Royal Gold Reports Second Quarter 2019 Results

DENVER--(BUSINESS WIRE)--Royal Gold, Inc. (NASDAQ: RGLD) (together with its subsidiaries, “Royal Gold” or the “Company,” “we” or “our”) reports net income of $23.6 million, or $0.36 per share, on revenue of $97.6 million in its fiscal second quarter ended December 31, 2018 (“second quarter”). Second quarter reported earnings included an income tax benefit resulting from the Company’s updated analysis of the tax impacts attributable to H.R. 1, originally known as the Tax Cuts and Jobs Act (the “Act”), which was partially offset by a decrease in the fair value of equity securities.

Second Quarter Key Metrics Compared to Prior Year Quarter:

• Revenue of $97.6 million, a decrease of 14.6%
• Operating cash flow of $58.8 million, a decrease of 22.2%
• Volume of 79,600 GEOs,¹ a decrease of 11.3%
• Dividends paid of $16.4 million, an increase of 4.3%
• Average price of $1,226 per gold ounce, a decrease of 3.8%

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“Our second quarter consolidated operating performance was consistent with our guidance,” commented Tony Jensen, President and CEO. “We were pleased to see several positive developments in our portfolio during the quarter, including good operating performance at Mount Milligan despite water supply challenges, continued improvement in production levels at Rainy River, and the start of commercial production at the Pyrite Leach Project at Peñasquito. As we look forward in calendar 2019, we expect to see continued improvement at Rainy River and further positive news with respect to resolving water supply issues at Mount Milligan.”

“We also took our first step toward realizing value for our equity interest in the Peak Gold Project (“Peak Gold”) near Tok, Alaska,” Mr. Jensen continued. “We believe that Peak Gold is a very attractive opportunity for an operating company that can bring additional talent to advance the project towards production. Royal Gold will remain committed to the project over the long term through our existing royalty interests, and our considerations for any potential transfer of ownership will include a commitment to advance the project as a priority while respecting best practices for responsible development.”

Recent Developments

Mount Milligan

At the Mount Milligan mine, Centerra Gold Inc. (“Centerra”) reported that there were sufficient water resources in the fourth calendar quarter of 2018 to enable the mill facility to run at a higher than anticipated throughput rate, allowing the operation to achieve the upper end of gold and copper production guidance for the 2018 calendar year. Calendar year 2018 gold production was 194,993 ounces compared to the guidance range of 175,000 to 195,000 ounces, and copper production was 47.1 million pounds compared to the guidance range of 40 million to 47 million pounds. During the fourth quarter of calendar 2018, production from Mount Milligan was 60,271 ounces of gold and 11.8 million pounds of copper.

For calendar year 2019, Centerra expects mill throughput at Mount Milligan to be reduced during the remainder of the winter season to properly manage the water balance until the water flow increases in the spring. Once the spring melt has commenced, typically in April, Centerra expects mill throughput levels to return to full capacity. In the second half of calendar 2019, Centerra expects to achieve an average throughput of approximately 55,000 tonnes per calendar day. For the full calendar year, Centerra expects Mount Milligan’s payable gold production to be in the range of 155,000 to 175,000 ounces, and payable copper production to be in the range of 65 to 75 million pounds.

With respect to water sourcing and permitting activities at Mount Milligan, Centerra reports that permit applications are in process to allow the mine to draw additional flow during the spring melt period for the next three years from each of Philip Lake, Rainbow Creek and Meadows Creek. This additional water would be stored in the tailings storage facility for use during the remainder of the year, which Centerra expects to be sufficient to allow operations to continue at a rate of 55,000 tonnes per calendar day. Centerra also reports that it is completing an inventory of regional water sources to identify other potential long-term water sources that could provide additional water through to the end of the mine life.

Rainy River

Improved operating performance at the Rainy River mine, owned and operated by New Gold Inc. (“New Gold”), continued during the fourth calendar quarter of 2018. Quarterly gold production was 77,202 ounces, a 39% increase over the prior quarter due mainly to higher grade, recovery and throughput rate. Mill processing reached a run rate of 25,835 tonnes per operating day, the first full quarter in which the mill averaged a daily run rate above the target 24,000 tonnes per day, and the average throughput was 20,558 tonnes per calendar day at an 80% availability. New Gold expects to replace the ball mill trunnion during the first calendar quarter of 2019 and that recoveries will continue to improve throughout the calendar year.

