Q3 2024 Royal Gold Inc Earnings Call
Thank you for watching!
Speaker Change: Hello everyone and welcome to Royal Gold's 2024 third quarter conference call. My name is Emily and I'll be coordinating your call today. After the presentation there will be the opportunity for you to ask any questions which you can do so by pressing star followed by the number one on your telephone keypad. I will now turn the call over to our host Alistair Baker, Senior Vice President of Investor Relations and Business Development. Please go ahead Alistair.
Alistair Baker: Thank you, operator. Good morning and welcome to our discussion of Oil Gold's third quarter 2024 results.
Alistair Baker: This event is being webcast live and a replay of this call will be available on our website. Speaking on the call today are Bill Heissenbuttel, President and CEO, Paul Libner, Senior Vice President and CFO, and Martin Raffield, Senior Vice President of Operations.
Alistair Baker: Randy Sheffman, Senior Vice President and General Counsel, and Dan Breeze, Senior Vice President, Corporate Development of RGAG, are also available for questions.
Alistair Baker: 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.
Alistair Baker: 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.
Alistair Baker: including Adjusted Net Income, Adjusted Net Income for Share, Adjusted EBITDA, and Cash G&A. Reconciliations of these measures to the most directly comparable gap measures are available in yesterday's press release, which can be found on our website.
Alistair Baker: Bill will start with an overview of the quarter, Martin will give some commentary on the portfolio, and Paul will provide a financial update. After the formal remarks, we'll open the lines for a Q&A session. I'll now turn the call over to Bill.
Bill Heissenbuttel: Good morning, and thank you for joining the call. I'll begin on slide 4. We had very strong financial performance during the quarter and recognized record revenue of $194 million, a 40% increase over the same period last year.
Alistair Baker: Operating cash flow was $137 million, up 39% over last year, and earnings were $96 million, or $1.46 per share, a 95% increase when compared to the third quarter of last year.
Alistair Baker: On an adjusted basis, our earnings were a record $97 million, or $1.47 per share.
Alistair Baker: Revenue was 76% gold and almost 60% of our revenue was generated from the U.S., Canada, and Australia.
Alistair Baker: Our adjusted EBITDA margin remains strong at 81% for the quarter.
Alistair Baker: A key feature of our business model is that we're not directly exposed to inflationary cost pressures.
Alistair Baker: And we have not seen erosion and margins during the recent period of rising gold prices.
Alistair Baker: We used our cash flow to pay our regular quarterly dividend of $26 million, and we also repaid the final $50 million outstanding on the revolving credit facility.
Alistair Baker: We are now debt free and have over 1.1 billion dollars of available liquidity.
Alistair Baker: During the quarter, we recognized first revenue from two of the newest producing assets in our portfolio. I'd like to congratulate IM Gold at Cote Gold, and Kinross and Contango Ore at Man Cho for bringing these projects into production on schedule.
Alistair Baker: And finally, I'd like to mention a change to our disclosure. As a U.S. domicile company, we are subject to the SEC's regulation SK-1300.
Alistair Baker: And we have recently learned that the SEC has taken a position that precludes the inclusion of some or all of the reserves and resources in our filings.
Speaker Change: As a passive investor, we do not have access to the information from our operators that would meet the SEC's interpretation of the Standards of Disclosure under SK1300.
Speaker Change: Most of our operating counterparties that are foreign domiciled did not disclose information about their properties in accordance with SK 1300, but instead utilize other standard reporting guidelines like 43-101 and JORC.
Speaker Change: All of which are well established and were previously allowed for reporting purposes by the FCC before the introduction of SK-1300.
Alistair Baker: As a result, we expect to amend our 2023 Form 10-K in the next few weeks.
Alistair Baker: Reducing our disclosure in the 10-K does not imply any change to the risk profile of our business, our business model, our access to information, or the status of our interests in any properties.
Alistair Baker: There are also no changes to our previously designated principal properties.
Alistair Baker: We will continue to include fulsome disclosure of all mineral resources and reserves attributable to our interest in AK filings that are furnished to the SEC and on our website under the Our Portfolio tab and our Asset Handbook.
Alistair Baker: With that, I'll hand the call over to Martin to discuss our portfolio performance.
