Q2 2023 Royal Gold Inc Earnings Call
Washington joined Space Glens. Please press star followed by one on your telephone keypad.
100, <unk>, the Baker, Vice President Investor Relations and business development. The floor is yours. Please go ahead.
Thanks, Elliot good morning, and welcome to our discussion of Royal Gold's second quarter 2023 of results with <unk>.
This is being webcast live and you will be able to access a replay of this call on our website.
Speaking on the call today are bill heightened level, President and CEO , Martin Raffield, Vice President of operations, and Paul <unk> CFO and treasurer.
Andy Shafman General Counsel, and Dan Breeze, Vice President corporate development of RG AG 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 adjusted net income per share reconciliations of adjusted net income and adjusted net income per share to the most directly comparable GAAP measures are available in yesterday's press release, which can be found on our website.
Bill we'll start with a review of the quarter Martin will give some commentary on the portfolio and Paul will wrap up with 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.
Our second quarter was relatively steady and we provided solid financial results revenue was $144 million for the quarter and operating cash flow was strong at $108 million.
Earnings were $63 million or <unk> 97 per share after adjustments adjusted earnings were <unk> 88 per share.
We continued our practice of returning capital to shareholders and made a dividend payment of $1 50 per share for the quarter.
We also maintained our focus on the balance sheet and repaid $100 million of the outstanding balance on our revolver.
Leaving us with liquidity at the end of the quarter of just over $700 million.
With respect to the revolver, we completed an amendment to extend the maturity for another two years to June 2028.
Source of capital has been a key strategic financing tool that has allowed us to finance our growth over the past several years without issuing equity.
Despite a market in which some companies have seen lenders exit credit facilities, sometimes requiring a reduction in the size of those credit facilities.
I am pleased to report that all of our lenders continue their participation in our revolving credit.
<unk> support of our commercial banking partners as very much appreciate it.
With respect to potential new business during the quarter, we announced the signing of a commitment letter to acquire precious and base metal royalties for $250 million on the producing <unk> and central reader mines in Brazil as part of the acquisition financing of the mines by ACG electric metals.
This potential acquisition is subject to a number of closing conditions, including negotiation and execution of definitive documentation and the closing of Acg's acquisition of the minds from Appian capital.
The conditions have not yet been satisfied and there are no. Other details we can provide on the transactions at this time.
I'll now turn the call over to Martin to provide some comments on the portfolio.
Okay.
Thank you Bill turning to slide five I'll give some comments on our second quarter revenue.
Overall revenue for the quarter was $144 million with a volume of 73000 Geos.
Our royalty segment contributed revenue of $38 million.
Down from $42 million in the prior year quarter.
While we saw higher revenue from the quarter's legacy zone, and new revenue from the quarter Ccs owner in King of the hills royalties. The increase was more than offset by lower revenue from payments skew to invoices by.
At <unk> operations were suspended in early June due to a labor dispute and voices by production was impacted due to a maintenance shutdown from June may to July .
The long harbour processing plant and the transition from the old void open pit mine to the new underground operations.
Our stream segment revenue was $106 million up slightly from the prior year quarter.
The largest variances were due to higher revenue from <unk> and lower revenue from both Mount Milligan and on to Korea.
Macau continues to operate at the target throughput rate of 10000 tons per day for the second consecutive quarter. After completing the ramp up and reaching nameplate capacity in December last year.
I'll now turn to slide six and give some comments on notable developments at the operations.
At Mount Milligan Sentara reported the mining of the <unk> transition zone is now mostly complete.
And they are on track to access the high grade copper and gold from phase seven to nine in the second half of the year.
For the full year 2023, Sentara expect gold production to trend near the low end of its 160 to 170000 ounce guidance range and.
And copper production towards the midpoint of it 60% to 70 million pound guidance range.
Recall that we typically see a 5% to six month lag between production at the mine and so on.
Scream sales, so we won't see the benefit of a stronger second half production until sometime in the first half of 2024.
At Pueblo Viejo I visited the site in late June to get an update on the expansion process.
And the status of the issues relates to silver recovery.
I was impressed with the progress overall and several components of the expansion of already being commissioned.
Silver recoveries remained an issue and I think it's fair to say that barrick's focus has been on maintaining gold production, while completing the expansion rather than optimizing silver production.
However, I came away feeling comfortable that barrick understands the issues with silver recovery and they have a strategy to address those issues as the expansion commissioning progresses.
Silver is an important driver of overall all in sustaining cost at Pueblo Viejo.
And there are other stakeholders, who also want to see the silver recovery improve.
Barrick expects a silver recovery recovery will improve during the third quarter and reached target rates during the fourth quarter.
That said there was a further deferral of silver deliveries of 89000 ounces during the quarter and the total deferred amount was 608000 ounces at the end of June .
We don't expect any material deliveries of deferred balances for the remainder of the year. While the expansion is commissioned and ramps up to full production levels and we expect it will take several quarters to deliver the entire deferred amount. After the plant is running at full capacity.
