Royal Gold Reports Record Revenue of $98 Million in its Second Fiscal Quarter 2016 02/03/2016
DENVER--(BUSINESS WIRE)-- Royal Gold, Inc. (NASDAQ: RGLD; TSX: RGL) (together with its subsidiaries, “Royal Gold” or the “Company”) reports results for its second quarter of fiscal 2016 (“second quarter”), including record revenue of $98.1 million, up 60% from $61.3 million in the prior year quarter. Net income attributable to Royal Gold stockholders was $15.1 million, or $0.23 per share, as compared to a net loss attributable to Royal Gold stockholders of $6.5 million, or ($0.10) per share, for the prior year quarter.

Second Quarter Highlights Compared with the Year-ago Quarter:
• Record revenue of $98.1 million, an increase of 60%
• Record volume of 88,700 Gold Equivalent Ounces (“GEOs”1), an increase of 74%
• Operating cash flow of $52.1 million, an increase of 75%
• Record dividends paid of $14.4 million, or 28% of operating cash flow, yielding 3.0% at the current share price
• Adjusted EBITDA of $70.0 million, an increase of 46%

“Increased production from Mount Milligan and contributions from our recently acquired streams at Pueblo Viejo, Andacollo, Wassa and Prestea drove our record performance in the second quarter as expected,” commented Tony Jensen, President and CEO. “Impressive volume growth at these properties and stability within the rest of the portfolio are yielding solid financial results and generating strong free cash flow.”

Second quarter revenue was comprised of stream revenue of $67.3 million and royalty revenue of $30.8 million, at an average gold price of $1,106 per ounce. Stream segment gold purchases totaled approximately 75,800 ounces in the second quarter. The Company sold approximately 61,600 ounces of gold from its stream segment, and had approximately 25,700 ounces in inventory at December 31, 2015, as previously guided, up from 11,500 ounces at September 30, 2015.

Net income attributable to Royal Gold stockholders was $15.1 million, or $0.23 per share, compared to a net loss attributable to Royal Gold stockholders of $6.5 million, or ($0.10) per share for the prior year quarter. The increase in our earnings per share was primarily attributable to an increase in our revenue. During the prior year quarter, the Company recognized impairment charges of $29.6 million on certain non-principal royalty interests, which impacted earnings per share by $0.34 per share, after taxes.

Cost of sales was approximately $22.6 million for the second quarter, which equates to an average purchase price of $370 per stream ounce. This is compared to $6.2 million, or $435 per stream ounce for the prior year quarter. The increased cost of sales is primarily attributable to higher production at Mount Milligan and new stream production at Andacollo, Pueblo Viejo and Wassa/Prestea. Cost of sales is specific to each of our stream agreements, where we purchase gold for a cash payment.

Adjusted EBITDA2 for the second quarter was $70.0 million ($1.08 per basic share), representing 71% of revenue, compared with Adjusted EBITDA of $48.0 million ($0.74 per basic share), or 78% of revenue, for the year-ago quarter. Adjusted EBITDA as a percentage of revenue declined due to increased contribution from the Company’s streaming segment, which includes a cost of sales.

We recognized income tax expense totaling $4.7 million in the second quarter compared with an income tax benefit of $1.8 million during the prior year quarter. This resulted in an effective tax rate of 25.4% in the current period, compared with 22.4% in the quarter ended December 31, 2014.

Depreciation, depletion and amortization increased to $40.4 million for the quarter ended December 31, 2015, from $20.3 million for the quarter ended December 31, 2014, reflecting the ramp-up of production from Mount Milligan and new stream production.

Interest and other expense increased to $8.9 million for the quarter ended December 31, 2015, from $6.4 million for the quarter ended December 31, 2014. This was primarily due to an increase in interest expense associated with the outstanding balance on our revolving credit facility. The Company had $350 million outstanding under the revolving credit facility as of December 31, 2015, and did not have any amounts outstanding under the revolving credit facility during the quarter ended December 31, 2014.

Working capital totaled approximately $142.3 million at December 31, 2015. When combined with the $300 million of availability under our revolving credit facility, total liquidity at December 31, 2015, was approximately $442.3 million. Cash flow from operations was $52.1 million for the three months ended December 31, 2015.

RECENT DEVELOPMENTS

Amendment of Gold Stream at Wassa and Prestea

On December 30, 2015, RGLD Gold AG (“RGLD Gold”), a wholly-owned subsidiary of the Company, amended its $130 million gold stream transaction with a wholly-owned subsidiary of Golden Star Resources Ltd. (together “Golden Star”). The parties executed an amendment providing for an additional $15 million investment (for a total investment of $145 million) by RGLD Gold. If Golden Star procures a minimum of $5 million of third party investment, RGLD Gold will increase its investment by a further $5 million (for a total investment of $150 million) subject to satisfaction of certain conditions.

As of December 31, 2015, RGLD Gold has advanced $75 million, and has received 12,700 ounces of gold deliveries, resulting in $13.4 million in sales in just two quarters. RGLD Gold expects to advance the balance of our commitment in four quarterly payments as follows: (i) $20 million on each of April 1, July 1 and October 1, 2016, and (ii) $10 million on January 1, 2017; however funds will be advanced on a pro rata basis with project development spending, subject to satisfaction of certain conditions. Golden Star will deliver to RGLD Gold 9.25% of gold produced from all their Ghanaian properties, until the earlier of (i) December 31, 2017 or (ii) the date at which the Wassa and Prestea underground projects achieve commercial production. At that point, the stream percentage will increase to 10.5% (or to 10.9% if the total investment increases to $150 million) of gold produced until an aggregate 240,000 ounces have been delivered (or 250,000 ounces if the total investment increases to $150 million). Once the applicable delivery threshold is met, the stream percentage will decrease to 5.5% for all production thereafter.

