Q3 2020 Earnings Call
Good day, everyone and welcome to be Royal Gold's, 2023rd quarter Conference call.
All participants will be in listen only mode.
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After today's presentation, there will be an opportunity to ask questions.
Please also note today's event is being recorded.
At this time I'd like to turn the conference call ever to Alister Baker, Vice President Investor Relations and business development.
Sir Please go ahead.
Thank you operator, good morning, welcome to our discussion of Royal golds third quarter 2020 results.
That is being webcast live and you'll be able to access a replay of this call our website.
Just depending on the call today, Bill Heissenbuttel, President and CEO, all look our CFO and treasurer markets don't executive Vice President and CEO.
The embraced vice President corporate development RG AJ.
They shop in General counsel.
This discussion falls under the Safe Harbor provision.
Private Securities Litigation Reform Act.
Discussion of the company's cart restaurants certain deals included in the Safe Harbor in cautionary statements in today's press release in slide presentation, that's presented in greater detail and our colleagues what do you see shape.
Oh, well give you an overview of the quarter followed by Mark with an update on our operating results. Paul will then provide a financial uptake and bill wrap the call was for closing comments well then open the lines for acute <unk> session.
I will turn the call over to Bill.
Good morning, Thank you for joining the call before beginning I would like to note that all Royal Gold participants on this call are doing so remotely and I ask your understanding if our responses to subsequent questions.
Lets coordinated than usual.
On slide four.
The current situation with cold chain, which I'll touch on in a minute.
Another solid quarter for Royal Gold.
We had a 24% increasing revenue over last year's quarter to set a new record for quarterly revenue.
$136 million.
Although gold equivalent ounce volume of 86200 was up relative to the prior year quarter.
The main driver of the record revenue was a significantly higher realized gold price.
Earnings for the quarter, where a healthy $38.6 million.
Nine cents per share.
68 cents per share after adding back five cent noncash mark to market losses on our equity securities. They onetime noncash charge of four cents related to non cash employee stock compensation.
We'll go into more detail on both of these items in his remarks.
We saw strong operating cash flow $99.7 million, which allowed us to make the second advance of $22 million a call Macau.
Our quarterly dividend at the new higher rate of $1.12 per share per calendar year, and they get further payments under revolving credit facility of $30 million.
We paid down the balance on our revolving credit facility to $105 million and with a combination of $101 billion of working capital and $895 million revolver capacity, we maintained approximately $1 billion liquidity for new business opportunities.
Turning to the effects of cold chain, our employees have been working remotely very successfully for almost two months, but I want to recognize our team's efforts in adapting so well to the unusual challenges we faced in this environment.
With respect to our operations, our large diversified and gold focused portfolio. That's helped mitigate the impact to Royal gold about 80 operational suspensions, we have seen across the industry.
Only three of our principal properties have publicly announce impacts to varying degrees from the virus and two of these not milligan and rainy River continue to operate in a returning to normal production levels.
Well the Penasquito remain suspended due to a nationwide shut down to create by the Mexican government.
The remainder of the interruptions word smaller royalty assets in our portfolio.
Obviously, we do not know how long the situation will continue and whether new suspensions will arise for suspension will be reinstated sort is unclear what the long term impact maybe.
Because the near term business environment, it's unclear, we decided to draw a $200 million on a revolving credit facility. After the end of quarter as a precautionary measure in order to ensure a sufficient liquidity to meet our funding commitments for the foreseeable future.
This advanced was done out of an abundance of caution and not for any specific purpose, we remain committed to reducing our debt levels and we'll manage the revolver balance as the business environment becomes clear.
That said, we recognized a significant impact the coping 19 pandemic is having in the communities, where we live and work and we have made donations to charities in Colorado, Toronto, and Vancouver, and Lucerne two help address a variety of names and we increased our ongoing committed you support of the test and tried at the peak old joint venture.
As well.
Our team is pleased to what made it impact in this time, a significant need an urgency.
With that I'll turn the call over to Mark for a discussion of call Macau and a few other notable properties.
Thanks, Phil.
Slide five I'd like to start with an update call Macau project in Botswana currently under development by the Cold Macau copper mining or K C M.
