Royal Gold Continues To Well Positioned For New Business Opportunities
DENVER, CO - Bill Heissenbuttel, President and CEO OF Royal Gold, Inc., said, “The company delivered another solid operating quarter. Continuing our disciplined approach to capital allocation, we strengthened the balance sheet further by paying down our credit facility, and we remain well positioned with approximately $1 billion of liquidity available for new business opportunities. Our strong operating cash flow allowed us to raise our calendar year dividend, which is the 19th consecutive annual increase since we started paying a dividend in calendar 2000. We saw positive developments during the quarter with good progress at the Khoemacau project, and solid operating results at both Mount Milligan and Rainy River. We were also pleased to see long term resolutions to some recent issues, with the signing of a new 36-month collective agreement with the Workers’ Union at Andacollo, and a new 30-year agreement to secure sustainable water for the San Juan de Cedros community at Penasquito. Both operations have returned to normal production levels after these agreements were reached.”
According to Khoemacau Copper Mining (Pty.) Limited (KCM), progress continued at the Khoemacau Project in Botswana, and the project reached approximately 26% of construction completion at the end of the second quarter with 77% of the capital committed. Also, there are approximately 1,600 workers currently on site, with activities focused on completing excavation of the boxcuts, construction of accommodation, power and water infrastructure at Zone 5, completing construction of the access road between Zone 5 and the Boseto mill, and refurbishment of the Boseto mill. The mining contractor has been mobilized and much of the initial underground mining fleet has arrived on site and is being commissioned, with handover of the first boxcut from KCM to the contractor scheduled to begin this month, which is slightly delayed from previous estimates due to slower than planned excavation advance.
In October, Centerra Gold Inc. reported that it is preparing an updated 43-101 technical report on the Mount Milligan mine that will incorporate changes to long-term gold recoveries, operating costs, optimization studies and exploration drilling. The publication of this report is expected within the coming months. Centerra expects a material reduction in the mineral reserves and mineralized material at Mount Milligan, although it has acknowledged that the extent of any changes in reserves and mineralized material cannot be precisely determined until all relevant studies and modeling have been completed. It is unclear at this point what impact, if any, the results of this work will have on the carrying value of Royal Gold’s stream interest at Mount Milligan.
Teck Resources Limited (“Teck”) reported in October, that the Carmen de Andacollo Workers Union gave notice that a strike would commence on October 14, 2019. Operations were suspended except for essential activities required to maintain safety and the environment. On December 5, 2019, Teck reported that the Workers Union ratified a new 36-month collective agreement and operations had resumed. The impact of the strike on Royal Gold is expected to be reflected in the Company’s financial results beginning with the quarter ended June 30, 2020, as gold deliveries from Andacollo are generally received within six months of concentrate shipment.
Royalty revenue for the quarter was impacted by a shutdown of mine operations resulting from a blockade of the mine by a trucking contractor and members of the San Juan de Cedros community (one of 25 neighboring communities) that started in September. Newmont, as operator, reported that the blockade of the Penasquito mine was lifted on October 8, 2019, concentrate shipments resumed immediately thereafter, and that the site returned to full operation after a 10-day restart process which commenced on October 22, 2019. Despite the shutdown, gold, silver and lead production attributable to our royalty interest at Penasquito increased approximately 79%, 85% and 71%, respectively, while zinc production decreased approximately 13% when compared to the prior year quarter. On December 13, 2019, Newmont further reported that the Penasquito mine and the San Juan de Cedros community had agreed to a 30-year infrastructure solution securing sustainable water availability for the community’s domestic and agricultural uses, which represents a significant milestone and an important step in the ongoing negotiations between the parties.
For calendar 2020, Newmont expects a full year of operations at Penasquito with higher grades, leading to production of an estimated 575,000 ounces of gold, 30 million ounces of silver, 425 million pounds of zinc and 200 million pounds of lead.
New Gold Inc. reported total gold production from Rainy River for the December 2019 quarter of 51,100 ounces and 253,800 ounces for calendar 2019, achieving the lower end of annual gold production guidance of 245,000 to 270,000 ounces. New Gold reported average mill throughput for the December 2019 quarter of 22,521 tonnes per day, including average throughput of 24,858 tonnes per day for November and December, exceeding the target range of 24,000 tonnes per day and original design of 21,000 tonnes per day. New Gold also reported that mill availability averaged 89% for the quarter and gold recovery averaged 91%, in line with plan. It continued to advance a comprehensive mine optimization study at Rainy River that includes a review of alternative open pit and underground mining scenarios. New Gold expects the results of this study to be released this month.
