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Royal Gold: Company's rise spurred by growth at Cortez

Royal Gold: Company's rise spurred by growth at Cortez

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DENVER – Royal Gold’s royalties on the Cortez Mine in Nevada gave the company the boost that later led to royalties and revenue streams from operations in many parts of the world, which in turn helped the company grow.

“Cortez was 90 percent of our business,” Royal Gold President and Chief Executive Officer Tony Jensen said of the company that also held royalties on the Bald Mountain, Goldstrike and Leeville mines in the early days. “We were all Nevada. That’s where we started.”

Now, the company has an interest in 191 exploration, development and operational properties on six continents, among them 43 properties in production and 17 development projects.

Share prices have surged with the company’s growth. Shares closed at $129.03 on Aug. 9.

“Share prices are hitting all-time highs at this time,” Jensen said. “I think the first shares I bought were $12.80 or something like that. We had an extreme amount of growth from 2003 to today.”

He said the market capitalization for Royal Gold was about $400 million then and now is at $7.7 billion.

Royal Gold’s position is to be a company with low risks in geopolitically safe areas, mostly in the Americas, and provide the more predictable investment model of streaming, as well as continue to pay dividends. The company has paid dividends since 2000, and they have gone up every year since.

“We’re beautifully positioned to attract investors of all types,” Jensen said.

Royal Gold keeps shares at a higher value because the company doesn’t dilute them to raise money, according to a company explanation.

Streaming is more popular now than royalties because they are “more efficient, especially internationally. Now streaming makes up 70 percent of our revenue; royalties, 30 percent. With streaming, we maintain more control of our destiny,” Jensen said.

Streaming involves paying a large deposit upfront for the right to buy gold or another metal at a predetermined price or percentage in future years. Royalties are a percentage of production from specific sites, after all the money is paid upfront.

Both royalties and streaming are ways companies can obtain money for developing projects instead of a bank loan. According to the company’s website, streaming is more flexible and offers tax advantages.

Streaming or royalty

“Streaming functions like a royalty in many facets, but we pay for a gold stream over the life of assets,” said Jensen, who announced in May he will be retiring by next March to give the board plenty of time to find a successor.

“If a mine does well, we do well. If it doesn’t work, there is no money. Our competition is really debt. A bank’s whole interest is to get money back and be associated with a mine five to seven years and still demand the money back in some fashion,” Jensen said.

Royal Gold, however, is on the “same side of the table” as the project developer with money upfront and the expectation of a share of the production, he said. That means Royal Gold may send technical people to help with a project.

The company receives roughly 77 percent of its revenue from gold, 9 percent from silver and 9 percent from copper. Other minerals make up the rest.

Jensen said his view on gold prices is long-term, and he doesn’t become startled when the price goes down to $1,200 an ounce or goes back up to $1,400 an ounce.

“Gold is a currency in my opinion,” Jensen said.

He said that in future years the gold supply will be harder to find, so the price is likely to go up, making gold “a great place to park some wealth.”

The company reported on July 9 its wholly owned subsidiary, RGLD Gold AG, sold 57,000 ounces of gold, 589,000 ounces of silver and 1,200 metric tons of copper related to its streaming agreements during the fiscal year quarter that ended June 30. Royal Gold also had roughly 32,000 gold equivalent ounces in inventory at the quarter’s end.

Cortez still key

Cortez is still a key producing property for Royal Gold, which has royalties on the Pipeline, South Pipeline, Gap and Crossroads deposits. According to projections for 2019, Royal Gold will see royalty revenue increase from Cortez. The estimate for the year for production with a Royal Gold royalty is 470,000 ounces.

Royal Gold’s production link in 2018 was on 136,200 ounces of gold from Cortez, according to the company.

The company doesn’t have royalties on all the deposits and underground production at Cortez, but Jensen said there is a small royalty on the southern portion of the new Goldrush deposit.

He said when he was general manager at Cortez from 1999 through 2003, “we were essentially brand new at Pipeline,” with gold at 0.3 ounces per ton and production of more than 100,000 ounces of gold per month or 1.3 million ounces a year.

“There we sat with a brand new mine, but we saw how fast we were consuming the deposit,” Jensen said.

He asked the lead geologists, Bob Hay and Tim Thompson, to start looking to the future and new deposits at Cortez, and the mine owners at the time -- Place Dome Inc. (60 percent) and Kennecott Exploration (Australia) -- approved exploration spending even though the gold price had tanked. The low gold price in April 2001 was $255.95 on the London afternoon fix chart.

“Bob and Tim came to my office with good news and bad news,” Jensen said.

They thought the root of the Pipeline and South Pipeline deposits had been mined out, “but they had some other ideas,” he said. After drilling, months later they came back with identification of the Cortez Hills deposit. “We were off to the races. It was an exciting time to go from Pipeline and South Pipeline and look to where to go next.”

Cortez Hills became an open pit and underground mining operation, but Royal Gold has no royalties there.

