Q4 2021 Royal Gold Inc Earnings Call
Good day and welcome to the Royal Gold fiscal 2021 full year and fourth quarter Conference call. All participants are in a listen only mode. Shutting you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question.
You May press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded.
Now like to turn the conference over to Alistair Baker, Vice President of Investor Relations and business development. Please go ahead.
Thank you operator, good morning, and welcome to our discussion of Royal Gold's fourth quarter, 'twenty 'twenty, one fiscal year results.
This year. This event is being webcast live and youll be able to access a replay of this call on our website.
Participating on the call today are bill heightened bottle, President and CEO, Paul Lindner, CFO and Treasurer, Mark <unk> Executive Vice President and C. O O Royal Gold Corporation, Dan Breeze, Vice President corporate development.
D E G.
Randy Schatzman General Counsel is also available for questions.
During today's call, we will make forward looking statements, including statements about our projections and expectations for the future. These statements are subject to risks and uncertainties that could cause actual results to differ materially from these statements.
These restaurant uncertainties are discussed in yesterday's press release, and our filings with the SEC.
We will also refer to certain non-GAAP financial measures, including adjusted net income adjusted net income per share and net cash.
Conciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are available in yesterday's press release, which can be found on our website.
Yeah, I'll give you an overview of the fiscal year, Mark will provide a portfolio update Dan will review the recent transactions and Paul will provide a financial update after closing comments from Bill we'll open the lines for a Q&A session now I will turn the call over to Bill.
Good morning, and thank you for joining the call I'll begin on slide four fiscal 2021 was an excellent year for Royal Gold.
We accomplished a number of strategic objectives during the year and in the short period since June 30th and then an environment that continues to be impacted by Covid 19.
Financially, we had an excellent year and turned in records for revenue of $616 million.
Cash flow of $407 million and earnings of $303 million.
On a per share basis earnings for the year were $4.61 or $3.59 after adjustments.
With respect to the portfolio and our growth profile. We also achieved some important goals.
We strengthened our focus on our core business by divesting the man show project, formerly known as peak gold Kinross.
We continued to fund the development of call Macau, where we now have an 84% silver stream on an asset book saw first concentrate production in June and.
And we made three acquisitions that are gold focused with good operators, good jurisdictions, and most importantly geologic and production upside.
We renewed our revolving credit facility extending the maturity by two years and securing a source of non dilutive financing for our future acquisitions.
I would like to personally thank all of the lenders in the facility for their support of Royal Gold.
We raised our dividend for the 20th consecutive year, continuing a tradition of increasing capital returns to our shareholders.
We made good progress advancing our ESG initiatives.
Aborted not only the communities in which we work.
But also committed to meaningful programs with our partners at Wassa and Pueblo Viejo and found a creative way to fund ESG programs as part of the Nx Gold stream transaction.
We remain committed to the long term sustainability of our portfolio operations.
And we are looking for more of these kinds of investments in the future.
We continue the renewal of our board and we welcome Toby on the Chubs is our newest director upon the retirement of first Thomson.
We believe the board renewal is an important part of good governance and five of our six independent Board members have joined the board in the past eight years.
And finally this will be our last June 30 fiscal year end.
And we will move our reporting timeline, so as to be more consistent with the rest of the industry by changing our fiscal year end to December 31.
We think this is an important changes that will allow investors to more easily evaluate and compare our performance against others in the industry.
I'm very pleased with the progress we made in fiscal 2021.
We ended the year in a great position.
With that I'll first turn the call over to Mark for an overview of operating performance and post portfolio updates.
Dan Breeze give you some background on our acquisitions.
And then turn to Paul who will lead you through the company's financials.
Mark.
Thanks, Bill I'll start on slide five solid quarterly operating results finished off a year of strong portfolio performance precious metals dominated revenue for the year and gold accounted for 74% of the total.
G E O has increased 32% from the fourth quarter of physical 2020, with most of the increase driven by the royalty segment.
Royalties provide our highest margin and increased performance from this segment can lead to very positive impacts on our financial results.
We saw large royalty PEO increases from Cortez as mining ramped up the crossroads and at Penn have skied L where production from the pyrite Leach plant significantly increased over the year.
While these assets are the biggest contributors in the royalty segment, the combined impact of increases from smaller assets like Boise State Canadian Mill, Arctic Dolores and Robinson was also significant to the portfolio.
Revenue, which was up 40% from the prior year quarter had a strong tailwind from rising metal prices, however, holding metal prices constant shows that about half of the revenue increase from the prior year quarter was due to production volume increases further supporting the strong portfolio performance for the year.
Moving on to slide six I want to mention progress at co Macau, our most significant development project.
First concentrate was produced eco Macau on June 30th followed by first concentrate shipment on July 19th.
Nicole Macau team achieved first production on schedule and within 3% of the budget, which is a major accomplishment in light of the Covid 19 challenges.
