Royal Gold Updates on Mount Milligan & Coronavirus Impact

Royal Gold, Inc. RGLD has provided an update on Mount Milligan mine’s production and reserves. Mount Milligan’s operator Centerra Gold Inc. ("Centerra") has revised life of mine (LOM) plan of Mount Milligan, which it had last updated in 2017.

Update on Mount Milligan

As of Dec 31, 2019, Mount Milligan’s reserves reduced by 240.2 million tons to 191.0 million tons, after including 16.4 million tons of production in 2019. Decrease in reserves primarily resulted from elevated costs, lower productivities and reduced process plant throughput compared with the 2017 report. Gold and copper reserve grade improved year over year while contained gold and copper declined.

Notably, Mount Milligan’s updated mine plan includes production based on a nine-year reserve life through 2028. LOM payable gold production is estimated at 1.45 million ounces, or an average of 161,000 ounces per year and LOM copper payable copper production is projected at 735.6 million pounds, or an average of 81.7 million pounds per year. All-in sustaining cost of average LOM is $704 per ounce of gold.

Royal Gold has the right to purchase 35% of Mount Milligan’s payable gold for cash price for $435 per ounce of gold or the spot price at the time of delivery, whichever is less. It also has the right to purchase 18.75% of copper production from Mount Milligan for cash payment of 15% of the spot price for copper, at the time of delivery. As of Dec 31, 2019, the company had recognized revenues of $679.2 million.

Royal Gold now has $1 billion of total liquidity available as of Dec 31, 2019, which poises it well to capitalize on opportunities.

Concerns Regarding COVID-19

Royal Gold holds interest in mines owned by several other mining companies. These companies have halted their mining operations in an attempt to contain spread of the coronavirus outbreak. The virus has become a major threat to public health worldwide, claiming thousands of lives. While gold has gained from its safe-haven demand, other commodities like copper, Zinc and nickel are bearing the brunt of the pandemic-led crisis.

Metal producers worldwide are temporarily halting their operations and suspending production as several governments are imposing restrictions to combat the spread of coronavirus. These companies are also cutting non-essential travel of office employees to protect them. Many countries have imposed travel and border restrictions and other measures such as constrained movement and quarantines to limit the spread.

Mining Operations on Suspension

Vale S.A VALE announced that it is placing its Voisey's Bay mining operation in Canada on care and maintenance for a period of four weeks. Voisey's Bay produced 25.0kt of copper in concentrate in 2019. Royal Gold owns 2.7% net value royalty on nickel, copper and cobalt production from the Voisey’s Bay mine. Royal Gold accounted for $2.1 million or 1.7% of total revenue of Voisey’s Bay mine during the December-end quarter.

New Gold Inc. NGD has temporarily suspended operations at the Rainy River mine for two weeks. The company does not expect to modify its annual production guidance for the mine. Royal Gold holds 6.5% of the gold produced from Rainy River until 230,000 ounces have been delivered, and 3.25% of the gold thereafter. This apart, the company owns silver production of 60% from the mine until 3,100,000 ounces have been delivered, and 30% thereafter. Rainy River contributed to 6.1% of Royal Gold’s total revenues in fourth-quarter 2019.

Agnico Eagle Mines Limited AEM will ramp down its operations in the Abitibi region of Quebec, which includes the LaRonde Complex and the Canadian Malartic mine. The company is expected to place each of these operations under care and maintenance until Apr 13, 2020. Royal Gold owns net smelter return (NSR) of 1% to 1.5% royalty on portions of the Canadian Malartic mine, and a 2% NSR royalty on the LaRonde Zone 5 mine. These mines accounted for $2.3 million, or 1.9% of Royal Gold’s total revenues during the quarter ended Dec 31, 2019.

Moreover, Calibre Mining Corporation has suspended the El Limon mine operations for an indefinite period. Royal Gold holds 3% NSR royalty on production from the El Limon mine. The mine contributed $0.9 million or 0.7% of total revenues to Royal Gold in fourth-quarter 2019.

Share Price Performance

Royal Gold currently carries a Zacks Rank #3 (Hold). The company’s shares have lost 0.8% over the past year, as against the industry’s gain of 27.9%.

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