Q2 2020 Earnings Call
We saw positive developments at and a coil the end of a worker strike and the signing of a new labor contract and the end of the blockade at penasquito. We also saw operational improvements about Milligan which were announced at the end of Centaurus third quarter and Rainy River which saw gains over the course of calendar 2019, finally construction continued to progress hack McHale and we made a second payment of $22 yesterday. Mark will bring you up to speed on that project and a few other notable properties. I would like to note that. This is the one report. In which we are reporting a quarter in while our key operators are working on a full-year disclosure timetable. If our comments appear somewhat less detailed it is due to the fact that our operators have yet to disclose their year-end operating results.
I would like to welcome Paul to our court.
Call his first as a participant in his fifteen years with royal gold, but first I'll hand the call over to mark.
Thanks, Bill. I'd Slide Five. I'd like to start with an update on a coma Cal project and Botswana currently under development by, or Casey m a subsidiary page Capital Construction activity continued to advance nicely with more than 1,600 people working on site up from the 800 reported at the end of September and progress over the past quarter is very evident with construction completion estimated at 26% and 77% of the capital committed Casey m is continuing to Target first concentrate shipments in mid 2021. Our engineer visited the project site for the quarterly review prior to making our second payment construction is focused on four main areas finalizing the box cutter excavations and preparation for underground development construction of the thirty five kilometer Access Road between the or body of zone five and the dead
advancing the zone 5 infrastructure
And starting to settle mill refurbishment work.
Initial underground mining Fleet some of which are shown in the photo has arrived at site and barminco. The mining contractor is actively commissioning the equipment and preparing to start Mine Development dead.
Turning to slide six the central box Cut shown in the left photo is scheduled for Handover to barminco in early February followed by the south box Cut and then the north box got they hands off of our schedule has been slightly delayed since since our last call due to slower than anticipated excavation Advance. However, the project overall project schedule remains unchanged off the access road between the Seto and zone five shown in the right-hand photo as to reduce travel time across the project site from over 90 minutes to 35 minutes the or Hall Road will be adjacent to this access road and construction is underway off.
Turning to slide seven. You can see some of the progress on the infrastructure in zone five, which is focused on workshops accommodation power water and sewage. The live photo on the left is an aerial view of the zone five infrastructure with accommodation units in the foreground the main office and change houses in the background towards the upper right the phone number on the top right side of the slide shows the mining Contractors workshop and the bottom right photo you can see diesel gensets, which are providing temporary power for all infrastructure until I get power is connected later in the first half of this year.
Turning to slide.
You can see a photo of the peseta processing plant where refurbishment work is started since our last quarterly call Initial deliveries a mechanical equipment have been received and a mechanical contractor Stone Network the Civil contractor for the plant refurbishment is also mobilizing site where police to see the progress KCM is making on the project and look forward to giving you updates and our next quarterly call.
Turning to slide nine. I'd like to discuss some recent developments as several of our other Key Properties starting with Mount Milligan and Rainy River at Mount Milligan total stream sales were higher than the prior quarter due to a significantly higher copper contribution deliveries of both gold and copper for the quarter were strong and significantly higher than a year ago driven by the timing of concentrate shipping center reported that work continues on the preparation of an updated 43-101 technical report, which will incorporate changes due to long-term gold recoveries, operating cost optimization studies and exploration drilling. Although Centerra has not yet provided a specific date for publication of this report. We look forward to reviewing the report when it is available to understand any potential impacts to the carrying value of our stream interests as a reminder our depreciation rates for amount Milligan stream Investments are $402 per hour wage.
gold and 81 cents per
Found a copper had Rainy River new gold reported gold production for the calendar year of 253800 ounces within the annual guidance range of 255 to 270000 ounces Mill throughput for the quarter averaged twenty two thousand five hundred tons per day and for November and December average 25,000 tonnes per day which exceeded both the target of 24,000 tonnes per day and the original design of 21,000 tonnes per day cold recovery was within line within within plan at 15% for the quarter.
Increase throughput was offset by expected mining of lower grade material as the operation moved into phase two of the mine plan new gold report reported that it is advancing the Red River optimization study and expects to release the results on February 13th. We will review these results to understand the impact of changes to the mine plan on our stream investment and update the market accordingly. Our current depreciation rates for our stream Investments at Rainy River are $591 per ounce of gold and $6.35 per ounce of silver.
Moving on to slide 10, I'll provide some comments and and the coil and penasquito where we saw some positive developments during the quarter that and the coil. We were pleased to see operations restart on December 5th. After a new 36-month Collective agreement was reached between Tec and the workers union as a reminder. The operations were suspended for about eight weeks from October 14th due to strike action by the workers union. We expect the strike impact to be reflected in our physical fourth quarter as we generally receive gold deliveries from a divorced within six months of concentrate shipment. We were also pleased to see the positive developments at penasquito with the immediate shipment of concentrate after the blockade was listed on October 8th and a restart of operations on October 22nd.