We expect to receive silver deliveries from for shipment later this month.
Well the line was officially opened by the President of Botswana on July 30th the project remains in the commissioning phase coma, count copper mining or K C. N expects production to ramp up during the remainder of 2021 and reach steady state production in early 2022 <unk>.
Commissioning is going well and at the end of June over 350000 tonnes of ore was stockpiled on the surface, but it's too early to provide any delivery expectations for the September quarter and will provide a further update on our next quarterly call in November.
As discussed last quarter at the beginning of April we provided a further $10.6 million towards the silver stream and $18 million in debt financing and at the beginning of July we provided a further $7 million and definitely dancing. So in total we have now contributed $222.6 million.
And stream funding and the full $25 million debt facility.
K C. M has a further $42.4 million available under the stream our stream stands at 84% of payable silver.
And Casey M has advised that they don't expect to draw any material amount from this remaining available stream funding.
Turning to slide seven I'll quickly you mentioned some of the other developments in the quarter.
The level of VA hope very continues to advance plant in tailings expansion project.
Ported that overall process plant engineering is about 87% complete while construction is 10% complete and they expect to complete the process plant expansion by the end of 2022.
Social environmental and technical studies for additional tailings and waste rock storage capacity also continued to advance.
Post expansion Barrick is expecting gold production to be maintained at approximately 800000 ounces per year on a 100% basis until the mid 2000 and forties.
With respect to silver recovery Barrick has completed maintenance on the silver circuit and recoveries have improved.
Barrick is also working on modifying a circuit, which should further improve recoveries.
At the end of June deferred silver deliveries under our stream totaled 437000 ounces.
And with the recovery improvements, we expect deliveries of deferred ounces to begin in the current quarter.
As I said last quarter. This is a cash flow timing issue for Royal Gold and we don't expect these deferrals to have any lasting impact on silver revenue.
Turning to Mount Milligan Sentara has reported good results from brownfield exploration on targets below the pit limit and along the south and south eastern margin of the pit.
Since <unk> announced in May that they're completing an update to their life of mine plan taking into account exploration success productivity improvements flotation circuit enhancements that are being implemented and operating cost reductions that have been achieved we look forward to seeing the results of the update.
Centennial also provided an update on the water situation earlier this week during the June quarter. They continue to access groundwater and surface water sources and they currently have over 8 million cubic meters of water in inventory, which they expect is sufficient to provide for at least 12 months of continued operation.
Work is also continuing on a longer term water supply solution and they recently received an environmental assessment Certificate Amendment and related permits to access water sources through November 2023.
I'll now turn the call over to Dan to comment on our recently closed acquisitions.
Thanks, Mark we recently completed three transactions that are aligned with our strategy and fit well within our portfolio.
Each will provide solid growth potential for Royal Gold will give a brief overview of each in the order of closing I'll start on slide eight with a coach a gold royalty, which we acquired in June 7th from a third party royalty holder for $75 million. The Kochi Gold project is located in northern Ontario and is currently under development by I am Golden there.
Partners Sumitomo metal mining.
<unk> is being developed as an open pit mine and I am gold estimates gold production of almost 500000 ounces per year for the first five years with a mine life of at least 18 years. The project is about 27% complete and work. This year is focused on Earth works pre stripping and water management infrastructure. The project is fully.
Funded and I and gold is targeting first production in the second half of 2023 or 1% MSR royalty is on the Chester three claims which cover approximately 70% of the current $7.3 million ounce reserve as well as large property blocks to the east and northeast of the main deposit.
This royalty gives us exposure to a large and long life project with interesting exploration potential in a tier one jurisdiction.
Moving to the Nx gold stream on slide number nine we announced this transaction on June 30th and closed it on August six.
The Nx Gold mine is located in the Mato Grosso state in Brazil, and is operated by <unk> copper.
We made a $100 million advance payment and returned 425% of the gold produced until 93000 ounces have been delivered and then 10% thereafter, we will pay 20% of the spot price for each ounce delivered until 49000 ounces have been delivered and then 40% thereafter, we also committed to make an additional advance.
Payments of up to $10 million to incentivize <unk> to continue exploration and add resources to the mine plan.
One of the attractive aspects of this asset is the large land package. Our stream covers an area of interest of more than 52000 hectares with excellent exploration potential arrow is currently undertaking a large exploration program. Both at the mine and regionally and has a 60000 meter drill budget for 2021.
The transaction announcement Arrow has already shown some interesting results with the best intercept to date located 10 meters beyond the limited 2020 resource shell grading 22 grams per tonne over nine meters.
We have also identified two mineralized gold systems located one point to 25 kilometers from the mine workings that in each case, our within our area of interest.
The other aspect we like here is the underutilized processing capacity at the mill is only running at 60% capacity.
