Q4 2020 Royal Gold Inc Earnings Call

Good morning, and welcome to the World Gold Extra school 2024 years fourth quarter Conference call. All participants will be I'm told me.

She didn't need assistance, placing all conference specialist Starkey qualifies here.

After today's presentation will be an opportunity to ask questions asked the question you might start to buy one on your touched.

So let's try your question Please press star.

Please note so that is being recorded I'd like to turn the conference over to I'll start Baker. Please go ahead.

[music].

Thank you operator, good morning, and walking through our discussion abroad goals fourth quarter fiscal year 2020 results.

That's the webcast live you won't be able to access the replay of this call on our website.

Participating on the call today, our Bill Heissenbuttel, President and CEO called <unk>, CFO, and Treasurer markets don't Executive Vice President and COO.

Embraced vice President corporate development of RG AG, and Randy Schatzman General counsel awesome available for questions.

During today's call, we will make forward looking statements, including statements about our projections or expectations for the future.

These statements are subject to risks and uncertainties that could cause actual results to differ materially from these statements.

These restaurants certainties are discussed in todays press release in our filings with the FCC.

We're also refer to certain non-GAAP financial measures, including adjusted net income adjusted net income per share and that that.

Reconciliations of these non-GAAP financial measures. So the most directly comparable GAAP measures are available in today's press release, which can be found on our website.

No. We give you an overview of the fiscal year, followed by Mark with an update on our operating results. Paul will then provide a financial update for the quarter. The old wrap the call was repurposing comments.

Well then open the line for acuity session.

No I will turn the call over to Bill.

Good morning, Thank you for joining the call before beginning I would like to note that the Royal Gold team continues to manage its business remotely and that's such a participants are in certain locations well do our best to respond in a coordinated manner to any of your question.

I'll begin on slide four.

Fiscal 2020, with a very strong year for Royal Gold.

Despite most challenging external circumstances that any of us so seen before we realized annual records for revenue operating cash flow and earnings.

Our revenue was $499 million up 18% from fiscal 2019.

Gold equivalent ounces volume was 320000 was down slightly from the prior year due mostly due to the reduction in revenue at end of quite yet, but we have discussed previously and then actually cobot 19 related production disruptions.

However, this volume reduction was offset by the significantly higher realized gold price it drove our revenue increase.

Our gold weighted revenue stream was a significant beneficiary of that market fundamentals for our most important metal.

Earnings for the year were robust at $199 million or $3.03 per share.

After adjustments earnings were $162 million or $2.47 per share.

Paul will go into more detail on the G E mail volumes and earning adjustment in his remarks.

Operating cash flow was $341 million up 35% from fiscal 2019.

The strong financial performance provided the funds to reduce that debt by $115 million contributed $136 million to the Colm account project and pay dividends of $71.5 million, all without raising equity and diluting shareholders.

As of June Thirtyth, our cash of $319 million exceeded the $305 million debt outstanding under our revolving credit facility, leaving us in a very favorable net debt position.

We also under <unk> leadership change in January and the transition to the new leadership team has gone very well, especially in light of the highly unusual operating circumstances, we have all found ourselves in during the past few months.

Our entire team has operated with great professionalism and dedication while managing the innumerable personal and family challenge and everyone that had to deal with during the pandemic.

All told our business performed very well and we're in a great position as we start fiscal 2021.

With that I'll turn the call over to Mark for a discussion of call Macau and a few other notable properties.

Thanks, Bill on slide five I'd like to start with an update call Macau project in Botswana currently under development.

I called Macau copper mining Casey.

As I mentioned in our last quarterly call. It six months state of emergency had been declared by the government a Botswana and travel restrictions came into effect on April 2nd.

Help prevent the spread of cobot 19.

Hi, reminding what was declared into central service.

The restriction to remain in place through May 21st and while construction and mining development continued during that period. Some activities were curtailed, particularly with respect to the process plant refurbishment.