Newmont reported that dialogue with the trucking contractor and members of the Federalist Community was continuing after the blockade was lifted and on December 13th Newmont announced a 30 year agreement had been reached with the ceteris Community to address concerns with sustainable water availability while we understand there are some remaining issues to resolve with the compact you might believes this that this agreement is a significant Milestone and important step in the unknown ongoing negotiations between the parties.
gold
And Lead production attributed to our royalty interest at penasquito was up significantly over the prior-year quarter offset slightly by zinc production as a result of increased grades from the pinata scope it for calendar 2020 Dumont expects a full year operations at penasquito with higher grades leading to production of $575,000 is of gold Thirty million ounces of silver 425 million pounds of zinc and 200 million pounds of lead. This level of gold production would be the deadliest if they've experienced since 2015.
Well now turn the call over to Paul to discuss our financial results. Thanks, Mark. I'll turn your attention to slide eleven and provide an overview of the financial results for the quarter for purposes of this discussion. I will be comparing the second quarter of fiscal 2022 the prior-year quarter as Bill mentioned at the beginning of the call. We had record Revenue this quarter of 123.6 million on volume of 83005 or go to put one else's or CEOs were approximately 5% higher year-on-year and the most significant reason for the change was higher sales from ND coil primarily due to shipment timing wage increase was partially offset by Laura royalty Revenue mainly from Cortez as we announced the beginning of January stream segments volume for the quarter of 60,000 CEOs was in line with the expectations discussed during last earnings call in November.
That'll price is a deposit.
Just fact as gold and silver were up 21% and 19% respectively while copper was down 5% year-on-year called accounted for 74% of our revenue for the current quarter, which was comparable to the prior quarter.
During the quarter we did see a higher percentage of Revenue tripled the copper which was due to higher copper sales from Mount Milligan.
Gina expense for the quarter was 6.7 million down slightly from seven point four million in the prior year quarter are Genie expense. Each quarter includes non-cash compensation expense and generally averages 1.5 million dollars per quarter as a result of recent retirements. We anticipate incurring additional non-cash compensation expense during our March quarter of approximately 3 to 4 million dollars wage expense for the quarter was 40.1 million or $400 per g e o please still upset full physical year twenty-twenty Denari to range between $450 and $500 per month. Although I change to the reserves. I didn't amount Milligan or Rainy River could impact our depletion rates. If there are significant Reserve updates that other Mount Milligan or Rainy River, we may update this range later in the fiscal year off additional information is available.
Earnings were 41%
3 million or 63 cents per share up 75% compared to the prior-year quarter. We did not have any significant mark-to-market changes to the value of our Equity Holdings during the quarter with respect to age of tax rate. We continue to expect our full year fiscal 2020 effective tax rate apps and any unusual items to be in the range of 19 to 23%
cash from operations was approximately 78.3 million up significantly from the prior quarter and mostly due to higher Revenue at the end of December. We hold approximately $39,000 with an inventory home use me, which was higher than the guidance range. We provided during our last quarterly call. The increase was primarily due to deliveries from Mount Milligan and and the coil that were received earlier than previously expected.
Looking forward we anticipate stream segments sales for the March quarter to be similar to the guidance. We provide a last quarter, which is 60000 to sixty five thousand CEOs and inventories for the quarter and to be in the range of 30000 to 35000 details.
I'll now turn to slide twelve and provide a summary of our financial position our liquidity remain strong and we ended December with cash flow almost eighty 1 million and working capital of $92 million during the quarter. We paid off on our revolver. And our only outstanding debt is the hundred thirty-five million drawn on this facility the 865 remaining undrawn on this facility combined with our working capital provided approximately $1 total liquidity at the end of December.
During the quarter we made our initial contribution of $66 towards the project development and after the $22 million contribution, we made yesterday. We expect to make full further contributions of approximately three million in calendar 2020 encounter 20 21 or remaining contribution will be between 21 and 74 million, depending on whether Casey M exercises. Its option to increase the size Advance payment from 212 million to 265 million. We expect all these remaining payments to be made on a quarterly basis in proportion to the total Capital spend at the project and we anticipate making these patients from our available cash resources that concludes my comments on our financial performance for the quarter. I'll now turn the call back to bill for closing comments. Thanks Paul in addition to the the solid financial and operating performance for the quarter. We also experienced a seamless transition to a new generation of leadership with the appointment of some new members to the management team. Although some may still be new names to you. They have all dead.
The company for many years and have been integral in the development and execution.
