Royal Gold, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended September 30, 2020 (three months; compared with the quarter ended September 30, 2019). Amounts are in U.S. dollars unless noted. Royal Gold acquires and manages precious-metal streams and royalties; it does not operate mines.
Financial performance and position
| Metric | Quarter ended Sep. 30, 2020 | Prior-year quarter |
|---|---|---|
| Revenue | $146.9 million | $118.8 million |
| Operating income | $103.2 million | $48.8 million |
| Net income attributable to Royal Gold common stockholders | $106.9 million; $1.63 per diluted share | $70.5 million; $1.07 per diluted share |
| Cash provided by operating activities | $94.2 million | $71.2 million |
| Cash and equivalents at period-end | $413.1 million | $122.0 million |
- Revenue increased 23.7%. Stream revenue was $106.5 million and royalty revenue was $40.4 million; management attributed the increase primarily to higher average gold, silver, and copper prices. Average prices were gold $1,909/oz., silver $24.26/oz., and copper $2.96/lb., versus $1,472/oz., $16.98/oz., and $2.63/lb., respectively.
- Total segment gross profit was $77.4 million, or about 52.7% of revenue, versus $58.9 million, or about 49.6%. Operating income included a $33.9 million gain on the Peak Gold joint-venture interest sale.
- Costs and expenses were $77.6 million, including $21.9 million cost of sales and $46.3 million depreciation, depletion, and amortization. The latter increased from $38.7 million, mainly due to higher copper sales at Mount Milligan and gold sales at Pueblo Viejo.
- Working capital was $413.6 million and the current ratio was approximately 8:1. Debt was $275 million principal ($270.7 million net of issuance costs), down from $305 million principal at June 30. The $1.0 billion revolving facility had $725 million available at quarter-end; Royal Gold reported covenant compliance. It repaid another $75 million on October 2, leaving $200 million outstanding and $800 million available.
- Cash from investing activities was $49.7 million, including $49.2 million proceeds from the Peak Gold interest sale and $12.1 million from the Contango share sale, partly offset by an $11.3 million stream-interest acquisition payment. Financing used $49.8 million, including $30.0 million debt repayment and $18.4 million in dividends.
Material changes, outlook, and risks
- On September 30, Royal Gold sold its 40% Peak Gold Project interest and Contango shares for total cash consideration of $61.3 million, and received additional silver and Alaska-claims royalties valued at about $4.4 million. The transaction generated the $33.9 million gain. The sale also reduced exploration costs compared with the prior-year quarter.
- Reported earnings benefited from discrete tax benefits of $24.5 million related primarily to settlement of a foreign uncertain tax position and release of a deferred-tax-asset valuation allowance. The reported income-tax benefit was $2.4 million, versus $23.5 million in the prior-year quarter, which included a separate $32.3 million discrete benefit. The filing cautions that quarterly results are not necessarily indicative of full-year results; it provides no company revenue or earnings guidance.
- COVID-19 caused temporary curtailments and uncertainty in mine production and operator forecasts. Royal Gold said impacts remain difficult to predict and that it monitors its interests for impairment. Metal-price volatility is a material exposure: a 10% price change during the quarter would have changed reported revenue by approximately $11.2 million for gold, $1.7 million for silver, and $1.5 million for copper.
- Operator—not Royal Gold—calendar-2020 guidance included Mount Milligan gold of 140,000–160,000 oz. and copper of 80–90 million lb.; Pueblo Viejo gold of 530,000–580,000 oz.; Wassa gold of 165,000–170,000 oz.; and Peñasquito gold of 510,000 oz., silver of 28 million oz., lead of 190 million lb., and zinc of 360 million lb. Actual output through September and operator-specific qualifications are detailed in the filing; estimates are not assured.
- Khoemacau was reported about 70% complete at September 30, with first concentrate shipment expected late in calendar Q3 2021, subject to COVID-related disruption. Royal Gold made a $32.5 million scheduled advance on October 5; further conditional funding is expected, including $32.7 million for the base stream in 2021 and up to $85.7 million if the option stream is fully exercised.
- The Wassa and Prestea/Bogoso stream agreement was split effective September 30 to facilitate the sale of the latter mines. Royal Gold reported no material changes to its stated risk factors; legal proceedings were listed as none. The company adopted the expected-credit-loss standard without financial-statement impact.
Important facts for investors to verify
- How much of the earnings increase is recurring stream and royalty performance versus the Peak Gold gain and discrete tax items.
- Current mine production, delivery timing, and updated operator guidance, particularly given COVID-19, permitting, and operational constraints.
- Progress and remaining conditional funding for Khoemacau, including the project schedule and option-stream election.
- Debt repayments, available revolver capacity, covenant compliance, and cash needs for dividends and potential acquisitions.
- Exposure to gold, silver, and copper price changes and the assumptions supporting valuation and impairment assessments of stream and royalty interests.