Royal Gold, Inc. (NASDAQ: RGLD)  reports net income of $138.3 million, or $2.10 per share, for the six-month transition period ended December 31, 2021, on revenue of $343.0 million and operating cash flow of $248.8 million. Adjusted net income¹ was $139.3 million, or $2.11 per share.

Production volume of 191,300 GEOs² for the Transition Period exceeded the top end of the revised guidance range of 180,000 to 190,000 GEOs³. Production volume for the Transition Period was approximately 190,900 GEOs at previously-provided guidance prices⁴.

Key Transition Period 2021 Highlights:

• Strong financial performance with revenue of $343.0 million and operating cash flow of $248.8 million, up 12% and 28%, respectively, over the comparable prior year period
• 73% of revenue from gold, 11% from silver, 12% from copper
• Production volume of 191,300 GEOs, exceeding the revised guidance range of 180,000 to 190,000 GEOs
• Completed transition to calendar year reporting schedule

Key December Quarter Highlights:

• Revenue of $168.5 million, operating cash flow of $118.9 million and earnings of $68.2 million, up 6%, 19% and 14%, respectively, over the prior year quarter
• Repaid $100 million of revolving credit facility balance, ending the period debt free, with cash of $143.6 million and available liquidity of $1.2 billion
• Increased dividend for the 21^st consecutive year to $1.40 per share, a 17% increase over the prior year
• Khoemacau stream rate increased to 90% of payable silver

“Royal Gold reported continued excellent operating and financial performance in the December quarter to close out our six-month Transition Period,” commented Bill Heissenbuttel, President and CEO of Royal Gold. “Solid portfolio contributions allowed us to exceed the top end of our GEO production guidance range for the Transition Period. With this reporting period behind us, we have completed the change to our fiscal year end and will now report on a calendar year basis.”

“We closed on two previously announced transactions during the Transition Period, a stream on the NX Gold mine and a royalty on the Red Chris mine, both of which are cash flow generating, and we still ended December in a strong financial position. We are debt free after repaying our remaining outstanding revolver balance and now have our $1 billion revolving credit facility fully available. We continued our sector-leading record of increasing dividends and raised our dividend in November for the 21st consecutive year. I am pleased that our long history of paying a growing dividend has been recognized through the recent inclusion of Royal Gold in the S&P High Yield Dividend Aristocrats Index. Royal Gold is the only precious metal company in this index.”

December Quarter Results

For the quarter ended December 31, 2021 net income of $68.2 million, or $1.04 per share, was reported on revenue of $168.5 million and operating cash flow of $118.9 million. Adjusted net income¹ was $69.2 million, or $1.05 per share.

¹Adjusted net income and adjusted net income per share are non-GAAP financial measures. See Schedule A of this press release for additional information, including a detailed description of adjustments to net income.
²See Schedule A of this press release for additional information about gold equivalent ounces, or GEOs.
³The Transition Period guidance range of 180,000 to 190,000 GEOs was revised upwards on November 3, 2021 from the original range of 175,000 to 185,000 GEOs.
⁴Commodity price assumptions for GEO guidance were: $1,750 per ounce of gold, $25.50 per ounce of silver, $4.15 per pound of copper, $8.00 per pound of nickel, $0.95 per pound of lead, and $1.25 per pound of zinc.

Recent Developments

Ramp-Up Continuing and Stream Rate Expected to Increase at the Khoemacau Project

According to Khoemacau Copper Mining (Pty.) Limited the transition to operations continues at the Khoemacau Project in Botswana. Construction and upgrades to the process plant and other project infrastructure are complete and performing in line with expectations, and activity continues to focus on ramping up mining operations to full production levels. KCM reported that progress within the mine during the December quarter was slower than planned due to typical ramp up issues related to refining drilling and blasting practices in a new ore body, and more significantly, reduced availability of skilled operators due to COVID-19 considerations. COVID-19 impacts were particularly significant in December 2021 when COVID-19 protocols caused absences to peak at approximately 25% of the planned operator workforce, including approximately 40% of the highly-skilled operators, which affected 40% of mining shifts and reduced planned production considerably. Workforce availability has subsequently improved, and combined with experience gained from mining the initial stopes, mining rates in January were approximately 40% of the target mining rate of 10,000 tonnes per day.