Since then construction Manning and the activity level has largely returned to normal.

However, after a review of the project schedule K C. M. Now expects that shipment of first concentrate will be pushed out for mid year to later in the third quarter of calendar 2021.

Delayed that was not unexpected in today's environment.

The delay notwithstanding Casey M. has done an excellent job is advancing underground development and construction completion reached approximately 54% at the in June.

With 81% of the capital committed.

Over progress in the quarter reduced our funding requirement below previous expectations.

We made our port contribution to the advance stream payment on July 5th of 11.1 million.

We have now advanced approximately 147 million towards the project.

The photo on the slide.

As an aerial view, so five looking northeast with the south box cut in the fourth.

The following three slides will provide a view on construction progress across the site.

On slide six.

So do I left shows the south box cut in early July.

If you have the underground development.

Photo on the lower right shows construction underway and central box that infrastructure.

All three box cuts or the subject of active underground development, which has been advancing ahead of plan with a high level of quality being achieved by PRB coal mining contractor.

Turning to slide seven the photo on the left shows progress of the administration area and the photo on the right shows the zone five man camp area.

Moving to the settle mill facility slide eight.

Photo on the left shows the secondary and tertiary crusher facilities and refurbishment work underway for preparing sandblast and paint.

The photo on the right shows a area of new construction activity and the concentrate reground area with progress on the Regrind Mill Jamison sell foundation over.

Overall, the progress is is progressing well and the project is taking shape nicely.

Well, we gotta slide nine I'd like to highlight a couple of recent developments at Mt Milligan and Penasquito.

Starting with Mount Milligan Centera reported that operations were turned a planned levels during may after reducing throughput and mining rates in April due to covert 19 manpower reductions.

Reported the process plant operated at approximately 60% of target throughput.

Mining operations were partially shut down for approximately four weeks during April with reductions in gold and copper for the quarter.

[noise] Center also reported that a wet spring and a substantial snowpack allowed Mount Milligan to pump water starting in April.

By the end of June they caught more water than in the entire 2019 pumping season, NAV over 6 million cubic meters a water storage.

He also reported continued efforts to explore for ground water sources around existing infrastructure and we'll continue to do so for the remainder of calendar 2020.

Syncera continues to look for a long term water supply solution and working with regulators and several stakeholder groups.

Turning to Penasquito, you might announce it operations ramped up after government imposed cobot 19 related shut down was lifted.

Production in the process plant reached pretty cold and production levels of about 110000 tonnes per day by mid June.

Recall that operations were placed on care and maintenance for about 35 days from April 12 through mid May.

According to Newmont now their operations restart it they will continue to apply their full potential program to eliminate constraints reduce cost and increased productivity.

With the goal of extending mine life to resource conversion.

You might also provided updated production guidance for calendar 2020.

510000 ounces of gold 20 million ounces of silver.

360 million pounds is zinc and 190 million pounds.

I'd like to briefly touch on Golden Star's announced sale at Prestea to SGR.

Negotiations for the separation of the stream between Wassa and Prestea are ongoing and completion requires final board approval. We think that this is a good development for all parties.

The sale of Prestea allows golden star to focus on exploration and the various phases of growth management.

Outlined at Wassa and management of Prestea will become the sole focus of a new owner, who will be motivated to invest and improve the operations Wassa has the potential to become a world class operation and Golden Star has done a commendable job of adding mineral resources and improving performance.

We look forward to see focus advancement at both Wassa and Prestea.

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 fourth quarter fiscal 2020 to the prior year quarter.

We reported revenue of $120 million on volume of 70100 gold equivalent ounces or geos.

Well revenue was up about 4% yields were down nearly 21% quarter over quarter.

Primarily due to lower any coil cells, resulting from the strike in October and November and impact we have discussed what the market for a few quarters.

The decrease was also attributable to lower stream cells from Mt Milligan and pull of Yale.

