Royal Gold, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Unaudited interim results. Royal Gold acquires and manages precious-metal streams and royalties; it does not operate the mines underlying its interests.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $138.6 million | $131.4 million | $453.1 million | $440.2 million |
| Operating income | $65.6 million | $61.8 million | $223.5 million | $210.3 million |
| Operating margin | 47.3% | 47.0% | 49.3% | 47.8% |
| Net income attributable to Royal Gold stockholders | $49.3 million | $45.8 million | $176.7 million | $182.6 million |
| EPS, diluted | $0.75 | $0.70 | $2.68 | $2.78 |
| Operating cash flow | Not separately provided for the quarter | $314.7 million | $316.3 million |
Q3 revenue rose about 5%, and attributable net income rose about 8%. For the first nine months, revenue increased about 3%, but attributable net income declined about 3%, mainly reflecting higher interest expense. Q3 stream revenue was $99.0 million and royalty revenue $39.6 million; for the nine months, they were $320.0 million and $133.1 million, respectively.
Financial position and liquidity
- At September 30, cash and equivalents were $102.9 million; current assets were $163.8 million and current liabilities $70.8 million. Working capital was $92.9 million and the current ratio was approximately 2:1, versus $122.2 million and approximately 3:1 at year-end 2022.
- Revolving-credit-facility principal was $325 million ($320.8 million net of issuance costs), down from $575 million at December 31, 2022. The company repaid $250 million during the first nine months. A further $675 million was available; reported total liquidity was approximately $768 million.
- The facility maturity was extended to June 28, 2028. The September 30 borrowing rate was 6.7%; the company reported compliance with its financial covenants.
- Cash flow from investing activities was a use of $2.8 million, compared with $716.5 million in the prior-year period, when acquisitions were substantially higher. Financing activities used $327.6 million, including debt repayment and $73.9 million of dividends paid.
- Quarterly dividends declared were $0.375 per share, up from $0.35. Total assets were $3.40 billion and total equity $2.86 billion at quarter-end.
Material changes and operating developments
- Higher gold, silver, and copper prices, stronger Cortez royalty contributions (including royalties acquired in 2022), and Khoemacau silver-stream growth supported revenue. Average Q3 gold, silver, and copper prices were $1,928/oz, $23.57/oz, and $3.79/lb, respectively.
- Peñasquito produced no Q3 royalty revenue because operations were suspended following a June 7, 2023 labor strike. Newmont reported an agreement with the union on October 13, ramp-up underway, and expected full capacity by year-end; these are operator expectations.
- Mount Milligan deliveries were lower. Its operator reduced 2023 gold production guidance to 150,000–160,000 ounces from 160,000–170,000, and expected copper production near the low end of its prior 60–70 million-pound range. The operator cited mine sequencing and lower recoveries and began an optimization review.
- Pueblo Viejo gold deliveries declined amid lower grades and expansion commissioning issues. Approximately 688,300 ounces of silver remained deferred at September 30; the timing of full delivery is uncertain, and material deferred deliveries are not expected until the expansion is complete and operating at full capacity.
- Andacollo had a 14-day conveyor-related shutdown in August; Royal Gold expected any effect on deliveries and sales to appear in the quarter ending March 31, 2024. Khoemacau operated at nameplate capacity; its operator estimated 2023 payable silver production of 1.5–1.7 million ounces.
- The planned acquisition of royalty interests on Brazil’s Serrote and Santa Rita mines will not proceed because the related ACG-Appian transaction was terminated.
Outlook, risks, and contingencies
Royal Gold said existing financial resources and operating cash flows should cover anticipated debt service, overhead, dividends, and conditional funding needs for the foreseeable future. It may seek additional financing for substantial acquisitions. Operator production estimates are not guaranteed and are not Royal Gold guidance; actual stream revenue can also be affected by shipment, delivery, and sale timing.
Results are exposed to metal-price volatility and mine performance, including operating disruptions, labor disputes, permitting, mine-plan changes, and expansion delays. For the first nine months, gold represented 75% of revenue; a 10% change in average gold, silver, or copper prices would have changed reported revenue by approximately $34.6 million, $3.3 million, or $8.1 million, respectively. The filing reports no legal proceedings and no material changes to the risk factors in the 2022 Form 10-K. It identifies conditional future funding of up to $163.75 million for the Ilovica gold stream, subject to conditions, and up to $4.4 million of remaining success-based Xavantina exploration advances.
Important facts for investors to verify
- Whether Peñasquito’s ramp-up reached the operator’s stated year-end capacity target and how the strike affected subsequent royalty receipts.
- Mount Milligan’s revised production outlook, recovery performance, and outcome of its optimization review.
- Progress on Pueblo Viejo’s expansion and delivery schedule for approximately 688,300 deferred silver ounces.
- Gold, silver, and copper price movements, and the impact of mine production and delivery timing on Royal Gold’s reported revenue and cash flows.
- Debt repayment, borrowing costs, acquisition funding commitments, and liquidity available for dividends and potential acquisitions.