Construction continues to advance well overall project construction completion reached approximately 43% at the end of March quarter with 80% of could the capital committed.
We made our third contribution to the advanced screen payment on April 3rd of 47.9 million.
And we've now advanced approximately 136 million towards the project.
The photo on this slide shows an aerial view of zoned five taken in April where activity is evident across the site.
Underground development was initiated in early February and so for the five declines located in the central and North box cutter advancing bite ended the quarter well the fifth portal and the sell box cut was initiated in early April.
Turning to slide six I selected a few progress photos of the central box cut which is the most advanced to the three bucks cuts.
The photo on left from early February shows the access ramp down to the portal face when hand over to the mining contractor Barmy go occurred.
Photo on the right shows a close up on the portal face marked off for drilling and blasting.
Turning to slide seven you can see progress on the central box cut portals on the left and the photo on the right shows ventilation fan installations in the same portals.
Similar sequence of activity is occurring at each of the south and north box cuts.
Good progress occurred elsewhere on the project during the quarter cover many activities were curtailed starting on April 2nd due to the coated 19 related travel restrictions imposed by the Botswana government.
[noise], although six months state of emergency has been declared by the government a botswana to help prevent the spread of cobot 19 mining it's been declared in a central service in construction and mining activities at the site are continuing with mine development currently planned rates, but construction at reduce scale.
[noise] K C. M is evaluating risk to the project schedule and has not advised of any changes to the mid year 2021 day for first concentrate shipment. Although this is dependent on evolution of the global Kobin pandemic.
Turning to slide eight I'd like to discuss some recent developments at several of our other key properties, starting with Mount Milligan and rainy River, both of which delivered new life of mine plans this quarter.
Starting with Mount Milligan Centera filed an updated 43, one or one technical report on March 26.
Supporting an update reserved and new life of mine plan that included changed metallurgical recoveries operating costs and an updated resource model.
I'll reference you to our press release of the same date for details, but the main impacts of this new plan to Royal Gold Rush Order mine life based on lower proven and probable reserves, but higher near term metal production due to the mining of higher grade material.
Centera estimate a nine year mine life with average payable gold production of 161000 ounces per year and average copper production of 81.7 million pounds per year.
Well this is a material reduction in reserve reserve life, we do not need to take an impairment in the value of our scream interest.
Howard the depletion rates of our interest have increased to $764 per ounce of gold and a dollar and 48 cents per pound the copper.
Milligan remains a significant asset for us and we're pleased that the operations are expected to continue with healthy cash flow at current metal prices.
We understand the Centerra is working on several initiatives to reduce operating costs and we hope to see some of the remaining resource material move back into reserves in the next few years and extend mine life.
Centera also reported last week that recent throughput reductions caused by covert 19 considerations will not have a material effect on calendar 2020 production and annual guidance remains unchanged.
Turning to rainy River, New gold announced the results of an updated life of mine plan for rainy River on February 13th and they filed the corresponding 43, one on one technical report on March 27th.
We issued a press release on February 13th, but the details of the new plan.
The main impact of the new plan to Royal Gold is a shorter mine life at a higher average gold grade leading to higher annual gold production.
New Gold mine plan is focused on optimizing cash flow and considers mining from a smaller higher grade open pit as smaller more selective underground operation.
New gold estimates of production from this new plan will averaged 289000 gold equivalent ounces per year for the calendar 2020 to 2028 period.
And stated that they may be potential increases to mine life beyond calendar 2028, depending on gold price and exploration success.
We do not need to take an impairment in the value of our stream interest at rainy River. However, depletion rates of our interest have increased to $848 per ounce of gold and $11.27 per ounces silver.
Moving onto slide nine I'll provide some comment on what will be able and cortez.
The global Oviedo, Barrick provided an update on the progress of the studies and work I'm going to expand production and extend mine life, which Barrick expects will allow the mine to maintain average gold production of approximately 800000 ounces per year after calendar 2022, and four over a further.
20 years.
[noise] recent study work has advanced plans for the process Flowsheet, resulting in preliminary operating and capital cost estimates and project execution plan and schedule.
From a permitting perspective.
The process expansion environmental impact study has been completed and ready for submission.
