Royal Gold Inc. Q1 2023 Earnings Call
Ladies and gentlemen, welcome to the Royal Gold's 2023 first quarter Conference call. My name is Felicia and I'll be your operator today.
Note that there will be a Q&A session on this call. If you wish to register for a question. Please press star followed by one on your telephone keypad.
I will now hand, you over to your host Mr. Baker, Vice President Investor Relations and business development.
Please go ahead.
Thank you operator, good morning, and welcome to our discussion of Royal Gold's first quarter 2023 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 heightened bottle.
Ill Rguest, though executive Vice President and C O Olive Royal Gold Corporation, Al Lechner, CFO and Treasurer, Randy Schatzman General Counsel.
Dan Breeze, Vice President of corporate development of RG AG and Martin Raffield, Vice President of operations 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. 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'll also refer to certain non-GAAP financial measures, including adjusted net income adjusted net income per share adjusted EBITDA margin and cash G&A expense reconciliations of adjusted net income adjusted net income per share adjusted EBITDA adjusted EBITDA margin cash G&A expense to the most directly.
The comparable GAAP measures are available in yesterday's press release, which can be found on our website.
So let's start with a review of the quarter Mark will provide some commentary on the portfolio all wrap up the financial summary, after the formal remarks, we'll open the lines for a Q&A session I'll now turn the call over to Bill.
Good morning, and thank you for joining the call I'll begin on slide four.
First quarter of 2023 provided a strong start to the year. It was a fairly quiet quarter for us in our portfolio performance was strong and steady.
Revenue was $170 million for the quarter and operating cash flow was $109 million, which were both up nicely from the same period last year.
Earnings were $64 million or <unk> 97 per share after a minor adjustment adjusted earnings were <unk> 96 per share.
We paid $25 million in dividends at our increased rate for 2023 of $1 50 per share, which is a 7% increase over the 2022 level.
We have an unmatched record in the precious metal sector for consistent dividend increases and we've increased the dividend for 22 consecutive years.
We made a payment on our revolver of $75 million and we ended the quarter with liquidity of almost $650 million.
Additionally, we completed an investor update two weeks ago and went into detail on some of our newer assets and where we have seen some interesting developments at those additions.
We also discussed our 2023 guidance during that update and provided an overview of our 2022 ESG report, which is available on our website.
We have advanced our report significantly in the ESG area and Ah report contains some good detail on how we're tracking data like GHT emissions and water use in our portfolio.
It also includes disclosure in alignment with Tcf D guidelines as well as our first climate scenario analysis for the portfolio.
Yes, Jake reporting has been evolving subject area. So I encourage you to review the report and provide us any feedback.
I'll now turn the call over to Mark to provide some comments on the portfolio.
Thanks, Bill turning to slide five I will give some comments on first quarter revenue.
Overall volume for the quarter was a very strong 90000, geos, which is up over 4% from this time last year.
Our royalty segment contributed $55 million in revenue down slightly from the prior year quarter.
Contributions from tennis, Quito, and voices were partially offset by strong revenue at Cortez from the legacy zone, and our new <unk> zone.
We also received our annual revenue payment from Red Chris in the quarter and new royalty revenue of about $850000 from King of the hills in Australia.
Our stream segment revenue was about $115 million up about 9% compared to the prior year quarter higher contributions from Glen Macau, Mount Milligan, seven Ciena and rainy river more than offset lower revenue from <unk>.
Please note that we received the one shipment each of gold and copper equating to about 6000 Geos from Mount Milligan in mid February earlier than our original end of March forecast.
The early delivery allowed these shipments containing this 6000 geos to be sold in the March.
Rather than our original expectation of during the June quarter.
These timing differences are not unusual for us and while they don't impact results on a long term basis. They can have a fairly significant impact on how one quarter compares to the next.
I'd like to spend a moment on this point and turn to slide six to review the sequence of mine production through the stream metal sales.
We have three large stream interest in mindset produce.
Metal concentrate Mount Milligan, <unk> and chroma cow.
As shown in the schematic of the process of mining ore to delivering metals to Royal Gold's can take up to five months due to the timing required to ship concentrate from the mine site to the smelter and the payment provisions of the offtake contract.
Once metal is delivered we usually plan to sell it steadily over the periods.
Where we received the next delivery from our counterparty.
We aim to have zero metal inventory for any particular counterparty when we received the next shipment from the same counterparty.
Selling deliveries steadily allows us to realize pricing that is consistent with average metal prices over those periods.
