Q1 2022 Royal Gold Inc Earnings Call
Hello, and welcome to today's Royal Gold's incorporated calendar year 2022 first quarter Conference call. My name is daily and I will be your moderator for today's call.
All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question. Please press star followed by one on your telephone keypad.
I would now like to pass the conference Susan Alistair Baker. Please go ahead. Thank you operator, good morning, and welcome to our discussion of Royal Gold's first quarter 2022 results. This event is being webcast live and youll be able to access a replay of this call on our website.
Speaking on the call today are Bill Hi, Spuddle, President and CEO , all lived our CFO and treasurer markets, though executive Vice President and CEO of <unk> Corporation.
Dan Breeze, Vice President corporate development of RG AG, Randy Schatzman General Counsel are also available for questions.
During today's call, we will make forward looking statements, including statements about our projections or expectations for the future.
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.
Net income per share adjusted EBITA margin reckon.
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 all of them quite a financial update and Bill will wrap up the call for some closing comments. We'll then open the lines for Q&A session.
I'll now turn the call over to Bill.
Good morning, and thank you for joining the call our call today will be relatively short as we provided an in depth review of our business two weeks ago during our annual Investor update.
For those who are unable to join the event. It is available for replay on our website.
Turning to the results for the quarter I'll begin on slide four.
It was another good quarter with very solid operating and financial results.
We recorded healthy revenue of $162 million operating cash flow of $101 million and earnings of $66 million, which were all up significantly over the prior year period.
It is worth noting that our margins remained strong and our adjusted EBITDA margin for the quarter was 81%, which is consistent with the 80% we saw for the same quarter a year ago.
Unlike operating companies, who often see margins erode with the effects of cost inflation, our business models low cost base has limited the impact of inflationary pressures and allowed us to maintain our high margins.
The solid cash flow allowed us to further strengthen the balance sheet in a quarter and we remain debt free with cash on hand of $184 million and access to our full $1 billion revolving credit facility.
We remain active in the search for new business opportunities and our strong balance sheet and cash flow position us well to act.
We paid our quarterly dividend at our new higher rate of 35 cents per quarter and we were included in the S&P high yield dividend aristocrats index in January which reflects our approach to steadily growing our capital returned to shareholders over the long term.
During the quarter, we issued our first annual guidance for GE sales D DNA and effective tax rate and I'm pleased to say that we remain on track to meet that guidance.
Within the portfolio, we funded the final advance payment on the stream that come Macau and we are now entitled to 100% of the payable silver from this high quality and long life operation.
We also added a royalty on the lawyers project in British Columbia. This is a small investment that provides us exposure to an emerging gold camp.
And as a good example of how we use our internal technical skills to identify early stage opportunities that have interesting long term potential.
And finally, just after quarter end, we issued our inaugural ESG report, which is available for review on our website.
Our approach to ESG is unique and well suited to our business model and we look forward to engaging with our stakeholders over the coming months to get feedback on the direction we have taken.
With that I'll turn the call over to Mark for an update on our portfolio.
Thanks, Bill well start on slide five with some commentary on revenue and production in the quarter.
The portfolio performed well again this quarter and overall volume was 86500 gold equivalent ounces or geos.
Royalty segment contributed $57 million in revenue an increase of 21% over the prior year quarter.
Cortez had a strong quarter and we received our first annual royalty payment from Red, Chris which represents payment for the full calendar year of 2021.
On the screen segment side revenue of $105 million was up about 10% from the prior year quarter, driven by strong gold sales from Mount Milligan, and new revenue from cool, Macau, and Nx gold, which was partially offset by lower gold and silver sales from Pueblo Viejo.
Silver deliveries from Pueblo Viejo, with approximately 275000 ounces in the quarter, which included a modest delivery of about 20000 ounces of inferred silver leaving.
Leaving a balance of approximately 439000 deferred ounces.
Material deliveries of deferred silver this year.
Silver recoveries.
Mean highly variable until the expansion project is complete and bottlenecks associated with the silver circuit in silver recovery can be fully addressed.
We will continue to see.
We continue to see this as a cash flow timing issue and we don't expect it to have any lasting impact on silver ribbon.
Turning to slide six I'll make some brief comments on a few recent developments within the portfolio.
We provided more in depth discussion during our recent Investor day update.
So my comments here will be brief.
At Ko Macau Kcl reported strong progress on the ramp up of mine production over the quarter.