Barrick Gold acquired Placer Dome in 2006. Since July 1, Cortez is part of the Nevada Gold Mines joint venture of Barrick Gold Corp. and Newmont Goldcorp Corp, with Barrick as the operator. Jensen said Royal Gold is “really immune” to the joint venture as long as the JV continues to operate the mines where it holds royalties.

“When production happens, we get paid,” he said.

Stan Dempsey

One of Royal Gold’s founders and the former CEO and board chairman, Stan Dempsey, said “exploration success at Cortez earned us the large royalty that made Royal Gold a credible player in the royalty and streaming space.

“I am gratified to see Royal Gold doing so well. Ed Peiker and I organized the company in the mid-1980s to take advantage of our big company backgrounds in mining, adopting a strategy of using the very best technical, legal and financial people and working to big company standards,” he said in an email.

“We quickly acquired and began operating small gold mines and some exploration in major gold belts. We learned that small operations are difficult to fund out of operating income, and we abhorred debt. Finding that we could not operate small mines without cutting corners and seeing debt as a difficult way to finance mines, we quickly changed our business model to buying or creating gold royalties and streams,” Dempsey said.

“Our successors at Royal Gold have taken our work and improved upon it, building one of the largest gold firms in the world. Tony Jensen has attracted a first-rate board of directors and an astute management. They have built the company far beyond my expectations, acquiring world-class royalties and streams and managing them effectively,” he wrote.

Dempsey was inducted into the National Mining Hall of Fame in 2016.

Beyond Cortez, Royal Gold’s other Nevada producing royalty sites are: Goldstrike, the SJ Claims at the Betze-Post open pit operated by Nevada Gold Mines north of Carlin; Leeville undergound mine operated by Nevada Gold Mines north of Carlin; Marigold Mine, operated by SSR Mining near Valmy; Robinson Mine, operated by KGHM near Ely; Bald Mountain Mine, 68 miles southwest of Elko, operated by Kinross Gold; Gold Hill, five miles north of the Round Mountain Mine in Nye County, operated by Kinross; Twin Creeks Mine in Humboldt County, operated by Nevada Gold Mines; and Ruby Hill Mine at Eureka, owned by Waterton Precious Metals.

Royal Gold receives 76 percent of its revenue from its principal producing properties that include Cortez, Mount Milligan in British Columbia, Andocollo in Chile, Peñasquito in Mexico, Pueblo Viejo in the Dominican Republic and Wassa in Ghana.

Earnings report

Royal Gold reported that for the quarter ending June 30 the company had a net income of $26.5 million, or 40 cents per share, on revenue of $115.7 million, compared with $26.7 million, or 41 cents per share, in the same quarter of 2018, partially due to the impact of a protest blockade at the Peñasquito Mine.

The company does its financials on a fiscal year ending June 30, so Royal Gold reported net income for the fiscal year of $93.8 million, or $1.43 per share on revenue of $423.1 million, compared with a net loss of $113.1 million, or $1.73 per share, in the 2018 fiscal year.

In 2018, the company took impairment charges of roughly $239.4 million mainly on its royalty interest on the Pascua-Lama Project on the Argentine-Chile border. Barrick Gold Corp. had to look at other avenues after a court in Chile ordered closure on its side of the border.

Royal Gold now has offices in Toronto, Vancouver and Zug, Switzerland, as well as the Denver headquarters, but the employee numbers are low at 23. The offices were opened to put people where business is located, Jensen said.

Although Royal Gold is focused on streaming and royalties, the company is doing more at the Peak Project in Alaska that Jensen reported “is not remote at all and has very interesting geology.” The company put in $5 million and will contract for exploration drilling, but has its own technical team controlling the project.

“We’re extremely excited about it, but we’re not going to mine it. When it comes time, someone else will take over,” he said.

Jensen’s retirement

Looking to his retirement, Jensen said Royal Gold “has got some very good talent in the company. The board will do an external and internal search.”

He said he plans “to enjoy spending time doing things for other people,” such as Engineers Without Borders and sit on two or three company boards, not necessarily mining company boards. “I very much want to spend more time with family.”

Jensen said he enjoyed his time in Latin America, where he was working for Placer Dome before coming to Cortez. He also said he liked northeastern Nevada.

“Our family has had the good fortune of living in many communities around the world, and we enjoyed each location, likely receiving much more than we left behind. Specifically, we have wonderful memories of our time in northeast Nevada where I found a talented workforce with strong work ethics, as well as a welcoming community where we still have many friends,” he said.

Jensen joined Royal Gold as president and chief operating officer in 2003 and has been president and CEO since 2006.

“Royal Gold is a very solid, predictable business and is filled with solid talent and the best board in the business. I am so very, very confident of the Royal Gold board,” he said.

Board Chairman Bill Hayes, who was with Placer Dome 18 years before retiring, stated in the Jensen retirement announcement in May that “Tony has made extraordinary contributions to Royal Gold during his tenure, including building an exceptional, well-respected management team.”


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