal Gold will also make available up to $25 million of subordinated debt towards the end of project development to fund potential cost overruns, subject to various conditions (the “Overrun Facility”). Cupric’s development plans indicate that Royal Gold could expect average annual silver deliveries of 1.5 million ounces at a stream rate of 80%, or 1.9 million ounces based on a stream rate of 100% if Cupric exercises the entire Option Stream. Initial deliveries are expected to start in the first half of 2021.

Before accounting for the Silver Stream and Option Stream, Cupric forecasts life of mine by-product C1 plus sustaining capital costs of approximately $1.71 per pound of copper on a by-product basis at a silver price of $16.00 per ounce, placing the operation at approximately the 50th percentile on the global copper cost curve.

Mount Milligan

On February 27, 2019, Centerra Gold Inc. (“Centerra”) announced that it received an amendment to the Mount Milligan environmental assessment certificate that permits access to additional sources of surface water and groundwater. According to Centerra, Mount Milligan will be permitted to use water at set rates from Philip Lake 1, Rainbow Creek and Meadows Creek until November 30, 2021, as well as water from groundwater sources within a six kilometer radius of the mine for the life of mine. Mount Milligan reported that it has upgraded its water pumping infrastructure and commenced accessing water from the newly permitted sources at the beginning of April, 2019. Mill throughput was limited to 32,000 tonnes per operating day in the first calendar quarter of 2019, and has increased slowly as water levels increased in the tailings facility. Centerra expects mill throughput to be at full capacity of 55,000 tonnes per day starting mid-May as additional water is captured during the pending spring melt, and to remain at that level throughout the remainder of 2019.

With respect to the long-term water supply plan, Centerra continues to work with relevant stakeholders to identify and evaluate water sources for the remainder of the mine life. Centerra expects formal applications and government review to commence later this calendar year. Centerra also expects that the long-term source, or sources, should be available after November 2021, for the entire mine life.

For the full calendar year, Centerra continues to expect Mount Milligan’s payable gold production to range from 155,000 to 175,000 ounces, and payable copper production to range from 65 to 75 million pounds.

Rainy River

Improved operating performance at the Rainy River mine, owned and operated by New Gold Inc. (“New Gold”), continued during the quarter. Quarterly gold production was approximately 62,000 ounces, with full calendar year production guidance of 245,000 to 270,000 ounces. Although ice buildup in the crushed ore stockpile caused mill throughput to track below the annual target of 22,000 to 24,000 tonnes per day, New Gold reported average mill throughput returned to target levels at the end of the quarter. Mill availability has been improving and reached a record 89% for the quarter, with 95% achieved in March, despite planned downtime to complete repairs. Gold recovery also improved, with an average 90% for the quarter. New Gold expects recovery to continue to improve, and average 90 to 92% for the calendar year.

New Gold is undertaking an optimization study for Rainy River during calendar 2019 with the objective of increasing cash flow generation by focusing on medium and high grade ore. Potential scenarios for underground development are also being evaluated. This work is to be completed with an updated mine plan in the fourth quarter of this calendar year.

Subsequent to the end of the quarter, on May 1, 2019, New Gold announced that a buildup of excess water in the tailings facility from snowmelt caused a temporary suspension of milling operations at Rainy River on April 24. Mining and crushing operations are continuing and ore is being stockpiled during the suspension. New Gold is managing the excess water and expects full mill operations to resume within five days of the announcement of the suspension depending on precipitation levels over the same period.

Peñasquito

Subsequent to the end of the quarter, on April 29, 2019, Newmont Goldcorp reported a temporary suspension of operations at Peñasquito due to a blockade by a trucking contractor and certain community leaders. Newmont Goldcorp reported that it is pursuing legal avenues and is working with government authorities to resolve the situation, but did not indicate what effect this suspension is expected to have on calendar 2019 production.

Third Quarter 2019 Overview

Third quarter revenue was $109.8 million compared to $116.0 million in the prior year quarter, with stream revenue totaling $77.8 million and royalty revenue totaling $32.0 million. The decrease in total revenue for the third quarter compared to the prior year quarter was due to lower average gold, silver and copper prices, as well as lower stream revenue primarily attributable to a decrease in gold and copper sales at Mount Milligan. The lower stream sales at Mount Milligan were partially offset by higher gold and silver sales at Pueblo Viejo and higher gold sales at Andacollo due to timing of deliveries.

Third quarter cost of sales was approximately $19.1 million, compared to $21.3 million in the prior year quarter. The decrease was primarily due to decreased gold and copper sales from Mount Milligan. Cost of sales is specific to the Company’s stream agreements and is the result of the purchase of gold, silver and copper for a cash payment.