Martin Raffield: Thanks, Bill. Turning to slide five, I'll give some comments on third quarter revenue.
Martin Raffield: Overall revenue was a record $194 million with volume of 78,400 GEOs.
Alistair Baker: Higher prices were the primary driver for the increased revenue, but we also have several new assets contributing revenue compared to the same period last year.
Alistair Baker: Our newest producers including Bellevue, Mara Rosa, Wonder North, Mancho and Cote provided almost $13 million in revenue this quarter compared to last year.
Alistair Baker: Our royalty segment contributed $61 million, about 31% of total revenue for the quarter.
Alistair Baker: Royalty revenue was up strongly by about 53% from prior year quarter, with higher contributions from Penisky to and Robinson, and first revenue from Mancho and Cote Gold.
Alistair Baker: These increases were partially offset by low revenue from the Cortez legacy zone.
Alistair Baker: Revenue from our stream segment was $133 million, up by about 34% from last year, with increased contributions from Mt. Milligan, Pueblo Viejo, Wassa and Savoncena, partially offset by lower revenue from Andecoyo.
Alistair Baker: I'll turn to slide six and give some comments on notable developments at our principal properties.
Alistair Baker: At Mount Milligan, Senterra reported last week that the production guidance for the year is unchanged, with gold expected to trend towards the lower end of the range.
Alistair Baker: They also reported that the Site Optimization Program continues and the PEA to evaluate opportunities to extend the mine life beyond 2035 is advancing and is expected to be complete towards the end of the first half of next year.
Alistair Baker: At Andacoyotec reported an improvement in mill throughput during the third quarter as a result of increased water availability. And during Tuesday's Investor Day, they commented that they have the water required to operate at full production moving forward.
Alistair Baker: Drought conditions caused the water use restrictions that limited throughput earlier in the year. Recall that we typically see the impact in our results about five to six months after mine site production.
Alistair Baker: Turning to slide 7, at Peniscito, third quarter production from the Chile-Colorado pit was steady, and mining has transitioned to the Penasco pit ahead of plan. Newmont expects gold production to increase in the fourth quarter and into 2025 due to mining in the higher gold grade Penasco pit.
Alistair Baker: Newmont has also agreed on a new collective bargaining agreement with the mining union for the 2024 through 2026 period, which Newmont expects will provide a solid foundation for continued operations.
Alistair Baker: Recall that we received no revenue in the third quarter of last year due to a strike at the mine.
Speaker Change: At Comacao, MMG reported improved mining and milling volumes and higher ore grades in the third quarter, and MMG expects development efforts to support the ramp-up of production from Zone 5 over the next year.
Alistair Baker: We recently visited the site and found that the transition to MMG ownership has been executed efficiently and the focus is turning towards constructing a paste-backfill plant to improve ore body recovery and preparing the expansion plan feasibility study.
Alistair Baker: Recall the Royal Gold Silver Stream interest covers expanded production from the Zone 5 mine and the Mango NE deposits.
Alistair Baker: Turning to slide 8, I'll add a few comments on other portfolio assets.
Alistair Baker: We also recently visited Wasa and saw that both open pit and underground operations are progressing well.
Alistair Baker: and developing options for additional satellite or feed on the large land package.
Alistair Baker: With respect to these future plans, Qifeng completed an Independent Competent Persons Report in late August that considers mining of open pit and underground reserves through 2028.
Alistair Baker: followed by the mining of potentially economic material in the southern extension that could extend the mine life for multiple decades.
Speaker Change: Kinross is continuing to advance exploration, permitting and engineering work, with a target for first production in mid-2029.
Speaker Change: And lastly, at Zavinchina, we made the remaining $3.2 million expiration advance payment during the quarter.
Speaker Change: Our Stream Agreement included $10 million in success-based payment to support ERO's efforts to add resources and complete regional exploration, and we have now fully paid this amount.
Speaker Change: Since our original investment, all reserves have increased by 120%, including depletion, and significant increases have been made to the measured and indicated resource category.
Speaker Change: I'll now turn the call over to Paul for a review of our financial results.
Paul Libner: Thanks, Martin. I will now turn to slide 9 and give an overview of the financial results for the quarter.
Speaker Change: For this discussion, I will be comparing the quarter ended September 30, 2024 to the prior year quarter.