And there is potential for higher gold production, if aero can fill the mill and use the excess available. This stream provides exposure to immediate cash flow from an asset with excellent upside potential and we expect to receive a first delivery of about 2500 ounces tomorrow covering production for me the first through closing.
Moving to slide 10, I will mention the 1% and a certain royalty on the Red Chris mine.
Red Chris is a producing open pit copper gold mine in northern British Columbia, It's owned by a joint venture between Newcrest Imperial metals and is operated by Newcrest Newcrest acquired its interest in 2019 and has undertaken a program to develop the underground potential with the aim of converting red Chris to me.
Block cave operation in the next five to six years Newcrest goal is to transform red Chris into what they define as a tier one asset which includes attributes such as the 15 plus year mine life.
And the likelihood of significant resource exploration upside.
The royalty we acquired covers 5100 hectares and includes all known organization and prospective exploration areas on the porphyry corridor, which provides our shareholders with exposure to excellent longer term resource upside. The royalty is paid annually in the first calendar quarter of the year and we are entitled to royalty payments for <unk>.
All of 2021, starting from January the first.
Slide 11 shows a good three D rendering of the open pit and the resources at Red Chris from a recent newcrest presentation.
Newcrest continues to do a significant amount of exploration and is defining a world class deposit with a $1.2 billion tonnes of resource containing 15 million ounces of gold and more than $4.3 million tonnes of copper the.
The deposit is defined to date is approximately 300 meters wide by 3.4 kilometers in length and 1.3 kilometers in depth and the resource is based on the Gully, Maine East zones.
<unk> for the main zone has confirmed potential for higher grade mineralization beneath and to the southwest of the pit. The recent discovery of higher grade pod at the East Ridge target expands the footprint of the higher grade mineralization across the eastern end of the deposit highlighting the potential for resource growth overtime.
Newcrest has plans for further drilling to define the extent of the East Ridge East zone. It means one areas and work is underway on an exploration decline.
Lease of both the pre feasibility study and an initial ore reserve are targeted for September <unk>.
These three acquisitions all fall squarely within our strategic objectives are providing gold focused revenue significant production and exploration potential and with that I'll turn the call over to Paul to discuss our financial results.
Thanks, Dan I'll now turn to slide 12, and give an overview of the financial results for the quarter.
This discussion I'll be comparing the fourth quarter of fiscal 'twenty 'twenty, one to the prior year quarter.
We set another record for revenue during our fourth quarter, we recognized a 40% increase in our revenue to $168 million on volume of 92400 gold equivalent ounces or G. E O S.
The increase in our revenue was largely due to higher average metal prices higher gold sales from <unk> and higher copper sales from Mount Milligan.
Strong contributions from our royalty portfolio also contributed to our record revenue this quarter <unk>.
Specifically, we saw strong performances from our pinnace keto Cortez and Boise is very royalties.
These increases were partially offset by lower gold sales from Mount Milligan, and Laura silver cells from publicly Hill.
With respect to metal prices, the average price of gold silver and copper increased 6%, 62% and 78% respectively over the prior year quarter.
Gold continues to be dominant in the portfolio at 76% of revenue, while precious metals accounted for over 80% of our revenue for the quarter.
Cost of sales, which excludes DD&A and if it was specific to our streaming segment increased to $24.7 million from $27 million in the prior year.
The increase was due to higher metal prices and higher stream sales during the quarter.
Our G&A expense increased slightly to $7.2 million and was primarily due to royal Gold's, increasing community and social contributions as part of our overall ESG initiative.
Our G&A expense was again in line with what we expect in a typical quarter absent any large unusual items.
Our total DD&A expense increased to $48 million, primarily due to higher G E O volumes.
However, the higher G. Youll volumes were partially offset by lower depletion rates at some of our principal properties, which we also discussed on our last quarterly call.
Our DD&A expense on a dollars per G E O basis for the quarter was $520 per G E O compared to $648 per geo in the prior year.
And below the 525 to 575 dollar DD&A per Geo guidance range, we provided last quarter.
The lower DD&A per G O when compared to our earlier provided guidance range was largely due to the better than expected contributions from our royalty portfolio.
As most of our royalties I've been in the portfolio for many years, they don't have lower overall carrying values and lower depletion rates.
Earnings were $82 million or $1.24 per share an increase of 67% over the prior year quarter.
We had two adjustments to our earnings this quarter, the first and largest adjustment was an $11.5 million or <unk> 18 per share tax benefit due to the release of an uncertain tax liability, resulting from a settlement with the foreign taxing authority.
The second adjustment was the $2 million or <unk> <unk> per share gain on the change in fair value of our equity securities.
After removing these two items our adjusted earnings were $1 four per share for the quarter.
We reported operating cash flow of $129 million this quarter, which was also a record for Royal gold.
Our operating cash flow was up $29 million from the prior year, which was due to higher proceeds received from both our royalty and stream interests.
