Royal Gold, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2021, compared with the three months ended September 30, 2020, unless otherwise stated. The filing is for the quarter ended September 30; the company also disclosed a change in fiscal year-end from June 30 to December 31, effective December 31, 2021.
Business context and financial results
Royal Gold acquires and manages precious-metal streams and royalties; it does not operate the mines underlying those interests. The unaudited interim statements are prepared under U.S. GAAP.
| Metric | Quarter ended September 30, 2021 | Prior-year quarter |
|---|---|---|
| Revenue | $174.4 million | $146.9 million |
| Operating income | $87.4 million | $103.2 million |
| Net income attributable to Royal Gold shareholders | $70.2 million; $1.07 per diluted share | $106.9 million; $1.63 per diluted share |
| Operating cash flow | $129.9 million | $94.2 million |
| Cash and equivalents, quarter end | $160.2 million | $413.1 million |
| Dividends declared per common share | $0.30 | $0.28 |
Revenue increased 18.8%, while attributable net income declined 34.4%. The prior-year quarter included a $33.9 million gain on sale of the Peak Gold joint-venture interest, and a tax benefit; these items contributed to the lower current-period comparison. Current-period income tax expense was $16.0 million (18.5% effective rate), versus a $2.4 million benefit in the prior-year quarter. Operating margin was approximately 50.1% and attributable net margin approximately 40.2% in the current period.
Stream revenue was $115.9 million and royalty revenue was $58.5 million. Gold represented 73% of revenue, copper 14%, silver 10%, and other metals 3%. Average realized-market reference prices disclosed were $1,790 per ounce for gold, $24.36 per ounce for silver, and $4.25 per pound for copper. A 10% move in average prices, with other factors unchanged, would have changed quarterly revenue by approximately $12.9 million for gold, $4.0 million for copper, and $0.6 million for silver.
Liquidity, debt, and cash flow
At September 30, 2021, current assets were $232.1 million and current liabilities were $60.3 million, resulting in working capital of $171.8 million and a current ratio of 4:1. Cash declined by $65.7 million during the quarter. Operating cash flow was $129.9 million; investing activities used $272.7 million, principally for acquisitions; financing activities provided $77.1 million, including $100 million of revolving-credit borrowings and offset in part by $19.7 million of dividends paid.
The company had $100 million principal outstanding on its revolving credit facility, with $900 million available at quarter-end; the borrowing rate was 1.21%, and the company reported compliance with its financial covenants. On October 8, 2021, it repaid $50 million, leaving $50 million outstanding and $950 million available. The facility maturity was extended to July 7, 2026. Management stated that current resources and operating cash generation should cover foreseeable needs; substantial acquisitions could require additional debt or equity financing.
Material changes, acquisitions, and operating developments
- On August 6, Royal Gold closed a $100 million gold-stream advance for the NX Gold Mine in Brazil. It is entitled to 25% of gold production until 93,000 ounces are delivered, then 10%; the cash price is 20% of spot until 49,000 ounces are delivered, then 40%. Up to $10 million of additional conditional advances may be made during 2022–2024.
- On August 11, Royal Gold paid $165 million for a 1.0% net smelter return royalty on the Red Chris Mine in British Columbia.
- The two acquisitions drove stream and royalty interests, net, to $2.477 billion from $2.262 billion at June 30. Investing cash outflow for acquisitions was $265 million.
- Khoemacau began silver deliveries during the quarter as the project ramped up. The operator reported mining progress below target, attributing delays to equipment and labor constraints, COVID-related issues, and ramp-up challenges. It expected approximately 75% of target production by the end of Q1 2022 and full sustained production in Q3 2022. These are operator expectations, not Royal Gold guidance.
- At Pueblo Viejo, temporary silver-circuit issues had resulted in deferred stream deliveries. Approximately 418,300 ounces remained deferred at September 30, with delivery expected over several quarters. A mine-life extension depends on additional tailings capacity and related studies and work.
Outlook, risks, and contingencies
Royal Gold did not provide company-level revenue or earnings guidance in the supplied filing text. It reported operator production estimates for calendar 2021 and cautioned that they may not be achieved. The company said COVID-19 had not materially affected results to date, but future effects remain uncertain and could disrupt counterparties’ operations and forecasts. Other highlighted risks include metal-price volatility, mine operating and development performance, permitting, foreign-country exposure, supply-chain disruption, environmental and climate risks, and the company’s ability to identify and complete acquisitions.
At September 30, Royal Gold had $42.4 million of remaining committed Khoemacau stream funding available at the operator’s election before construction completion; it also had $25 million outstanding under a subordinated debt facility to Khoemacau, recorded in other assets. The filing separately describes a $163.75 million conditional funding schedule for the Ilovica gold stream, subject to conditions. The filing reports no legal proceedings and no material changes to the risk factors in the fiscal 2021 10-K.
Key facts for investors to verify
- Whether the acquired NX Gold stream and Red Chris royalty generate the expected production and revenue, and how their returns compare with acquisition costs.
- Whether Khoemacau achieves its stated ramp-up milestones and whether any remaining committed funding is drawn.
- The timing of delivery of deferred Pueblo Viejo silver ounces and progress on tailings-storage plans and mine-life extension.
- Royal Gold’s exposure to gold, copper, and silver prices, including the disclosed revenue sensitivity, and the effect of price and production changes on cash flow.
- The terms, conditions, and potential funding requirements of the Khoemacau and Ilovica commitments, along with liquidity after the October debt repayment.
- The reporting-period implications of the fiscal year-end change and the planned six-month transition report.