Speaker Change: Revenue for the quarter was up 40% to a record $194 million dollars.
Speaker Change: Metal prices were a primary driver of the revenue increase, with gold up 28%, silver up 25%, and copper up 10% over the prior year.
Speaker Change: And, as Martin also mentioned, new contributions within the royalty segment of nearly $13 million, where 5,000 GEOs also contributed to the overall increase.
Speaker Change: Gould remains our dominant revenue source, making up 76% of our total revenue for the quarter, followed by silver at 12% and copper at 9%.
Speaker Change: Royal Gold continues to have the highest gold percentage when compared to our major peers in the royalty streaming sector.
Speaker Change: Turning to slide 10, I'll provide a bit more detail on specific financial line addings for the quarter.
Speaker Change: G&A expense was $10.1 million and in line with the prior year.
Speaker Change: After excluding non-cash stop compensation expense, our cash fee enabled $7.1 million, which is also in line with the prior year.
Speaker Change: Our cash G&A costs have remained stable, and with the increase in revenue this quarter, our cash G&A as a percentage of revenue remained low and decreased to below 4% of total revenue for the quarter.
Speaker Change: Our D&A expense decreased slightly to $36 million from $40 million in the prior year. On a unit basis, this expense was $462 per GEO for the quarter compared to $558 per GEO in the prior year.
Speaker Change: The lower overall depletion expense in DNA per GELS quarter was due to lower stream depletion rates as a result of reserve increases, lower servocells at Clomacow, lower gold cells at Endicoil, and lower gold production at Cortez.
Speaker Change: The decrease was partially offset by higher gold sales at Mt. Milligan and higher gold and silver sales at Pueblo VAO.
Speaker Change: Interest expense decreased significantly to $1.2 million from $7.3 million in the prior year. The decrease was primarily due to lower average amounts outstanding under the revolving credit facility.
Speaker Change: Tax expense for the quarter was $22 million, resulting in an effective tax rate of 18.3%.
Speaker Change: This compares to a tax expense of $11 million and an effective tax rate of 17.8% in the prior year.
Speaker Change: The higher tax expense in the current period was due to higher pre-tax income, driven primarily by higher revenue.
Speaker Change: That income for the quarter was up over the prior year to $96 million, or $1.46 per share.
Speaker Change: The increase in net income is primarily due to higher revenue and lower interest expense.
Speaker Change: After adjusting for a minor change in the fair value of equity securities, net income for the quarter was a record $97 million or $1.47 per share.
Speaker Change: Our operating cash flow was reported with nearly $137 million, up 39% over the prior year. The increase in operating cash flow was primarily due to higher stream and royalty cash receipts.
Speaker Change: I will now turn to slide 11 and provide a summary of our financial position as of September 30th.
Speaker Change: As we discussed during our last quarterly call, we repaid the remaining $50 million outstanding on our credit facility in early August and are currently debt-free.
Speaker Change: We now have the full $1 billion revolving credit facility under own and available, and combined with approximately $116 million of working capital, we have a total equity of approximately $1.1 billion at the end of the quarter.
Speaker Change: I will now turn to slide 12 to briefly review where we are relative to the 2024 guidance we provided in April.
Speaker Change: With respect to sales, we are tracking well compared to our original guidance for gold, copper, and revenue from other metals.
Speaker Change: Gold is our dominant revenue driver, and we expect gold sales to come in at or below the midpoint of the guidance range, with copper and revenue from other metals to come in at or above the higher end of the respective ranges.
Speaker Change: Silver recoveries have been an issue throughout the year at Pueblo Viejo, and the low deliveries we've received in September will translate into lower sales in the fourth quarter.
Speaker Change: While our results are generally within guidance, we do expect a slightly softer Q4 based on the timing of certain metal deliveries under our streaming segment.
Speaker Change: With respect to DDA and our effective tax rate, we expect both will be within the respective guidance ranges.
This, of course, assumes no unusual or discrete tax items.
Speaker Change: That concludes my comments on our financial performance for the quarter, and I will now turn the call back to Bill for closing comments.
Bill Heissenbuttel: Thanks, Paul. Our third quarter was very strong. Our portfolio performed well, and our financial results show how our business benefits directly from a strong and rising gold price.
