Source: Adrian Day 08/16/2024
Global Analyst Adrian Day reviews results from six major resource companies, four of which are royalty companies.
The quarterly results we look at today from six major resource companies mostly include higher revenues and cash flows, which is not unexpected given that the gold price was $250 an ounce higher than in the first quarter.
However, they also show some companies are still struggling with costs. Above all, they clearly illustrate Robert Friedland's quip that "Murphy works overtime in the mining business."
The last quarter includes a power outage, equipment failures, arbitration, a heap leach failure, a broken agreement, and construction delays. And more. It reinforces that mining is a difficult business, and so too for the royalty companies that reap some of the rewards. Guidance and market forecasts are all too often set with the expectation of perfection. Companies that had unexpected problems saw their stock prices slammed.
Wheaton Has Strong Quarter as It Ramps up Production
Wheaton Precious Metals Corp. (NYSE: WPM) was the exception, with a strong quarter in which nothing meaningful went wrong. It is on track to achieve the upper end of its full-year guidance. Production was stronger than expected, driven by outperformance at its largest asset, Salobo, as Phase III continues its ramp-up, as well as strong performance at Peñasquito and Antamina.
Sales were lower due to timing differences between production and sales. There are some major new assets on which it holds streams moving towards production, including Ivanhoe's Platreef, where an updated feasibility study is scheduled for the fourth quarter; this will be one of the world's largest platinum producers. There are six other projects under construction and more predevelopment projects, allowing Wheaton to move from this year's production range of 550,000 to 620,000 GEOs to over 850,000 a year from 2029 onwards.
Company Has Strong Pipeline With Balance Sheet To Transact
The pipeline for new deals is very busy, with larger transactions under consideration, mostly in the pre-construction phase, with some over half-a-billion in size.
This is a change from recent Wheaton activity which saw it making some very small transactions, some as small as $20 million. The company has a rock-solid balance sheet, with $540 million in cash, up $234 million on the quarter, with total liquidity of $2.5 billion.
We are long-term holders.
Royal on Track To Meet Guidance With Strong Revenues
Royal Gold Inc. (NASDAQ: RGLD) reported quarterly financials better than expected, even after pre-releasing its streaming sales, which constitute the bulk of its revenues. Revenue was up 17% quarter-on-quarter, primarily due to higher metal prices but also higher copper sales at Mount Milligan and higher gold and silver production from Peñasquito, partially offset by lower sales at Pueblo Viejo, where the expansion is still in ramp-up. G&A cash costs remain flat. The company is tracking its guidance, which remains unchanged.
During the quarter, Royal acquired additional royalties on B2Gold's Back River project. The royalties are different in structure (NSR and GSR) as well as having hurdles and variable rates; the company estimates that, in aggregate, their royalties approximate a 1.1% gross smelter royalty. With a further $100 million paydown on its debt, the company is now net cash positive, with just $50 million of debt outstanding and available liquidity of $1 billion. The debt is expected to be paid off next week, eliminating the debt taken on to acquire three major royalties over the past two years (Cortez, Great Bear, and Back River), which the company acquired without any equity dilution.
Royal has strong free cash flow, and near-term growth as well as some longer-term potential.
Osisko Lowers Full-Year Guidance as It Writes off Mine Royalty
Osisko Gold Royalties Ltd. (NYSE: OR) saw a reasonable second quarter, in line with its guidance, but due, as acknowledged by the company, to higher metals prices. Gold Equivalent Ounces (GEOs), which had been pre-released, declined slightly. It lowered its second-half guidance on the back of the suspension of the Eagle Mine in the Yukon following a heap leach failure at the end of the quarter.
Osisko decided to take a full impairment on the royalty it holds on the mine, stating that it has no visibility on when the mine might restart and is not expecting any ounces for the rest of the year. There is also a delay in the ramp-up of one of its new royalty assets, Mantos Blancos, contributing to the lower-than-expected second half. It does ...