General and administrative expenses decreased to $6.8 million in the third quarter from $8.1 million during the prior year quarter. The decrease during the current period was primarily due to lower legal costs resulting from settlement of the Voisey’s Bay royalty calculation dispute.

On July 1, 2018, the Company adopted new Accounting Standards Update guidance which impacts how changes in fair value of equity securities are recognized at each reporting period. As a result, for the three months ended March 31, 2019, the Company recognized a gain of $1.8 million on changes in fair value of equity securities related to the holdings in Contango ORE, Inc. and Rubicon Minerals Corporation. The new guidance will increase earnings volatility at each reporting period.

The Company recognized a third quarter income tax expense of $9.4 million, compared to a benefit of $45.9 million during the prior year quarter, which resulted in an effective tax rate for the third quarter of 24.7% compared to 22.9% for the prior year quarter. The increase in the effective tax rate was primarily related to lower discrete benefits recorded in the current quarter as compared to the prior year quarter, which included a tax benefit related to impairment charges.

As of March 31, 2019, the Company had current assets of $265.4 million compared to current liabilities of $49.3 million, resulting in working capital of $216.1 million. This compares to current assets of $125.8 million and current liabilities of $51.4 million at June 30, 2018, resulting in working capital of $74.4 million.

During the third quarter, liquidity needs were met from $90.7 million in net revenue and available cash resources. As of March 31, 2019, the Company had no amounts outstanding and the full $1 billion available under its revolving credit facility. Working capital, combined with the Company’s undrawn revolving credit facility, resulted in approximately $1.2 billion of total liquidity as of March 31, 2019.

In June 2012, the Company completed an offering of $370 million aggregate principal amount of 2.875% convertible senior notes due 2019 (“2019 Notes”). The 2019 Notes mature on June 15, 2019, and the Company will settle the principal amount of each 2019 Note in cash and settle any excess conversion value in shares, plus cash in lieu of fractional shares.

Third quarter cash flow from operations was $77.4 million, compared to $104.6 million in the prior year quarter. The decrease over the prior year quarter was primarily due to lower proceeds received in the current quarter of $7.0 million from stream and royalty interests, net of production taxes and cost of sales, and the receipt of an income tax receivable from a foreign taxing authority of $20.8 million in the prior year quarter.

Property Highlights

A summary of third quarter and historical production reported by operators of the Company’s principal stream and royalty properties can be found on Tables 1 and 2. Calendar year 2019 operator production estimates for these properties compared to actual production at those properties through March 31, 2019 can be found on Table 3. Results of the streaming business for the third quarter, compared to the prior year quarter, can be found on Table 4. Highlights at certain of the Company’s principal producing and development properties during the third quarter, compared to the prior year quarter, are detailed in the Quarterly Report on Form 10-Q.

CORPORATE PROFILE

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 March 31, 2019, the Company owns interests on 191 properties on five continents, including interests on 43 producing mines and 17 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 third quarter results will be held on Thursday, May 2, 2019, 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.

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 quarterly results and positive portfolio developments; the Khoemacau Copper Project, including the new silver stream fitting into the Company’s portfolio and adding growth, funding for advance payments, being well-positioned to evaluate opportunities in an active business development environment, mine life, average annual payable copper and silver production, silver contribution to mine revenue, expected initial and annual silver deliveries and life of mine cash and capital costs; Mount Milligan, including permit amendments allowing near- and long-term access to additional surface and groundwater, expectations for mill operations returning to full capacity and average mill throughput through 2019, work to secure water sources for the life of the mine and expected gold and copper production through 2019; Rainy River, including continued operating improvements, expectations for improved recoveries at expected rates, and results of studies to increase cash flow generation, evaluations of underground development, completing an updated mine plan and expectations to resume full mill operations after suspension; effect of production suspension at Peñasquito; the Peak Gold Project, including efforts to identify options with respect to the Company’s interests; potential future earnings volatility caused by accounting guidance on recognition of changes in equity securities fair value; changes in taxes and tax rates; expectations to settle the Company’s 2019 Notes primarily in cash from the revolving credit facility; and operators’ estimated and actual production for calendar year 2019 and future years, and their estimates of reserves and mineralized material. 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 or other technical 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 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 2019, 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 any such third-party information and refers the reader to the public reports filed by the operators for information regarding those properties.

Information in this press release concerning the Khoemacau Copper Project mine life, average annual payable copper and silver production, silver contribution to mine revenue, cost information and initial deliveries of silver under the streaming agreement was provided to the Company by Cupric Canyon Capital L.P., the privately-held owner and developer of Khoemacau. Such information may not have been prepared in accordance with applicable laws, stock exchange rules or international standards governing preparation and public disclosure of technical data and information relating to mineral properties. 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 this third-party information, and investors are cautioned not to rely upon this information.