The lower stream cells, however were somewhat offset by higher royalty contributions from quarter hasn't penasquito.

Despite lower volumes metal prices had a significant positive impact during the quarter.

With gold and silver prices up, 31% and 10%, respectively, while copper was down 12%.

Gold continues to be the most significant driver for our revenue and accounted for 84% of our total revenue for the current quarter up slightly from 80 per se in the prior year quarter.

Gina expense for the quarter was $6.5 million inline with $6.3 million in the prior year quarter.

R&D expense for the quarter was $45.4 million or $648 per geo.

Down slightly from our previous guidance range, but up from $495 per G.E. on the prior year quarter.

As I discussed on our last call recent reserve reductions at Mt. Milligan and rainy River have caused her depletion rates on those interests to increase.

Interest expense decreased to $2 million this quarter from $6.1 million in the prior quarter due to overall reduce debt levels.

[noise] earnings were $49 million or 75 cents per share up 85% compared to the prior year quarter.

There were several adjustments to our earnings specific to the quarter, which included a 17% gain due to the release of an uncertain tax liability, which resulted from a settlement with the foreign tax authority specific to withholding tax.

Tencent gain due to the increase in the fair value on our equity holdings.

A two cents charge due to complete impairment of our royalty interest I don't talkie any three sat reversal for the combined tax effect or these adjustments.

As Bill mentioned, we also saw some relatively large adjustments to the full fiscal year earnings which included a 61 cent tax benefit which combines the release of the uncertain tax liability I, just mentioned and the effect of Swiss tax reform from earlier in the fiscal year.

A five cents charge due to the onetime noncash employee compensation expense, we recognize in the March quarter.

The result of recent senior management retirements.

Hey to send game due to the increase in fair value on our equity holdings any two cents charge due to the for impairment of our El Topi royalty interest.

After elimination of these adjustments are adjusted EPS was 53 cents per share for the quarter.

And two dogs and 47 cents per share for the fiscal year.

Cash from operations was approximately $91.6 million for the quarter up significantly from $72.3 million in the prior year quarter.

The increase is primarily due to an increase in revenue proceeds lower income taxes paid any decrease in the amount of interest paid on her outstanding debt.

At the end of June we held approximately 25000 yields in inventory, which was higher than the guidance range I provided during our last quarterly call.

The increase was primarily due to an end the call delivery that was received earlier than forecasted.

Looking forward to the September quarter, and absent any potential new operational impacts due to covert 19.

We expect stream segment sales to be in the range of 53000 to 58000 Geos.

And inventories for the quarter end to be in the range of 25000 to 30000 Geos.

With respect to our fiscal 2021, DNA and effective tax rate guidance. It is a bit too early for us to provide this information at this time, but I expect we can provide his guidance on our next quarterly call.

I'll now turn to slide 11, and provide a summary of our financial position.

Our liquidity remains strong and we ended the year with cash up $319 million working capital of $320 million and with our credit facility. We had access to just over $1 billion of total liquidity.

You will remember from our last call that we drew $200 million on our credit facility in early April.

This wasn't precautionary measure and we did it to ensure cash is readily available to support our current commitments in the event Koeppen 19 operational impacts worsened.

While the environment appears to have stabilized and revenue contributions have largely returned to normal across the portfolio, we remain cautious on the outlook.

Although there is no immediate requirement for the funds, we will keep the dropped proceeds on our balance sheet for time being.

The company will revisit this position as the overall operating environment returns to normal and as we continue to further me our investment commitment that Colin Mccallum, which also includes establishing a better understanding of Casey EMS ultimate financing needs excellent account.

At the end of June we had an outstanding revolver balance of $305 million was 695 million undrawn.

We remain committed to reducing our debt and absent any funding required for a new business opportunities, we expect to manage our debt levels accordingly.

In line with that approach, we paid down 30 million on a revolving credit facility in early July, leaving us with 725 million of Undrawn capacity.