New Gold also announced that the underground development plan at Rainy River was deferred to 2020, and that it will review alternative underground mining scenarios during calendar 2019 with the overall objective of reducing capital requirements and improving the return on investment for the underground portion of the mine.

Adviser Retained to Assist with Peak Gold Project

Royal Gold retained Scotia Capital Inc. (“Scotia”) to assist in identifying parties interested in advancing Peak Gold. We own a 40% indirect equity interest in Peak Gold, held through our wholly owned subsidiary Royal Alaska, LLC, and 809,744 common shares (or approximately 12.7%) of Contango ORE, Inc. (“CORE”), our joint venture partner. In addition to the ownership interests in Peak Gold and CORE equity, the Company also has the right to sell up to 20% of CORE’s aggregate membership interest in the joint venture (for a total sale of up to 60% of the joint venture membership interest) and holds two net smelter return royalties on the Peak Gold land package.

Second Quarter 2019 Overview

Second quarter revenue was $97.6 million compared to $114.3 million in the prior year quarter, with stream revenue totaling $67.7 million and royalty revenue totaling $29.9 million. The decrease in total revenue for the second quarter compared to the prior year quarter was due to lower average gold, silver and copper prices, as well as lower overall sales and production. Lower gold stream sales from Andacollo and Pueblo Viejo were partially offset by higher gold and copper sales from Mount Milligan and initial contributions from Rainy River, while a decrease in royalty revenue was due to lower production at Peñasquito and Cortez.

Second quarter cost of sales was approximately $18.2 million, compared to $19.9 million in the prior year quarter. The decrease was primarily due to lower gold sales from Andacollo. Cost of sales is specific to the Company’s stream agreements and is the result of the purchase of gold, silver and copper for a cash payment.

General and administrative expenses decreased to $7.4 million in the second quarter from $9.6 million during the prior year quarter. The decrease during the current period was primarily due to a decrease in legal costs related to the settlement of the Voisey’s Bay royalty calculation dispute during the first quarter of fiscal 2019.

Depreciation, depletion and amortization expense decreased to $38.8 million in the second quarter from $42.0 million in the prior year quarter. The decrease was primarily attributable to a decrease in gold sales at Andacollo and Pueblo Viejo, partially offset by an increase in metal sales at Mount Milligan and Rainy River.

On July 1, 2018, the Company adopted new Accounting Standards Update guidance which impacts how changes in fair value of equity securities are recognized at each reporting period. As a result, for the three months ended December 31, 2018, the Company recognized a loss of $3.6 million on changes in fair value of equity securities related to the holdings in CORE and Rubicon Minerals Corporation. The new guidance could increase earnings volatility in the future.

The Company recognized a second quarter income tax benefit of $2.1 million, compared to an expense of $48.4 million during the prior year quarter. The effective tax rate for the second quarter was (10.3)% compared to 148.5% for the prior year quarter. The lower than expected effective tax rate is due to approximately $6.0 million of discrete tax items recorded in the quarter attributable to true-ups made after completing the Company’s analysis of the Act and consideration of recently-issued U.S. Treasury and IRS guidance. The Company does not anticipate future material changes due to evolving guidance; however, many aspects of the law remain unclear and further regulatory guidance could impact the Company’s effective tax rate.

At December 31, 2018, the Company had current assets of $203.7 million compared to current liabilities of $37.2 million, resulting in working capital of $166.5 million. This compares to current assets of $125.8 million and current liabilities of $51.4 million at June 30, 2018, resulting in working capital of $74.4 million.

During the second quarter, liquidity needs were met from $79.4 million in net revenue and available cash resources. As of December 31, 2018, the Company had no amounts outstanding and the full $1 billion available under its revolving credit facility. Working capital, combined with the Company’s undrawn revolving credit facility, resulted in approximately $1.2 billion of total liquidity at December 31, 2018.

Property Highlights

A summary of second quarter and historical production reported by operators of the Company’s stream and royalty properties can be found on Tables 1 and 2. Calendar year 2018 operator production estimates for certain properties in which the Company has interests compared to actual production at those properties through December 31, 2018 can be found on Table 3. Results of the streaming business for the second quarter, compared to the prior year quarter, can be found on Table 4. Highlights at certain of the Company’s principal producing and development properties during the second quarter, compared to the prior year quarter, are detailed in the Quarterly Report on Form 10-Q.

