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| RGLD > SEC Filings for RGLD > Form 10-Q on 6-Nov-2009 | All Recent SEC Filings |
6-Nov-2009
Quarterly Report
from gold royalties, 3% of its total revenue from silver royalties and 28% of
its total revenue from copper royalties for the three months ended September 30,
2008.
The increase in royalty revenue for the quarter ended September 30, 2009,
compared with the quarter ended September 30, 2008, resulted primarily from
production from the recently acquired Barrick royalty portfolio, an increase in
production at Taparko and Peñasquito, and commencement of production at Dolores.
These increases were partially offset by a decrease in production at Goldstrike
and a decrease in copper prices and production at Robinson. Please refer to
"Recent Developments, Property Developments" below within this MD&A for further
discussion on recent developments regarding properties covered by certain of our
royalty interests.
Principal Royalties
Our principal producing royalty interests are shown in the following table. The
Company considers both historical and future potential revenues in determining
which royalties in our portfolio are principal to our business. Estimated future
potential royalty revenues from both producing and development properties are
based on a number of factors, including reserves subject to our royalty
interests, production estimates, feasibility studies, metal price assumptions,
mine life, legal status and other factors and assumptions, any of which could
change and could cause Royal Gold to conclude that one or more of such royalties
are no longer principal to our business.
Please refer to our Fiscal 2009 10-K for further discussion on our principal
producing royalty interests.
Royalty
Mine Location Operator (Gold unless otherwise stated)
Cortez Nevada, USA Barrick Gold Corporation ("Barrick") GSR1: 0.40%-5.0% sliding-scale GSR
GSR2: 0.40%-5.0% sliding-scale GSR
GSR3: 0.71% GSR
NVR1: 0.39% NVR
Robinson Nevada, USA Quadra Mining Ltd. ("Quadra") 3.0% NSR (copper, gold, silver,
molybdenum)
Leeville Nevada, USA Newmont Mining Corporation ("Newmont") 1.8% NSR
Goldstrike Nevada, USA Barrick 0.9% NSR
Peñasquito Zacatecas, Mexico Goldcorp Inc. ("Goldcorp") 2.0% NSR (gold and silver)
(oxide)(1)
Mulatos(2) Sonora, Mexico Alamos Gold, Inc. ("Alamos") 1.0%-5.0% sliding-scale NSR
Taparko(3) Burkina Faso, West High River Gold Mines Ltd. ("High River") 15% GSR (TB-GSR1) and a 0%-10%
Africa sliding-scale GSR (TB-GSR2)
Siguiri(4) Guinea, West Africa AngloGold Ashanti ("Anglogold") 0.0%-1.875% sliding-scale NSR
Dolores Chihuahua, Mexico Minefinders Corporation, Ltd. ("Minefinders") 1.25% NSR; 2.0% NSR (gold and
silver)
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(1) The Peñasquito project consists of oxide and sulfide portions. The oxide portion of the deposit is currently in production. The sulfide portion is classified as development stage as shown below.
(2) The Mulatos
royalty is
capped at
2.0 million
gold ounces of
production.
Approximately
462,000
cumulative
ounces of gold
have been
produced as of
September 30,
2009.
(3) TB-GSR1 will remain in effect until cumulative production of 804,420 ounces of gold is achieved or until cumulative payments of $35 million have been made to Royal Gold, whichever occurs first. TB-GSR2 will remain in effect until the termination of TB-GSR1. As of September 30, 2009, we have recognized approximately $14.8 million in royalty revenue associated with TB-GSR1, which is attributable to cumulative production of approximately 110,000 ounces of gold.
(4) The Siguiri royalty is subject to a dollar cap of approximately $12.0 million. As of September 30, 2009, approximately $6.5 million remains under the cap.
Our principal development royalties are shown in the following table and are not yet in production. Please refer to our Fiscal 2009 10-K for further discussion on our principal development stage royalty interests.
Royalty
Mine Location Operator (Gold unless otherwise stated)
Peñasquito Zacatecas, Goldcorp 2.0% NSR (gold, silver, lead and
(sulfide) (1) Mexico zinc)
Pascua-Lama Region Barrick 0.16%-1.08% sliding-scale NSR
III, Chile 0.22% fixed rate royalty (copper)
Canadian Quebec, Osisko Mining 2.0%-3.0% sliding-scale NSR
Malartic(2) Canada Corporation ("Osisko")
Holt(3) Ontario, St Andrew Goldfields 0.00013 x quarterly average gold
Canada Ltd. ("St Andrew") price (NSR)
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(1) On
October 13,
2009,
Goldcorp
announced
that its
first lead
and zinc
concentrates
were produced
from the
Peñasquito
mine. The
Peñasquito
mine will
produce both
lead and zinc
concentrates,
with most of
the gold and
silver
production
coming from
lead
concentrates.
