Q1 2022 Royal Gold Inc Earnings Call
Good day.
Welcome to the Royal Gold September quarter, 2021 conference call.
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I'd 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 September quarter 'twenty to 'twenty one results.
It is being webcast live and you will be able to access a replay of this call on our website.
Depending on the call today are bill a heightened bottle president and CEO, Paul Bodnar, CFO and treasurer.
Mark <unk> Executive Vice President and C O O Royal Gold Corporation.
Dan Breeze, Vice President corporate development of RG AG and Randy Schatzman General Counsel are 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 risks and 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 and net cash.
Reconciliations 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.
Bill will give you an overview of the quarter, followed by Mark with an operating update.
Al will then provide a financial update and bill will wrap up the call with some closing comments. We'll then 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.
Turning to this quarter's results I'll begin on slide four.
This was another great quarter for El Golf performance was excellent once again across the portfolio and we recognized revenue of $174 million gold equivalent ounce volume 97400, and operating cash flow of $130 million all of which are quarterly records for the company.
Earnings for the quarter were $70 million or $1 seven per share.
We had net cash of $60 million at the end of the quarter and subsequently paid down $50 million on our revolving credit facility. We now have $50 million of debt outstanding and access to $950 million of available liquidity under our credit facility.
We received our first silver deliveries from called Macau and after the end of the quarter, we increased our stream percentage to 90% of the payable silver.
Mark will share more details on his recent visit to come back out and we're looking forward to increased contributions as the mine continues to ramp up.
We have also seen recent positive news from the acquisitions, we announced last quarter.
Newcrest published the positive block cave pre feasibility study at Red Chris.
I would like to complement our technical team for its work on our acquisition due diligence our.
Our team's estimate of cumulative G E O production for the next two decades was in line with Newcrest study on this.
Clearly demonstrates a long mine life with good future Optionality.
They're all copper released are there positive exploration results at Nx gold, which confirms exciting near mine and regional exploration potential and construction progress continues at the Cotai project and it is on track for first production in the second half of 2023.
And we continue to progress our work on ESG initiatives.
At rainy River, we entered into a contribution agreements with the Riverside Foundation for health care and the <unk> Center for wellness.
Our partner, New gold and its community outreach efforts in helping to bring new medical equipment and wellness programs to the communities that surround the mine.
We have also achieved net zero carbon emissions for our direct corporate operations during fiscal 2020 with the purchase of carbon credits.
And we received further recognition of our corporate ESG practices with an upgrade in our MSCI ESG rating to double life, which places us in the top tier of companies in our sector.
Finally, I'd like to comment briefly on the transaction announced earlier this week between Golden Star and Chi fan.
We have been aware of this transaction for several months and have had direct communication with she think during that time.
The thing is a $4 billion company with several operating assets in China, and Laos, and they plan to apply their financial and operating resources to the potential Golden Star has identified at Wassa.
Closing of the transaction wont occur until the new year and in the meantime, we're looking forward to further building our relationships with she thing.
With that I'll turn the call over to Mark for an update on our portfolio.
Thanks, Bill I'll start on slide five the portfolio again continued to perform well with record Geo deliveries in the quarter.
Our royalty segment contributed $58 $5 million in revenue an increase of 45% over the prior year.
Presenting about 34% of total revenue for the quarter.
The increase was limited by a court parents were mining has recovered since pit wall stability issues curtailed production, starting late last year, while higher grades and leach recoveries drove improved production during the quarter.
Are there royalties contributed large increases included tenants.
Dolores Robinson and current LP, which is our NPI wherever can mine in Australia.
On the stream side revenue was up 9% over the past year and we received the first contributions from both co Macau and Nx gold.
We also received the first delivery of deferred silver ounces from Pueblo Viejo.
If you recall barrick deferred delivery of silver ounces during the March and June quarters due to equipment issues in the silver circuit the cards recoveries to fall below contractually prescribed levels.
The circuit issues were addressed and with improved silver recovery Barrick delivered approximately 18700 deferred ounces in the quarter.
The balance of deferred ounces has now declined to approximately 418300 ounces.