CORPORATE PROFILE

Royal Gold is a precious metals stream and royalty company engaged in the acquisition and management of precious metal streams, royalties and similar production-based interests. As of December 31, 2018, the Company owns interests on 191 properties on five continents, including interests on 41 producing mines and 17 development stage projects. Royal Gold is publicly traded on the Nasdaq Global Select Market under the symbol “RGLD.” The Company’s website is located at www.royalgold.com.

Note: Management’s conference call reviewing the second quarter results will be held on Thursday, February 7, 2019, at noon Eastern Time (10:00 a.m. Mountain Time). The call will be webcast and archived on the Company’s website for a limited time.

Cautionary “Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995: With the exception of historical matters, the matters discussed in this press release are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from projections or estimates contained herein. Such forward-looking statements include statements about solid quarterly results; future production contributions from Peñasquito, Mount Milligan and Rainy River; expectations for continued improvement at Rainy River and positive water supply developments at Mount Milligan; the value to be realized from the Company’s interests in Peak Gold and CORE common shares following a strategic review process; the belief that Peak Gold is an attractive opportunity for an operating company; calendar year 2019 mill throughput, water availability and total payable gold and copper production from Mount Milligan; the impact, if any, on Mount Milligan of Centerra’s water permit applications, whether or not granted, and its regional water source inventory; New Gold’s expectations for improved mill recoveries and the impact of its review of underground mining scenarios; changes in taxes and tax rates resulting from future tax legislation and regulatory guidance; and operators’ estimated and actual production for calendar year 2018, 2019 and future years, and their estimates of reserves and mineralized material. Net gold and metal reserves attributable to Royal Gold’s stream, royalty and other interests are subject to certain assumptions and, like reserves, do not reflect actual ounces that will be produced. Like any stream, royalty or similar interest on a non-producing or not-yet-in-development project, our interests on development projects are subject to certain risks, such as the ability of the operators to bring the projects into production and operate in accordance with their feasibility studies and mine plans, and the ability of Royal Gold to make accurate assumptions regarding valuation and timing and amount of payments. In addition, many of our interests are subject to risks associated with conducting business in a foreign country, including application of foreign laws to contract and other disputes, foreign environmental laws and enforcement and uncertain political and economic environments. Factors that could cause actual results to differ materially from projections include, among others, precious metals, copper and nickel prices; performance of and production at the Company's stream and royalty properties; the ability of operators to finance project construction to completion and bring projects into production as expected, including development stage mining properties, mine and mill expansion projects and other development and construction projects; operators’ delays in securing or inability to secure or maintain necessary governmental permits; decisions and activities of the operators of the Company's stream and royalty properties; unanticipated grade, environmental, geological, seismic, metallurgical, processing, liquidity or other problems the operators of the Company’s stream and royalty properties may encounter; operators’ inability to access sufficient raw materials, water or power; changes in operators’ project parameters as plans continue to be refined; changes in estimates of reserves and mineralization by the operators of the Company’s stream and royalty properties; contests to the Company’s stream and royalty interests and title and other defects in the properties where the Company holds stream and royalty interests; errors or disputes in calculating stream deliveries and royalty payments, or deliveries or payments not made in accordance with stream and royalty agreements; economic and market conditions; changes in laws governing the Company and its stream and royalty interests or the operators of the properties subject to such interests, and other subsequent events; as well as other factors described in the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and other filings with the Securities and Exchange Commission. Most of these factors are beyond the Company’s ability to predict or control. The Company disclaims any obligation to update any forward-looking statement made herein. Readers are cautioned not to put undue reliance on forward-looking statements.

Statement Regarding Third-Party Information: Certain information provided in this press release, including production estimates for calendar 2019, has been provided to us by the operators of the relevant properties or is publicly available information filed by these operators with applicable securities regulatory bodies, including the Securities and Exchange Commission. Royal Gold has not verified, and is not in a position to verify, and expressly disclaims any responsibility for the accuracy, completeness or fairness of such third-party information and refers the reader to the public reports filed by the operators for information regarding those properties.