Of our strategy as a team. We work well together and our day-to-day approach has been the same these past few weeks as it was for the past several several years. I've also spent some time travelling and meeting with shareholders page lists, and other stakeholders recently and my key message and all those discussions is that our strategy is proven and well-established, and I don't intend to change direction. My priority is to continue to build on our access, which means seeking out disciplined growth opportunities in Precious Metals with a focus on gold and measuring that success in a per-share basis. I'm confident. We have the right team in place to continue educating our strategy and for any of those of you on the line who aren't familiar with the team. We look forward to meeting with you over the coming months operator that concludes. Our prepared remarks are now open the line for questions. Thank you. We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset. Yep.
Pressing the keys to withdraw your question, please press star then to add.
This time we will pause momentarily to assemble our roster.
The first question comes from FBR, please. Go ahead. Oh, thank you. Just a quick question regarding Mount Milligan and Rainy River Palm. Um, so I understand that there's a a study ongoing by Centerra. Milligan. Is there a similar study on going on on a Rainy River and off if the underlying operators take Reserve numbers down significantly. I presume that that will also be a significant impairment to them and Thursday also correspond to similar proportional impairment on those assets to the carrying value of those assets to you guys.
Yes, Adam, the first part of your question. Yes, Rainy River new belt is is conducting a new technical report on Rainy River and they have announced that they they are going to release the results of that study on February 13th. So we we look that's that's the one date that we do know. I think when Mount Milligan Center has already taken an impairment Milligan they did that at the end of October and at that point, I think they said their technical report would be done in the coming months. So we don't we have less certainty in terms of of the timetable with respect to the second part of your question, you know, in terms of impairments and impairment by an operator does not directly result in an impairment with respect to our interest Thursday. We're going to wait for the the data to be released. We will analyze that data are impairment analysis starts with with a nun discounted valuation of our our position dead.
using the new the new
My plan but beyond that at this point, we really can't we can't comment on whether or not there will be a parent. We need to we need the information to be released and and we need some time to analyze it off. So a follow-up question to that. So you're going to follow the the reserve the new reserves a new mine plan outlined by both Mountain folk not Milligan and reindeers. Are you required to also use the same metal price assumptions that the underlying operators are assuming
What do you want to answer that? Yeah. No, so the the the company's policy is generally to use consensus prices. So the operator may use a different methodology, but our bar in Alice, we will up to consensus prices.
So just in regard to that if you're using a different price deck, it's it's effectively it could be the under the underlying operator. If they were using that same would have a different mind plan. I'm trying to understand how you would reconcile using potentially a different price deck versus the underlying operator that generated the mine plan that you're going to be using.
yeah, and I
You know, I don't think consensus pricing and what operators are currently using in the market are are all that different. I think what Paul saying is that our policy is to use consensus pricing and and the operators for Thursday. I can't imagine a situation where the prices are so different that the line plans end up being so different that we we come up with the wrong analysis.
Thank you.
Thank you. Again. If you have a question, please press * then 1 the next question comes from Tanya, please go ahead Thursday morning everybody Morning Bell. Wanted to ask you Bill just on the thank you for your comments on on the strategy portion. Definitely want to discuss the the gold to focus with this higher gold price scenario again, what sort of opportunities are we seeing in the market maybe sort of same deal type. That would be great, you know the size and deal type really hasn't changed much in the in the last quarter. You know, I still think you're going to see most of the of the transactions somewhere between 200 and 500 million dollars. I think the in terms of the use of proceeds that you're going to see you probably will see a bit more project development.
And and perhaps a bit.
Or m&a, obviously, I don't think you're going to get a lot of balance sheet restructuring that at these prices and and one of the things that I'm pleased with is that when we when we were doing a number of transactions a few years ago. We actually did a number of gold streams on gold properties. So we've proven that you can use this product even though you may be streaming the the primary metal. So I think the gold price going up will be beneficial to to the number of opportunities we see okay, and then another question just on Crossroads and we appreciate that Barak has yet to report. We just noticed that wage Crossroads was a small contributor to your production profile in calendar 219. Do you do you expect significant production uptick from Crossroads for the remainder of fiscal 12 a.m.
Well, we we should see a new life of mine plan at the end of this quarter. We usually get it at late March or early April which which would be our next information point we would anticipate and we have anticipated that production would continue to increase wage. Although it may be quite lumpy in in its profile. So seeing up and down between Quarters at this point. I think would be what we would expect but we can't really provide any more information until we get the new life on line plan for next quarter.
and yeah, I know we we
Frustrating we frustrated you a little bit with that with that request, but I think hopefully by then the next quarterly call. We may have something to talk about right? Okay. I appreciate that. Great. Thank you. Thank you.
This concludes our question-and-answer session. I would like to turn the conference back over to bill heisenbottle for any closing remarks.
Thanks operator, and thanks everyone for taking the time to join us today. We appreciate your interest your continued support of Royal gold, and we look forward to updating you on our progress during our next quarterly call. Thank you.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.