Ongoing
concentrate
production is
planned
during the
remaining
commissioning
phase through
year-end
calendar
2009, with
the first
shipments to
smelters
planned for
later in
calendar
2009.
(2) The Canadian Malartic royalty is subject to a buy down right, which if exercised by Osisko would lower the sliding-scale NSR royalty to 1.0%-1.5%.
(3) Refer to
"Recent
Developments
- Property
Developments"
as discussed
below within
this MD&A for
a further
discussion on
recent
developments
at Holt.
Operators' Production Estimates by Royalty for Calendar 2009
We received annual production estimates from the operators of our producing
mines during the first calendar quarter of 2009. The following table shows such
production estimates for our principal producing properties for calendar 2009 as
well as the actual production reported to us by the various operators for the
quarter ended September 30, 2009. The estimates and production reports are
prepared by the operators of the mining properties. We do not participate in the
preparation or calculation of the operators' estimates or production reports and
have not independently assessed or verified the accuracy of such information.
Operators' Production Estimate by Royalty for Calendar 2009 and Reported
Production
Principal Producing Properties
For the period January 1, 2009 through September 30, 2009
Calendar 2009 Operator's Production Reported Production through
Estimate(1) September 30, 2009(2)
Gold Silver Copper Gold Silver Copper
Royalty (oz.) (oz.) (lbs.) (oz.) (oz.) (lbs.)
Cortez GSR1 345,296 - - 227,612 - -
Cortez GSR2 614 - - 9,478 - -
Cortez GSR3 345,910 - - 237,090 - -
Cortez NVR1 72,863 - - 123,252 - -
Robinson(3) 100,000 - 130 million 71,678 - 79.8 million
Leeville 426,212 - - 317,446 - -
Goldstrike 440,879 - - 373,531 - -
Peñasquito(4) 70,000 2.3 million - 60,892 2.1 million -
Mulatos(5) 170,000 - - 134,485 - -
Dolores 100,000 2.0 million - 55,684 0.7 million -
Taparko 76,000 - - 65,833 - -
Siguiri 300,000 - - 239,188 - -
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(1) There can be no assurance that production estimates received from our operators will be achieved. Please refer to our cautionary language regarding forward-looking statements following this MD&A, as well as the Risk Factors identified in
(2) Reported production relates to the amount of metal sales, subject to our royalty interests, for the period January 1, 2009 through September 30, 2009, as reported to us by the operators of the mines.
(3) In August 2009, Quadra announced that annual production guidance for copper has been reduced to 130 million pounds of copper from 140 million pounds of copper due to its limited access to hypogene ore in the Veteran pit, which adversely affected blending capabilities. Gold production guidance was unchanged from Quadra's earlier estimate.
(4) Reported production estimate relates to the oxide circuit. The sulfide portion is classified as development stage.
(5) In August 2009, Alamos announced that estimated annual gold production has been increased to between 160,000 and 170,000 ounces from between 145,000 and 160,000 ounces. The increase in reported production was the result of higher than planned recoveries, which was due to operational improvements.
Recent Developments
Business Developments
Proposed Acquisition of Andacollo Production Interest
On April 3, 2009, the Company entered into a definitive agreement ("Master
Agreement") with a Chilean subsidiary of Teck Resources Limited ("Teck"), CDA,
to acquire an interest in the gold produced from the sulfide portion of the
Andacollo project in Chile (the "Andacollo Production Interest"). The purchase
price for the Andacollo Production Interest consists of $217.9 million in cash
and 1,204,136 of the Company's common shares.
The Andacollo Production Interest will equal 75% of the gold produced from the
sulfide portion of the deposit at the Andacollo mine until 910,000 payable
ounces of gold have been sold, and 50% of the gold produced in excess of 910,000
payable ounces of gold. The mine, located about 34 miles southeast of the city
of La Serena, Chile, produces copper from the oxide portion of the deposit and
Teck is currently constructing facilities to produce both copper and gold from
the sulfide portion of the deposit. The Andacollo Production Interest will not
cover copper production.
