Royal Gold, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended December 31, 2020. This is Royal Gold’s fiscal second quarter of fiscal 2021, despite the request metadata identifying “2020 Q2.” Financial statements are unaudited. Amounts below are in U.S. dollars.
Business context and financial performance
Royal Gold acquires and manages precious-metal streams and royalties; it does not operate the mines. Streams generated 68% of quarterly revenue and royalties 32%.
| Metric | Three months ended Dec. 31, 2020 | Prior-year quarter | Six months ended Dec. 31, 2020 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $158.4 million | $123.6 million | $305.2 million | $242.4 million |
| Operating income | $77.4 million | $53.3 million | $180.6 million | $102.1 million |
| Net income attributable to Royal Gold shareholders | $59.9 million | $41.3 million | $166.8 million | $111.8 million |
| EPS, basic / diluted | $0.91 / $0.91 | $0.63 / $0.63 | $2.55 / $2.54 | $1.70 / $1.70 |
| Operating cash flow | Not stated separately for the quarter | Not stated separately for the quarter | $194.1 million | $149.5 million |
Quarterly revenue rose about 28% year over year, while attributable net income rose about 45%. The approximate operating margin was 48.9% versus 43.1%, and net margin was 37.8% versus 33.4%. Higher metal prices and increased royalty production were key revenue drivers. Six-month results include a $33.9 million gain on the Peak Gold sale and $24.5 million of discrete tax benefits; therefore, reported six-month earnings include significant unusual items.
Liquidity, debt and capital
- At December 31, 2020, cash and equivalents were $381.9 million; current assets were $450.5 million and current liabilities $57.2 million. Working capital was $393.3 million and the current ratio was approximately 8:1.
- Debt was $200 million principal, or $196.0 million net of issuance costs. The $1.0 billion revolving facility had $800 million available; the company reported covenant compliance. On January 4, 2021, it repaid $50 million, leaving $150 million outstanding and $850 million available.
- Six-month investing cash flow was positive $12.1 million, reflecting $61.3 million of cash proceeds from selling the Peak Gold joint-venture interest and Contango shares, partly offset by stream-interest investments. Financing cash outflow was $143.4 million, including $105 million of debt repayment and $36.7 million of dividends.
- The company announced a 2021 annual dividend of $1.20 per share, payable quarterly at $0.30, a 7% increase from 2020.
Material changes and unusual items
- On September 30, 2020, Royal Gold sold its 40% Peak Gold project interest and Contango shares for $61.3 million cash, retaining additional royalty interests valued at approximately $4.4 million. The transaction generated a $33.9 million gain.
- Royal Gold separated its Wassa and Prestea/Bogoso gold stream agreements to facilitate a mine sale by the operator. The Wassa stream terms remain tied to delivery thresholds; approximately 110,200 ounces remained before the 240,000-ounce threshold at December 31.
- The six-month effective tax rate was 7.6%, including $24.5 million in discrete benefits from settlement of a foreign uncertain tax position and release of a deferred-tax valuation allowance. The prior-year period included $32.3 million of tax benefits related primarily to Swiss tax reform.
Outlook, commentary and risks
- Management said current financial resources and operating cash generation should cover foreseeable debt service, operating costs, capital expenditures and dividends. Acquisition activity may require additional financing.
- Management reported that COVID-19-related operating curtailments had not materially affected Royal Gold’s results or financial condition to date, but future effects remain unpredictable. Mine operators’ production forecasts may be revised or withdrawn.
- Operator-reported updates included Khoemacau construction at approximately 85% complete, with commissioning targeted for late Q2 2021 and first concentrate shipment targeted for late Q3 2021, subject to COVID-19-related risks. The operator anticipated up to $50 million of additional funding to complete construction and ramp-up; Royal Gold’s potential funding mechanisms include additional stream financing or subordinated debt.
- Metal-price exposure is substantial: gold represented 76% of six-month revenue. The filing estimates that a 10% change in average gold prices would have changed six-month revenue by approximately $23.8 million; comparable sensitivities were $3.6 million for copper and $3.1 million for silver.
- Other key risks include mine performance and development schedules, permitting, foreign-country operations, contractual matters, acquisition execution and metal-price volatility. The filing reported no legal proceedings and no material changes to the prior annual report’s risk factors.
Important facts for investors to verify
- Confirm the fiscal reporting period: quarter ended December 31, 2020, the second quarter of fiscal 2021.
- Assess the sustainability of earnings growth apart from the Peak Gold gain and discrete tax benefits, and review the drivers of higher revenue and depletion expense.
- Check subsequent operator updates for COVID-19 impacts, production, Khoemacau schedule and funding needs; operator estimates are third-party information and are not guaranteed.
- Review the revolving-credit balance after the January 4 repayment, covenant terms, and the potential funding commitment for Khoemacau.
- Evaluate sensitivity to precious-metal prices and concentration in major stream and royalty assets.