Royal Gold, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Financial statements are unaudited. Royal Gold acquires and manages precious-metal streams and royalties; it does not operate mines. Amounts below are in U.S. dollars.
Business context and financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $144.0 million | $146.4 million | $314.4 million | $308.8 million |
| Operating income | $71.9 million | $67.9 million | $158.0 million | $148.5 million |
| Net income attributable to Royal Gold stockholders | $63.4 million | $71.1 million | $127.3 million | $136.8 million |
| Basic EPS | $0.97 | $1.08 | $1.94 | $2.08 |
| Operating cash flow | Not provided for the quarter | Not provided for the quarter | $216.6 million | $221.3 million |
- Q2 revenue declined about 1.6% year over year, while operating income increased about 5.9% and attributable net income fell about 10.8%. For the first half, revenue grew about 1.8%, operating income rose about 6.4%, and attributable net income declined about 6.9%.
- Q2 stream revenue was $106.0 million and royalty revenue was $38.0 million. For the first half, these were $221.0 million and $93.4 million, respectively. Gold represented 74% of first-half revenue, silver 14%, and copper 10%.
- Q2 operating margin was approximately 49.9%, versus 46.4% a year earlier; first-half operating margin was approximately 50.2%, versus 48.1%. These are calculated from reported operating income and revenue.
- Q2 interest and other expense rose to $8.4 million from $1.4 million; first-half expense was $17.6 million versus $2.3 million. Management attributed the increase mainly to higher borrowings and borrowing costs. First-half income tax expense was $17.9 million versus $9.4 million.
- First-half operating cash flow was $216.6 million. Investing activities used $2.8 million, and financing activities used $226.2 million, including $175 million of debt repayments and $49.3 million of dividends. Cash declined to $106.2 million from $118.6 million at year-end 2022.
Debt, liquidity and capital
- At June 30, 2023, revolving-credit borrowings were $400 million principal ($395.5 million net of issuance costs); $600 million remained available. The company repaid $75 million in March and $100 million in June.
- Working capital was $102.2 million, down from $122.2 million at December 31, 2022; the current ratio remained approximately 3:1. Including available credit capacity, reported total liquidity was approximately $702 million.
- The credit facility maturity was extended to June 28, 2028, and its benchmark was changed from LIBOR to Term SOFR. Royal Gold reported compliance with its financial covenants. The stated all-in borrowing rate at quarter-end was 6.7%.
- Cash dividends declared were $0.375 per share in Q2 and $0.75 per share for the first half, compared with $0.35 and $0.70 in the corresponding 2022 periods.
Material changes, outlook and risks
- Q2 revenue was pressured by lower gold sales at Andacollo, lower copper sales at Mount Milligan, and reduced attributable production at Peñasquito. Higher gold and silver prices and increased Cortez royalty contribution partly offset the declines. First-half revenue growth reflected higher Khoemacau silver sales and Cortez royalties, partly offset by Andacollo and Peñasquito.
- Peñasquito operations were suspended following a union strike on June 7. The suspension remained in effect when the filing was issued; Newmont withdrew its 2023 guidance and could not estimate when the strike would be resolved. Peñasquito production and revenue are an important near-term uncertainty.
- Pueblo Viejo silver deliveries were affected by low recoveries and contractually deferred ounces. Approximately 607,700 ounces were deferred at June 30; the company did not expect material deferred-ounce deliveries during the 2023 plant ramp-up, and timing for full delivery was uncertain. The plant expansion was reported 93% complete at March 31, 2023.
- Operator-level 2023 estimates included Mount Milligan gold production of 160,000–170,000 ounces and copper of 60–70 million pounds; management cited operator expectations for gold at the low end and copper near the midpoint. Khoemacau’s operator estimated 1.5–1.7 million ounces of payable silver. These are operator estimates, not Royal Gold consolidated guidance, and actual results are not assured.
- Royal Gold had signed a binding commitment to acquire royalties on Brazil’s producing Serrote and Santa Rita mines for $250 million, subject to conditions and definitive agreements. The company expected to fund this with about $50 million of cash and a $200 million credit-facility draw. Closing depended, among other things, on completion of the ACG transaction and satisfaction of other conditions.
- Other operating risks include lower grades and recoveries at Andacollo and Mount Milligan, possible Vancouver port shipment delays, and permitting and project execution at properties operated by third parties. Metal-price volatility is material: the filing estimates a 10% price change over the first half would change reported revenue by about $23.7 million for gold, $2.4 million for silver, or $5.7 million for copper, considered separately.
- Management said current resources and operating cash generation should cover foreseeable debt service, overhead and dividends, while noting that substantial acquisitions could require additional financing. The filing reported no material change to previously disclosed risk factors, no legal proceedings, and effective disclosure controls.
Important facts for investors to verify
- Whether the Peñasquito strike is resolved, the mine restarts, and Newmont restores production guidance.
- Whether the Serrote and Santa Rita royalty acquisition closes, on what final terms, and how the expected $200 million borrowing affects interest costs and leverage.
- Mount Milligan’s production, shipment timing and port logistics, and the timing and extent of Pueblo Viejo’s deferred silver deliveries.
- Whether reported operator production estimates and metal prices translate into Royal Gold’s deliveries, sales and cash receipts; stream delivery and sale timing can differ from mine production periods.
- Future interest expense, credit-facility availability and covenant headroom, together with the company’s ability to sustain dividends and pursue acquisitions.