Royal Gold, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless stated otherwise. Royal Gold acquires and manages precious-metals streams and royalties and does not operate the mines underlying its interests. Financial statements are unaudited.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue | $162.4 million | $142.6 million; up 13.9% |
| Operating income | $80.6 million | $71.1 million |
| Operating margin | 49.6% | 49.8% |
| Net income attributable to Royal Gold shareholders | $65.7 million; $1.00 per diluted share | $54.0 million; $0.82 per diluted share |
| Net margin attributable to Royal Gold shareholders | 40.5% | 37.9% |
| Operating cash flow | $101.1 million | $92.2 million |
| Investing cash flow | $(37.8) million | $(33.7) million |
| Financing cash flow | $(23.2) million | $(70.1) million, including $50 million debt repayment in prior-year quarter |
| Cash and equivalents | $183.7 million at March 31 | $143.6 million at December 31, 2021 |
| Debt | No amounts outstanding on revolving credit facility | $1.0 billion available under facility |
| Liquidity | $209.1 million working capital; approximately $1.2 billion total liquidity | Current ratio 5:1, versus approximately 4:1 at year-end |
| Dividend declared per share | $0.35 | $0.30 |
Stream revenue was $105.3 million, up from $95.3 million; royalty revenue was $57.1 million, up from $47.2 million. Revenue growth reflected higher gold and copper prices, increased gold sales at Mount Milligan and Andacollo, higher Cortez production, and $4.0 million of NX Gold stream revenue. Lower Pueblo Viejo sales partly offset growth. Average realized market prices cited were gold $1,877/oz, silver $24.01/oz, and copper $4.53/lb.
Total costs and expenses increased to $81.8 million from $71.5 million. Depletion, depreciation and amortization rose to $48.0 million from $41.3 million, while general and administrative expense increased to $8.9 million from $6.9 million, partly due to employee-related and ESG costs. The effective tax rate declined to 18.8% from 24.6%; the prior-year rate included an increase in valuation allowance on certain deferred tax assets.
Material changes and transactions
- Completed the Khoemacau silver stream advance payments, increasing the entitlement to 100% of payable silver until 40.0 million ounces have been delivered, and 50% thereafter. Q1 stream revenue from Khoemacau was $2.4 million.
- Acquired a 0.5% NSR royalty on the Lawyers Project and a right of first offer on a 2.0% NSR royalty over the adjacent Ranch Project for $8.0 million.
- Paid $3.2 million toward NX Gold exploration and resource-addition targets; a further $6.8 million may be payable through 2024 if success-based targets are met.
- Cash used to acquire stream and royalty interests was $37.8 million, compared with $33.7 million in Q1 2021. Total assets were $2.79 billion and total liabilities $143.7 million at March 31.
Outlook, commentary and risks
- Royal Gold provided no company-wide revenue or earnings guidance. Management said current financial resources and operating cash generation should cover foreseeable debt service, operating costs, capital needs and dividends; substantial acquisitions could require additional financing.
- Operator estimates for 2022 include Mount Milligan gold production of 190,000–210,000 oz and copper of 70–80 million lb; Pueblo Viejo gold of 400,000–440,000 oz; Cortez royalty-area gold of approximately 280,000 oz; and Peñasquito gold of 475,000 oz. Operator estimates are not assured, and Khoemacau estimates were unavailable during ramp-up.
- Khoemacau’s operator expected a steady ramp-up and full sustained production by Q4 2022, absent further COVID-19 impacts. The operator’s full-production forecast is 1.8–2.0 million payable silver ounces annually over an approximate 20-year mine life.
- Mine-level developments create exposure to production and permitting uncertainty: Andacollo deliveries were lower amid declining grades and recoveries; Peñasquito gold production was lower on grade and recovery; and Pueblo Viejo processed lower-grade stockpiles. Mount Milligan’s operator lowered 2022 copper guidance versus its prior range, while raising gold guidance.
- Approximately 439,000 silver ounces remained deferred at Pueblo Viejo at March 31; timing of delivery is uncertain. The Ilovica gold stream’s conditional funding schedule of $163.75 million remains subject to conditions.
- Management cited metal-price volatility, mine performance and operator forecasts, COVID-19, permitting, environmental and geopolitical exposures, supply disruptions, and acquisition execution as risks. It said pandemic effects had not materially affected results to date but could not predict future impact. No material changes to previously reported risk factors; no legal proceedings were reported.
Key investor checks
- Track production, deliveries and operator guidance at major assets, particularly Khoemacau’s ramp-up and Pueblo Viejo’s deferred silver deliveries.
- Assess exposure to metal prices: a 10% price change during the quarter would have changed reported revenue by approximately $14.1 million for gold, $4.2 million for copper and $0.7 million for silver.
- Review the conditional Ilovica funding schedule and remaining success-based NX Gold payments, along with the capital impact of future acquisitions.
- Verify that reported operator estimates, mine plans, water availability and permitting developments are achieved; Royal Gold states that much property information is supplied by operators and is not independently verified.