While this approach works well that may cause complications for forecasting our revenue based on guidance provided by mine operators.
The first complication is that production guidance provided by our Counterparties for a specific period won't impact Royal gold in that same period. For example, Sentara expects 2023, Mount Milligan Gold production of 160 to 170000 ounces with production of 30 to 35.
5% of the concentrate containing that gold in the fourth quarter.
The typical lag we see at Mount Milligan between production at the mine and metals deliveries to Royal Gold is up to five months. So we likely won't receive metals deliveries from the expected strong fourth quarter of production until sometime in the second quarter of 2024.
Don't recognize revenue until the sales of those deliveries are complete.
The second complication is that delivery timing is uncertain, we prepare our delivery forecast and sales guidance based on our near maximum contractual delivery timing. So we can receive deliveries earlier than we forecast.
That's what happened in this quarter with a 6000 geos from Mount Milligan I mentioned earlier.
In this case, we sold metal and recognized revenue in the first quarter that we otherwise expected to receive and sell in the second quarter.
While this may mean that Royal Gold's revenue may be variable from one quarter to the next the resulting short term variability is not a long term concern for us. It also does not necessarily mean that production at the underlying asset is weaker or stronger from one quarter to the next.
Yeah.
These timing issues are more significant for stream agreements on operations that produce concentrates and theyre generally not a factor for stream agreements on operations that produce dore or a royalty portfolio, where time between metal production deliveries in sales is more limited.
The timing effects associated with delivery are generally up to about five months from Mount Milligan and <unk> on about one month for Macau.
Our selling process would typically take one month following delivery, but will vary depending on the cadence of deliveries.
I will now turn to slide seven and give the handful of comments on recent development at operations.
We provided more fulsome commentary during an investor update two weeks ago. So I'll only mentioned developments that have occurred since then.
At Columbia Cow, where operations are continuing at nameplate capacity <unk> provided silver production guidance of one five to $1 7 million ounces for 2023. This is in line with them with the mine plan, but lower than life of mine average of one eight to 2 million ounces per year.
This is because the silver grade in the upper portion of the zone five deposit is lower.
Then the average reserve grade and we expect the grade to increase as mining progresses deeper into the ore body.
It will be a whole barrick reported yesterday, the first ore had been fed through the crusher of the expanded plant.
They are working on commissioning the new plant infrastructure and expect to complete commissioning and move into the ramp up phase in the current quarter. This is about a quarter delayed from their previous expectations.
While we had no prior notice of this delay this is a large and complex project. So we felt it prudent to provide a timing allowance, reflecting reduced production, which we included in our sales guidance for 2023.
Pueblo Viejo silver deliveries were approximately 362200 ounces in the quarter, including the deferral of an additional 5700 ounces, resulting in the remaining balance of 518400 deferred ounces, we expect the silver recovery could remain highly <unk>.
Variable, while the expanded plant ramps to full production and performance levels and we don't expect material deliveries of deferred silver this year.
We continue to see this as a cash flow timing issue and don't expect it to have any lasting impact on silver revenue.
At Cortez Barrick has advised the contained gold in proven and probable reserves at the legacy zone was $2 7 million ounces at the end of 2022.
Recall, our overlapping royalties on this area are equivalent to an approximate gross royalty of nine 4%.
In 2023 production guidance for this area is expected to range from 450 to 480000 ounces.
The remainder of production from Cortez in 2023 will be covered by the Ccs zoned royalty, which has an approximate one 6% gross royalty rate.
Just on Barrick's disclosure, we expect production from this area to be approximately 535000 ounces.
Barrick also reported yesterday that the record of decision for gold rush will likely be delayed until the second half of this year.
They also reported the continuation of test Stoping and development and don't expect this delay to affect our 2023 outlook.
Finally, <unk> has advised that 2023 gold production will range from 22 to 27000 ounces of gold in concentrate.
Keep in mind that deliveries to Royal gold include a fixed 89% pay ability factor on this production.
I'll now turn the call over to Paul for 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, 2023 to the prior year quarter.
Revenue was $170 million for the quarter, an increase of 5%.
The main driver of the higher revenue this quarter with stronger operating performance that many of our interests as well as new revenue of approximately $6 million from the additional Cortez royalty interest we acquired during the second half of 2022.
With respect to metal prices and compared to the prior year quarter. The price of gold was up slightly by 1% silver was down 6% and copper was down 11%.
Gold remains the dominant revenue source, making up 71% of our total revenue followed by copper at 14% and silver at 12%.