And we expect these ounces to be delivered over the next several quarters.
This remains a cash flow timing issue from our perspective, and we don't expect it to have any lasting impact on silver revenue.
Turning to slide six I'd like to give an update on Colm Callan Botswana.
I had the opportunity to visit the site in mid October It was impressed with the excellent progress transitioning from construction into operations.
As I have described on earlier conference calls mine development has been in progress since the March quarter of 2020.
Stope ore production began in September with ground conditions or body weights and grades consistent with expectations.
The photo on the slide shows the stopes want drilling operation during the peak.
Mine development has progressed slower than planned and impacted by a few factors, including COVID-19 travel considerations for Doug Pardon me co crews to and from Australia.
The late arrival to site of key pieces of stope drilling equipment, and general issues related to drilling and blasting and the first stopes.
Equipment delivery issues have been resolved and the operational issues with drilling and blasting are also being systematically addressed the mining rate at the end of October reached about 40% of the.
Targeted 10000 tonnes per day.
Stope ore is providing about 50% of the mill feed currently in development is complete to support six months of mining.
With respect to ramp up plans kcl expects the operating rates to steadily increase to 10000 tonne per day target over the next four quarters.
Absent any COVID-19 related issues, Casey and expects to reach about 75% of target by the end of March.
March steadily improve from here.
Oil production in the September quarter.
In the plan progress has been excellent for processing stockpiled ore Casey and have successfully kept at a 10000 tonne per day target processing rate recoveries in October where approximately 85% copper and 81% for silver.
I expect it to improve target recoveries of 88% for copper and 84% for silver.
Concentrate quality has been within required offtake specifications.
With respect to funding slightly all of ramp up cost ACM to review their working capital forecast and they drew an additional $15 $9 million on the auction silver stream in early October taking our total stream interest to 90% of payable silver.
ACM expects this to be the last funding draw from Royal gold absent any changes to the ramp up plan I just described.
Any further funding be required the final 10% of the option silver screen remains available for which we would provide a further $26 $5 million.
On slide seven a few photos from my recent visit going clockwise from the top left you can see some of the recently delivered mining fleet on the surface one of the three finished box cuts.
Equipment maintenance workshop, and finally crushed ore being dumped into the primary crusher, Oregon.
On slide eight again going clockwise from the top left you can see a portion of the 34 kilometers sealed haul road.
Are we in the minds of Zoe imply then settled plant.
But what would your whole truck arriving at the plant.
The flotation cells in the plant and the yard where concentrate bags are being loaded onto a truck for transport to the off taker.
These photos show a water well built mine and I'm impressed with the progress since construction started in 2019, especially considering that most of the development was completed in the midst of a global pandemic.
<unk> is expected to be a key contributor to logo for the next couple of decades, and we look forward to growing stream deliveries as production ramps up over the coming quarters.
I'll now turn to some of the other recent developments at our newest acquisitions.
Starting with Red Chris on slide nine Newcrest or at least the pre feasibility study on the block cave in early October which they describe as a stage one we.
We were pleased to see Newcrest production profile is broadly consistent with how we viewed the minds of potential.
Chris also outlined several areas of upside and Optionality not included in the PFS, including your potential to upgrade the plant and increased throughput.
Potential production for areas that are still subject to exploration.
In particular I'll reference you to the oblique section on the slide Newcrest identified near mine opportunities, including a new higher grade zone discovery southwest of the main zone as well as the East Ridge target.
Greg Chris is a permitted operating mine in a tier one jurisdiction with a world class operator.
Royalty entitles us to continued revenue won't newcrest advances exploration and studies on what should be a meaningful contributor to royal gold for several decades.
Finally, turning to slide 10, the exploration continues at the Nx Gold mine, where nine drill rigs are operating.
In mid October ERO copper announced promising results with his mind split grant and on the regional land package all of which are covered by our area of interest.
The combined infill and extension drilling on <unk>.
<unk> and <unk> the current mining area has extended mineralization down plunge.
15 meters beyond the limits of the current resource shell.
Currently continuity of the high grade mineralization.
<unk> remains open at depth.
