Royal Gold, Inc. — Form 10-Q summary
Reporting period: Quarter and six months ended December 31, 2019 (Royal Gold fiscal 2020 second quarter). Unaudited. The filing describes a business that acquires and manages precious-metal streams and royalties; it generally does not operate the underlying mines.
Financial performance
| Metric | Three months ended Dec. 31, 2019 | Prior-year quarter | Six months ended Dec. 31, 2019 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $123.6 million | $97.6 million | $242.4 million | $197.6 million |
| Operating income | $53.3 million | $31.4 million | $102.1 million | $56.8 million |
| Net income attributable to Royal Gold shareholders | $41.3 million | $23.6 million | $111.8 million | $38.6 million |
| Basic and diluted EPS | $0.63 | $0.36 | $1.70 | $0.59 |
| Operating cash flow | Not separately provided | Not separately provided | $149.5 million | $103.5 million |
Quarterly revenue grew about 27%; operating margin was about 43% versus 32%, and shareholder net margin about 33% versus 24%. For the six-month period, revenue increased about 23% and shareholder net income nearly tripled, reflecting higher revenue, lower interest expense, and a discrete tax benefit.
- Quarter revenue comprised $89.6 million from streams and $34.0 million from royalties. For six months, the mix was $176.6 million streams and $65.8 million royalties.
- Average quarterly gold and silver prices rose year over year to $1,481/oz and $17.32/oz, respectively; copper averaged $2.67/lb, down from $2.80/lb.
- Six-month income tax benefit was $12.4 million, including benefits associated with Swiss tax reform and deferred-tax remeasurement. The latest quarter itself recorded $11.1 million of tax expense, versus a $2.1 million benefit in the prior-year quarter.
- Cash and equivalents were $80.5 million at December 31, down from $119.5 million at June 30. Current assets were $136.4 million and current liabilities $44.1 million: working capital of $92.3 million and a 3:1 current ratio, compared with $121.1 million and about 5:1 at June 30.
- Debt carrying value was $129.9 million, representing $135 million drawn on the revolving credit facility; $865 million remained available. The company repaid $85 million of borrowings during the six months and reported compliance with facility covenants. Net cash used in investing was $68.1 million; financing activities used $120.4 million.
- Stream and royalty interests, net, totaled $2.33 billion. Total assets were $2.55 billion and total equity $2.25 billion. Dividends declared were $0.28 per share for the quarter, up from $0.265.
Changes and operating developments
- Revenue growth reflected higher stream revenue and higher average gold and silver prices. Quarterly stream gains included Andacollo, Pueblo Viejo, and Rainy River gold, and Mount Milligan copper; timing of deliveries partly offset gains. Six-month stream growth was led by Mount Milligan gold and copper, partly offset by lower Wassa sales.
- Interest and other expense fell to $2.2 million for the quarter from $7.4 million, and to $5.1 million for six months from $15.3 million, mainly as average debt declined after settlement of $370 million of convertible notes that matured in June 2019.
- Operating cash flow rose year over year, primarily from increased receipts from streams net of cost of sales and lower income taxes paid. Investing outflows increased largely because of stream and royalty acquisitions, including a $65.8 million advance for the Khoemacau silver stream.
- On January 2, 2020, William Heissenbuttel became CEO; the company also announced executive promotions. On January 29, it agreed to acquire an Alturas project royalty for up to $41 million, including $11 million paid at signing and further conditional or production-linked payments.
Outlook, risks, and contingencies
- Management said current financial resources and operating cash generation should cover foreseeable debt service, operating costs, capital expenditures, and dividends. It noted that substantial acquisitions could require additional debt or equity financing. This is management’s assessment, not quantified earnings guidance.
- Khoemacau construction was reported by its operator at about 26% complete at the end of December, with first concentrate shipment expected by mid-2021. Construction progress and timing remain subject to execution and other conditions; further stream funding is conditional. A second $22 million advance was made February 5, 2020.
- Centerra expected a material reduction in Mount Milligan reserves and mineralized material following a technical review. Royal Gold said the effect on its stream carrying value was unclear and would continue to monitor impairment risk. New Gold’s Rainy River optimization study was expected February 13, 2020; its impact on Royal Gold’s interest was also unclear.
- An October–December 2019 labor strike suspended most Andacollo operations; work resumed after a new agreement. Royal Gold expected the impact to appear in its results beginning in the quarter ending June 30, 2020, due to delivery timing.
- A blockade at Peñasquito was lifted in October and operations returned to full capacity after restart. The operator’s 2020 outlook cited full-year operations and estimated production of 575,000 oz. gold, 30 million oz. silver, 425 million lb. zinc, and 200 million lb. lead. Wassa’s operator expected 155,000–165,000 oz. gold production in 2020. These are operator estimates, not Royal Gold guidance.
- Metal-price exposure is significant: for the six months, a 10% change in gold prices would have changed revenue by approximately $19.5 million; equivalent copper and silver changes would each affect revenue by about $2.7 million and $2.3 million, respectively.
- Other disclosed risks include mine performance and permitting, operator financing and execution, commodity-price volatility, reserve revisions, political and community issues, and possible impairment. El Toqui insolvency proceedings could affect a royalty carrying value of about $1.3 million. No legal proceedings were reported as applicable.
Important facts for investors to verify
- Track gold, silver, and copper prices and production/delivery performance at major properties, especially Mount Milligan, Pueblo Viejo, Andacollo, and Rainy River.
- Review Centerra’s Mount Milligan technical report and New Gold’s Rainy River optimization results for potential reserve changes or impairment indicators.
- Monitor Khoemacau construction, funding conditions, and first-shipment timing, as well as the conditional payments under the Alturas royalty agreement.
- Assess how the Swiss tax-related discrete benefit affects comparisons of reported earnings and whether future tax rates normalize.
- Confirm liquidity, revolving-facility availability and covenants, and acquisition funding needs alongside dividend commitments.