Proven and probable reserves, as estimated by the operator as of December 31,
2008, for the sulfide portion are 393.5 million tonnes (433.7 million tons) with
a grade of 0.39% copper and 0.13 g/t (0.004 ozs/ton) gold. This equates to
1.6 million contained ounces of gold. Reserves were estimated using a copper
price of $1.50 per pound and a gold price of $480 per ounce. Gold will be
produced as a by-product of copper production, with a gold recovery rate
estimated by the operator to be approximately 61%. Once the mine is in full
production, the operator expects the mill to have a capacity of 55,000 tonnes
(60,630 tons) per day. The operator estimates that the mine will produce on
average approximately 53,000 ounces of gold and 76,000 tonnes (83,775 tons) of
copper in concentrate annually for the first ten years of commercial production,
with an estimated mine life of 20 years. The mine is estimated to begin initial
production of gold in the fourth quarter of calendar 2009, with commercial
production at the mine to be achieved in the first half of calendar year 2010,
unless this schedule is delayed by challenges to previously granted permits
relating to CDA's water supply, as announced by Teck on August 12, 2009.
Royal Gold's obligation to close the Teck Transaction is subject to CDA's
completion of concentrate marketing for a specified percentage of its
concentrate production from the Andacollo mine, the condition that CDA's
material government approvals are not withdrawn or challenged, and completion of
certain limited due diligence satisfactory to Royal Gold, as well as other
customary closing conditions. To accommodate the potential delay in the start-up
of the sulfide milling operations, we have agreed to extend the outside closing
date of the Teck Transaction. As such, either party may terminate the definitive
agreement if the closing conditions are not met or waived by January 29, 2010.
Please also see Part I, Item 1A, Risk Factors - Additional risks that Royal Gold
may face as a result of the Teck Transaction are set forth below, in our Fiscal
2009 10-K for further discussion on potential risks associated with the Teck
Transaction.
Property Developments
Taparko
The Taparko mine commenced gold production in August 2007 and has contributed
approximately $23.9 million in royalty revenue (from TB-GSR1 and TB-GSR2) since
production commenced. Reserve characteristics, mining activity, and gold
recovery performance has been near feasibility study estimates. However, mill
performance has suffered since start-up due to problems associated with the
grinding mill drive-train. A new gear box to correct mill problems was installed
in October 2008 and, coupled with subsequent modifications, appear to have
largely remedied mill drive issues, but close monitoring of the mill drive train
continues. Gold sales at Taparko for the three months ended September 30, 2009,
and September 30, 2008 were approximately 25,000 ounces and 120 ounces,
respectively. The increase in gold sales during the period was attributable to
the improved mill availability.
Somita SA ("Somita"), a 90% owned subsidiary of High River and the operator of
Taparko, is in breach of certain obligations under the Amended and Restated
Funding Agreement dated February 22, 2006 (the "Funding Agreement") between
Royal Gold, Inc. and Somita. Royal Gold has invested $35 million for the
development of the Taparko mine under the Funding Agreement. As security for the
Company's investment in Somita, two of High River's subsidiaries have pledged
their equity interests in Somita and High River (West Africa) Ltd., the
corporate parent of Somita. This pledge will remain in effect until certain
production and performance standards have been attained at the Taparko mine. In
addition, Royal Gold obtained as collateral a pledge of shares of certain equity
investments in public companies held by High River. The market value of the
pledged shares is approximately $43.2 million as of September 30, 2009. The
Company's carrying value of its royalty interests at Taparko was approximately
$20.8 million as of September 30, 2009. The pledge of High River's equity
investment will remain in effect until project completion as provided in the
construction contract between Somita and its construction contractor. Royal Gold
has not agreed to forbear pursuing any of its remedies under the Funding
Agreement or other agreements with High River and its affiliates.
Peñasquito
On October 13, 2009, Goldcorp announced production of its first lead and zinc
concentrates from the Peñasquito mine. The Peñasquito mine will produce both
lead and zinc concentrates, with most of the gold and silver production coming
from lead concentrates. Ongoing concentrate production is planned during the
remaining commissioning phase through year-end calendar 2009, with the first
shipments to smelters planned for later in calendar 2009. Goldcorp expects to
attain commercial production in the first quarter of calendar 2010. In addition,
Goldcorp reported that construction of the second sulfide process line is well
underway and progressing toward planned completion in the third quarter of
calendar 2010.
Holt
On October 1, 2008, as part of the Company's acquisition of a portfolio of
royalties from Barrick, we acquired a royalty on a portion of the development
stage Holloway-Holt mining project in Ontario, Canada, owned by St Andrew. St
Andrew succeeded Newmont Canada Corporation ("Newmont Canada") as owner of the
Holloway-Holt mining project in November 2006. By virtue of the Company's
acquisition of Barrick's royalty portfolio, RGLD Gold Canada, Inc. ("RGLD Gold")
succeeded Barrick as the royalty payee under the royalty agreement.