Finally, appendix keto Newmont reported in mid July that operations remain suspended after strike action was taken by the National Union of mine in Metalworkers on June seven.
Newmont is working to resolve the dispute, but theres not provided an estimate as to when operations could restart when they have withdrawn 2023 guidance that the mosquito.
At this point, we are maintaining our total sales guidance of 320 to 345000 Geos for 2023.
However, if there are no other unforeseen events that are producing properties and operations at Penn Mosquito remain suspended through the remainder of 2023 total Geo sales may come in around the low end of the guidance range.
Note also that our 2023 guidance does not include any impact from potential acquisitions.
I'll now turn the call over to Paul for a review of our financial results.
Thanks Martin.
I will now turn to slide seven and give an overview of the financial results for the quarter.
For this discussion I'll be comparing the quarter ended June 32023 to the prior year quarter.
Revenue was $144 million for the quarter, which was in line with the prior year.
The main drivers of the variance in our revenue this quarter were lower sales and a coil the impacts from the strike at tennis, Quito and a shutdown of the long harbour processing plant at <unk>.
The downward impact to our revenue this quarter from pennant keto invoices Bay were partially offset by new revenue of approximately $6 million from the additional Cortez royalty interests, we acquired during the second half of 2022.
With respect to metal prices when compared to the prior year quarter. The price of gold was up by 6% silver was up 7% and copper was down 11%.
Gold remains the dominant revenue source, making up 77% of our total revenue.
Followed by silver at 15% and copper at 6%.
Turning now to slide eight.
G&A expense was in line with the prior year quarter at $9 million.
Although inflationary pressures continue to have some impact on others 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 $38 million from $44 million in the prior year quarter.
On a unit basis. This expense was $527 per geo for the quarter compared to $562 per <unk> 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 Pueblo Viejo.
Which were the result of reserve additions at the end of 2022.
The decrease was partially offset by increased depletion expense at Cortez due to the newly acquired royalty interests and additional depletion expense of Com account, which was a result of higher silver sales due to the continued ramp up when compared to the prior year quarter.
We continue to expect DD&A for the full year to be in the range of 490 to $540 per Teu.
Interest expense increased to $8 $4 million for the quarter from $1 $4 million in the prior period.
The increase was due to higher average amounts outstanding under our revolving credit facility when compared to the prior period.
The all in interest rate for borrowings under our credit facility was six 7% at the end of the second quarter.
Tax expense for the quarter was $2 million, resulting in an effective tax rate of three 1%.
This compares to a tax benefit of $5 $9 million in the prior year period.
Both periods included discrete tax benefits attributable to the release of a valuation allowance on certain deferred tax assets.
Excluding the discrete tax benefit our effective tax rate would have been approximately 17% for the current quarter.
We continue to expect our effective tax rate absent discrete tax items to be in the range of 17% to 22% for the full year.
Net income for the quarter was down over the prior year to $63 million or <unk> 97 per share.
After adjusting for a discreet tax benefit the change in fair value of equity securities and a onetime noncash adjustments made to our Williams royalty revenue or.
Our adjusted net income was $57 million or <unk> 88 per share.
Which is higher than the adjusted net income in the prior year quarter of $54 million or <unk> 81 per share.
Our operating cash flow was strong again this quarter at $108 million compared to $120 million in the prior year.
The decrease during the quarter was a result of higher interest payments on our revolving credit facility and lower royalty revenue.
I will now turn to slide nine and provide a summary of our financial position at the end of the quarter.
During the quarter, we repaid $100 million on our revolving credit facility and reduce the amount drawn on the facility to $400 million.
For the first six months of 2023, we have repaid $175 million of roller balance.
And in keeping with our approach to capital allocation, we expect to repay the remaining $400 million revolver balance as cash flow allows.
The 600 million Undrawn revolver capacity combined with $102 million of working capital.
Provided has total available liquidity of just over $700 million at the end of the quarter.
As Bill noted earlier, we extended the maturity of our $1 billion revolver out two years to June 2028.
And I want to echo his sentiment and we greatly appreciate the strong and continued support of our entire bank group.
With respect to further material financial commitments, assuming satisfaction of all closing conditions for the potential acquisition of the royalties from ACG.
We anticipate the purchase price for the royalty assets would be made from cash on hand, and an approximate $200 million draw on our revolving credit facility.
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.
Briefly mentioned something that is becoming more topical for our sector and that's the implementation of a global minimum tax or GMT.
At this time, we do not anticipate any significant impact due to this worldwide rollout for a couple of reasons first we currently fall below the annual revenue threshold of 750 million euros. So the GMT would not apply to US second has a U S. Domiciled company. Our royalty revenue is taxed at various rates all in excess of 15 <unk>.
<unk> and.
Our training business has been subject to U S guilty minimum tax since 2018.
The guilty tax rate is currently 13% rising to 16% to 2026.
