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.
