Two Canadian Mining Companies Resolve Royalty Dispute

A CIBC report reviewed the news.

In a Sept. 14 research note, CIBC analyst Cosmos Chiu reported that Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX) and Vale Canada settled the longstanding litigation between them regarding the calculation of royalties on the sale of all concentrates produced at the former’s Voisey’s Bay mine and processed at the latter’s Long Harbour plant.

“We believe this resolution is a positive for Royal Gold as it comes sooner than we had expected and reinstates the Voisey’s Bay royalty as a cash flow generating asset for Royal Gold,” Chiu noted.

He added that Royal Gold “expects the 3% royalty rate will apply to about 50% of the gross metal value in concentrates at existing nickel, copper and cobalt prices,” however, specifics of the agreed upon net smelter return royalty calculation are confidential.

Royalty payments are due 45 days after the quarter’s end. As such, Royal Gold will benefit shortly, as the first payment, of about $2 million for Q2/18 production, is due the company in October. This will be Vale’s first royalty paid to Royal Gold since Q1/16.

Vale continues to ramp up processing at its Long Harbour plant from its current annualized rate of about 35,600 tons to 50,000 tons of finished nickel. Concentrate from Voisey’s Bay will comprise 100% of the plant’s feed “in the next few years,” Chiu pointed out, “with other sources of concentrate to be added over time.”

CIBC has an Outperformer rating and a US$90 per share 12- to 18-month price target on Royal Gold. The company’s current share price is about US$77.95.

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Disclosures from CIBC, Royal Gold Inc., September 14, 2018

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Important Disclosure Footnotes for Royal Gold Inc. (RGLD)

· CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from Royal Gold Inc. in the next 3 months.


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