UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended DecemberMarch 31, 20182019
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-13357
Royal Gold, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware |
| 84-0835164 |
(State or Other Jurisdiction of |
| (I.R.S. Employer |
Incorporation) |
| Identification No.) |
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1660 Wynkoop Street, Suite 1000 |
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Denver, Colorado |
| 80202 |
(Address of Principal Executive Offices) |
| (Zip Code) |
Registrant’s telephone number, including area code (303) 573-1660
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☒ | Accelerated filer ☐ |
Non-accelerated filer ☐ | Smaller reporting company ☐ |
Emerging growth company ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
There were 65,516,94065,519,664 shares of the Company’s common stock, par value $0.01 per share, outstanding as of January 31,April 25, 2019.
Title of Each Class | Trading Symbol | Name of the |
Common Stock, $0.01 par value | RGLD | Nasdaq Global Select Market |
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| Consolidated Statements of Operations and Comprehensive Income (Loss) |
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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2
ROYAL GOLD, INC.
(Unaudited, in thousands except share data)
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| December 31, 2018 |
| June 30, 2018 |
| March 31, 2019 |
| June 30, 2018 | ||||
ASSETS |
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Cash and equivalents |
| $ | 156,536 |
| $ | 88,750 |
| $ | 215,996 |
| $ | 88,750 |
Royalty receivables |
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| 25,659 |
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| 26,356 |
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| 27,554 |
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| 26,356 |
Income tax receivable |
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| 12,793 |
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| 40 |
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| 8,790 |
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| 40 |
Stream inventory |
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| 7,954 |
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| 9,311 |
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| 12,413 |
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| 9,311 |
Prepaid expenses and other |
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| 793 |
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| 1,350 |
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| 602 |
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| 1,350 |
Total current assets |
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| 203,735 |
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| 125,807 |
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| 265,355 |
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| 125,807 |
Stream and royalty interests, net (Note 2) |
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| 2,419,908 |
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| 2,501,117 | ||||||
Stream and royalty interests, net (Note 3) |
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| 2,381,592 |
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| 2,501,117 | ||||||
Other assets |
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| 51,463 |
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| 55,092 |
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| 52,438 |
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| 55,092 |
Total assets |
| $ | 2,675,106 |
| $ | 2,682,016 |
| $ | 2,699,385 |
| $ | 2,682,016 |
LIABILITIES |
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Accounts payable |
| $ | 2,291 |
| $ | 9,090 |
| $ | 5,005 |
| $ | 9,090 |
Dividends payable |
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| 17,359 |
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| 16,375 |
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| 17,361 |
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| 16,375 |
Income tax payable |
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| 10,739 |
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| 18,253 |
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| 16,251 |
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| 18,253 |
Withholding taxes payable |
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| 2,348 |
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| 3,254 |
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| 2,861 |
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| 3,254 |
Other current liabilities |
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| 4,439 |
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| 4,411 |
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| 7,786 |
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| 4,411 |
Total current liabilities |
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| 37,176 |
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| 51,383 |
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| 49,264 |
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| 51,383 |
Debt (Note 3) |
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| 358,897 |
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| 351,027 | ||||||
Debt (Note 4) |
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| 362,915 |
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| 351,027 | ||||||
Deferred tax liabilities |
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| 90,700 |
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| 91,147 |
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| 90,321 |
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| 91,147 |
Uncertain tax positions |
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| 35,590 |
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| 33,394 |
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| 36,524 |
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| 33,394 |
Other long-term liabilities |
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| 5,773 |
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| 13,796 |
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| - |
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| 13,796 |
Total liabilities |
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| 528,136 |
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| 540,747 |
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| 539,024 |
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| 540,747 |
Commitments and contingencies (Note 10) |
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Commitments and contingencies (Note 11) |
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EQUITY |
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Preferred stock, $.01 par value, 10,000,000 shares authorized; and 0 shares issued |
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| — |
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| — |
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| — |
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| — |
Common stock, $.01 par value, 200,000,000 shares authorized; and 65,396,339 and 65,360,041 shares outstanding, respectively |
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| 654 |
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| 654 | ||||||
Common stock, $.01 par value, 200,000,000 shares authorized; and 65,400,304 and 65,360,041 shares outstanding, respectively |
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| 654 |
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| 654 | ||||||
Additional paid-in capital |
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| 2,197,254 |
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| 2,192,612 |
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| 2,199,349 |
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| 2,192,612 |
Accumulated other comprehensive loss |
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| - |
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| (1,201) |
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| - |
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| (1,201) |
Accumulated losses |
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| (86,238) |
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| (89,898) |
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| (74,563) |
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| (89,898) |
Total Royal Gold stockholders’ equity |
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| 2,111,670 |
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| 2,102,167 |
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| 2,125,440 |
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| 2,102,167 |
Non-controlling interests |
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| 35,300 |
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| 39,102 |
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| 34,921 |
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| 39,102 |
Total equity |
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| 2,146,970 |
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| 2,141,269 |
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| 2,160,361 |
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| 2,141,269 |
Total liabilities and equity |
| $ | 2,675,106 |
| $ | 2,682,016 |
| $ | 2,699,385 |
| $ | 2,682,016 |
The accompanying notes are an integral part of these consolidated financial statements.