But the material.
Drilling continues to extend the known mineral limit the mineralization with apparent secondly at depth and a second parallel structure deck.
<unk> indicated that the matina vein has the potential to become an additional mill feed source, which is currently underutilized.
<unk> expects to include the results of this exploration in our year end mineral reserve and resource update.
To see the continued positive exploration results confirm our investment thesis for high prospects.
Under explored area.
I like Kotte, the Cotai Gold project I am gold continues to advance the construction with overall progress and approximately 36% at the end of September.
Hi, I'm gold stated that they will issue an updated technical report before the end of this year, which will include the results of the mine plan optimization since the 2018 technical support.
The project remains on track for first production in the second half of 2023, I am gold expects production of 489000 ounces per year for the first five years of the 18 year mine life.
I'll now turn the call over to Paul to discuss our financial results.
Thanks, Mark I'll now turn to slide 11, and give an overview of the financial results for the quarter.
For this discussion I'll be comparing the quarter ended September 32021 to the prior year quarter.
Revenue reached a record of $174 million for the quarter, a 19% increase over the prior year period.
We also had record volume of 97400 gold equivalent ounces or Geos, which was a 27% increase over the prior year period.
As metal prices were mixed most of the increase in our revenue was driven by strong operating performances as Mark mentioned in his remarks.
<unk> from our newly acquired Nx Gold stream also contributed to our record revenue and contributed approximately $4 $4 million during the quarter.
With respect to metal prices compared to the prior year quarter. The average price of gold was down 6%. The silver price was flat in the copper price was up 44%.
Gold remains our focus and continues to be dominant in the portfolio at about 73% of total revenue.
The higher copper prices increased the percentage of copper revenue to 14% and silver came in at about 10% of revenue.
Cost of sales, which includes DD&A and it's specific to our streaming segment increased to $27 $2 million from $21 9 million in the prior period.
Kris was due to higher gold and copper sales from Mount Milligan and higher overall copper prices.
Gold sales from the newly acquired Nx Gold stream also contributed to the overall increase during the quarter.
Our DD&A expense was $50 6 million up from $46 3 million in the prior year quarter.
The increase was primarily due to higher gold and copper sales from Mount Milligan higher gold production at Cortez and goldstrike from the newly acquired Nx Gold stream.
These increases were partially offset by lower gold and silver sales from Pueblo Viejo, and lower gold sales from Andy coil.
Our DD&A expense on a dollar per <unk> basis was $519 per <unk> compared to $600 per <unk> in the prior period and below the 520 to $570 per Geo guidance, we provided during our last quarterly call.
The lower DD&A per <unk>, 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 have been in the portfolio for many years. They then have lower all lower overall carrying values and lower depletion rates.
Earnings were $72 million or $1 seven per share a decrease of 34% from the prior year.
The decrease in our earnings was primarily due to a onetime gain in the period prior period of $34 million.
But it all to the sale of our interest in demand show project firmly known as peak old.
Excluding the onetime gain on the sale of our interest in the <unk> project and other discrete tax items in the prior year or prior period adjusted earnings were $53 $8 million compared to adjusted earnings of $70 million in the current year or a 30% increase.
We reported operating cash flow of $130 million this quarter, which was another record for Royal Gold our operating cash flow was up nearly $36 million from the prior period, which was primarily due to the higher proceeds received from both our royalty and stream interests.
Moving on to slide 12, I'd like to provide some comments on guidance as.
As we mentioned during our last quarterly call. We are moving to calendar year end reporting effective this coming December 31st.
The six month 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 2022.
As part of this change in your own reporting we expect to begin providing one year guidance for total portfolio yourselves DD&A per G E 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 previously provided.
To help with your transition over to our new guidance process and reporting last quarter. We provided total geo's cells and DD&A guidance for the six months stub period ended December 30, <unk> 2021 and today I will provide stub period effective tax rate guidance.
For the six months stub period absent any potential operational impacts from Covid, we are increasing our total <unk> sales guidance range to between 180000 and 190000 Geos.
The increase in our sales guidance is driven by the strong operational performances as we already discussed.