Moving on to slide 13, I'd like to make some comments about guidance in a change to our fiscal year end.
As Bill mentioned this will be our last fiscal year ending in June and we will be moving to calendar year end reporting effective this coming December 31st.
The six month stub period between July one and December 31, 2021 will provide a transition period for us to move to the new calendar year reporting and we will start our calendar 2022 reporting on January one 'twenty 'twenty two.
As part of this change in your reporting we expect to begin providing one year guidance for total portfolio of G. E O cell's DNA per G O and our annual effective tax rate early in the second quarter of each calendar year.
This will replace the quarterly stream sales and inventory guidance that we currently provide to the market.
To help you transition over to our new guidance process and reporting we are providing both stream G. E O sales guidance for the September quarter, and total G E ourselves and DD&A guidance for the six month stub period ended December 31, 'twenty 'twenty one.
With respect to our stub period effective tax rate guidance. It is a bit too early for us to provide the information at this time, but I expect we can provide this guidance on our next quarterly call.
For the September quarter, and absent any potential operational impacts from Covid.
We expect stream segment sales to be in the range of 62000 to 67000 G E OS.
And inventories for the quarter and to be in the range of 22000 to 27000 G E OS.
For the six months stub period, and again absent any potential operational impacts from Covid. We expect total G. E O sales to range between 175000, and 185000 G. E OS while we expect our DD&A to range between 520 and $570 per G E O.
The G E O and DD&A stub period guidance assumes metal prices of $17.50 per gold $25.50 for silver $4.15 per copper $8 for nickel ninety-five sensor life and a dollar twenty-five for zinc.
I will now turn to slide 14, and provide a summary of our financial position.
Our liquidity position continued to strengthen as we entered the quarter with zero debt cash of $226 million and working capital of $245 million, including the Undrawn $1 billion revolving credit facility, we had over $1.2 billion of liquidity available as of June 30th.
In early July we amended our revolving credit facility. The amendment extended the maturity of our credit facility from June 'twenty 'twenty four to July 2026.
We view the credit facility is a key strategic tool for financing growth and extending it for a further two years ensures we will continue to have low cost and flexible capital available.
As part of the recent business development successes that Dan discussed in his remarks.
Earlier this week, we drew $100 million on our revolving credit facility to help finance these new stream and royalty interests.
Upon this draw we now have $900 million available to further help finance future growth.
Assuming continued strong operating cash flows we do anticipate repaying the $100 million advance over the next one to two quarters also absent any new business development success over the same period.
With respect to our outstanding commitment under the coma Cow stream agreement as Mark mentioned, we currently have $42.4 million available. The case him if required until the earlier of development completion or 60 days. After the start of commercial production that comes out.
And as part of the New Nx Gold stream. We also have potential payments of up to $10 million from calendar 'twenty 'twenty two through 'twenty 'twenty four depending on Aero copper meeting certain exploration and resource targets.
Upon any election by case him or Aero copper for further funding, we anticipate making these contributions from our available cash resources.
That concludes my comments on our financials for the quarter and I will now turn the call back to Bill for closing comments.
Thanks, Paul in closing fiscal 2021 was an excellent year for Royal Gold and I am pleased with the progress we made on many fronts from enhancing our growth profile and securing long term committed financing sources to supporting the ESG efforts of our operators and finally to continuing the long tradition of rich.
Turning capital to shareholders at an increasing rate.
I would like to thank our staff and our board for their effort and support as we continue to navigate through an uncertain pandemic world.
We have shown ourselves to be adaptable to each new normal we have encountered and I remain confident we can still build on our success as the environment continues to change.
Operator that concludes our prepared remarks I'll now open the line for questions.
Thank you we will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
The first question will be from Tyler Langton of JP Morgan.
Yeah. Good morning, Thanks for taking my question I guess, starting with with Red, Chris obviously sort of the longer term potential for the mine them. It's just in its ability to kind of to move underground ultimately I guess could you just talk a little bit now about what kind of gives you the confidence.
Have you know an ability of the operators are to do this.
And then also just as a related kind of key milestones to look for Hum sort of learn more about the sort of the longer term plan for the mine.
Yes, Tyler thanks for the question.
This is bill obviously, the first milestone is to report that's going to come out next month.
But beyond that I, just yeah, I realize it can be a little hard for folks to value.
I'll go back to some of the comments I made at the beginning we see this as a great asset great operator, great jurisdiction. So to me, it's a it's a premium multi decade asset.
We've known numerous major mining companies have tried to purchase it over the years. So clearly there's something well beyond the open pit that you see there.
So we did you know we did come up with a with a long term mine plan.
I kind of refer he knows there's a comparison newcrest did to Acadia and that sort of was always in the background of our thinking but I thought what I might do is turn it over to Mark.
And just ask him to.
Maybe give you a few thoughts technically how we went about creating our mine planning and evaluation.