During the fiscal year, we contributed $136 million toward the clinic, how project, including a $48 million advance payment in the current quarter as Mark noted earlier. We also made an 11 million dollar advance payment in July and now have contributed $147 million towards the project.

We expect to contribute a further $35 million to $45 million during the remainder of calendar 2020 in calendar 2021 arm any contribution will be between 25 and $78 million, depending on what a key cm exercises its option to increase the stream rate and raise the advance payment from 212 million up to 265 million.

We expect from any payments to be made 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.

That concludes my comments on our financial performance for the quarter and I'll now turn the call back to Bill for closing comments.

Thanks, Paul.

20 was a year of significant change for Royal Gold I took over the CEO role at the beginning of January and a new generation of leadership was appointed at same time.

All of this internal change occurred shortly before the onset of significant global challenges in a very uncertain business environment.

I'm very pleased to say that the team look past the challenges and remains focused on all key aspects of our business.

Our company remains healthy and despite covert related revenue impacts during fiscal 2020 at several operations in our portfolio. The bulk of our asset base continued to generate revenue and cash flow highlighting what are the main benefits of our business model.

In addition to a portfolio of 187 assets 41 of which produced revenue of almost $500 million.

Cash overhead remained low rep, representing about 4% revenue.

It is this combination of revenue diversification and high cash margins that should allow us to withstand the potential uncertainty of future opened 19 impacts we increased our dividend year on year by 6% improved our net debt position by $115 million and funded $136 million towards our call Macaos train all.

Without diluting our shareholders by issuing equity.

We ended the year with a healthy balance sheet and our access to liquidity positions us to act on new business opportunities.

While we are encouraged by the recent strengthen the gold price. We're also mindful of long term returns and we'll continue to pursue new business opportunities with a disciplined approach.

I think we learned a great position and I look forward to using these advantages to continue to deliver accretive growth and results for all shareholders. Operator that concludes our prepared remarks I'll now open the lines for questions.

Because your lines are not a lot we will now begin the question answer session.

If you like to ask your question. Please press Star then one on your Touchtone phone if you're using your speakerphone. Please pick up your hands up to par plus an acute.

Well try your question. Please press Star then too.

It's time, we'll pause momentarily to assemble a roster like on the Star then one I ask the question.

Our first question will come from Jim stuck on what it was a retired board.

Please go ahead.

Thank you well they'll Paul or Mark Great report, a glad to see that a new team has continued to tradition, though the former team. So that's a all shareholders. After like that I'd just like did all if there's any comment relative to obtain go or that you. Good.

Reveal.

Oh, yes, Jim a nice to hear from.

Certainly appreciate all your done you over the years so.

With P. can with with contango cope with 19 is has kind of put us on a on the back slip a little bit we've had to be very mindful of the.

Oh, the health conditions in the state a you know beginning part of this year I think the stake it was actually closed really couldn't do much and we have to really mindful would the village and take care of the community there.

So there really hasn't been been much going on strategically where it's consistent with what we've always said it is noncore, we're not going to we're not going to build it we're not going to operate it and we'll look for the right time <unk> the opportune time to take that that that investment.

Okay, well, then as a follow up not for that particular property, but anything on Pascua Lama.

Yeah, you know I think with Oh with Randgold coming in with Mark Bristow coming in I I'm encouraged she seems to have breed <unk>, new Brett into that project.

With that being said a you know I think one other things Barrick has said is that they they're almost going back to square one a they're going to go back in and it's effectively to my understanding.

Rebuild the geologic model a and take a really fresh look at the project. So that's going to delay it a little bit.

But I think the I think the new management is is really they're taking a more serious look if you will.

As to what to do there that Mark I don't know if there's anything else so you'd like to add to that.

No I think you've given a good description.

Well I certainly realize those two are long term.

Project and potentials and it's a every now and then I like to just here if there's any upgrade so that's super appreciate your your comments alright, thanks, yet.