With respect to our DD&A guidance, we expect DD&A to range between 525 and $575 per Geo for the stub period, which is a slight increase over our previously provided guidance.
This assumes a metal prices as shown on slide 12, which are unchanged from our previous guidance.
Regarding our stub period effective tax rate guidance, we expect this to range between 18, and 22% absent any unusual or discrete items.
I would also like to make a few comments on some of the recent news regarding global minimum tax which could impact the broader streaming sector.
In October a group of 136, OECD countries agreed to a blueprint to implement a 15% global minimum tax with a targeted effective date of 2023.
However, I would like to again remind everyone that the U S and Royal Gold already has a minimum tax on our streaming segment as embodied in the global intangible low tax income or guilty regime, which was implemented in 2017.
On a guilty or stream segment, which accounts for nearly 70% of our total revenue is currently subject to an effective tax rate of $13, 125%.
Further the proposed global minimum tax is not being discussed or suggested to be added on top of a $13, 125% effective guilty right.
As such given the small difference between the current guilty right and the proposed global minimum tax we do not expect significant impact to Royal gold if the global minimum tax is ultimately implemented in the U S.
One final note on our fiscal year and change we plan to issue a press release in late November that will include further details on the fiscal year and change, including historical calendar year results for key financial metrics, such as revenue adjusted EBITDA and operating cash flow.
This information should help establish a new basis for financial comparisons as we move over to the new calendar year reporting.
I will now turn to slide 13, and provide a summary of our financial position.
Liquidity position remain very strong as we ended the quarter with $160 million of cash working capital of 172 million and a net cash position of $60 million.
We ended the quarter with a debt balance of $100 million, which resulted from the August draw on our revolving credit facility to help fund our recent business development successes.
As I mentioned during our last quarterly call our expected expectation what's repay this balance over the next couple of quarters as cash flow allows and on October eight we repaid $50 million of this balance and increased the available balance on our revolver to $950 million.
Assuming continued strong operating cash flows we anticipate repaying the remaining $50 million during the December quarter absent any new business development successes during this period.
Drawing on our revolver telephone growth in our business and paying it down using cash flow is consistent with our longstanding objective of providing accretive growth to our shareholders.
With respect to our authentic commitment under the coma Cal stream agreement as Mark mentioned, we currently have $26 $5 million available to Casey them if required until the earlier of development completion or 60 days after the start of commercial production at Conoco.
As part of the Nx Gold stream, we have also potential payments of up to $10 million from calendar 2022 through 2024, depending on Aero copper meeting certain exploration and resource targets, yes.
Further funding is required for other case, we anticipate making these contributions from our available cash resources.
That concludes my comments on our financial performance for the quarter and I will now turn the call back to Bill for closing comments.
Thanks, Paul portfolio performed exceptionally well again this quarter and delivered record revenue cash flow and GE oil volumes with.
With revenue from 44 operating mines, the breadth of our portfolio provides for consistent top line performance.
Discipline around maintaining low and stable G&A costs allows that topline performance to produce high margins.
Our cost structure is designed to remove direct exposure to operating costs and we are not subject to margin pressure caused by inflationary input prices a.
Our business offers inherent protection of margins from inflation, which seems to be creeping into the global economy.
Looking forward to 2022, I think we're in great shape, and we expect to see progress with several assets in the portfolio.
And in particular, we're looking forward to a higher production levels that come Macau first production of King of the Hill's continued exploration success at Nx Gold and continued advancement on the Pueblo Viejo expansion.
In addition to this organic growth potential we remain active in the pursuit of new business opportunities.
I mean, our balance sheet $950 million available on our credit facility and ongoing cash generation. We are well placed to act quickly on those opportunities that fit our criteria for investment which include precious metals with a preference for gold and the potential for exploration and production upside.
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.
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So let's try your question. Please press Star then two.
At this time, we will pause momentarily to assemble IRA.
Yeah.
Our first question comes from Tyler Langton with J P. Morgan. Please go ahead.
They'll Palmer thanks for taking my question.