3
ROYAL GOLD, INC.
Consolidated Statements of Operations and Comprehensive Income (Loss)
(Unaudited, in thousands except share data)
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| For The Three Months Ended |
| For The Six Months Ended |
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| For The Three Months Ended |
| For The Nine Months Ended |
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| December 31, |
| December 31, |
| December 31, |
| December 31, |
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| March 31, |
| March 31, |
| March 31, |
| March 31, |
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| 2018 |
| 2017 |
| 2018 |
| 2017 |
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| 2019 |
| 2018 |
| 2019 |
| 2018 |
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Revenue |
| $ | 97,592 |
| $ | 114,348 |
| $ | 197,585 |
| $ | 226,824 |
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Revenue (Note 5) |
| $ | 109,778 |
| $ | 115,983 |
| $ | 307,362 |
| $ | 342,807 |
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Costs and expenses |
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Cost of sales |
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| 18,162 |
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| 19,863 |
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| 34,689 |
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| 40,282 |
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| 19,075 |
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| 21,345 |
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| 53,764 |
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| 61,627 |
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General and administrative |
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| 7,423 |
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| 9,555 |
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| 17,349 |
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| 16,455 |
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| 6,798 |
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| 8,100 |
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| 24,147 |
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| 24,555 |
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Production taxes |
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| 909 |
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| 602 |
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| 2,201 |
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| 1,145 |
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| 1,006 |
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| 423 |
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| 3,206 |
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| 1,568 |
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Exploration costs |
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| 842 |
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| 1,358 |
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| 5,204 |
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| 4,561 |
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| 330 |
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| 536 |
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| 5,534 |
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| 5,098 |
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Depreciation, depletion and amortization |
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| 38,807 |
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| 42,008 |
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| 81,358 |
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| 81,701 |
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| 39,368 |
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| 39,679 |
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| 120,726 |
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| 121,380 |
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Impairment of royalty interests |
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| — |
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| 239,364 |
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| — |
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| 239,364 |
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Total costs and expenses |
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| 66,143 |
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| 73,386 |
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| 140,801 |
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| 144,144 |
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| 66,577 |
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| 309,447 |
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| 207,377 |
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| 453,592 |
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Operating income |
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| 31,449 |
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| 40,962 |
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| 56,784 |
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| 82,680 |
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Operating income (loss) |
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| 43,201 |
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| (193,464) |
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| 99,985 |
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| (110,785) |
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Fair value changes in equity securities |
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| (3,631) |
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| — |
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| (5,099) |
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| — |
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| 1,781 |
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| — |
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| (3,318) |
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| — |
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Interest and other income |
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| 487 |
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| 645 |
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| 590 |
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| 1,634 |
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| 499 |
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| 1,781 |
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| 1,089 |
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| 3,416 |
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Interest and other expense |
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| (7,410) |
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| (9,034) |
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| (15,287) |
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| (17,651) |
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| (7,499) |
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| (8,294) |
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| (22,786) |
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| (25,946) |
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Income before income taxes |
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| 20,895 |
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| 32,573 |
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| 36,988 |
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| 66,663 |
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Income (loss) before income taxes |