Mining rates steadily increased from about 3500 tonnes per day in January to about 5700 tonnes per day in March and the positive trend continued in April .
ACM expects to reach the full run rate of 10000 tons per day by the fourth quarter of this year.
And any further complications from COVID-19.
<unk> believes they have sufficient liquidity available to a co macau to reach its full production level.
The Mount Milligan Centerior reported a significant increase in resources after the 2021 infill drilling program.
As well as an amendment to their environmental assessment that will allow access to long term water resources subject to receipt of permits.
Since <unk> is working to conclude this life of mine planning work and expects to issue a new technical report during the current quarter.
Global vehicle Barrick announced the construction of the plant expansion is approximately 39% complete at the end of March and is on track for completion by the end of the year.
Barrick has also been working with the government of the Dominican Republic.
Location options for additional tailings capacity the final location will be subject to the completion of an environmental and social impact assessment.
Which will be submitted to the government for valuations and final decision.
Turning to slide seven at Cortez in Nevada Gold mines provided updates to the life of mine plan for our royalty area is in April .
As of December 2021, total gold reserves on the areas covered by our royalties at Cortez contained about $4 1 million ounces.
Approximately 3 million ounces at these reserves were contained at crossroads in pipeline and approximately $1 1 million ounces contained at the gold Rush project, where we have a 1% net value royalty on a portion of gold rush that falls within our royalty area.
The gold mines, we expect production from our royalty area is at Cortez.
Crossroads in pipeline will be approximately 280000 ounces this year.
Average to 832000 ounces per year from 2022 2026.
<unk> interest in this production is roughly equivalent to an 8% gross smelter return royalty.
Rainy River, New gold issued an updated technical report, which indicates an extension of mine life by L. Three years to 2031 with an additional 569000 ounces of gold in the underground main zones.
And finally at Nx Gold copper announced year end increases in M&A resources at 32% and <unk> reserves of 25% recall that our stream agreement includes potential payments to support arrow to continue exploring and adding to the resource base and in the quarter, we funded three.
$2 million in additional advance payments for exploration and resource resource growth success.
Of the remaining outstanding commitment of up to $6 8 million for meeting certain targets through the end of 2024, I will now turn the call over to Paul.
A review of our financial results.
Thanks, Mark I'll now turn to slide eight and give an overview of the financial results for the quarter.
For this discussion I will be comparing the quarter ended March 31, 2022% to the prior year quarter.
Revenue was $162 million for the quarter, a 14% increase.
Approximately two thirds of the revenue increase was driven by strong operating performance as well as new revenue from common Kal Nx gold and Red, Chris, which together contributed $9 $8 million during the quarter.
About one third of the revenue increase was driven by realized metal prices and compared to the prior year quarter. The average prices for gold and copper were up 5% and 17% respectively.
Silver was down 9%.
<unk> continued to be dominant making up about 71% of our total revenue followed by copper at 14% and silver at 10%.
G&A expense increased to $8 9 million from $6 $9 million in the prior year quarter. The increase in our G&A expense was primarily attributable to higher employee related costs, which also includes noncash stock compensation expense.
Higher ESG costs as part of our broader ESG initiatives also contributed to the increase.
Our DD&A expense was $48 million up from $41 $3 million on a unit base basis. This expense was $555 per geo for the quarter compared to $520 per geo in the prior year.
The increase was mainly due to higher gold sales from Mount Milligan higher gold production at Cortez and additional depletion expense from Colin Mccallum and the recently acquired Nx gold stream and Red Chris royalty.
Income tax expense was $15 $3 million for the quarter, which resulted in an effective tax rate of 18, 8% for the quarter.
Earnings were $65 $7 million or $1 per share a 22% increase.
After adjusting for a 600000 or gain related to fair value change in equity Securities. Our adjusted earnings were <unk> 99 per share.
We reported another very strong quarter of operating cash flow of $101 million, which was a 10% increase and was primarily due to higher proceeds received from both our royalty and stream interests.
I will now turn to slide nine and provide a summary of our financial position at the end of the quarter.
Our liquidity position continued to strengthen as we ended the quarter with $184 million of cash working capital of $209 million and just over $1 2 billion of available liquidity.
We remain debt free and have our full $1 billion revolver undrawn and available.
We continue to view the revolving credit facility as a key financing tool and we are comfortable drawing on the facility in a measured way, while repaying any amount outstanding as cash flow allows.