And environmental impacts studies are ongoing for additional tailings and waste crop management.
Based on all this work Barrick is progressing engineering and evaluation work towards a feasibility study.
But we'll be who is a significant asset in our portfolio and we look forward to hearing more details of this expansion and mine life extension as they become available.
At Cortez shortly after the ended the quarter. We received the updated reserve statement and life of mine plan from Nevada Gold mines for production attributable to our royalty interests.
[noise] recall, we have three sliding scale gross smelter return royalties and two net value royalties on the Cortez property, which includes the crossroads deposit.
Some of the areas covered by these royalties overlap.
On average above the gold price of $470 per out after the relevant deductions, the combined royalties or equivalent to approximately 8.2% growth smelter return royalty to Royal gold.
You Red reserves were calculated and gold price of 1200 dollar sprouts and contain 3.5 million ounces of gold over the property areas, where we have royalty interest.
The life of mine plan expects gold production from these areas of approximately 175000 ounces in calendar 2020, increasing to approximately 425000 ounces in calendar 2021, well, there's variability from year to year, a 425000 ounce level is expected.
To be maintained through calendar 2026.
I'll now turn the call over to Paul to discuss our financial results.
Thanks, Mark I'll turn your attention to slide 10, and give an overview of the financial results for the quarter.
For purposes of this discussion I will be comparing the third quarter. If its book 2022, the prior year quarter.
As Bill mentioned at the beginning of the call. We had another record revenue quarter with revenue of $136.4 million on volume of 86200 gold equivalent ounces or Gi Joe's.
Gee over approximately 2% higher year on year.
As we announced the beginning of April stream segment volume for the quarter of 62000 Geos.
It was in line with the expectation discussed during our last earnings call in February.
Metal prices had a positive effect during the quarter, what gold and silver prices up 21% and 9%, respectively, while copper was down 9% year on year.
Gold continues to be the most significant driver of our revenue and accounted for 79% of our total revenue for the current quarter up slightly from 77% in the prior year quarter.
Gene expense for the quarter was 9.6 million, which is up from 6.89 and prior year quarter.
Our Genie accent, each quarter includes noncash compensation expense and generally averages one and a half to $2 million per quarter.
As highlighted during our last earnings call in February we expect it to recognize additional non cash compensation expense this quarter due to a couple of recent senior management retirements.
During the current quarter, we recognize approximately 3.3 million an additional non cash compensation expense attributable to the retirements or four cents per share no tax.
Additionally, noncash compensation expense recognized with a onetime item and we anticipate our quarterly gene expense to be between six and a half in second half million dollars going forward.
R&D expense for the quarter was 51.2 million or $594 per geo.
As Mark mentioned in his remarks recent reserve reductions that both Mount Milligan and rainy River have caused her depletion rates on old interest to increase.
We now expect our DNA for the fourth fiscal quarter to range between 650 and $675 per do you know.
As our revenue mix shifts towards streams and with the ongoing cobot 19 impacts largely limited to a few royalties.
Earnings were $38.6 million or 59 cents per share of 34% compared to the prior year quarter. After excluding the 3.8 million Mark to Mark was on the value of our equity holdings, and the 3.3 million onetime noncash stock compensation expense item.
Adjusted earnings net of tax were $44.3 million or 68 cents per share.
With respect to our effective tax rate, we continue to expect our full year fiscal 2020 effective tax rate absent any unusual items.
In the range of 19% to 23%.
Cash from operations was approximately 9.7 million for the quarter up significantly from 77.4 million in the prior year quarter.
The increase is primarily due to an increase in proceeds received from our stream interest net across themselves.
At the end of March we held approximately 27000 geos in inventory, which was lower than the guidance range. We provided during our last quarterly call.
The decrease was primarily due to deliveries from Mt Milligan, which will receive later than previously forecasted and after our quarter end.
Looking forward and absent any potential new operational impacts due to covert 19, we expect stream segment sales for the June quarter to be in the range of 50000 to 55000 G.O.
As far as for the quarter and to be in the range of 18000 to 23000 Geos.
As we've discussed on previous calls cells in the June quarter will be negatively impacted due to the strike that occurred at end of coil back in October and November of last year.