Bill Heissenbuttel: The strong gold price creates a great backdrop for the organic growth we're seeing from our newest producing assets. And I'm pleased to see much of that growth coming from the U.S., Canada and Australia.
Bill Heissenbuttel: As we look forward, we remain busy on the business development front. Not only has the rising gold price directly benefited the operating side of our business, it has also brought opportunities forward as developers try to advance new projects.
Bill Heissenbuttel: Our balance sheet and liquidity allow us to be competitive, and you can expect us to stick to our strategy of adding exposure in metals markets with which we are familiar, in safe jurisdictions, and with quality counterparties.
Speaker Change: While elevated middle prices may appear to mask or mitigate certain project risks, we will remain disciplined with respect to our due diligence standards on the technical, financial, and political aspects of our project reviews so that we can deliver disciplined growth.
Speaker Change: Operator, that concludes our prepared remarks. I'll now open the line for questions.
Speaker Change: Thank you. We will now begin the question and answer session. If you would like to ask a question today please do so now by pressing star followed by the number one on your telephone keypad. If you change your mind or you feel like your question has already been answered please press star and then two to remove yourself from the queue.
Our first question today comes from Cosmos Chew with CIBC
Please go ahead.
Speaker Change: Thanks Bill, Martin, Paul, and Alistair. Maybe my question is on this SK-1300.
Speaker Change: standard. Bill, I know you kind of talked about it, but could you maybe give me a bit more clarity? So it sounds like even though some of these reserve resources are under 43-101,
Speaker Change: They don't meet the standards of SK-1300 given that you're an SEC
Speaker Change: Registrant and it never sounds great when you have an amendment to your, you know, SEC filings. I'm just wondering like how extensive is this filing that that you need to do?
Thank you very much. Have a good one.
Speaker Change: Yeah, Cosmos, thanks for the question, and you kind of hit it on the head. It never sounds good when you have an amendment to the 10-K.
Speaker Change: And that's why we wanted to raise it because we may end up filing this thing.
Speaker Change: Somewhere between U.S. Thanksgiving and the end of the year when things are quieter. We just didn't want it to land in the market and not have an explanation. It's all about reporting. We used to report under Guide 7.
Speaker Change: That went away with SK-1300 and the SEC has basically said that is our standard.
Speaker Change: We do have a couple of properties operated by or a joint venture with Newmont, PV, Cortez, Penasquito.
Speaker Change: But there are also some QP requirements that the SEC has that really doesn't allow us.
to put those reserves and resources in the filing.
Speaker Change: The reason we brought it up is there's actually nothing to see here. All we want people to understand is to the extent you use the 10k to get the reserve and resource information, you just go somewhere else. And I actually think the addition that we've made under the Our Portfolio tab,
Speaker Change: is really, really helpful. You want to reserve, just go there. They're all there.
Speaker Change: We can continue to make it available to people and we'll continue to update the asset handbook every year. So I just wanted people to know about it. We're not concerned about it. There's nothing there's nothing else wrong. It's just the the amendment will just deal with the property section of the of the 10k.
Bill Heissenbuttel: Sounds good. So, Bill, I'd like to clarify. So, your handbook doesn't change.
Bill Heissenbuttel: The only change will be in the 10-K and in that one section on reserve resources. Information is still there, elsewhere, just not in the 10-K.
Exactly.
Just wanted you to know where to go.
Okay, perfect. That's all the questions I have. Thanks, Bill.
Speaker Change: As a reminder, if you would like to ask a question today, please do so now by pressing start followed by the number 1 on your telephone keypad.
Our next question comes from Tanya Jakuskonek with Scotiabank
Tanya, please go ahead.
Tanya Jakuskonek: Good morning everybody and good afternoon for us. I just wanted to circle back on the guidance for 2024. I think, I'm sorry, I'm on the phone, so it went in and out, so I just want to make sure I heard it correctly.
Speaker Change: You are going to be at the mid to the lower portion of the range on the gold front.
Speaker Change: and you're going to be on the higher end on the copper and other front.
Speaker Change: Is that correct? On the higher end? And then below on the silver?
Speaker Change: We're going to be, I think we're going to be end up being below the low range, the 3.2 million. Yeah, we'll be a bit below that figure. So that's the only one that would be outside the range.
