Business context and reporting period
Royal Gold acquires and manages precious-metals streams and royalties; it generally does not operate the mines. The supplied filing is a Form 10-Q for the quarter ended March 31, 2017—Royal Gold’s fiscal third quarter, despite the request metadata identifying 2016 Q3. Financial figures below are in U.S. dollars; income-statement and cash-flow comparisons cover the three or nine months ended March 31.
Financial results and position
| Metric | Q3 FY2017 | Q3 FY2016 | Nine months FY2017 | Nine months FY2016 |
|---|---|---|---|---|
| Revenue | $107.0 million | $93.5 million | $331.9 million | $265.7 million |
| Operating income (loss) | $36.0 million | $(72.1) million | $111.3 million | $(23.7) million |
| Net income (loss) attributable to Royal Gold shareholders | $23.7 million | $(67.7) million | $81.5 million | $(97.6) million |
| Diluted EPS | $0.36 | $(1.04) | $1.25 | $(1.50) |
| Operating cash flow | Not separately stated | Not separately stated | $200.9 million | $120.6 million |
- Quarterly revenue rose about 14% year over year; nine-month revenue rose about 25%. Streams generated $76.6 million in Q3 and $236.1 million for nine months; royalties generated $30.4 million and $95.8 million, respectively.
- For the nine months, cost of sales was $67.6 million and depreciation, depletion and amortization was $119.8 million. Stream and royalty revenue less cost of sales was $264.3 million, about 79.6% of revenue; royalty revenue has no cost of sales reported.
- At March 31, cash and equivalents were $88.1 million; current assets were $134.2 million and current liabilities $24.8 million, producing working capital of $109.4 million and a 5:1 current ratio. Management reported total available liquidity of approximately $459.4 million, including $350 million undrawn on the revolving facility.
- Debt principal totaled $670 million: $370 million of 2.875% convertible notes due 2019 and $300 million drawn on the $650 million revolver. Balance-sheet debt, net of unamortized discount and issuance costs, was $635.9 million. The revolver’s stated all-in rate was 3.41%; the company reported compliance with its financial covenants.
- Total assets were $3.129 billion and total liabilities $812.3 million at March 31, 2017. Dividends declared were $0.24 per share for the quarter and $0.71 for the nine months.
Material changes versus prior comparable periods
- Profitability improved sharply, but comparisons are affected by approximately $99 million of impairment charges in the prior-year quarter and nine-month period, including the Phoenix Gold stream and certain other interests. The filing attributes about $1.33 of prior-year quarterly basic EPS impact, after tax, to those impairments.
- Revenue growth reflected higher average metal prices and increased stream revenue, including Pueblo Viejo silver sales and higher Mount Milligan activity. Nine-month stream revenue increased to $236.1 million from $168.6 million, while royalty revenue declined slightly to $95.8 million from $97.1 million.
- Nine-month operating cash flow increased to $200.9 million from $120.6 million. Investing cash outflow fell substantially to $202.2 million from $994.6 million, principally because the prior period included major stream acquisitions. Financing cash flow was a $27.2 million outflow versus a $254.0 million inflow in the prior year, which included substantial revolver borrowing.
- Cash declined from $116.6 million at June 30, 2016 to $88.1 million at March 31, 2017. During the nine months, the company acquired additional Cortez royalties for $70 million, funded from the revolver, and made a $45 million revolver repayment in Q3.
Outlook, commentary, risks and unusual items
- The filing does not provide company-wide revenue or earnings guidance. It reports operator-supplied calendar 2017 production estimates, which Royal Gold says it has not independently verified. Examples include Mount Milligan gold of 260,000–290,000 ounces and copper of 55–65 million pounds; Pueblo Viejo gold of 625,000–650,000 ounces; and Wassa and Prestea gold of 255,000–280,000 ounces.
- Management said current financial resources and operating cash generation should cover anticipated debt service, overhead and capital needs for the foreseeable future, while noting that substantial acquisitions could require additional debt or equity financing. Conditional Ilovica stream funding of up to $163.75 million remained subject to conditions.
- Mount Milligan’s stream was amended from a 52.25% gold stream to 35% gold and 18.75% copper; deliveries under the amended terms began in April 2017. Royal Gold paid approximately $7.7 million of transaction costs, capitalized to the asset.
- Rainy River construction was progressing, but the operator expected a required federal regulatory amendment in January 2018. A starter tailings cell was intended to support operations before that amendment, with approximately six months of capacity; further permits and approvals remained relevant to the schedule.
- A dispute over calculation of Royal Gold’s Voisey’s Bay royalty remained in discovery, with trial expected in the second half of calendar 2018. The dispute also contributed to lower depletion expense. The filing does not quantify a potential recovery or liability.
- Other notable items included a $3.4 million gain on Rubicon shares received when the Phoenix Gold stream was terminated, and approximately $2.6 million of income from settlement and termination of a non-principal royalty. Nine-month prior-year tax expense also included approximately $56 million associated with Andacollo-related transactions and liquidation of a Chilean subsidiary.
- Results are exposed to metal prices and mine performance. For the nine-month period, management estimated that a 10% change in average gold, silver or copper prices would change revenue by approximately $29.4 million, $2.8 million or $1.1 million, respectively. Other cited risks include mine delays or underperformance, permitting, operator financing, political and legal risks, and reserve or production-estimate changes.
Most important facts for investors to verify
- Confirm the correct reporting period: this filing covers fiscal Q3 and nine months ended March 31, 2017, not 2016 Q3.
- Review operator updates against the production estimates, particularly at Mount Milligan, Pueblo Viejo, Wassa and Prestea, and assess the effect of the Mount Milligan stream amendment on realized deliveries and costs.
- Track Rainy River’s construction, tailings capacity and permitting milestones, and the status and potential implications of the Voisey’s Bay royalty litigation.
- Reconcile debt, available revolver capacity, conditional acquisition funding and cash generation, including any new borrowing for acquisitions or dividends.
- Assess earnings excluding the prior-year impairments and unusual tax and settlement items, and consider the company’s sensitivity to metal prices and its dependence on third-party mine operators.