Yeah sure. Thanks Bill.
I think there are probably three points to start off with I mean, we certainly view long term is it's a bulk tonnage underground operation that's going to produce a well above the 30000 tonnes a day that you currently process out.
I would note that our imperial metals talked about 60000 tonnes a day back in 2017, and some presentation materials, we've certainly taken a more conservative views in that.
But I think it gives you a little bit of a perspective on the potential.
The second point and I think it's very important that are that are the deposit has several higher grade Oh core resource areas to find in the underground as the underground resource and that that really is the key I think to our to the value proposition for <unk> for <unk>.
And of course for a royalty is being able to start out in something like the east zone and now we see the East Ridge zone, developing with a a nice core of high grade material.
We see the.
A block cave being developed around it and east zone.
Or potentially in east Red zone.
As it develops historic reports you know from that Imperial metals. They used to differentiate between main zone and East Zone resources and you can really see that theres a significant grade difference between the what the East zone offered there it is.
It's 20% higher in copper grade and 40% higher than gold grade in the main zone. When you compare east zone the main zone.
And then finally I guess, what we see as the this.
These higher grade zones will allow the development of of the bulk tonnage underground and that that development will put in infrastructure that will allow lower margin material in the long term to be developed.
<unk> developed.
So I think these those three aspects and up.
Culminating in in some very simple.
Buckets of production that we see we see about the early period, which is for about the next seven years to produce at a very similar rate to what they're doing now.
Ground will get developed.
<unk> put in place it'll start to ramp up period, but you can think of you know seven years of current production, we see it we see a period of <unk>.
The range of about 18 years, where production will be about 200000 ounces of gold a year and 170 million pounds of copper and that's when the the east zone.
Dave or a another higher grade area will be dominated in the production profile and then following that you know out to probably about a.
Your 40, you would end up seeing production dropped down from the from the higher grade period to roughly about double what the production is that youre seeing today at the mine site. So that's the way we looked at our you know the development of the asset the production profile.
And the valuation.
Does that help you.
That's perfect. That's very helpful. Thanks, and then just just for a second question just on Pueblo Viejo I know you had the he says the roughly 437000 ounces that were deferred so that was kind of.
Kind of flow in roughly evenly over the next several quarters and then I know sort of the silver deliveries or sort of one 5 million ounces. This.
This year compared to one seven and 2000 Twenty's, we when we look for.
For 2022 should we sort of see a rebound.
And those numbers.
Bill you want me to take that yes, Mark why don't you. One why don't you talk about that when we think the deferral deferred ounces might come in.
Yeah Yeah.
Yeah. So so we know that our that the site has taken care of their maintenance issues and we see the the silver recovery.
Improved to a level that that will not require any additional deferral in silver.
If that continues which we would expect it to continue so we would we would see silver deferred silver ounces starting in the September quarter.
And I think thinking about it on a on a regular return basis.
You know for certainly a eight well well into and maybe towards the end of 2022 is the way I would think about it but if if they get better recoveries than we modeled.
It may be a bit sooner than that but that's the way I would think about the silver coming back to us.
Alright, great. Thanks, so much.
Yeah.
Thanks.
The next question comes from Josh Wolfson of RBC capital markets.
Thank you thanks for making by our wildest dreams come true both the changing your fiscal year end and also providing a more comprehensive guidance. So congratulations on that.
For the second half of the year I would've expected production to be a little bit higher it looks like it's kind of more steady state from what the first half wise and I say that because PV improvements Cortez is ramping up.
And then the most recent annex at transaction.
You know are there other offsets against these items or is there some conservatism baked in or maybe timing differences on on on streaming volumes.
Yeah I got to work on your dreams, if we just made.
[laughter] no no I don't I don't think there's anything in the portfolio that we would point to that we expect to to drop out I do think it comes milligan inadequate so important to us.
Our volumes and its really dependent.
Great shipping and.
Something up.
Something that ends up in inventory, maybe we thought it was going to be in sales and I. You know I think there we might be a little bit conservative, but there's nothing I'd really point you to the range. We gave is an increase over what we did for the first month of this calendar year.
Okay, Yeah, I guess, maybe.
Maybe it depends where in the range, but yes, that's fair.
Now looking at the investments that were done you know this is the most active rate of investment I've seen the company and since I think 2015 or so at that point in time.
Diversification was a pretty important strategy and obviously the prices of commodity or much lower today than it is there is there a coincidence that we just saw kind of three transactions announced.
Over a pretty short period of time or is there maybe a bigger vision or strategy.
That said, that's taking place than they were in the earlier stages of.
Well I may disappoint, you with answered, but it's pure coincidence.
We can't time these things we've got we've said that.
For years.
We can go years without making an investment in all of a sudden you see this flurry. So there's no change to the strategy, there's no change to our approach.
I can tell you the business development team and therefore are operate in have been extremely busy we're extremely busy.
