Royal Gold, Inc. — Form 10-Q Summary
Reporting period: The filing covers the quarter and nine months ended March 31, 2012. This is fiscal 2012 Q3, notwithstanding the request metadata’s “2011 Q3” label. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Business context
Royal Gold acquires and manages precious-metals royalties and streams; it does not operate mines or generally fund mine operating costs. At March 31, 2012, it held interests in 38 producing, 26 development-stage and 127 exploration-stage properties. Gold accounted for 67% of revenue for the nine-month period.
Financial performance and liquidity
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Royalty revenue | $69.6M vs. $55.5M (+25%) | $202.9M vs. $157.2M (+29%) |
| Operating income | $42.9M vs. $31.9M | $119.8M vs. $84.3M |
| Operating margin | 61.6% vs. 57.4% | 59.0% vs. 53.6% |
| Net income attributable to Royal Gold stockholders | $26.0M vs. $19.6M | $71.9M vs. $49.7M |
| Diluted EPS | $0.44 vs. $0.35 | $1.26 vs. $0.90 |
| Operating cash flow | Not separately stated | $122.9M vs. $102.4M |
For the nine months, net cash used in investing was $188.3M, chiefly reflecting $193.7M of royalty-interest acquisitions. Financing provided $134.6M, including approximately $268.4M from a January share offering; the company repaid $211.7M of debt and paid $20.6M in common dividends. Cash and equivalents were $183.3M at March 31, up from $114.2M at June 30, 2011.
Current assets were $251.5M and current liabilities $31.2M, an approximately 8:1 current ratio. Debt totaled $114.4M, down from $226.1M at June 30, 2011; there was no revolving-credit-facility balance and $225M remained available. The company reported compliance with its debt covenants. Dividends declared were $0.15 per share for the quarter and $0.41 for the nine months.
Changes versus prior comparable periods
- Revenue and earnings increased, supported by higher average gold and silver prices, production growth at several properties, Peñasquito and Holt ramp-ups, and the start of Canadian Malartic production.
- Growth was partly offset by lower production at Cortez and Robinson for the nine months, lower Leeville production, and Taparko revenue declining after its dollar cap was met in the prior period.
- Depletion and amortization rose to $58.4M for nine months from $50.8M; production taxes rose to $7.7M from $6.3M. Nine-month results also included a $1.3M Relief Canyon restructuring charge.
- Share issuance increased capital resources but also expanded the share base. The company recorded an $8.4M unrealized loss on available-for-sale securities in nine-month comprehensive income; no impairment write-down was recorded.
Outlook, commitments and risks
- Management said existing resources and operating cash generation should cover foreseeable debt service, expenses, dividends and current royalty-acquisition commitments. Larger acquisitions could require additional debt or equity financing. No company-wide revenue or earnings guidance is provided.
- Royal Gold had $171.9M of remaining scheduled Mt. Milligan II payments and up to $50M of additional Tulsequah Chief advances as of March 31. Mt. Milligan construction costs were estimated by its operator to be 10%–20% above prior estimates, at approximately C$1.4–C$1.5B; production was expected in Q4 2013.
- For Pascua-Lama, Barrick reiterated a mid-2013 production start, but reported cost pressures and planned a capital-cost and schedule review. Operator estimates and project timelines are not independently verified by Royal Gold.
- Key exposures include metal prices, mine output and operator decisions. The filing estimates that a 10% change in gold prices would have changed nine-month revenue by approximately $14.2M–$14.4M; comparable 10% copper and nickel changes would each affect revenue by approximately $2.7M and $3.6M, respectively.
- A Voisey’s Bay royalty lawsuit seeking at least $29M plus additional damages remained in discovery; no material development was reported for the quarter. The filing also identifies foreign-jurisdiction, permitting, operating, commodity-price and acquisition-financing risks.
Important facts for investors to verify
- Whether operator production estimates and expected project start dates are achieved, especially at Mt. Milligan and Pascua-Lama.
- Progress, conditions and funding schedule for the remaining Mt. Milligan II and Tulsequah Chief commitments.
- Production trends and royalty calculations at major contributors, including Andacollo, Voisey’s Bay and Peñasquito, and the status of the Voisey’s Bay litigation.
- Metal-price sensitivity, the effect of new share issuance on per-share results, and availability of financing for future acquisitions.