Speaker Change: Okay, and the softer Q4, and you said it would be, you know, weaker delivery. So can you just remind me what assets we would be expecting weaker delivery?
Speaker Change: or timing. It's not so much weaker, it's timing and and you know
Speaker Change: Assets like Milligan. Milligan can swing a number of GEOs with just one delivery and we've seen some advanced
Deliveries arrived earlier this year than we had expected.
Speaker Change: that where you get to the end of the year and we're just really unsure about about the timing.
Speaker Change: Okay, that's helpful. Thank you. And then I wanted to circle back, if I could, on just on the transaction environment.
Speaker Change: With gold price moving and quite volatile, things change on a daily basis. So I know I ask this every quarter, but maybe something has changed.
and then the royalties in the sub $100 million range.
Speaker Change: And then, you know, are you still seeing the money towards funding?
Speaker Change: or development companies and or buying operating cash flow. I'm just trying to see if anything has changed there for you. And in this competitive environment, has the way you approach your agreements changed as well in terms of having to modify, include different things?
Speaker Change: Yes, Tanya, let me see if I can get Dan Breeze on the line here to help you out there.
Sure, Bill. Hi, Tonya. Thanks for the question, Tonya.
Dan Breeze: So just to address your question specifically in terms of what might have changed or what we're seeing right now.
Dan Breeze: I think the way we would describe it is very robust, and I would say there's a notable increase in the number of opportunities that we're reviewing now versus, say,
Speaker Change: three or four months ago. And I'd also add that the types of opportunities that we're seeing now, I'd say it's more broad than what we've seen in the recent past as well. And what I mean by that is, we're seeing things across the board, whether it's
Speaker Change: The third-party royalties are still around. We're looking at some of those. And then new royalties over earlier stage projects in some cases.
Speaker Change: I think the range we always talk about, Tonya, the 100 to 300 million, that's still there. We're aware of a couple of things that are a bit bigger than that. But that's I think that's the range you could still think about. Having said that, you know, you saw us transact a few months ago with
Speaker Change: The Back River Royalties that we acquired for approximately $50 million.
Speaker Change: I think you'll still see us look at those kinds of things as well, but again, Bill's talked about this a fair bit in his prepared comments.
Speaker Change: We're just going to stay really focused on where we think our showers want us to place value, which is quality projects, operators, that long-term optionality, and good jurisdictions.
And what about the structure of the deal?
Speaker Change: I just noticed, you know, a recent one had collars on it.
Speaker Change: different bells and whistles. So I'm just kind of wondering, as you look at these structures, are you finding that they're getting more complicated than just above and beyond the stream or the royalty plus the debt, plus the equity financing, plus X, Y, Z? What are you seeing and how are you thinking about your agreements?
Bill Heissenbuttel: Bill, do you want me to give a bit of color there as well, or do you want to? Sure, go ahead.
Bill Heissenbuttel: Yeah, so Tony, I think, I think just a step back.
Bill Heissenbuttel: Again, I think it's fair to say that our products have become pretty mainstream over the last, say, decade or so, and they're evolving, and I think what we're seeing in the market is a reflection of that, so I know you're referring to
Bill Heissenbuttel: I'd say we're, you know, we're certainly open to that and we do look at those things and if you look at our
our Comacao transaction. We actually had a
Bill Heissenbuttel: a debt facility that was put in there, which was approximately 10% of the size of the funding that we provided for that opportunity. So we are open to those things.
Bill Heissenbuttel: You know, we obviously want to make sure that we're getting the core product right and getting that long-term optionality. Those products that we're seeing in the market, they're great to complete a package.
Bill Heissenbuttel: but they don't get what shareholders really want in the long term, which is that long-term optionality. So the core still has to be around the main products that we offer.
Okay.
Speaker Change: understood it's just as you know as it gets more competitive right everyone's trying to add something new to to maybe entice
Speaker Change: Yeah, the the agreement. Okay. I really appreciate that. Thank you very much
Speaker Change: Thank you for the FK standard explanation, because at the end of the day, nobody wants to wake up and think reserves and resources have evaporated.
Speaker Change: Somewhere you will have the disclosure in your asset handbook and on your website that we can refer to.
Absolutely.
Thank you.
Thanks. Thanks, Tanya.