Our next question will come from Tanya Jack Skolnick, What Scotia Bank. Please go ahead.

Hi, good morning, everybody [noise].

And I just wanted to circle back on the M&A opportunities that you're seeing out there on your Q3 call. You mentioned that you were seeing opportunities from base metal operators strain on from base metal operators in the 100 to 500 million range, what most of them.

Available at the upper end has that changed.

Hi, Dan you afternoon, but thanks for the question.

The one thing we don't I guess do a lot here is is let Dan Breeze talk little bit about his area of expertise so.

Dan It can I turn that over to you.

Yeah. Thanks, Hi, Tony Thanks for the question I Hope, you're well I Ben.

No.

Yeah, no the beat the environments really really quite good for US right now and you've heard from from Paul about our balance sheet strength and a cash generation. So we feel very good right now.

And your rights you know, what's happening with with the precious metals right. Now there are obviously strengthened versus base metals and so there are certain opportunities that that we're starting to see now where those byproducts are looking to potentially get monetized in some way. So it's been interesting first look at those were obviously being very disciplined right now.

So on that front than I think the other part that we're we're seeing more of right now is and this higher price environment is a is project starting to move forward and looking for financing as well earlier stage projects. So we're encouraged by that development as well.

In terms of the size yeah. The 100 to 5 million dollar range I'm still holds obviously, that's the real sweet spot for us here at Royal Gold.

Just given our size versus the pure group. So that's great for us to see there are some that maybe a little bit bigger than that but that's really where the focus is right now and that in that.

In that range hopefully that helps you.

Okay, and what about on completing a technical due diligence because at the current travel restrictions how are you getting around that in terms of getting that technical due diligence has that opened up since Q3.

Yeah, I'm going to defer that over to mark to speak too, but we certainly are finding creative ways to.

To get things done on the desktop in remotely, but mark do you want to have some comments there.

Yeah, I can I can give a few comments I'm. It's a good question and we spent a lot of effort and trying to figure out.

How we can effectively do I didn't get comfortable that we're getting the same.

Experience that we would on the site visit which is difficult to do that you might expect.

But we've we've worked on on I think a three projects now where we've done things remotely.

And then we're we're using.

A third party.

Video tools, where where possible. So weve used a drone photography to help us out to get a better picture of site.

We're using a interactive.

A geological tools to create virtual a core core shed ER visits, which frankly has turned out exceptionally well and will well you will certainly used tools were developing now Uh huh.

Due diligence is going forward, regardless of the coated 19, so I think we're being successful in doing it we have yet to go to the board yet and get their blessing on it but I feel very confident that to put up a very strong case.

With with virtual diligence not but it is very project specific.

Are you seeing travel restrictions being lifted in areas that you're interested in or is it so pretty much locked down.

Yeah, we're pretty much still seeing things locked down and we're even you know obviously, we tried to take a visit to our existing.

Asset.

On an annual basis, the larger ones in our view is we likely won't be doing any traveling certainly for the calendar year and maybe willing to buy into next year. So really have to be a very diligent to these tools being effective uh-huh and can I ask it just on them you know.

You mentioned opportunities on on them.

Not yet tap into starting to that to that financing side I'm sorry for projects, what about doesn't royalty portfolio without that was shaking out.

So and you guys, it's Dan here again, and I'll turn over to build out some comments as well, but certainly.

Certainly in the environment is such that we are seen.

Portfolios available right now and and I think it's just a function the environment right now. So we're we're looking at those were pretty disciplined.

Sometimes with these portfolios the challenges you try to find one or two of the core assets to really focusing on.

And you've got a bunch of other things that may not want so there's a bit of a challenge there, but we're lucky those things as well, okay and can I just make sure that you still focused on that gold gold and silver.

Yep.

Yeah, Yeah strategically that we're focused on precious metals, but as you can tell from a percentage of revenue were were so where did the golden we like that.