Through this year and we were we were successful in getting three across the line, there's no magic to it.
Got it Okay, and then focusing on the on the Coty deal could you could you let me know.
How does it work for Canadian royalties.
Paying the Canadian tax rate or is it U S tax rate and also does.
That's the royalty incorporate the potential goslin resource.
I'm Gonna.
Let me take the last part first it does not include the goslin.
And as far as tax rates go.
Paul do you want to take that on.
Yeah, Hey, Josh Yeah. The royalty is paid in Canadian dollars and will be subject to Canadian tax.
And but you know overall the tax rate that you know we have during the period as you know you can still plan on a 19 or 23% effective tax rate.
We will not be accruing, yeah, we're not contractually entitled to.
The royalty calculation, so there will not be any accruals for.
The royalty payments are instead, you'll see the royalty being recognized in the period that is due which I believe is the march 31st quarter.
Got it okay.
And that's what you're saying on an annual basis just to be clear just for that yeah. That's on an annual basis and it's I believe it's been $3 million to $5 million I want to say over the past few years and getting paid in Canadian dollars. Obviously, we're a U S functional currency. So there will be a little bit of <unk>.
<unk> to U S dollars upon that time as well.
Great. Those are all my questions. Thank you.
Yeah.
The next question comes from Cosmos <unk> of CIBC.
Hi, Thanks, a bill Paul Martin and Alister.
Yes, I should've same dreams as Josh So I'm going to thank you for changing the fiscal yearend as well.
Maybe first off on all Red Chris.
I guess my question is given that you acquired the royalty from a third party what kind of access to data did you have to get comfortable without doing a due diligence process and as you said looking at the asset beyond the open pit today.
Yeah, before I turn that over to mark for a bit more detail on the process and you know who we might have hired to help us go through it.
Anytime we're buying a royalty from a third party, we're dealing with public information.
And I will say, it's no different than what we did at <unk>, It's no different than what we did when we bought the barrick royalty portfolio or international royalty.
And many of those cases, there were there were 43.100 ones, but in some cases their work.
And we were sort of like my estimate. So this is nothing new.
Two to us.
And would that Mark do you want to just sort of run through and it may be a little bit more detail, what what you looked at who we might have brought it into to help.
Okay.
Yeah sure Bill, Yes, it's a good question and it's certainly a lot more difficult looking at a third party royalty, but we did bring in a block caving experts are.
But provided just the guidance on how to think about our production rates.
From the from the resource models now, we we had only public information some technical reporting and some resource estimates and presentations, but from those yeah. We were really able to understand what the shape of the ore bodies underground where the high grade was in from those shapes.
We were able to.
To put estimates together on how we should think about or how we felt newcrest would think about a block cave development and basically give our best estimate of that.
And so that's how we ended up going about looking at that there's not a lot of there's not a lot of rocket science. There Hum, it's really trying to find an expert that can guide us on how to think about it.
From really ore body shape grade.
Production rates standpoint.
And that's what we did.
Yeah. Thanks, Mark Yeah of course, yeah, I only asked that question because as.
As you said this one's a bit more challenging because I guess the next data point hasn't come out yet the PFS. Unlike some of the other ones that you might have mentioned in terms of third party acquisitions, but it's good to hear you know in terms of the process that you went through.
I guess my next question is it all in terms of Red Chris on a go forward basis, what are your audit rights in terms of your loyalty and then to your knowledge is this the only a royalty. That's currently in place on Red Chris and then I guess the last follow up is.
Is this the beginning of a new relationship whereby this could lead to potentially a further.
More direct.
Acquisitions of royalties on the asset.
On a go forward basis.
Dan are you comfortable taking the.
The royalty contract question.
Yeah, sure Hi, Hi, Cosmos, it's Dan Youre up Youre down thanks.
Thanks for the question.
So sorry, just to be clear the question, maybe we'll take the last question first.
Asking about.
If this continues typically with glencore or with just third parties in general.
With with actually knew across our imperial.
Like could you could this actually lead to you know.
Further acquisitions on a red Chris.
If I'm looking out.
Well, it's certainly something we would be very interested in I don't know if there's real visibility on that yet. Obviously this is this is a third party.
We acquired it from and so our interactions with the operators have been.
It had been limited to this point, but certainly if there is a need for capital down the road.
We would be very interested to help out.
And help us with the development in particular, it's.
It's exactly the kind of asset that we'd like to deploy more capital into so we'd be open to that for sure.
And that's why hence the first part of my question is I shouldn't really asked these questions one by one instead of having like multiple parts, but and that's the reason why I asked about potential audit rights into the future. What do you have more interaction with the operator in this case and then also is this the only loyalty.
That you know of Red Chris.
So that you could actually have more royalties on.
I understand yeah, so as far as I know, it's the only royalty on on on Red Chris that we are aware of.
And we have pretty standards audit.
