Royal Gold, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended March 31, 2020; filed May 7, 2020. The company acquires and manages precious-metal streams and royalties and generally does not operate the mines.
Financial results
| Metric | Quarter ended March 31, 2020 | Prior-year quarter | Nine months ended March 31, 2020 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $136.4 million | $109.8 million | $378.9 million | $307.4 million |
| Operating income | $52.3 million | $43.2 million | $154.4 million | $100.0 million |
| Net income attributable to Royal Gold shareholders | $38.6 million | $28.8 million | $150.3 million | $67.4 million |
| Diluted EPS | $0.59 | $0.44 | $2.29 | $1.03 |
| Operating margin | 38.3% | 39.4% | 40.7% | 32.5% |
- Quarter revenue rose about 24%; the company cited higher gold and silver prices, increased gold sales at Andacollo and Pueblo Viejo, and higher copper sales at Mount Milligan. Nine-month revenue rose about 23%.
- Gold represented 79% of quarterly revenue and 77% of nine-month revenue. Average quarter prices were $1,583/oz gold, $16.90/oz silver and $2.56/lb copper.
- Quarterly depreciation, depletion and amortization increased to $51.2 million from $39.4 million, reflecting higher sales and updated depletion rates. General and administrative expense rose to $9.6 million from $6.8 million, including additional stock compensation associated with executive retirements.
- Quarter interest and other expense fell to $2.1 million from $7.5 million, primarily due to lower average debt. Nine-month income tax benefit was $3.7 million versus $11.4 million of tax expense a year earlier; the current-period benefit included discrete Swiss tax reform-related items.
Cash flow, balance sheet and capital
- Nine-month operating cash flow was $249.2 million, up from $180.9 million. Investing used $105.1 million, including acquisitions and stream funding; financing used $169.9 million, including $115.0 million of debt repayment and $53.1 million of dividends.
- Cash and equivalents were $93.7 million at March 31, 2020, down from $119.5 million at June 30, 2019. Total assets were $2.55 billion and equity was $2.27 billion.
- Debt was $105.0 million principal ($100.2 million net of issuance costs), versus $220.0 million principal at June 30, 2019. The company had $895 million available on its revolving facility and was in covenant compliance.
- Working capital was $100.8 million, with a current ratio of about 3:1. After quarter-end, the company drew an additional $200 million on April 3, bringing facility borrowings to $305 million and availability to $695 million. Management described the draw as a precaution amid COVID-19 uncertainty.
- Dividends declared were $0.28 per share for the quarter and $0.825 per share for the nine months, compared with $0.265 and $0.78, respectively, in the prior periods.
Developments, outlook and risks
- COVID-19 led counterparties to curtail operations or withdraw/review production guidance. New Gold withdrew 2020 guidance for Rainy River; Newmont withdrew guidance for Peñasquito. Mount Milligan guidance was under review. The filing states Royal Gold could not predict the pandemic’s full effect; it provides no company-specific earnings or revenue guidance.
- Peñasquito was placed on care and maintenance on April 12 under Mexican restrictions, according to Newmont’s May 5 announcement. Rainy River had a voluntary shutdown from March 20 to April 2 and was operating at approximately 70% of pre-shutdown productivity as of April 29. Mount Milligan reduced staffing and throughput, then restarted processing in late April; the operator did not expect a material impact to its 2020 production guidance.
- Royal Gold reported no impairment at Mount Milligan or Rainy River despite operator reserve and mine-plan updates; management said its stream depletion rates remained below current and long-term consensus metal prices. It will continue monitoring both assets. An approximately $1.3 million royalty at the insolvent El Toqui property remains exposed to potential write-down.
- Acquisitions included up to $41 million for an Alturas royalty in Chile, with $11 million paid and further payments contingent on construction and first production; and a completed $7.5 million Castelo de Sonhos royalty-and-warrant transaction. Khoemacau construction was reported 43% complete at March 31; the operator continued to target first concentrate shipment by mid-2021, subject to potential COVID-19 delays. Royal Gold made a further $47.9 million Khoemacau advance payment on April 3.
- Metal prices are a significant risk: management estimated that a 10% change in average nine-month gold prices would change revenue by approximately $31.2 million; equivalent sensitivities were $4.2 million for copper and $3.5 million for silver.
- On April 30, the company entered into a settlement with a foreign taxing authority concerning an uncertain tax position; the financial statement effects, including any release of tax reserves, were still under analysis.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. Legal proceedings were listed as not applicable.
Investor verification points
- Track COVID-related mine interruptions, operator guidance updates and resulting stream deliveries, especially at Peñasquito, Rainy River and Mount Milligan.
- Review the April 3 credit-facility draw and subsequent liquidity, debt repayment and interest costs.
- Assess assumptions supporting the no-impairment conclusions for Mount Milligan and Rainy River, plus the El Toqui insolvency exposure.
- Check the tax settlement’s reported effect in the fiscal fourth quarter and whether the discrete tax benefits recur.
- Monitor Khoemacau funding requirements and construction schedule, and the contingent Alturas payments.