We yeah as I always say, if you're looking at five opportunities summer gold summer silver and some are based model, where we're going to focus on the gold ones first and then then move on moved out analyst.

Oh, Okay. Good good luck.

Thank you thanks for your question.

Dennis you VITAS. The question that a star then one star then one last question.

Our next question will come from carried in Missouri with Canaccord Genuity. Please go ahead.

How are your line is lie.

Well I may be muted on Europe.

Sure about that morning.

Tony last year I mentioned that you guys are close to meeting the criteria being included in S&P 500, there just given where gold prices are presumably you know that potentially has moved up just wondering if you have any thoughts on that.

Oh, yeah. So I mean, it is something that that we have looked at a very closely.

As you probably know there's not much you can do about.

We've made sure that does the folks who are on the committee that that make those selections.

No who we are but beyond that there is no lobbying you can do their you know you can't go to make a marketing presentation. You just have to make them aware of the company I did find it interesting. The paper. This morning that Barrick was thinking of moving to their primary listening to the NYSE.

So I don't know what that what that would bring but we what we've done all the cat a quite quite frankly, and that's a it's helped us to keep them updated as to what we're doing.

But ultimately that decision is is there.

And as of today, you meet the criteria and presumably at some names falling.

<unk>.

Yeah, I mean, when we look how do we look at it up on a market cap basis, but there are another a number of other a test so I don't I'm not judge the criteria. So I don't want to say, yes, we qualify.

But we feel good about where we where we sit relative to eligibility.

Great. Thank you.

Our next question will come from Brian Macarthur with Raymond James. Please go ahead.

Yeah. My question come has to do with the a wassa prestea.

Stream structure I'm, just curious I think there's it's interesting, it's obviously being restructured where they three individual contracts there or how is the security set up I mean, a little surprised they can just go sell it and I know obviously at some of your border of a board of directors approval, but I'm, just curious how that works and <unk>.

Brings into the whole question of security in this industry as he set these things up so I don't know if he can give anymore color about.

How that set up.

Yes, so it's right now it's one contract so we basically two mines feeding into one.

Into one contract.

And what is what is being proposed is that we we effectively separate.

Those contracts into into two that wouldn't change the security per se I mean, we will we currently have security over the assets in both mines and and you know where we'll ultimately get too I think we'll be well still it's a carryover both mines.

So I.

I, it's doable and I will say in a lot of our stream.

We also provide the operator with the ability to do things like bring a joint venture partner in where they can take over some of the obligations.

So this is actually to toss is not unusual it's something that we contemplate a in the screen all the time because you'd be her life of mine contracts say we have to.

[laughter] some flexibility for these guys to to to deal with changes at the mines, where we have those streams.

Because it's tough to separate contracts going forward.

Exactly okay.

Okay, great. Thanks, very much I just wasn't entirely clear how that was being done thanks very much.

Our next question will come from kept came with S&P Global market Intelligence. Please go ahead.

No. Thanks for taking the question I'm just to circle back on M&A are you seeing any opportunities sort of evaporate given financing markets and in terms of.

Some of the earlier stage projects are picking up or are you just sort of.

Seeing all boats rising here, what's what's it look like.

Dan do you want to.

Jump back in.

Yeah sure it into the thing thanks for the question and and so I I say that obviously the equity markets, we've seen in the equity markets.

Open up quite well put a lot here in the last three to six months or so so that's obviously been something new here versus last year, so, but we're actually quite happy to see that happen as far as the capital structure goes these projects need equity they need streaming.

They need that as well so it helps the projects move forward in general So I wouldn't say, it's been a deterrent for from our perspective.

Thanks.

You're welcome.

This concludes our question answer session I'd like to turn the conference back over to Bill Heissenbuttel for any closing remarks.

I just like to thank everybody for their interest in Royal Gold and we certainly look forward to to updating you.

In the near future on our progress over one stays healthy thank you.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.