I'll now turn to slide 11 implied a summary of our financial position.
Our liquidity remained strong we ended March with cash flow $94 million and working capital 101 line.
During the quarter, we paid down 30 million on a revolving credit facility and ended the period with an outstanding balance of $105 million.
$895 million remaining Undrawn on this facility combined with our working capital provider, that's approximately $1 billion and total liquidity at the end of March.
As noted earlier, we made our second contribution of $22 million towards the current account project during the quarter.
And after the 48 million dollar contribution we made in April we expect to contribute approximately 65 million during the remainder calendar 2020.
In calendar 2021 arm any contribution will be between 11 and $64 million, depending on whether Cooper exercises its option to increase the size of the advance payment from 212 million to $265 million.
We expect remaining payments to be on a quarterly basis in proportion to the total capital spend at the project and we anticipate making these payments from our available cash resources.
As Bill noted earlier, we drew an additional 200 million on our credit facility in early April at the precautionary measure to help ensure cash is readily available to support continued business activity during the unprecedented and uncertain environment caused that kobin 19.
We believe we have sufficient liquidity to adequately cover our gene expenditures commitment to call Macau unexpected dividend payments for the foreseeable future.
We remain committed to reducing our debt and absent the requirement to find any new business opportunities.
We expect to manage our debt levels accordingly, once the operating environment returns to normal.
That concludes my comments on our financial performance for the quarter and I'll now turn the call back to bid on for closing comments.
Thanks, Paul.
Current operating environment has been challenging and although we are able to continue our daily activities without disruption, we have seen revenue impacts from temporary suspension to several operations in our portfolio.
The impacts to revenue so far has been relatively minor and the bulk of our asset base has continued to generate revenue and cash flow.
This environment has highlighted what are the main benefits of our business model, which is that the combination of a large diversified portfolio and modest DNA in fixed costs allow us to absorb short term revenue reductions at individual portfolio assets without affecting the sustainability of our business.
Additionally, our portfolio is relatively unexposed two week base metal prices has approximately 80% of our revenue in the quarter came from mines that produced more than half the revenue from precious metals.
We also believe our financial position will remain strong despite the current environment.
We have no near term debt maturities and our revolver matures in June 2024.
And our access to liquidity positions us to act on new business opportunities that may present themselves in the normal course, and that's a result of the challenging environment in which all companies now operate.
Operator that concludes our prepared remarks I'll open the line for questions.
Ladies and gentlemen at this time will begin the question answer session.
To ask a question you May press Star then one so enjoy yourself in the question can you May press star into if you are using a speaker phone. We do ask you. Please pick up your handset before pressing the numbers to ensure the best sound quality.
Once again that a star and then one to ask a question.
Well pause momentarily to assemble the roster.
And our first question today comes from Josh Wolfson from RBC capital markets. Please go ahead with your question.
It's a first off I'll give you guys are shut out or where you where you lock annual guidance quarterly guidance is certainly a you know very very helpful from our perspective or.
As it relates to crossroads and the ramp up there now that they're sufficient information from the the data partnership and what the mine plant and the reserves look like when or how would you expect that ramp up to get to a with the steady state rate is which I guess based on your 8% Nustar would be 35000.
And as per year.
Josh This is bill. Thanks. Thanks for the question I think that the best way to to direct that question would be to Mark Mark are you.
Able to.
Yeah, sorry, one.
Yeah, I guess the the schedule that we were provided by the Cortez team as as we explained to me in our prepared comments it it'll be a fairly consistent averaging 175000 ounces for the year and there's a there's a fairly there's obviously a very significant.
Step up going into calendar.
2021.
So the way I would look at it is really.
The 175 will be.
Spread out through the year with a modest increase towards the end of the year.
With a pretty significant step up as you go into new calendar year and then you'll then is the comments <unk> said that over over the period of time, you'll see a an average of 425000 ounces from our.
Royalty ground being reported but but your between years there can be some fairly significant swings so it'll be a little bit of a lumpy.
<unk>.
Is that helpful.
That helps I guess, you know so over that 2021 to 2026 period I think it sounds like based on the different royalty rates by by land sentiment.
