The transaction is subject to approval by the shareholders of GBR, and regulatory and court approvals. GBR expects to hold a special meeting of shareholders to approve the transaction on August 31, 2022, and subject to approval by shareholders, GBR will shortly thereafter seek approval by the Supreme Court of British Columbia of a plan of arrangement under the provisions of the Business Corporations Act (British Columbia). The transaction is expected to close during the quarter ending September 30, 2022.
Funding for the transaction is expected to come from available cash without the issue of equity.
Acquisition of Additional Royalty Interest on World-Class Producing Cortez Complex in Nevada
On August 2, 2022, the Company announced that it acquired a sliding-scale gross royalty (the “Cortez Royalty”) on an area including the Cortez mine operational area and the Fourmile development project in Nevada (the “Cortez Complex”). Royal Gold paid $525 million in cash consideration for the Cortez Royalty to Kennecott Royalty Company (“Kennecott”), a wholly owned subsidiary of Rio Tinto European Holdings Limited (“Rio Tinto”). The area within the Cortez Complex is owned or controlled by Nevada Gold Mines LLC (“NGM”), a joint venture between Barrick Gold Corporation (“Barrick”) (61.5% owner and operator) and Newmont Corporation (“Newmont”) (38.5% owner), with the exception of the Fourmile project which is 100% owned and operated by Barrick.
The Cortez Royalty is a life of mine sliding scale gross royalty payable at a rate of 0% at a gold price less than $400 per ounce, increasing to 3% at a gold price above $900 per ounce, and is payable on 40% of all production from the Cortez Complex. The Cortez Royalty does not cover the existing deposits within the Robertson property. At current gold prices the Cortez Royalty is an effective 1.2% gross royalty on the Cortez Complex and is not subject to any stepdowns or caps.
The Cortez Royalty is payable after cumulative production from the Cortez Complex of 15 million gold equivalent ounces from January 1, 2008 onwards. According to Barrick public disclosure, cumulative production from January 1, 2008, was approximately 14.8 million ounces as of June 30, 2022, and Royal Gold estimates that the Royalty is expected to begin paying in the third or fourth quarter of 2022 with the first revenue expected to be received in the fourth quarter of 2022 or first quarter of 2023. Royalty payments will be made quarterly within 45 days of the end of each calendar quarter.
Deductions from the Cortez Royalty payments are limited to third-party royalties that existed prior to 2008, which include the existing Crossroads and Pipeline royalties owned by Royal Gold.
The acquisition of the Cortez Royalty was funded from available cash and a draw on the Company’s credit facility as discussed below. No additional equity will be issued to fund this transaction.
Total Available Liquidity Increased to Approximately $1.3 Billion
At the end of the second quarter, Royal Gold was debt free with the full $1 billion credit facility undrawn and available. Combined with working capital of $276.3 million, Royal Gold had total available liquidity of approximately $1.3 billion as of June 30, 2022.
Subsequent to the end of the quarter and in order to fund the acquisition of the Cortez Royalty as discussed above, on July 25, 2022, Royal Gold drew $500 million on the credit facility, leaving $500 million undrawn and available. In keeping with Royal Gold’s capital allocation strategy, the Company expects to repay this outstanding debt as cash flow allows.
Second Quarter 2022 Overview
In the second quarter, the Company recorded net income and comprehensive income attributable to Royal Gold stockholders (“net income”) of $71.1 million, or $1.08 per basic and diluted share, as compared to net income of $81.7 million, or $1.24 per basic and diluted share, for the quarter ended June 30, 2021. The decrease in net income was primarily attributable to a decrease in revenue.
During the second quarter the Company recognized total revenue of $146.4 million, comprised of stream revenue of $104.9 million and royalty revenue of $41.6 million at an average gold price of $1,871 per ounce, an average silver price of $22.60 per ounce and an average copper price of $4.31 per pound. This is compared to total revenue of $168.0 million for the prior year period, comprised of stream revenue of $114.4 million and royalty revenue of $53.6 million, at an average gold price of $1,816 per ounce, an average silver price of $26.69 per ounce and an average copper price of $4.40 per pound.
The decrease in total revenue resulted primarily from lower gold sales at Andacollo and Pueblo Viejo and lower gold production at Cortez and Peñasquito. The decrease was offset by $9.4 million of new revenue from the NX Gold and Khoemacau streams, which did not provide stream deliveries to Royal Gold during the prior year quarter.
Cost of sales, which excludes depreciation, depletion and amortization, decreased to $23.8 million in the second quarter, from $24.7 million for the prior year period. The decrease, when compared to the prior period, was primarily due to a decrease in gold sales at Andacollo and Pueblo Viejo, offset by gold sales at NX Gold and silver sales at Khoemacau. Stream deliveries from the NX Gold and Khoemacau streams were not due to Royal Gold during 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. The cash payment for gold from Mount Milligan is the lesser of $435 per ounce or the prevailing
Read More: Form 8-K ROYAL GOLD INC For: Aug 03