On or about November 3, 2008, St Andrew filed an action in the Ontario Superior
Court of Justice (the "Court") seeking, among other things, declarations by the
Court that St Andrew's obligation in respect of the royalty is limited to only a
portion of the total royalty payable, and that any additional royalty
obligations under the royalty agreement remain the responsibility of Newmont
Canada. Newmont Canada responded that St Andrew is responsible for all royalty
obligations under the royalty agreement.
Royal Gold and RGLD Gold (collectively "Royal Gold") and Barrick were joined as
necessary parties to the litigation in January 2009. Trial concerning
calculation of the royalty and the party or parties responsible for paying it
was held from January 30, 2009 to February 12, 2009. On July 23, 2009, the Court
held that Royal Gold is entitled to payment from Newmont Canada of the full
amount of the sliding-scale NSR royalty on gold produced from the Holt mine. The
Court also held that St Andrew's sole obligation is to reimburse Newmont Canada
for payment of the royalty up to a flat rate of 0.013% of the net smelter
returns for gold, silver and other metals. On August 21, 2009, Newmont Canada
appealed the Court's decision to the Court of Appeal of Ontario but did not name
Royal Gold as a party to the appeal. Royal Gold filed a motion for an order of
the Court of Appeal directing Newmont Canada to name Royal Gold as a party to
the appellate proceedings.
The Holt royalty is classified as a development stage royalty interest and the
Company does not currently receive revenue from the royalty.
Troy
On October 13, 2009, the Company and Genesis Inc. ("Genesis"), a wholly-owned
subsidiary of Revett Silver Company and the operator of the Troy mine, finalized
a restructuring of the Company's 6.1% and 2.0% GSR royalties at the Troy mine
into one perpetual 3.0% royalty. The restructured 3.0% perpetual royalty will
commence on July 1, 2010, and applies to all production from the Troy mine in
addition to an expanded area of interest in the vicinity of the mine. The
Company paid Genesis approximately $1.5 million in consideration for the
restructured royalty.
Also on October 13, 2009, Genesis satisfied its outstanding $1.5 million
obligation due to the Company pursuant to our 7.0% GSR production payment
royalty at the Troy mine. The 7.0% GSR production payment royalty was subject to
a $10.5 million cap, which was met as of June 30, 2009. Upon receipt of payment
of the $1.5 million obligation, the 7.0% GSR production payment royalty
terminated.
Results of Operations
Quarter Ended September 30, 2009, Compared to Quarter Ended September 30, 2008
For the quarter ended September 30, 2009, we recorded net income attributable to
Royal Gold stockholders of $7.1 million, or $0.18 per basic share and $0.17 per
diluted share, as compared to net income attributable to Royal Gold stockholders
of $5.7 million, or $0.17 per basic and diluted share, for the quarter ended
September 30, 2008. The increase in our net income attributable to Royal Gold
stockholders was primarily due to an increase in royalty revenue. The increase
in our royalty revenue was partially offset by an increase in depreciation,
depletion and amortization expense as further discussed below.
For the quarter ended September 30, 2009, we recognized total royalty revenue of
$26.1 million (which includes $0.4 million of non-controlling interest), at an
average gold price of $960 per ounce and an average copper price of $2.65 per
pound, compared to royalty revenue of $16.1 million (which includes $0.2 million
of non-controlling interest), at an average gold price of $872 per ounce and an
average copper price of $3.49 per pound for the quarter ended September 30,
2008. The increase in royalty revenue for the quarter ended September 30, 2009,
compared with the quarter ended September 30, 2008, resulted primarily from an
increase in the average gold price, production from the recently acquired
Barrick royalty portfolio, an increase in production at Taparko and Peñasquito,
and commencement of production at Dolores. These increases were partially offset
by a decrease in production at Goldstrike and decreases in copper prices and
production at Robinson. Royalty revenue and the corresponding production,
attributable to our royalty interests, for the quarter ended September 30, 2009
compared to the quarter ended September 30, 2008 is as follows:
Royalty Revenue and Production Subject to Our Royalty Interests
Quarter Ended September 30, 2009 and 2008
Three Months Ended Three Months Ended
September 30, 2009 September 30, 2008
Royalty Reported Royalty Reported
Royalty Metal(s) Revenue Production(1) Revenue Production(1)
Taparko(2) Gold $ 5,966 25,350 oz. $ 23 117 oz.
Cortez Gold $ 5,827 94,864 oz. $ 4,536 60,676 oz.
Leeville Gold $ 2,317 133,821 oz. $ 1,674 106,828 oz.
. . .
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