Absent further COVID-19 impacts, KCM expects the mining rate will continue to increase steadily from current levels and reach full sustained production by the fourth quarter of 2022. With the results experienced during the ramp-up period, KCM continues to expect that at full production Khoemacau will produce 155,000 to 165,000 tonnes of high-grade copper and silver concentrate a year, containing approximately 60,000 to 65,000 tonnes of payable copper and 1.8 to 2.0 million ounces of payable silver, over an approximate 20-year mine life.

Due to the negative impact on working capital caused by the slower ramp up progress, KCM has advised that it intends to draw the remaining $26.5 million stream advance payment in February, 2022, which would increase Royal Gold’s interest in the payable silver from Khoemacau from 90% to 100%. KCM has also advised that it is working to receive lender support and an additional equity contribution from shareholders. Absent further negative impacts from COVID-19, KCM believes it will have adequate liquidity available after these contributions to meet working capital needs until full production levels are reached.

After this final draw, Royal Gold would hold the right to receive 100% of the payable silver produced from Khoemacau until the delivery of 40.0 million silver ounces, and 50% thereafter. Royal Gold will pay a cash price equal to 20% of the spot silver price for each ounce delivered; however, if KCM achieves mill expansion throughput levels above 13,000 tonnes per day (30% above current mill design capacity), Royal Gold will pay a higher ongoing cash price for silver ounces delivered in excess of specific annual thresholds.

Updated 2022 Production Guidance and New 43-101 Report Expected at Mount Milligan

On January 18, 2022, Centerra Gold Inc. reported updated production guidance for Mount Milligan. In calendar 2022, Centerra expects Mount Milligan to produce between 190,000 and 210,000 ounces of gold, compared to the previously issued guidance of 170,000 to 190,000 ounces and actual 2021 production of 196,400 ounces. Centerra expects copper production to be in the range of 70 to 80 million pounds compared to the previous guidance of 90 to 100 million pounds and actual 2021 production of 73.3 million pounds. Centerra expects gold and copper production to be back-end weighted in calendar 2022, with the first half of the year representing 40% of the 2022 total annual metal production while the second half of the year will represent up to 60% of the 2022 total annual metal production. The changes to expected gold and copper production at the Mount Milligan Mine are due to planned mine sequence changes.

Centerra also reported that it expects to conclude its ongoing life of mine planning work and issue a new National Instrument 43-101 technical report for the Mount Milligan mine in the second quarter of 2022.

Pueblo Viejo Expansion Continues; Silver Deliveries Deferred in the December Quarter

Barrick Gold Corporation reported that the plant expansion and mine life extension project to increase throughput and allow the mine to maintain minimum average annual gold production of approximately 800,000 ounces after 2022 (100% basis) is progressing.

Barrick reported that engineering design of the plant expansion is now essentially complete, construction for the plant expansion is now 26% complete, and earthworks were 75% and civil concrete works were 60% complete at the end of the fourth quarter of 2021. Barrick further reported that steel and mechanical installation has started, and it expects completion of the plant expansion by the end of 2022.

Barrick also reported that the social, environmental, and technical studies for additional tailings and mine waste rock capacity continued to advance, including the review of alternative sites, in consultation with the Government of the Dominican Republic. Further according to Barrick, detailed design and engineering of these alternative sites is ongoing, and Barrick is continuing to engage with local stakeholders to review concerns and feedback.

Silver deliveries during the Transition Period were adversely impacted by the deferral of an additional 40,700 ounces in the December quarter, partially offset by an 18,700 ounce delivery of previously deferred ounces in the September 2021 quarter (net additional 22,000 ounces deferred). The stream agreement terms include a fixed 70% silver recovery rate. The deferred ounces are the result of a mechanism in the stream agreement that allows for the deferral of deliveries in a period if Barrick’s share of silver production is insufficient to cover its stream delivery obligations. If actual recovery rates fall below the contractual 70% recovery rate, ounces may be deferred with deferred ounces to be delivered in future periods as silver recovery allows. As of December 31, 2021, approximately 459,000 ounces remain deferred. Delivery of these deferred ounces is expected to continue in the coming quarters but timing for delivery of the full deferred amount is uncertain and will depend on various aspects of plant performance.

On February 16, 2022, Barrick reported that its share of Pueblo Viejo gold production for 2022 is expected to range between 400,000 and 440,000 ounces, with maintenance planned in the first quarter of the year.

