Q1 2021 Royal Gold Inc Earnings Call

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Good day and welcome to the World Gold scope at 21 first quarter conference call.

All participants will be an hour so I'll make sure.

Should you need assistance. Please signal conference specialist for casino starchy called buys your.

After todays presentation, there will be an opportunity to ask questions to ask a question in my press Star then one on your Touchtone so well.

<unk>. Your question. Please press Star then too.

Please note. This is being recorded I would now like to turn the conference over to Alistair Baker.

Hi, Scott.

Thank you operator, good morning, and welcome to our discussion of Royal Golds first quarter 2021 results.

Event is being webcast live and he will be able to access the replay of this call on our website.

Speaking on the call today are bill Heissenbuttel, President and CEO, Paul live nurse, CFO, and Treasurer and markets, though executive Vice President and Chief Oh, Dan.

Denbury as vice President of corporate development of RG aging and ready to shop in General Counsel are also available for questions. During today's call will make forward looking statements, including statements about our projections or expectations for the future you.

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

These risks and uncertainties are discussed in today's press release, and our filings are they actually see well also refer to certain non-GAAP financial measures, including adjusted net income adjusted net income per share net debt and not cash reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are available in the press release, which can.

Be found on our website.

I will give you an overview of the quarter followed by Mark with an update on our operating results. Paul will then provide a financial update and bill will wrap up the call with some closing comments well then open the lines for EQM <unk> session now I'll turn the call over to Bill.

Good morning, and thank you for joining the call.

All beginning I would like to remind you that royal gold continues to operate well mostly.

And the coordination of our responses to your questions may be impacted.

I'll begin on slide four.

Our first quarter was a strong start to fiscal 2021, and we recognized record revenue of $147 million driven by solid operating results across the portfolio combined with higher gold silver and copper prices.

Yes volume for the quarter was 77000.

With 85% of revenue sourced from precious metals.

Strong revenue and lower fixed costs of our business produced healthy earnings and cash flow.

Earnings for the quarter were $107 million or $1.63 per share after adjustments, which Paul will comment on in more detail.

Earnings were $54 million or 82 cents per share.

Operating cash flow came in at $94 million.

In addition to the strong financial performance. We also completed two transactions this quarter, both of which carry strategic importance.

The first was the sale of our ownership interest in the peak gold project to Kinross.

Because they can make project when we got involved a few years ago trade low risk Ernie and arrangement.

We always had the strategy was to advance the project as far as we could and I transfer our ownership to a company with the experience the commitment to the highest environmental and social standards and the financial strength to move the project forward from there.

We worked over the past five years to define the value of the resource.

Time came this year to transfer our interest to a company with permitting development and operating capability.

Kinross with a long and successful history of operating responsibly in Alaska was the ideal candidate.

We received cash of $61 million for our project interest and equity in our JV partner and we also received additional royalty interest on the peak gold land package, which is in line with our core business.

So not only are we able to refocus our efforts on our core business. We may see a shorter time period to recognition of royalty revenue.

Given the Kinross it integration plan, but fort Knox could shorten the permitting time relative to a standalone project.

Well, we don't intend to direct ownership in projects again, we believe our approach at peak was successful and we remain exposed to this high quality project through royalty interests consistent with our strategy.

The second transaction in the quarter was the separation of the original Golden Star agreement into two strings to allow the sale by Golden Star of the Prestea in bogus, who mines to future global sources.

This transaction is designed to maintain the value of Royal golds investment with the end result that each of the Wassa mine and the Prestea Boguski mines are now in the hands of operators, who have sole focus on those operations and have significant reinvestment plans or concepts that should benefit these mines in the long term.

We look forward to seeing how Golden Star executes on its ambitious plans for wassa into.

And to seeing how future global resources improved operating performance at Prestea and Bogoso.

And finally, we continued to strengthen our balance sheet during the quarter.

We repaid $30 million of our outstanding revolving credit facility balance during the quarter and paid down another $75 million in early October after we received the proceeds from the peak sale.

As of October 2nd we had $200 million outstanding on our revolver, leaving us with approximately $1.1 billion with total available liquidity.

I would like to mention one final item in mid September we provided a summary of a potential new transaction on our web site you never and then probably clarified in a press release no agreement had been reached regarding the transaction and no assurance can be provided to an agreement would be reached.

At this time, our resources are focused on other priorities and we will not be providing any further comment at this time or in the future unless a definitive agreement would it be reached.

With that I will turn the call over to Mark for some comments on our portfolio, including an update on progress it called Macau.

Thanks, Phil our portfolio performed well during the quarter in particular throughput at Mount Milligan was consistently strong and given stored water inventory centera does not expect any interruptions to operations in medium term due to water.

Rainy River had an excellent quarter with mill throughput, reaching a record of 27000 tons per day bumping up against the maximum allowable under their existing permit.

Wassa, which I'll speak to that a little more detail in a few minutes also saw record underground production, which approached 5000 tonnes per day.

Now moving on to slide five I'll give an updated the Coleman Cal project in Botswana currently under development by coma Cal copper mining Casey.