Yeah, maybe just to start with the commentary I guess, you know the deliveries were a little bit higher than I had modeled out this quarter should we is it fair to assume that sort of your deliveries will just kind of ramp.
In line with sort of the production ramp that come on come Macau are there any I guess are there any lags or anything else, we should be aware of.
Thanks for the question I think contractually I wouldn't expect any lags. We do this is not the contract similar to endocardial word of Mount Milligan.
Where are the deliveries actually occur a number of months after final settlement, we get we get paid.
Very shortly after a provisional our final settlement is reached so I'll.
I'll ask Mark if he wants to say anything but my.
I just look at the ramp up between now and the end of third quarter.
And just wrapping it up.
Assuming that that is the end date.
100% capacity.
Mark would you add anything else to that.
No I think here, it's a good description.
Yes.
And then I know you know sort of production that's kind of you know over the mine life supposed to average 1.8 to 2 million ounces is it.
But is it fair to assume I think sort of in the first several years of the production was supposed to be a little bit lower than that average.
Actually I I don't have it right in front of me, but if you go back to the.
2019 presentation, we did on the project, we actually gave an estimated production profile and one of the very interesting things about it.
Both copper and silver it relatively constant.
There isn't I don't believe that there's any major variability through the 20 years of the mine life and I again, I'll sort of turn to market and are you aware of any.
Ah yes.
Yes.
Yeah, you're absolutely right.
Theres very little change I think from a modeling perspective, using the average numbers is a is a very.
Accurate way to do it.
Okay. That's helpful and then just.
Final question I, just you know in sort of deals with one of your peers commented. This morning that they were that the focus is still on precious metals, but they're sort of also open I'm just sort of base battery in Bulks and.
And are you still focused on precious metals or are you seeing now.
Are the deals are you seeing sort of on the precious metal side or are you sort of I guess.
Interested in you know sort of looking you know outside of precious metals.
We're going to stay focused on precious metals are as I think I've said before strategically if we if we find a.
And a very attractive base metal opportunity.
We will certainly consider it.
You know right now I think our precious metal revenue percentage as something that could accommodate.
Some other metals the only thing I would caution is.
We understand the precious metals markets, we understand most of the based on those market. If you get outside of those things anywhere and were dealing with industries that we may not understand as much.
That that that would impair.
An impediment, but it was something we'd have to certainly consider.
Whether or not we're getting into something we don't fully understand.
Got it great. Thanks, so much that's it for me.
Thank you.
Again, if you'd like to ask a question. Please press Star then one.
Our next question comes from Cosmos <unk> with CIBC. Please go ahead.
Thanks, Bill Paul Mark and Alister.
Maybe my first question is on taxes.
Paul as you mentioned, you're subject to the guilty tax anyways.
And the global minimum tax is not going to be additional to it.
But could you confirm I seem to believe that our I think I read something about as you mentioned right now the guilty tax is 13, 1% I thought that was going to go up as well. So does that does that help in terms of or how does that piece of the puzzle fit into the global minimum taxes and then the other part of my.
Question is.
With the potential of the global minimum taxes coming in does that change your ability in terms of how you're repatriating funds back from.
Switzerland.
All can I turn that over to you.
Yeah, Yeah, I appreciate it hey, Cosmos and yeah. Good good to hear from you and Paul Thanks for the question.
Yeah.
Under the build back better I think legislation that's being thrown around.
Here in the U S. There is talks of the U S could implemented the GMT, which would you know under the under our current legislation under the guilty regime. As you said, it's $13, 125% that could move to 15% if it's moved under the under the.
Bill back better.
Here in the U S. So we could see a slight increase as I said, but again, we don't we don't anticipate that being a significant impact to royal gold.
But with respect to repatriation of earnings that's a great question or our Swiss earnings, which are subject to that same guilty right.
Those earnings or cash can be brought back to the U S tax free so.
In 2000, I believe it was 17.
You know.
The introduction of guilty regime prior taxation to repatriate funds was eliminated.
The guilty tax and repatriation of taxation.
Effectively called the double taxation, so again when the guilty regime came in there was no repatriation taxation.
Great. Thanks, Paul maybe switching gears, a little bit on coal Macau here.