Total Available Liquidity of $1.2 Billion after Repayment of Revolving Credit Facility Balance

On December 8, 2021, Royal Gold repaid the $50 million outstanding balance under its revolving credit facility, reducing the amount outstanding to $0 and leaving the full $1 billion facility undrawn and available. Combined with working capital of $154.6 million, Royal Gold has total available liquidity of approximately $1.2 billion as of December 31, 2021.

Completed Transition to Calendar Year Reporting Schedule

As of December 31, 2021, Royal Gold has completed the change in fiscal year end from June 30 to December 31. This change is intended to more closely align Royal Gold’s reporting and disclosure with that of the majority of its stream and royalty counterparties and the precious metals sector, which will allow market participants to more closely evaluate and compare Royal Gold’s performance to its peers.

Transition Period 2021 Overview

For the Transition Period, Royal Gold recorded net income of $138.3 million, or $2.11 per basic share and $2.10 per diluted share, as compared to net income of $166.8 million, or $2.55 per basic share and $2.54 per diluted share, for the six months ended December 31, 2020. The decrease in earnings per share was primarily due to a one-time gain attributable to the sale of the Peak Gold JV interest in the prior comparable period. This decrease was partially offset by an increase in revenue during the Transition Period.

For the Transition Period, Royal Gold recognized total revenue of $343.0 million, which is comprised of stream revenue of $226.6 million and royalty revenue of $116.4 million, at an average gold price of $1,792 per ounce, an average silver price of $23.85 per ounce and an average copper price of $4.32 per pound, compared to total revenue of $305.2 million, comprised of stream revenue of $214.2 million and royalty revenue of $91.0 million, at an average gold price of $1,892 per ounce, an average silver price of $24.32 per ounce and an average copper price of $3.10 per pound, for the six months ended December 31, 2020. The increase in total revenue for the Transition Period, compared with the six months ended December 31, 2020, resulted primarily from higher gold production at Cortez, increases in gold and copper sales at Mount Milligan, and maiden sales from the Khoemacau and NX Gold streams, which resulted in new revenue of $5.1 million and $7.7 million, respectively, during the current period. These increases were partially offset by lower gold sales at Andacollo, lower gold and silver sales at Pueblo Viejo and a decrease in average gold and silver prices when compared to the six months ended December 31, 2020.

Cost of sales increased to $52.3 million for the Transition Period, from $46.8 million for the six months ended December 31, 2020. The increase was primarily due to an increase in gold and copper sales at Mount Milligan when compared to the prior period. This increase was partially offset by a decrease in gold sales at Andacollo compared to the six months ended December 31, 2020. 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. The cash payment for gold from Mount Milligan is the lesser of $435 per ounce or the prevailing market price of gold when purchased, while the cash payment for the Company’s other streams is a set contractual percentage of the gold, silver or copper (Mount Milligan) spot price near the date of metal delivery.

General and administrative costs increased to $15.2 million for the Transition Period, from $14.2 million for the six months ended December 31, 2020. The increase was primarily due to higher employee related costs and non-cash stock compensation expense.

Depreciation, depletion and amortization increased to $99.7 million for the Transition Period, from $94.2 million for the six months ended December 31, 2020. The increase was primarily due to higher gold sales at Mount Milligan, and maiden sales from Khoemacau and the recently acquired NX Gold stream. These increases in depreciation, depletion and amortization were partially offset by a decrease in gold sales at Andacollo and lower gold and silver sales at Pueblo Viejo.

The Company recognized a loss in fair value changes in equity securities of $1.4 million for the Transition Period, compared to a gain in fair value changes in equity securities of $2.2 million for the six months ended December 31, 2020.

Interest and other expense decreased to $2.8 million for the Transition Period, from $3.5 million for the six months ended December 31, 2020. The decrease was primarily attributable to lower interest expense as a result of a decrease in average debt amounts outstanding during the current period when compared to the prior period.

Income tax expense was $30.0 million for the Transition Period, compared to $13.7 million for the six months ended December 31, 2020, which resulted in an effective tax rate or 17.8% in the Transition Period and 7.6% in the prior period. The effective tax rate for the Transition Period, was impacted by the release of uncertain tax positions resulting from a settlement agreement with a foreign tax authority and a change in estimates, partially offset by a foreign tax rate adjustment resulting in a revaluation of certain deferred tax assets. The effective tax rate for the six months ended December 31, 2020, was primarily impacted by the release of uncertain tax liabilities resulting from settlement agreements with foreign tax authorities. The Transition Period effective tax rate of 17.8% was at the lower end of the previously-provided guidance range of 18% to 22%.