At the end of the quarter on September 28, the government of Botswana extended the COVID-19 state of emergency for a further six months from September to March 2021.

Although mining remains designated an essential service called the cat was impacted by travel restrictions imposed as part of the emergency mandate.

[noise]. These restrictions are complicating the movement of national and ex Pat personnel and delays are being experienced in delivery of materials and equipment site.

Well construction and mining activities are generally progressing well there have been some delays in select areas of the project.

Two additional in country lockdowns during the quarter.

Casey Amis monitoring the situation closely and continues to expect shipment a first concentrate late in the third quarter of calendar 2021, consistent with what we reported in our last quarterly call.

Despite these challenges Casey and continues to show excellent progress in advancing underground development and overall construction completion reached approximately 70% at the end of September with 87% of total capital committed.

We made our first contribution TD advanced stream payment on October 5th of 32.5 million and have now advanced approximately 179 million towards the project.

Underground development continues to advance according to plan in the photo on the slide shows the first ore delivery to surface on August 19th and important milestone for the project.

Turning to slide six.

And I symmetric view central minus presented with actual progress shown in Brown together plan development purple.

Development runs generally in a north south corrections, along the strike of the ore body.

As you can see development crosscut, the ore body on the top development level in two areas.

For like full exposure to the mineralization in these locations and was a source of ore shown in preceding slot.

I've shown photos before a progress in the box cuts and here you can see it flow to the central box cut and how it connects to the underground declines.

In addition, I'd like to draw your attention to progress on the return air system shown in Red.

Photograph shows surface assembly of the raised bore machine inside the box cut.

Which will develop the ventilation return airway surface.

Completion of this step is key to establishing a permanent ventilation circuit for the Central mine, which will then be repeated for the other two months.

Good underground development progress is being made across the project the cumulative advance in the three mines, reaching over five kilometers at the end of September.

Turning to slide seven you can see some of the progress it settled mill and on the surface infrastructure.

The total on the top left shows work underway in Jameson sells the photo on the bottom left shows installation surge tank platform.

On the right shows the Comac how bay at the Botswana Power Company substation currently being commissioned this is the tie in to the dedicated project power line that runs from the the settle mail and then to zone, five which will replace the current diesel power units.

Moving to slide eight I'd like to spend a few moments on wassa and some of the work underway by Golden Star.

As Phil mentioned sale of the Prestea bogus, who operation Golden Star's come solely focused on Wassa, which has the potential become a world class operation.

Hold start continue to record and increasing mining rate, which averaged almost 5000 tonnes per day during the September quarter.

They also reported progress on the new piece, Phil plant the electrical upgrade in the Genstar natural gas fired power facility, which are all capital projects expected to support further increases to the production rates commissioning of these projects is expected in the current quarter.

At Wassa Golden Star initiated drilling on up dip extensions at the B shoot and are planning to initiate.

Drilling down dip of the B shoot in the current are coming quarter.

They also expect to complete a P.A. on the expansion of the mine into southern extension area in January of 2021.

Golden Star is now expecting to increase exploration activities on both near mine targets within two to 10 kilometers of Wassa as well as our larger land holdings.

It's exciting to see Golden star's focus on delivering significant growth potential at Wassa.

[noise] at Prestea bogus Sue SGR. His focus has been on continued efforts to establish long hole stoping as a primary underground mining but also.

Also evaluating additional surface oxide material potential open pit mining, we look forward to seeing fcr progress toward reaching consistent production once they've established themselves as the new owner.

I'll now turn the call to call for discussions of the financial results.

Thanks Mark.

I'll turn your attention to slide nine and give an overview of the financial results for the quarter.

For purposes of this discussion I will be comparing the first quarter of fiscal 2021 to the prior year quarter.

We reported record revenue of $147 million on volume of 76900 gold equivalent ounces or geos.

The increase in our revenue when compared to the prior year quarter was mainly due to increased metal prices as the average price of gold silver and copper were up 30%, 43% and 13% respectively.

From a volume standpoint, RG yields were down just under 5% when compared to the prior year, primarily due to lower gold sales from our Mt. Milligan Gold stream.

The lower gold stream sells at Mount Milligan, However were partially offset by higher royalty contributions from Penasquito.

Goal continues to be the most significant revenue driver and accounted for 75% of our total revenue for the current quarter with silver at about 10%.

The contribution of copper increased to approximately 11% compared to 8% in the prior year quarter.

The copper increased in the current period was due to stronger copper cells from Mount Milligan.

<unk> expense for the quarter was $7.5 million inline with $7.4 million in the prior year quarter.

Argent expense, which also includes noncash compensation expense was in line with a typical quarter and is what we anticipate going forward absent any large or unusual items.

Our <unk> expense for the quarter was $46.3 million or $602 per geo upfront.

Up from $480 per G.E. on the prior year quarter.

The increase in our leading expense during the quarter was primarily due to higher copper sales from Mount Milligan and higher gold sales are probably vhone.

Partially offset by lower gold sold and a coil.

The increase in our DNA expense was also attributable to higher depletion rates at Mount Milligan and rainy River, which we also discussed during our prior fiscal year look.

