Two Canadian Mining Companies Resolve Royalty Dispute

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Published : September 18th, 2018
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A CIBC report reviewed the news.

24hGold - Two Canadian Mining ...

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

Analyst Certification:
Each CIBC World Markets Corp./Inc. research analyst named on the front page of this research report, or at the beginning of any subsection hereof, hereby certifies that (i) the recommendations and opinions expressed herein accurately reflect such research analyst's personal views about the company and securities that are the subject of this report and all other companies and securities mentioned in this report that are covered by such research analyst and (ii) no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report.

Analysts employed outside the U.S. are not registered as research analysts with FINRA. These analysts may not be associated persons of CIBC World Markets Corp. and therefore may not be subject to FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Potential Conflicts of Interest:
Equity research analysts employed by CIBC World Markets Corp./Inc. are compensated from revenues generated by various CIBC World Markets Corp./Inc. businesses, including the CIBC World Markets Investment Banking Department. Research analysts do not receive compensation based upon revenues from specific investment banking transactions. CIBC World Markets Corp./Inc. generally prohibits any research analyst and any member of his or her household from executing trades in the securities of a company that such research analyst covers. Additionally, CIBC World Markets Corp./Inc. generally prohibits any research analyst from serving as an officer, director or advisory board member of a company that such analyst covers.

In addition to 1% ownership positions in covered companies that are required to be specifically disclosed in this report, CIBC World Markets Corp./Inc. may have a long position of less than 1% or a short position or deal as principal in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon.

Recipients of this report are advised that any or all of the foregoing arrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of interest.

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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