Golden Star Resources Ltd. reported total gold production from Wassa for the quarter of 41,000 ounces and 156,000 ounces for calendar 2019, achieving its revised annual gold production guidance of 150,000 to 160,000 ounces. During the quarter, Wassa delivered grades of 3.78 grams per tonne, 33% higher than the September 2019 quarter, as mining progressed in the 595 and 620 Levels. Wassa continued to deliver mining rates in excess of 4,000 tonnes per day during the quarter. For calendar 2020, Golden Star expects mining rates to average in excess of 4,000 tonnes per day, with resulting production between 155,000 and 165,000 ounces.
Golden Star reported it continues to intersect significant higher-grade gold mineralization from infill and step out surface drilling on the southern extensions of the Wassa deposit. The drilling has been successful in converting portions of the Inferred Mineral Resource to Indicated as well as better defining the Inferred Mineral Resource at depth and along the hanging wall and footwall lodes peripheral to the main B-Shoot mineralization. According to Golden Star, a better understanding of the mineralization at depth resulting from this drilling will be incorporated into the ongoing geological interpretation update that will be the basis for Golden Star’s calendar 2019 year-end mineral resource estimation.
Subsequent to the end of the quarter, in January, a subsidiary of the Company entered into an agreement with various private individuals for the acquisition of a net smelter return royalty of up to 1.06% on gold and up to 1.59% on copper on mining concessions located in the Coquimbo Region of Chile held by Compania Minera Salitrales Limitada (CMSL), a wholly owned subsidiary of Barrick Gold Corporation, for total consideration of up to $41.0 million, including an upfront payment of $11.0 million and potential future payments of up to $20.0 million on a construction decision and up to $10.0 million on first production from the concessions. The potential future payment for a construction decision may be reduced depending on the mineable material in a mine plan at the date of a construction decision. As of December 31, 2018, Barrick disclosed mineralized material of 261 million tonnes at a gold grade of 1.06 grams per tonne at the Alturas Project, which is located on the CMSL concessions.
Second quarter revenue was $123.6 million compared to $97.6 million in the prior year quarter, with second quarter stream revenue totaling $89.6 million and royalty revenue totaling $34.0 million. The increase in total revenue for the second quarter compared to the prior year quarter resulted primarily from an increase in stream revenue and an increase in average gold and silver prices. The increase in stream revenue was primarily attributable to an increase in gold sales at Andacollo, Pueblo Viejo and Rainy River, and higher copper sales at Mount Milligan. This increase was partially offset by lower gold sales at Mount Milligan primarily due to timing of deliveries.
Second quarter cost of sales was approximately $21.1 million, compared to $18.2 million in the prior year quarter. The increase was primarily due to increased gold sales at Andacollo and increased gold and silver prices when compared to the prior year quarter. Cost of sales, which excludes depreciation, depletion and amortization, is specific to the Company’s stream agreements and is the result of the purchase of gold, silver and copper for a cash payment.
Interest and other expense decreased to $2.2 million in the second quarter from $7.4 million for the prior year quarter. The decrease was primarily attributable to lower interest expense as a result of a decrease in average debt amounts outstanding when compared to the prior period.
The Company recognized a second quarter income tax expense of $11.1 million, compared to an income tax benefit of $2.1 million during the prior year quarter, which resulted in an effective tax rate for the second quarter of 21.6% compared to (10.3)% for the prior year quarter. The lower effective tax rate for the prior year quarter was primarily attributable to the Company’s updated analysis of the tax impacts of H.R. 1, originally known as the Tax Cuts and Jobs Act.
As of December 31, 2019, the Company had current assets of $136.4 million compared to current liabilities of $44.1 million, resulting in working capital of $92.3 million. This compares to current assets of $154.7 million and current liabilities of $33.6 million at June 30, 2019, resulting in working capital of $121.1 million.
During the second quarter, liquidity needs were met from net cash provided by operating activities and available cash resources. During the three months ended December 31, 2019, the Company repaid $35 million of the outstanding borrowings under the revolving credit facility. As of December 31, 2019, the Company had $135 million outstanding and $865 million available under its revolving credit facility. Working capital, combined with the undrawn portion of the Company’s revolving credit facility, resulted in approximately $1.0 billion of total liquidity at December 31, 2019.
The company’s address is 1144 15th Street, Suite 2500, Denver, CO 80202, (303) 573-1660, www.royalgold.com.