Reading the MD&A and also look at the presentation at.
It seems like the ramp up of the mill is slightly ahead of the compared to the ramp up of the mining operation and the underground.
Am I reading it correctly mark or not.
Yeah.
Exactly.
The mill has ramped up very well on the stockpiled ore that was there they tested the 10000 ton a day rate successfully yeah recovery as we as I stated.
Our well within.
You know that.
The bounds of what are the expected them to be.
T K stoping is ramped up slower than they expected. So the constraint in the operation will not be the mail it won't be the mine and it will be ramping up the stoping.
You can think about development ore.
Generating about 60000 tonnes, a month or so and then.
I think from from stoping ore, which will.
It will be really the ramp up piece is as we are.
Go into next year, so as I said.
You can expect 75%.
Of the 10000 ton a day rate by the end of March and it's really around stoping.
Great.
And that's maybe one last question here for Bill Bill I appreciate that you are.
In answering the last question.
Our focus continues to be on precious metals.
And as Paul mentioned earlier, 73% of your revenue in the quarter was from our goal of 10% from silver 14% from copper.
In an ideal world you know Bill are you a hockey without Mexico would you have wanted that to be a bit different.
Well since we're a precious metal focused in Golden particular in an ideal world.
The gold figures higher I mean I.
People always ask us about minimums and I always say you know when I look at it.
The gold to be higher I mean.
Copper is I think gold is down because copper revenue was so much higher with the prices where they are but.
But strategically.
Strategically I guess again I've always said, if you'd give me five projects three of gold one sovereign ones copper I'm, probably going to look at three year old ones first, but we'll look at all of them.
Mhm.
Great. Thanks, Bill and team and those are all the questions I have thank you cosmos.
Okay, and if you'd like to ask a question. Please press Star then one our next question comes from Scott Macdonald with Scotiabank. Please go ahead.
Hi, good morning, everyone. Thanks for the update and congrats on a good quarter.
Bill just wanted to follow up on.
Your comments on the types of.
The business opportunities Youre seeing what are the types of deals youre looking at predominantly in terms of.
The counterparties use of proceeds and what kind of.
Range of deal sizes or are you looking at.
Yeah actually I answered the first question from a from a strategic perspective, but I thought I might ask bring Dan Breeze in here, if I can and to have him as the head of business development to give you a sense for what we're saying.
Great. Thanks.
Thanks, Bill Hi, Scott Hope, you're well, it's Dan here.
Well the environment has been really good this year 2021, and if you look at the transactions year to date it looks like it's going to be one of the best years in the last five years or so in terms of dollar volumes.
In particular, the first half of the year and I know that your firm has highlighted this in your quarterly industry.
Industry reports and Thats, when we transacted with with our next calls as well.
Royalties. The volumes are also pretty solid through the year, but lots of third party royalty transactions. Obviously, we were part of that with with Coty and Red Chris.
Some packages are still trading with operators are finding a good market to sell those packages into.
But I'd say, it's been a bit slower Scott if you look at say July through September.
A bit more slow, but we're seeing processes now start to kick off and I think it's going to be a good finish to the year the pipeline actually looks quite good right now.
In terms of use of proceeds I would say, it's still weighted towards project development, followed by probably by strengthening our balance sheets and again looking at our ERO copper Nx schools.
<unk>, that's an example of that type of financing.
So it's good I think the size is very consistent with what we've been seeing this year 100 million to $300 million range.
Some of what we transacted in in terms of those types of deals that's what we're seeing right now in the pipeline and that's a good size for our company, it's meaningful to our portfolio.
And again as Bill said focus on gold and that's actually what we're seeing it's mostly gould opportunities a bit of silver as well on the streaming side. So hopefully that helps you.
Yeah, that's great. Thanks, Dan.
Yeah.
This concludes our question and answer session I would like to turn the call.
Back over to Bill Hudson Battle for any closing remarks.
Well. Thank you everyone for taking the time to join US today, we certainly appreciate your interest in Royal Gold and we look forward to updating you on our progress during our next quarterly call take care everyone. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.