If we assume that 8% NSR can you then that seems reasonable.
But our part maybe let me just clarify is that reasonable to assume and then for for 2021 can we just assume a flat 8% across <unk> hundred 75000 as is our or is are there different rates that was significantly very what the production is tear royal gold.
Yeah, Yeah. Good question the way the way, it's we like to lay it out in its and it was very consistent with the way we look at a the royalties and so our budget budgeting purposes, so the 8.2% gross.
Gross value royalty on the production that we just talked about is excellent way for you to just think about the Oh, yeah. The production yes.
Okay, great. Thank you.
And then ER with regards to Tacoma cow and the current timelines there.
I understand that there was a reiteration of the timelines, but it but there was also a caveat that potentially could very based on the impacts of co head is there any sort of additional disclosure you can provide in terms of.
What sort of buffer exists and and the implications of I guess the six month.
Your next six months sort of set restrictions in Botswana, and what that means if its extended or or if the severity where to increasing of the current situation.
[noise] Mark probably another one for you.
Sure.
I can provide a little bit more color around coal Macau. So the underground development is has been.
Tracking on schedule effectively it was a it's an Australian contractor and there there are the miners effectively remained at site during the shutdown period.
Oh waters most of the surface type construction activities, which are more locally driven or with local manpower attended due to significantly reduce so vicki the critical path certainly you spend the underground development, but.
As as the.
Just a reduction in man power continues what you'll see is the the mill refurbishment will become the critical path.
Item now.
We understand that they should start loosening up but some of the restrictions here.
The shortly.
But it's it's really very difficult for us to make any kind of projection of of the impact, but it's a it's.
They manage and manage the cobot 19, a situation very well so far and can continue underground development I think for at least in no. The two or three months with supplies. They have web site.
Okay and then last question are also related to call Macau.
The deal that was structured with the additional option available or was done in a lower price environment. You know is it safe to assume that that that will not be exercised by the operator at this point.
Josh Josh I don't think we can we can no one way or the other at this point.
A lot of a lot of times, whether or not you draw on.
Some extra funding like that has nothing to do with the price environment at the time. It has to do with what's your capital cost of doing that well what's happened to Doug the the cost to build the project.
So I think it's gonna be more of a a cash need space than a.
Strategic what's the price of silver right now decision.
But we're really not because I know that probably for at least six months or so.
Great. Okay. My question. Thank you.
Thank you.
Once again, if you would like basket question. Please press star in one.
Our next question comes from Brian Macarthur from Raymond James. Please go ahead with your question.
Good morning, I just wanted to follow up on Josh is question, you've given nice guidance here for color Ted but you know the operator generally has a 10 year plan should we assume like it looks like.
Other million plus ounces that come out after that at crossroads is that I get it it's probably going to go down from 400000 ounces, but is it kind of flatlined after that or can you give us any guidance.
Hi, Brian I'm going to make a brief comment and then I'll turn it over to Mark to see if he can add to it but.
The information that we have provided to you is is really what barrick has given us permission to disclose to the market and the the manner in which we can disclose it. So I think for right now what we're kind of limited to the to the years, where we're talking about.
Yes, I do think it's probably more than we've we've ever given in the past.
But but mark do you have a different perspective on that.
No no that would've been exactly that you're exactly correct yeah.
Okay, great. Thank you.
Our next question comes from Adam Graf from B. Riley FBR. Please go with your question.
Hey, guys. Thanks for taking my question just a just real quick about a two assets you haven't didn't speak about today. One is the hope mind run by Kirkland Lake and your interest there I think Kirkland announced or was it earlier this week there.
Putting that mind on on care and maintenance and I Wonder if you had some comments there and a and then also at a the Las Cruces mine by first quantum I understand that they are they have to make a decision.
About going after the underground sulfides and if you've gotten any update there.
Thanks, Adam Let me first I'll go to hold.
Oh, Thank you I'll give mark a little chance to to try to think about Holden must crucis I'm not sure.
We have a lot of detail on Las Cruces, but.
Yeah, we did see Kirkland likes announcement with respect to a with respect to halt.
It's clearly an encore operation for them I don't know what plans they they have for it but.