Looking forward, we are forecasting our DNA for fiscal 2021 to range between 590 $640 per Geo.

Exploration costs, which are specific to the peak gold joint venture decreased to $600000 in the current quarter from $2.6 million during the prior year quarter.

The decrease in our exploration costs was primarily due to reduced exploration and advancement activities at site due to COVID-19 considerations.

With the sale of our joint venture interest at peak Gold effective September Thirtyth, we do not expect to incur additional exploration costs in the future.

Earnings were $107 million or $1.63 per share up 52% compared to the prior year quarter.

As Bill mentioned earlier, there were several adjustments to our earnings specific to the quarter, which included a 52 cents per share gain due to the sale of our interest in the Pico joint venture.

A four cent per share gain due to the increase in fair value on our equity holdings, which also included the sale of our equity position in contango or as part of the Pico itself.

At 37 cents per share gain due to discrete tax benefits specific to the quarter.

These discrete tax benefits included the release of an uncertain tax liability related to a settlement with the foreign tax authority any change due to the realizability of certain deferred tax assets held by our Swiss subsidiary.

Finally, the combined tax effects of these adjustments is a 12 cents per share reversal.

After elimination of these adjustments our adjusted EPS was 82 cents per share for the quarter compared to adjusted EPS of 60 cents per share during the prior year quarter.

We had another very strong quarter of operating cash flow as our cash from operations was up 32% to $94 million compared to $71 million in the prior year quarter.

The increase was driven by higher stream and royalty revenue less the cost of sales specific to our stream revenue.

At the end of September we had approximately 36000 geos in inventory, which was higher than the guidance range I provided during our last quarterly call. The increase was primarily due to deliveries that were received earlier than forecasted.

Looking forward to the December quarter, and absent any potential new operational impacts due to COVID-19, we expect stream segment sales to be in the range of 52000 to 57000 Geos.

And inventories for the quarter end to be in the range of 23000 to 28000 Geos.

With respect to our fiscal 2021 effective tax rate, we expect this to range between 19, and 23% absent any unusual or discrete items.

I'll now turn to slide 10, and provide a summary of our financial position.

Our liquidity position continue to strengthen as we ended the quarter with a cash of 413 million working capital afford and $14 million and a net cash position of 138 million.

During the quarter, we repaid 30 million are on our revolving credit facility and in early October we repaid an additional $75 million.

Upon the $75 million repayment early October we now have 200 million outstanding and 800 million available under our revolving credit facility.

Combined with our available cash resources. This provides us with about 1.1 billion of total liquidity.

We believe we have sufficient liquidity to adequately cover our genie expenditures any remaining commitments that call in Macau, and our expected dividend payments for the foreseeable future. However.

However, we also remain cautious with respect to the operating environment among potential COVID-19 impacts.

We remain committed to reducing our debt and absent the requirement to fund any new business opportunities, we expect to manage our debt levels. Accordingly, once the operating environment returns to normal.

With respect to current account, we made an $11 million advance payment in July a 32, and a half million to our advance payment in early October and have now contributed $179 million towards the project.

We expect to contribute a further $33 million to $86 million to the street and depending on whether Casey m. exercises its option to increase the stream rate and raised the advance payment from $212 million up to $265 million.

The remaining payments will be made on a quarterly basis and in proportion to the total capital spend at the project.

We expect these remaining payments will be weighted towards the first half of calendar 2021, 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.

Financial and operating performance in the first fiscal quarter provided us a strong start to fiscal 2021.

Our portfolio is performing well and our balance sheet is in excellent shape.

We expect the current macroeconomic climate to remain positive for precious metal prices in the near term.

And while the recent gold price strength is good for our underlying business. We're also mindful of long term returns as we consider new business opportunities.

In the meantime, the stronger gold prices, increasing the value of Optionality in our portfolio for.

For example in Australia, we are seeing some interesting developments at Red Fives King of the Hills project, where we have a 1.5% NSR on a 16 year life 2.4 million ounce Gold reserve with first production targeted in mid calendar 2022.

Again in Australia, Bellevue gold is aggressively exploring and adding to the 2.3 million ounce resource at their Bellevue Gold project, where we have a 2% NSR.

And finally at peak gold, we have a 3% NSR on the area, where Kinross is targeting to start production in 2024 of 1 million gold equivalent ounces over a four and a half year mine life.

I think we're in a great position and I look forward to maintaining discipline and focus while we continue to deliver results for all shareholders operator.

Operator that concludes our prepared remarks I'll now open the line for questions.

Speakers. Your lines are now open we will now begin the question and answer session ask your question you know press Star then one on your Touchtone phone.

Sorry. Your question. Please press Star then too.

At this time, we will pause momentarily to assemble our roster.

And then if you'd like to ask a question. It is star then one.

Hey, it looks like there.

No questions at this time.

So.

Unless anyone has a question it is star one.

So no questions here I would like to turn the conference back over to Bill Heissenbuttel for any closing remarks.

Thanks, operator, and thanks to all of you for taking the time to join US today, we certainly appreciate your interest and Royal Gold and we look forward to updating you on our progress during our next quarterly call.

Thank you.

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