Speaker Change: Our next question comes from Lawson Winder with Bank of America Securities. Lawson, please go ahead.
Lawson Winder: Great. Thank you very much, Operator. And hi, Bill and team. Thank you for the update today. I wanted to ask about, I guess, political risk and Botswana and Comacao. I think when you guys originally did the Comacao acquisition, it was originally assessed as a very high-quality jurisdiction, very low risk.
Thank you.
Speaker Change: And I think the market agreed. Does the recently historic change in government change that assessment in any way?
Speaker Change: I think it's too early to tell. I mean the election just happened and obviously there's what was it six decades of one party...
Speaker Change: running the country and now we've got a new one. Through everything I've read, they're going to have their hands full, at least they're going to be focused on.
the relationship with the beers.
Thank you. Bye. Bye.
Speaker Change: But after that, we'll just have to see. We haven't seen anything.
in the press that would make us change our assessment.
Speaker Change: And I'll leave it at that. I don't know, Martin, is there anything, because you were just there, and I think we've recently spoken to the project. Is there anything you would add to that?
Martin Raffield: No, I mean, we've obviously contacted the company when we were on site. We talked to them about the upcoming elections they did not have. I think it was a bit of a surprise to everyone in Botswana, the results of the elections. I think that it was more expected that a coalition government would be formed.
Speaker Change: The outright win by the new party was a surprise, but...
Speaker Change: In talking to them over the past few days about the results, they don't have any particular concerns in the short term, certainly, and they believe that the expansion at the mine is actually going to be seen well by the government, who are obviously looking to improve.
Speaker Change: Employment within the country, so no particular concerns at the moment, Lawson.
Speaker Change: Okay, fantastic. And then thinking about the deal pipeline and potential deals going forward, I mean, one is how is your appetite today for further deals in Africa? And then looking at the pipeline, from which jurisdictions are you predominantly seeing potential transactions?
And I'll give that right back to you.
Speaker Change: Yeah, sure. So I think, Boston, we certainly do look at areas in Africa. We have, as you know, we have a couple of investments there already, and so we'll selectively look at areas there. We do see
Speaker Change: things that pop up from time to time, and we'll spend the time to evaluate. But, you know, we're really looking for safe jurisdictions, as you know. And right now, most of the opportunities fit in that category through the Americas. And
Speaker Change: places like Australia. So it fits with where we are with our risk profile in general which is
Speaker Change: Which is great to see and I think it's just a function of the market right now as I mentioned that Tanya It's a pretty robust market right now So there are a lot of opportunities to look at we're not having to to deviate and look at things that that we may not be very comfortable with
Dan Breeze: Okay, yeah, great. Thanks, Dan. And then looking to 2025, I mean, it's very early at this point, but I'm sure you have started some of your 2025 planning discussion.
Speaker Change: I mean, directionally with quite a few number of new assets starting up and ramping up. I mean, it seems like there's the potential for pretty material growth in GEOs into 2025. But I mean, there's obviously a lot of
Speaker Change: big unknowns as well that I don't think we have a lot of great insight into right now, particularly from the BEREC assets. I mean, would it be fair to characterize the risk to 2025 GEO guidance to higher than 24 more so than lower than 24?
Lawson, I'd love to give you a steer here.
Speaker Change: But I've learned over the years that surprises go both ways. There are a number of reasons to be positive about what's going on in our portfolio. But I will tell you at the beginning of this year.
when
Barracks.
Speaker Change: Cortez production went from 870,000 to a range of 620,000 to 680,000. Didn't expect it. And those are the kinds of things that can take what is a positive picture and mute the positive effects. So, look, we don't really start thinking about, of course, we have
Speaker Change: We have mind plans, we have estimates, but it's really when the operators start coming out with their guidance that we're going to really have a better sense for what our numbers are, and I expect we'll come out with 25 guidance along the same time frame as we usually do.
Speaker Change: Okay, that is totally fair. Fantastic. Thanks for taking my questions, Bill and team.
Thank you.
Next question.
Speaker Change: As a reminder if you would like to ask a question today please do so now by pressing star followed by the number one on your telephone keypad.
Speaker Change: We have no further questions and so this concludes today's call. Thank you everyone for joining us today. You may now disconnect your lines.