As a result, we don't expect the implementation of the GMT at a rate of 15% will have a material impact on our business.
And finally I want to comment on Mark just on his pending retirement, which we announced in May.
Since joining royal Gold in 2015, Mark Mark has been a key part of Royal Gold and he has grown and strengthened our internal technical capacity.
Mark will be missed but he has done a great job of building talent within our technical team and I'm confident that Martin has the right skills to lead that team when he assumes mark's responsibilities.
Mark will be with us for a few more weeks, but I hope Youll join me in wishing him well in his retirement.
Operator that concludes our prepared remarks I'll now open the line for questions.
Okay.
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Okay.
Last question comes from Cosmos <unk> with CIBC. Your line is open.
Hi, Thanks, so all.
Martin.
Maybe my first question is on Mount Milligan, and thanks, Martin for letting us know that confirming that there's the lag between production and payment to Royal gold.
But my question is you know you kind of mentioned it in the press release as well.
Just a cold delays due to the strike.
Part of Vancouver.
How does that impact.
The Mount Milligan deliveries and it's concentrated.
<unk> shipped out from their supplies coming in from there like what should we consider.
Okay.
Cosmos. Thanks for the question Martin can I ask you to take a crack at that one.
I'll take a crack at it cosmos. Thanks for the question on that I'm not sure whether I can give very much detail around there I think the the enrollment relates to shipments of.
Okay.
Uh huh.
All of material out of the port rather than supplies coming into the port and we don't we don't really have any visibility on how that might impact us going forward, but it's there is a note.
We see something that Sentara is keeping an eye on and understand could be an issue.
Okay great.
Maybe a question on cominco.
I see that.
Revenue was down quarter over quarter.
Silver deliveries was also down slightly quarter over quarter.
I guess my question is I know you're still wrapping it up.
In order to kind of nameplate capacity.
No in Q1, there was.
Some lower grade upper zone, five top down sort of approach in terms of mining sequence and so that impacted it.
I thought Q2 was going to be slightly better than Q1 that continued to improve.
Maybe I'm wrong could you maybe talk about Q2 performance and also what we could expect from cobalt golf for the rest of it.
Okay.
Bill would you like me to continue with that one yeah take on.
[laughter].
Alright.
Thank the slight down that we saw in Q2 Cosmos is really the sort of thing that we would expect from this type of underground operation.
As they go through areas with different grades.
They have the normal sort of operating issues, but the mines have especially fairly large underground operations like this one.
I don't think there's anything that causes us any concern about what we've seen between the difference between Q1 and Q2 and I think the we expect the remainder of the year to be to track consistently at the 10000 tonnes a day with a grade equivalent to where we've seen it so far so no concerns with that downturn.
No I think it's just part of the normal running of this type of operation.
Understood.
Likely a question for Martin once again.
Panic Quito.
I saw that you booked six one or $5 million in revenue in Q2.
The ongoing strike should we expect anything in Q3 or is there some still some residuals coming out from Q2 deliveries that go into Q3 like what should we sort of consider when modeling Q3 o'clock kind of screwed up.
Look I don't I wouldn't comment on that at the moment in terms of what is going to happen at dependency there going forward.
Yes.
I don't think I can I can make a comment on that at the moment.
Okay, but assuming that it stays on strike would there be anything coming in from Q2's production. That's my question I know, it's hard to come back.
Yeah, it's hard to say, but.
Be there might be a small amount coming in in Q3.
Got it yeah and customers appreciate the fact that tennis keto is that was a royalty.
That we purchased from a third party, we didn't write the contract and therefore.
That's one asset where a lot of times, we find out when you find out.
It's not as though we already have.
Regular monthly monthly updates on.
What might be in the system.
Of course understood.
Maybe one last question Bill I heard what you can comment at Cerro Santa Rita.
Really no update at this point in time, but could you remind us in terms of the constituent that need to be satisfied for you to go ahead and close this transaction and what's your ultimate obligation is there a timeline in terms of.
When these.
Conditions need to be satisfied.
Ultimately yes.
What if they don't get satisfied what's your obligation.
Yeah.
Yes, I think.
Public comments that we made when we did our press release in June negotiation of.
Documentation.
And the closing of the acquisition, which was also in my prepared remarks.
Those are the conditions that we've spoken about it of course there are other ones.
Yes.
All things we do like this there is a.
A drop dead date, it at some point, but as I said in my comments I'm, just not going to say anything more about it.
Understood great.
Thanks, Bill and team for answering all my questions and that's all I have.
Thanks Cosmos.
Yes.
We have no further questions. So I'll now hand back to Bill Hudson Bustle, President and CEO for closing remarks.
Okay.
Well. Thank you for joining taking the time to join US today. We appreciate your interest in Royal Gold and we look forward to updating you on our progress during our next quarterly call.
Ladies and gentlemen, today's call is now concluded. Thank you for your participation you may now disconnect your lines.
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Yes.
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