With respect to further financial commitments after making the final $26 $5 million co Macau stream events payment in March our only remaining near term commitment as additional success based payments for the Nx gold stream of up to $6 $8 million through 2024.
We expect that any funding for this commitment will be made 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.
Turned in a solid first quarter for 2022, and we look forward to building on this through the remainder of the year.
Our balance sheet is strong and our diversified precious metals focused portfolio continues to perform well.
We expect some positive developments from within the portfolio over the next several months as we outlined in our Investor update and I look forward to updating you further on these later in the year.
I think we're positioned very well in this environment of strong metal prices and high inflation or business model should allow us to maintain consistent and high margins and provide shareholders with continued leverage to the gold price.
Operator that concludes our prepared remarks I'll now open the line for questions.
Thank you.
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Our first question today.
Comes from Brian Macarthur from Raymond James Brian . Please go ahead. Your line is now open.
Hi, Good morning, just two quick questions just on Cortez your guidance for the year is 288000 ounces from lands, which here.
Synthetic 8% MSR is on but there was 102 in the first quarter was there any catch up in that 102 for the first quarter or should I just assume that we're just way ahead of they've just been on your lands a lot in this quarter and it will fall off dramatically throughout the rest of the year.
Yes, Brian . Thanks, Thanks for the question I might I might ask mark to add anything that he can to that question.
Yes, Youre right I think our the guidance that we're giving for the year, we think is pretty solid and they just had.
A very good quarter.
But I don't we still suspect that the year will look like we're forecasting.
Great. Thanks, and just on the Red Chris So I fully understand this.
You book it like one year later effectively so obviously in this quarter you had last year payments right. So then as you say first quarter next year, you'll get this year.
Do they.
Is there actually in the contract that anything adjust for the fact that you know you're effectively getting paid money, earning this year a year later like is there any interest carry thing in there or anything or is it yet.
It is what it is it comes out at the end of the day, because technically you're not actually get a youre not going to book it as I understand it you actually don't get the cash until they are a year later, so it's almost like on a year delay is that how it works or is there any other adjustment in the contract.
Brian that's a good question.
I would be extremely surprised if there was an interest component.
We knew the royalty payment terms going in.
And yeah, it might be a little bit unusual, but we're not uncomfortable.
Saving the revenue or.
Or the cash after a full year of production. It just it gets built into the timing and the valuation.
Paul is there anything in my am I off base here.
Yeah.
No you're not Bill and Brian you are correct in that we are recording this on a cash basis. So in the period in which we receive the actual calculation and that's primarily due to just some of the information that we receive.
During the period, you're not quite understanding that if they're an approval.
Could be made during the quarter each quarter during the calendar year.
Great. Thanks, sorry, just a small point, but just thought I'd flip side, David. Thank you very much I appreciate it.
Youre welcome Thanks for the question.
Thank you Brian .
Next question today comes from Josh Wolfson from RBC Josh. Please go ahead. Your line is now open.
Thank you very much.
I noticed the commentary on the eco Macau, operator financial condition has improved versus some of the prior language I'm just wondering.
Were there any additional funding related items, maybe by other third parties, there or would this just be a function of maybe the ramp up are performing well and some of the funds that royal gold provided.
Having resolved that.
Yes, Josh.
I'm not aware of any third party fundings there.
Mark chime in.
Going astray.
We're really happy with the with the way the ramp up is going.
And I guess.
And I don't I don't know of any any additional commitments or advances made.
Got it okay I noticed.
There were some articles about the operator looking at potentially.
Looking at.
Some sort of transaction of some sort that could develop but it sounds like these talks are early stage I'm, just wondering what would royal gold's any capacity be involved with this.
Probably not on the stream side is my guess, but maybe as a debt holder.
Or is this something that you can comment on.
If something were to happen.
How has the company what would be involved.
I don't expect that we would be involved in.
Going public.
Scenario.
We've always built our abilities to transfer in an IPO in the scenario was Wisconsin played from I think from day one.
Okay.
Those are all my questions. Thank you.
Thank you.
Thank you Josh as.
As a reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad.
Our next question today comes from.
Unfortunately that is all we have time for today.
Yeah.
Thank you very much feel our time today I'd now like to pass the conference over to Bill Hudson for closing remarks. Please go ahead.
Well. Thank you very much for 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. Thank you.
Yeah.
That concludes today's conference call. Thank you for your participation you may now disconnect.
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