Net cash provided by operating activities totaled $248.8 million for the Transition Period, compared to $194.1 million for the six months ended December 31, 2020. The change was primarily due to an increase in proceeds received from the Company’s stream and royalty interests, net of cost of sales and production taxes, of approximately $49.7 million over the Transition Period.

Net cash used in investing activities totaled $288.1 million for the Transition Period, compared to net cash provided by investing activities of $12.1 million for the six months ended December 31, 2020. The increase in cash used in investing activities was primarily due to the NX Gold ($100.0 million) and Red Chris ($165.0 million) acquisitions. This increase was partially offset by $49.2 million received for the sale of the Peak Gold JV interest in the six months ended December 31, 2020.

Net cash used in financing activities totaled $43.0 million for the Transition Period, compared to $143.4 million for the six months ended December 31, 2020. The decrease was primarily due to the repayment of $100 million on the Company’s revolving credit facility during the six months ended December 31, 2020.

At December 31, 2021, the Company had working capital of $154.6 million, including $143.6 million of cash and equivalents. This compares to current assets of $297.1 million and current liabilities of $52.1 million at June 30, 2021, resulting in working capital of $245.0 million. The decrease in working capital was primarily attributable to the acquisition of royalty and stream interests during the Transition Period, as summarized above.

During the Transition Period, liquidity needs were met from $248.8 million in net cash provided by operating activities and available cash resources. As of December 31, 2021, the Company had $1 billion available and no amounts outstanding under the revolving credit facility. Working capital, combined with available capacity under the revolving credit facility, resulted in approximately $1.2 billion of total liquidity at December 31, 2021.

December Quarter 2021 Overview

Revenue recognized during the December quarter was $168.5 million compared to $158.4 million in the prior year quarter, with stream revenue totaling $110.6 million and royalty revenue totaling $57.9 million. The increase in total revenue for the December quarter compared to the prior year quarter was primarily due to sales from the Khoemacau and NX Gold streams (both of which began contributing revenue in the quarter ended September 30, 2021), higher royalty revenue from Cortez, and higher average copper prices. These increases were partially offset by lower copper stream sales from Mount Milligan, and lower average gold and silver prices.

Cost of sales, which excludes depreciation, depletion and amortization, was $25.1 million for the December quarter, in line with $24.9 million for the prior year quarter. 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 costs increased to $8.0 million for the December quarter from $6.8 million for the prior year quarter. The increase was primarily due to higher employee related and non-cash stock compensation expense.

Depreciation, depletion and amortization increased to $49.1 million for the December quarter from $47.9 million for the prior year quarter. The increase was primarily due to higher GEO volumes.

Interest and other expense decreased to $0.9 million for the December quarter, from $1.6 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 year quarter.

During the December quarter, the Company recognized an income tax expense of $14.0 million, compared with an income tax expense of $16.0 million during the prior year quarter.

Outlook

Royal Gold expects to issue guidance for 2022 GEO sales, deprecitation, depletion and amortization expense, and effective tax rate during the second quarter of 2022.

With respect to additional commitments, other than the remaining conditional funding at the Khoemacau Project, as described above, and potential exploration and resource payments under the NX Gold stream, Royal Gold has no other project capital commitments or financing obligations.

Property Highlights

A breakdown of revenue for the stream and royalty portfolio can be found on Table 1 for the quarters ended December 31, 2020 and 2021, and the calendar years 2020 and 2021. Historical production reported by operators of the Company’s principal stream and royalty properties can be found on Table 2. Calendar year 2021 operator production estimates for the Company’s principal stream and royalty properties compared to actual production at these properties through December 31, 2021 can be found on Table 3. Results of the streaming business for the Transition Period and the December quarter, compared to the six-month period ended December 31 2020 and prior year quarter, respectively, can be found on Table 4. Highlights at certain of the Company’s principal producing and development properties during the Transition Period, compared to the six-month period ended December 31 2020, are detailed in the Company’s Transition Report on Form 10-K for the Transition Period.

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, 2021, the Company owned interests on 190 properties on five continents, including interests on 44 producing mines and 17 development stage projects.