RGLD Gold will pay Golden Star a cash price equal to 20% of the spot price for each ounce of gold delivered at the time of delivery until the applicable delivery threshold is met, and 30% of the spot price for each ounce of gold delivered thereafter.

Mount Milligan

Thompson Creek reported production of 58,300 ounces of payable gold during the quarter, an increase of 42% over the prior year quarter. Mill throughput averaged 48,176 tonnes per day for the quarter, an increase of 10% over the prior year quarter. Thompson Creek surpassed the mill design capacity of 60,000 tonnes per day during the last week of December when mill throughput averaged 61,212 tonnes with highest daily throughput in December of 64,478 tonnes. Thompson Creek continues to optimize the operation and expects to make a decision on construction of the permanent secondary crusher during the March 2016 quarter.

Gold grades averaged 0.63 grams per tonne, an increase of 17% over the prior year quarter and gold recoveries averaged 67.3% for the quarter, an increase of 11% over the prior year quarter.

For calendar 2016, Thompson Creek forecasts annual gold payable production of 240,000 to 270,000 ounces, an increase of approximately 10% to 24% over calendar year 2015 production of approximately 218,000 ounces.

Thompson Creek announced that they have engaged Moelis & Company and BMO Capital Markets to assist them in evaluating strategic and financial alternatives, including debt refinancing and restructuring, new capital transactions and asset sales. The Company continues to monitor Thompson Creek’s financial situation and is working to ensure our interests at Mount Milligan are protected.

Phoenix Gold

On January 11, 2016, Rubicon Minerals Corporation (“Rubicon”) provided an updated geological model and mineralized material statement for the Phoenix Gold Project that included a significant reduction in mineralized material compared to previous statements provided by Rubicon. Rubicon suspended activities related to their previously announced Phoenix Project Implementation Plan and has retained BMO Capital Markets, TD Securities, and Stikeman Elliott LLP as advisors to assist in evaluating strategic alternatives available to the Company.

Royal Gold anticipates that it will conclude its technical evaluation of the revised geologic model and mineralized material statement prior to the release of our financial results for the period ended March 31, 2016. Upon completion of our evaluation and upon consideration of any strategic developments with Rubicon or the Phoenix Gold Project, the Company could determine that an impairment of its carrying value in the near future is necessary. For the period ended December 31, 2015, the carrying value of the Phoenix Gold Project comprised approximately 2.5% of the Company’s total royalty and stream interests, net.

Pueblo Viejo

In November 2015, Barrick announced that two of three electric motors at the Pueblo Viejo oxygen plant experienced unexpected failures and were shipped to the United States for repair. A comprehensive plan to mitigate the impact of the motor failure was implemented by Barrick in December 2015, which involved installing a number of portable compressors in December and early January. This restored mill production to near full capacity during the second week in January. One of the two repaired motors has arrived in the Dominican Republic and will be installed and tested by the end of January 2016. The second motor is due to arrive on-site in mid-February 2016.

Voisey’s Bay

Production attributable to royalty revenue recognized at Voisey's Bay during the second quarter was 15.2 million pounds of copper and 23.6 million pounds of nickel. Vale reported that its new Long Harbour hydrometallurgical plant will begin processing only Voisey’s Bay concentrate by the first calendar quarter of 2016. Vale has made clear its intention to deduct full Long Harbour operating costs, depreciation and cost of capital from actual proceeds when calculating the net smelter return royalty which could have the effect of further reducing or eliminating royalty payments. Royal Gold strongly disagrees with Vale’s position that operating costs, capital costs and cost of capital are permissible net smelter return deductions pursuant to the royalty agreement and is aggressively pursuing its legal remedies.

Wassa and Prestea Development

Golden Star reported that the Wassa Underground project made substantial progress during calendar 2015, with stope development of the upper mineralization is expected to commence in the June 2016 quarter and first ore production expected mid-calendar 2016. Infill drilling early in calendar 2015 was successful in expanding the F Shoot target and further drilling will be conducted to determine additional mineral potential in the area.

Golden Star also reported work on the Prestea Underground project is progressing as scheduled with first ore production is expected in early calendar 2017.

PROPERTY HIGHLIGHTS

A summary of calendar year production estimates versus actuals at certain producing properties can be found on Table 3. Highlights at certain of the Company’s principal producing and development properties during the second quarter, compared with the prior fiscal year quarter ended December 31, 2014, are detailed in our form 10-Q. Production for our producing properties reflects the actual production subject to our interests reported to us by the various operators or from the operator’s publicly available information.

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1 GEOs are calculated as revenue divided by the average quarterly price per ounce of gold. Net of stream payments GEOs were 68,300 in the second quarter, compared with 45,900 net GEOs in the year-ago quarter, an increase of 49%.
2 The Company defines Adjusted EBITDA, a non-GAAP financial measure, as net income plus depreciation, depletion and amortization, non-cash charges, income tax expense, interest and other expense, and any impairment of mining assets, less non-controlling interests in operating income of consolidated subsidiaries, interest and other income, and any royalty portfolio restructuring gains or losses (see Schedule A).
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