Audit rights in terms of looking at payments the payments I think Paul was talking only about visits it's.
It's an annual payment.
Payment comes in in the first quarter of the calendar year. The following calendar year, it's paid in Canadian dollars.
And we would have some water rights there, but that will allow us to have some interaction with the joint venture level.
Mhm.
And Cosmos. This is Paul I mean, I may just add to that yeah. You know the operator, they are required to deliver to us the royalty statement or calculation.
During that March quarter.
And that that that calculation does need to be certified if you will by you know an independent type accounting our accounting firm.
We also will have audit rights to that calculation, which will go beyond that and covers for a year. After the calculation is received.
Great. Thanks, Paul and Paul since I have you here could you maybe just quickly touch on the structure of the royalty and the tax rate that we should apply to it.
Yeah, and yeah. So again the royalty is held by our Canadian subsidiaries are generally taxed at a.
A minimum of 26, 5% so their tax of the Canadian rate up there and.
You said structure. So yeah. It is held by our Canadian subsidiary, So again taxed under that environment.
Perfect.
Maybe just one last question here I think I think Dan you kind of touched on it.
But as the.
The previous comments, you've been very active yeah.
Aero copper gold like Red Chris.
100 million 75 million $160 million is that the kind of size that we should be looking for in terms of our.
Future acquisitions, and then you know you kind of touched on it as well clearly.
All gold acquisitions any other commentary that we can.
Still from these acquisitions and would that provide any kind of insight into our future acquisitions.
Yeah, Cosmos I'll I'll take a crack at the what what do these acquisitions signify is is just being consistent.
With the strategy of focusing on gold.
We we have said before if we find something outside of precious metals that that we find attractive.
We're not going to hesitate to do it but when we're when we're actively looking for opportunities. If we can find something that's cold or precious metals, that's that's where we want to want to spend our time.
So I hope the market looks at and says yeah. That's what they said they would do and.
We don't we don't feel the need we don't we don't see a need to try to diversify to find opportunities. We're finding opportunities in our core area and as far as the size of the acquisitions I think we've we've been talking about sort of 100 to 500 million for for a number of quarters.
So a couple of these are at the lower end, but are.
Youre going to I think youre going to find more opportunities in that range. Then you are the the <unk> 900 billion dollar.
One, but look we're well positioned for those two wondering if they come.
Uh huh.
Thanks, Bill and team I was all the questions I have thanks again.
The next question comes from Greg Barnes of TD Securities.
And thank you Mark I just wanted to clarify some comments about the.
Red Chris production levels, we are talking about them. So the first.
Seven years is more or less what you have now.
Then it would be 18 years following that are the 200000 ounces of gold and 107 million pounds of copper.
Under our 170.170 million pounds of coffee is right.
18 years on top of the first seven and then back to double.
The current production right off the bat.
That that's a that describes how.
Yes, okay. So.
So just roughly on.
$17.50, gold and $3.50 copper.
I'm getting about $9 million to $10 million a year in revenue pretax two to Royal gold does that.
Sounds about right.
When you've got to full production from the block cave.
Alastair, let's see that is roughly correct, but I think as analyst or may have a more precise number at his fingertips.
It's Dan here, Greg that's correct.
The ballpark and consensus numbers.
Okay.
And just.
As the mine evolves the block cave when that's in full production cannot open pit continues to run or is that no longer possible given you'd be block caving underneath it more or less I think.
Yeah, we we assumed that there would be a little bit of an overlap period, but once the block cave is approaching.
You know.
Full production, the <unk> or the open pit would be.
Pete.
Be shut down.
Okay. So.
Okay. That's very helpful. Thank you those are my questions.
Thanks, Greg.
The next question is from Tanya <unk>.
Scotiabank.
Hi, good morning, everyone. Thank you so much for taking my questions just wanted to come back to them.
Two latest acquisitions that were announced last night I'm just I want to thank you very much for giving us the production profile and how you look at the acquisition.
In terms of you know that the production profile over this period to help us know.
No that newcrest will be coming out with a reserve and a study in September just wondered what made you go ahead, that's a relief.
Was that because that was an auction process in place and something triggered it ticked all ahead of getting that study.
No I don't think the timing was was I.
I don't I don't think they were trying to front run the study.
And I like what.
We have preferred to wait sure, but the opportunity presented itself at a specific.
Period of time.
And again I guess, we have some comfort being able to take the information that's in the public form a view on what we think the production profile is going to look like.
And act on it because we've done it in the past.
If we if we get something wrong I would say it might be a matter of I hope, it's a matter of timing.
Rather than absolute scale, but I I I didn't sense, there was really an opportunity to just sit back and say to Glencore just hold on let's wait for the study to come out.
Okay. So should I take this that that's why it's more of an exclusive transaction between your thoughts on the seller.
I can't say that I don't know I, you know I never know who else is bidding for an asset like this I would assume there were a few people interested.