It wouldn't surprise me if the asset eventually came up for sale.
But beyond that you have the safety things happen from from time to not from time to time, we sit there with the royalty that does not burdened the property.
And so.
I I think.
Well just have to see.
Usually it's not quarter to Kirkland Lake Sop, you know, what we'll see what happens over the next few months, but beyond that I can't really say anything about about their management teams plans for the asset over the over the next few months Las Cruces I can't help you with Mark do you have any thoughts.
Oh, well, we don't have any.
New information on the underground project.
But it would be worth pointing out that our particular royalty on Las Cruces is for copper only where's the underground.
Material is is polymetallic I'm. So as you think about that with respect to oil golden should only be thinking about copper but.
We really can't provide any additional details.
Plan.
Alright, thanks, it maybe.
If you guys can give us any kind of oh and update on.
No.
Rob production out of Robinson, Boise is great because those those companies are not all that transparent about correct. They produce.
Are you.
Habit comment there.
Well I think our view on <unk> Robinson, certainly for the next or just a this calendar year would be similar to a total last year, we we don't particularly get a lot of additional information as well we do attend the annual site visits.
It has been a close to a year now since we've been there.
And on voice East Bay, so they they did announce that there they take curtailed the mining for three months, although the understanding we have is that stockpiles, India and the hydro metallurgical plant.
Smelter.
Well, we'll be a will be used during this three much period, so from a nickel.
Cobalt perspective, so we wouldn't expect to see much of anything different there'll be some impact.
Later on to the copper copper production, but as far as the.
As far as nickel cobalt, so we don't it's <unk>.
She any change.
Because of stockpiled constant.
And that that copper copper will be.
Well impact a this upcoming quarter or the or the subsequent quarter.
It would be a I think it comes into fourth quarter. This year.
Yeah that the the sales there.
Mark I think what you're talking about that there are two really two products. It's all the products that come out a long harbour, but it's also the third party copper concentrate sales they're done on a on a seasonal basis. So that part of the royalty tends to be a bit lumpy. That's the part that would be sort of missing.
With the mine shutdowns is that fair Mark.
Yes, correct.
Excellent. Thank you guys appreciate the color.
Once again, if you would like to ask your question. Please press Star then one.
Our next question comes from Tanya Jakusconek from square Scotiabank. Please go ahead with your question.
Oh, yes, good morning, everybody I'm, just wanted to circle back on and I know, if I could sort of what sort of opportunities anything in the space right now.
Yeah tenure.
Its tobey its obviously a good.
Period of time for Us I can tell you that are our business development team is.
Quite busy looking looking at opportunities.
You, obviously have some some stress on the on the base metal side, we're starting to see some a few transactions that might be there's there's still sort of in the range of the you know 100 to 500 that we always talk about.
But maybe more towards the larger and Oh that range.
Yeah, obviously, the challenge Weve got with with business development or we can do a lot of things virtually we can get to know operating teams virtually we can do a lot of term sheet negotiations virtually.
But when it comes to things like site visits a in travel restrictions.
That's that's the thing if this goes on for too long that would break but a break on.
A lot of those type types of opportunities. So I'm I'm I'm very very pleased with with the level of activity.
That we're seeing.
So what would you do a a transaction that you know would be obviously pending due diligence that they came down to that that you haven't been able to go on site.
Yeah, well, that's what we're actually looking at right now is the processes that are running you do things out a sequence you you know usually these things go in a couple of phases and your site visit is early on in phase two will necessarily need to do a site visit that it at that point in time.
Hi, you could you could continue to negotiate a term sheet you can work on documentation you can do as much the due diligence as you can and you just moved the other stuff to the to the back of the the process that that yes. That's something we are we're seeing in the market.
Okay.
All right great. Thank you so Matt.
Thanks, Dan.
And ladies and gentlemen at this time I'd like to turn the conference call back over to management for any closing remarks.
Great. Thank you for taking the time to join us today.
I Hope you all stay healthy and in the coming days in months. We appreciate your interest in Royal Gold and we look forward to updating you on our progress during our next quarterly call. Thanks very much.
Ladies and gentlemen, with that will conclude today's conference call with you. Thank you for joining you may now disconnect your lines.