Royal Gold, Inc. — Form 10-Q Summary
Period: The filing covers the quarter and nine months ended March 31, 2018, Royal Gold’s fiscal 2018 third quarter—not 2017 Q3 as stated in the request metadata. The statements are unaudited. Royal Gold acquires and manages precious-metals streams and royalties and does not generally operate the mines.
Financial performance and position
| Metric | Three months ended March 31, 2018 | Nine months ended March 31, 2018 | Comparison |
|---|---|---|---|
| Revenue | $116.0 million | $342.8 million | Up 8.4% and 3.3%, respectively, year over year |
| Net income (loss) attributable to Royal Gold stockholders | $(153.7) million; $(2.35) per diluted share | $(139.8) million; $(2.14) per diluted share | Prior-year periods reported income of $23.7 million and $81.5 million |
| Operating income (loss) | $(193.5) million | $(110.8) million | Includes $239.4 million of impairment charges |
| Operating cash flow | Not presented for the quarter | $251.8 million | Up from $200.9 million |
| Cash and equivalents | $109.4 million at March 31, 2018 | Up from $85.8 million at June 30, 2017 | |
| Debt | $445.0 million principal; $422.3 million carrying value | Principal down from $620.0 million at June 30, 2017 | |
| Liquidity | $108.4 million working capital; $925 million available on the revolver | About $1 billion total available liquidity, including undrawn credit |
Quarterly revenue comprised $83.0 million from streams and $33.0 million from royalties. Nine-month stream and royalty revenue was $241.0 million and $101.8 million, respectively. The filing does not present a single consolidated operating-margin measure; stream revenue less stream cost of sales was $61.6 million for the quarter and $179.4 million for nine months.
Nine-month cash flow included $2.3 million used in investing and $226.0 million used in financing, including $175.0 million of revolving-credit repayments and $47.8 million of dividends. Dividends declared were $0.25 per share for the quarter and $0.74 for nine months. The company reported compliance with all revolving-credit covenants.
Material changes and unusual items
- Pascua-Lama impairment: Royal Gold recorded a $239.1 million impairment on its royalty interest after Barrick reclassified the project’s open-pit reserves as mineralized material following a Chilean environmental order. The charge reduced quarterly EPS by $2.74 after tax; the royalty’s remaining carrying value was $177.7 million. A further $0.3 million impairment related to other interests.
- Revenue drivers: Higher gold and copper prices and new Rainy River stream deliveries, stronger Wassa and Prestea sales, and Mount Milligan copper sales supported growth. Lower deliveries at Pueblo Viejo and Andacollo partly offset gains. Nine-month gold, silver, and copper prices averaged $1,294/oz, $16.78/oz, and $3.04/lb, respectively.
- Taxes: Nine-month income-tax expense was $10.0 million, versus $18.7 million a year earlier. The filing reports a $26.4 million net charge from U.S. tax legislation and a non-cash Canadian functional-currency election; the functional-currency expense is described as $18 million in one note and $15.9 million in MD&A. The tax-law estimate remained provisional.
- Debt and acquisition spending: Revolver principal fell by $175 million during the nine months. Investing outflows were far below the prior-year period, when stream and royalty acquisitions used $203.7 million.
Outlook, commentary, and risks
- Management said existing resources and operating cash generation should cover foreseeable debt service, general and administrative costs, capital expenditures, and dividends; acquisitions may require additional debt or equity financing. No formal company revenue or earnings guidance is provided. Operator production estimates are third-party forecasts, not company guidance.
- Mount Milligan’s mill operations were temporarily suspended for insufficient water and restarted in stages in February and March. Centerra expected throughput to rise after spring snowmelt; Royal Gold warned that some deliveries could be deferred.
- Rainy River was ramping up amid process-facility availability, mechanical, and recovery issues. New Gold reported 87% gold recovery during the first 23 days of April and was working to stabilize operations.
- At Peñasquito, lower grades and planned maintenance reduced attributable gold production. Goldcorp expected higher-grade ore later in 2019; its Pyrite Leach Plant was reported 86% complete, with commissioning expected in the December 2018 quarter.
- Barrick suspended work on a Pascua-Lama underground prefeasibility study on April 23, 2018, after the quarter-end. It planned to focus on closure planning for Chilean surface infrastructure while retaining the project as a possible future option.
- Royal Gold’s Voisey’s Bay royalty partnership is litigating the calculation of past and future royalties against Vale entities. The case was in discovery, with trial expected to begin in September 2018; damages sought were unspecified.
- A conditional funding schedule of $163.75 million remains associated with the Ilovica gold-stream acquisition, subject to conditions.
- Key risks include metal-price volatility, mine output and operator execution, water availability, permitting and environmental actions, reserve changes, foreign-country and tax exposures, and acquisition financing. A 10% change in nine-month average gold, copper, or silver prices would have changed revenue by approximately $27.8 million, $3.9 million, or $2.8 million, respectively.
Important facts for investors to verify
- Confirm the reporting-period label: the filing is for fiscal 2018 Q3, ended March 31, 2018.
- Review the assumptions and valuation sensitivity underlying the Pascua-Lama impairment and its remaining carrying value, particularly after Barrick’s subsequent suspension of underground-study work.
- Track Mount Milligan water supply and deferred deliveries, Rainy River’s ramp-up and recoveries, and Peñasquito’s grade outlook and plant commissioning.
- Reconcile the filing’s different descriptions of the Canadian functional-currency tax expense and monitor final measurement of the tax-law charge.
- Follow the Voisey’s Bay royalty litigation, conditional Ilovica funding obligations, and availability of revolver capacity as acquisition plans evolve.