Turning to slide nine.
G&A expense increased to $11 million and $8 9 million in the prior quarter the increase was.
Primarily due to higher employee related costs, which costs also include noncash employee stock compensation expense.
Although inflationary pressures continue to have an impact on many within the metals and mining sector. Our cash G&A costs have remained low or less than 5% of total revenue.
Our DD&A expense decreased to $46 million from $48 million in the prior year quarter.
On a unit basis. This expense was $514 per geo for the quarter compared to $555 per geo in the prior year period.
The DD&A rate on a unit basis decline in the current quarter due to lower depletion rates at Mount Milligan and political view, which were the result of reserve additions at the end of 2022.
The decrease was partially offset by increased depletion expense Echo Macau, which was the result of higher silver sales due to the continued ramp up when compared to the prior year quarter.
Interest expense increased to $9 $2 million for the quarter from $900000 in the prior period the.
The increase was due to higher average amounts outstanding under our revolving credit facility and higher interest rates when compared to the prior period.
The all in interest rate for borrowings under our credit facility was six 2% at the end of the first quarter.
Tax expense for the quarter was $16 million, resulting in an effective tax rate of 19, 9%.
This compares to $15 million and an effective tax rate of 18, 8% in the prior year period.
Earnings for the quarter were down slightly over the prior year to $64 million or <unk> 97 per share.
After a minor adjustment for a change in the fair value of equity Securities. Our adjusted earnings were $63 million or <unk> 96 per share.
Adjusted earnings in the prior year quarter were $65 million or <unk> 99 per share.
The main contributor to the lower earnings this quarter when compared to the prior year with higher interest expense.
Our operating cash flow was strong this quarter at $109 million compared to $101 million in the prior year.
The increase during the quarter was the result of higher proceeds received from our stream segment and new proceeds received from the recently acquired additional Cortez royalty interests.
I will now turn to slide 10, and provide a summary of our financial position at the end of the quarter.
During the quarter, we repaid $75 million on the revolving credit facility.
The amount drawn on the facility to $500 million.
The $500 million Undrawn revolver capacity combined with the $134 million of working capital provided us total available liquidity of approximately $634 million at the end of the quarter.
In keeping with our approach to capital allocation, we expect to repay the $500 million outstanding revolver balance cash flow allows.
Absent any further business development activity and at current metal prices, we anticipate repaying this amount by around mid 2024.
Beyond our current debt outstanding we have no other material financial commitments remaining.
Shortly after quarter end, we made a $2 $4 million exploration payment to a subsidiary of ERO copper related to the successful conversion of resources at <unk>.
After this payment we are potentially obligated to fund additional advanced payments of up to $4 $4 million, if aero meet certain exploration and resource conversion targets through the end of 2024.
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 this was a quiet and steady quarter for Royal Gold our portfolio performed well and we saw continued progress on several assets in the portfolio.
Should provide interesting news flow in the near to medium term.
I Hope you found the discussion on timing helpful.
Recent announcements regarding some terrorist 2023 production expectations at Mount Milligan.
<unk> expansion and the gold rush record of decision are good examples of how timing issues can impact expectations for a particular time period in 2023 in particular.
However, we take a longer term view of events and are pleased with our portfolio performance.
We remain focused on the balance sheet and rebuilding our liquidity in the quarter. After a very active year in 2022, and I think we're very well positioned to remain active in 2023.
Operator that concludes our prepared remarks I'll now open the line for questions.
Thank you.
As a reminder, ladies and gentlemen ask a question. Please press star followed by one on your telephone keypad.
The next question comes from Josh <unk>.
From RBC capital markets. Your line is now open Josh. Please go ahead.
Thanks, very much two quick questions from me first one is for the court has a legacy royalty, which outperformed our expectations.
And I guess, what the guidance implies for the year.
Barrick had talked about a bit of a weaker result, this quarter and that results improving through the rest of the year.
But given the royalty payout was so high this quarter I'm just wondering if.
If expectations have changed at all based on the first quarter performance or if this was.
<unk>.
Okay.
Josh Thanks for the question I might turn that one over to Mark for a for a response.
Yes sure.
I guess my view is that we would we would look at the.
For the full year guidance as the.
Is the best.
Few on the future.
For the year.
They delivered about 37% on the midpoint of the guidance during the first quarter. So I would just take it as a strong first quarter, but.
I would I would.
We wouldn't change our view for the rest of the year.
We would focus on the guidance I would say.
Yeah.