And and maybe just remind.
Remind me did the operator, the operator, new craft that joint venture partner have a writer first refusal on this royalty yes.
Okay.
Okay.
My question for that one and maybe just moving on to co pay and just wanted to come back to that one then just wanted to kind of have your idea of what you've assumed and that acquisition and in terms of the production profile. There just based on our on the current reserves and mine plan.
And that they've put out it looks like there's limited returns on the royalty. So just curious on your assumptions in terms of outside.
Mark I think that'd be a good one for you.
Sure. Thanks, Thanks for the question.
Yeah, we we looked at our inferred resources within the reserve pit.
And we took a factor on that we also looked at the 500 dollar resource pit shell and felt that.
At at that price that there would be an additional the potential for an additional stage of mining.
With an increased metal price.
We also note that the Oh I am gold talked about going from 36 to 42.
<unk> thousand tons, a day has a future.
Opportunity.
And I think kind of probably on the on the on the other side of the equation, we realized the Gosselin zone is being drilled and we took that into account as it as a potential.
Detract or from our production profile.
So does that.
Help me out on how we thought about it.
Including the inferred resources on that additional stage of mining from what I'm understanding it's more than that 18 year mine life, that's defined what would that be a fair comment.
Yeah that would be a fair comment correct yeah.
Okay.
That's helpful. Thank you for that and if I can come back just to taxes and that's not new.
By far taper.
If someone can help us understand just where your position is on an hour share your views on the global minimum tax proposal, that's being proposed and whether or when it would be.
Enacted and the impact on Royal itself.
Yes.
Yeah, and I think I I think I touched on it a quarter ago that we already kind of have a global minimum tax when it comes to our streaming business and that's the guilty right.
And the.
Between the guilty right our effective guilty rate in the 15% that's being thrown around is it it's not that much so for royal gold.
Self yep.
If that global minimum tax and the guilty right would it be sort of the same.
There'll be no change to our business, but the real key for US is is what will Canada do.
With respect to overseas operations and yeah.
As you know right now there is a tax difference between what our Canadian competitors can do if they do their transactions overseas and what we can if you narrow that gap that's.
That's great.
I hope we get there.
You know the other the other thing obviously, it's going on as you see me very early discussions about a budget and how to pay for the budget.
The guilty rate could go up.
There, but again, if if Canada does implement.
15% minimum tax even if we keep the gap we've got I mean, we know we can compete so.
I don't think global minimum tax itself affects us it really how it doesn't affect our our competitors and you'd have to tell me when you think Canada by Mike.
Approach that subject It act on it.
Okay.
Okay now that's great. Thank you.
Thanks Daniel.
Yeah.
The next question is from Brian Macarthur of Raymond James.
Hi, Good morning, I'll also thank you for changing the yearend as well.
But can I just go back to Red Chris for a minute and that's very helpful. The guidance you've given but obviously this is a very long life asset the real trick I assume is to get the volumes up nearer term.
You know Newcrest does 90000 tonnes a day at other block caves.
I'm not totally familiar with the.
The asset, but instead of you sort of assume 60000 tonnes a day, but it's their geometry that over time.
In the strict sense of that size or.
And I get it you did a base case at 60000 tons. So I'd be curious on your views of what the opportunities are to make that bigger because that could obviously make a big difference. If you bring those put those pounds forward.
Mark over to you.
Yeah sure Oh, I'll, just correct one statement there.
Imperial metals looked at the 60000 ton a day block cave in and our view on that we took a much more conservative view on the throughput or mining rates and then they did.
Well I just pointed out is they ended up putting out a nice 2017.
Discussion on how they conceptually thought about the block cave, but it really comes down to heights of the cave and footprint of the cave on how how fast or how what the production rate is.
We felt very comfortable thinking of in the in the 50 to 55000 ton a day range.
But you know if they were able to.
Potentially look at multiple zones like the East zone, and the East East Ridge at the same time sheets.
She's conceptually if the resource continues to grow I would say, there's certainly some upside opportunity the way youre thinking about it.
They're very creative people they've demonstrated that.
Yeah, and I realize that may not be at the beginning but as you go into those tail in years. The open the whole thing up you're sort of saying there may be its flexibility to go higher than that in the back end years, which obviously.
It's a different because as you said you've got whatever it is 40 years right now if you can bring that forward. It makes a big difference.
That would be correct, yes.
Great. Thank you very much.
Thank you.
Due to time constraints, we will now end our question and answer session I would now like to turn the conference back over to Bill Heiden bottle for any closing remarks.
Well. Thank you for taking the time to join US today and thank you very much the numerous questions. We appreciate your interest.
And we look forward to updating you on our progress during our next quarterly call.
<unk>.
Thank you. The conference has now concluded. Thank you all for attending today's presentation. You may now disconnect your lines have a great day.
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