It sounds like it did perform a bit better, but maybe too soon to make any conclusions.
I would expect with such statements.
Okay got it.
Mildly optimistic there.
And the second question is.
I may have missed this but the company does typically provide some sort of stream production guidance for the upcoming quarter was there a number that.
Thats the team felt comfortable with issuing or should we just look at the annual figures for for production this year.
Yes, Josh we moved away from the quarterly.
Segment sales forecast when we went to first the six month guidance and that guidance you will take time, we do do is in February .
For the first quarter, but.
But we don't we haven't continued that.
What we used to do.
So I think with the annual guidance.
But to look to.
Okay.
Those are all my questions. Thank you very much.
Yes.
The next question, we have comes from customer care.
From Ti.
CIBC. Please go ahead. Your line is now open.
Hi, Thanks, Bill well, Paul and I'll, let Stuart.
I guess you sort of answered this question, but I'll ask it anyway.
You did over 90000 Geos in Q1.
2023 guidance, which is still pretty fresh 320 to $3 45 and so.
I know, there's timing differences and whatnot, but if I were to sort of multiply out Q1, you would exceed the top end.
So again, how should we look at it like again I know the guidance is pretty fresh and I know that 6000 ounces that contributed to Q1, but either way how should we look at.
Yes Cosmos.
Guess, what I would just caution you don't annualize what we just did.
As you say the guidance, we gave was two weeks ago.
We remain comfortable with it and you actually noted the 6000 and Ceos, we didnt expect them in the first quarter, we expected them in the second quarter and then they arrived early so.
Again, I keep an eye on the on the longer term number.
Maybe asked a different way.
When would you start with reviewing and potentially updating your guidance again. This is only two weeks old.
But when does that process sort of stuff.
Hi, My view as we look at it every time, we come to one of these meetings.
It's part of the quarterly analysis, and if we felt the need to adjust the range.
We don't we don't say, okay, it's going to be the August meeting.
Some other points. So it's regularly reviewed on a quarterly basis and we'd let you know if we needed to make an adjustment.
Of course.
Maybe switching gears a little bit of a follow up on my Buddy Josh <unk> question.
In terms of.
Cortes.
Thanks, Alex to once again team for giving us guidance, 94% of legacy and one 6% of FCC.
Clearly, that's a very simplistic and theres a lot more behind it in terms of different zones and whatever.
Based on what you know like how is that reconciling so far in terms of your expectations.
And what's actually.
Sort of coming through again I understand that's early stage I guess I'm just trying to get to.
From what your perspective as you have more information like how is it reconciling so far to what you had expected.
Yes Cosmos.
Looking at it.
We only have had two quarters of <unk>.
The Rio Tinto royalty.
And we only had one quarter of the Idaho royalty really.
A full quarters, so it might be a little early.
Reconcile, but but mark is there anything you've seen in the numbers that.
Would make us want to adjust the $9 four and $1 six or how we describe these things.
I don't think so I think the.
We've always tried to.
Provide a guidance gross gross royalty on the legacy zone as we call. It now.
Historically, it's been it's been a very accurate way to to present it.
To the public so that's why we continue to do it so I'm very happy with how we approach it and how we try to cut.
Convey that information.
Good to hear.
And maybe I don't.
I would just say I don't think you really would want us to go through GSR, one GSR to GSR, three MBR, London via our <unk> <unk> III.
We're trying to we're trying to make your life easier with it but if we see some issue with where production is falling we would certainly consider reclassifying, how we describe it.
No I agree.
Any more details even better if you can just give me a number I think that's even better.
But you should simplify as much as you can.
And then one.
One last question here in.
In terms of your balance sheet again, great to see that Youre repay.
Your debt, especially in today's higher interest rate environment.
Is the plan to kind of it all.
Pay it back as quick as possible and just continue with it or how do we look at it in terms of balancing out.
Potential opportunities out there.
Well, we're not going to let repayments under the revolver trumped a good investment opportunity so.
Youre correct in saying the goal is to pay it back as quickly as possible in the absence of a business development opportunity, but if we see a good opportunity and we have to take the balance back up we would certainly consider considered doing that we don't we don't know off the top of our strategic goals is not to reduce this to zero.
Before we do anything else.
Great. Thanks, again, bill and team and thanks for taking my questions.
Thanks Scott.
No other questions.
Nine.
I'll hand back to the management team there weren't any closing remark.
Yes, great.
Thank you to 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 have a good day.
Thank you everyone. This does conclude today's call you may now disconnect your line.
Hum.