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| 37,982 |
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| (199,977) |
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| 74,970 |
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| (133,315) |
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Income tax benefit (expense) |
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| 2,148 |
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| (48,360) |
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| (1,967) |
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| (55,904) |
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Income tax (expense) benefit |
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| (9,388) |
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| 45,859 |
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| (11,355) |
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| (10,044) |
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Net income (loss) |
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| 23,043 |
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| (15,787) |
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| 35,021 |
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| 10,759 |
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| 28,594 |
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| (154,118) |
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| 63,615 |
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| (143,359) |
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Net loss attributable to non-controlling interests |
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| 543 |
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| 1,022 |
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| 3,575 |
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| 3,105 |
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| 178 |
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| 468 |
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| 3,753 |
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| 3,573 |
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Net income (loss) attributable to Royal Gold common stockholders |
| $ | 23,586 |
| $ | (14,765) |
| $ | 38,596 |
| $ | 13,864 |
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| $ | 28,772 |
| $ | (153,650) |
| $ | 67,368 |
| $ | (139,786) |
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Net income (loss) |
| $ | 23,043 |
| $ | (15,787) |
| $ | 35,021 |
| $ | 10,759 |
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| $ | 28,594 |
| $ | (154,118) |
| $ | 63,615 |
| $ | (143,359) |
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Adjustments to comprehensive income (loss), net of tax |
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Unrealized change in market value of available-for-sale securities |
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| — |
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| (390) |
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| — |
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| (193) |
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| — |
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| (666) |
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| — |
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| (858) |
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Comprehensive income (loss) |
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| 23,043 |
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| (16,177) |
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| 35,021 |
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| 10,566 |
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| 28,594 |
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| (154,784) |
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| 63,615 |
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| (144,217) |
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Comprehensive loss attributable to non-controlling interests |
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| 543 |
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| 1,022 |
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| 3,575 |
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| 3,105 |
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| 178 |
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| 468 |
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| 3,753 |
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| 3,573 |
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Comprehensive income (loss) attributable to Royal Gold stockholders |
| $ | 23,586 |
| $ | (15,155) |
| $ | 38,596 |
| $ | 13,671 |
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| $ | 28,772 |
| $ | (154,316) |
| $ | 67,368 |
| $ | (140,644) |
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Net income (loss) per share available to Royal Gold common stockholders: |
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Basic earnings (loss) per share |
| $ | 0.36 |
| $ | (0.23) |
| $ | 0.59 |
| $ | 0.21 |
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| $ | 0.44 |
| $ | (2.35) |
| $ | 1.03 |
| $ | (2.14) |
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Basic weighted average shares outstanding |
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| 65,395,457 |
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| 65,306,766 |
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| 65,385,161 |
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| 65,271,131 |
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| 65,398,369 |
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| 65,307,324 |
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| 65,389,499 |
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| 65,283,019 |
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Diluted earnings (loss) per share |
| $ | 0.36 |
| $ | (0.23) |
| $ | 0.59 |
| $ | 0.21 |
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| $ | 0.44 |
| $ | (2.35) |
| $ | 1.03 |
| $ | (2.14) |
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Diluted weighted average shares outstanding |
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| 65,473,400 |
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| 65,306,766 |
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| 65,485,423 |
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| 65,460,430 |
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| 65,515,234 |
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| 65,307,324 |
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| 65,494,902 |
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| 65,283,019 |
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Cash dividends declared per common share |
| $ | 0.265 |
| $ | 0.25 |
| $ | 0.515 |
| $ | 0.49 |
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| $ | 0.265 |
| $ | 0.25 |
| $ | 0.78 |
| $ | 0.74 |
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The accompanying notes are an integral part of these consolidated financial statements.
4
ROYAL GOLD, INC.
Consolidated Statements of Changes in Stockholder’s Equity
(unaudited, in thousands except share data)
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| Royal Gold Stockholders |
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| Accumulated |
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| Additional |
| Other |
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| Common Shares |
| Paid-In |
| Comprehensive |
| Accumulated |
| Non-controlling |
| Total | ||||||||
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| Shares |
| Amount |
| Capital |
| Income (Loss) |
| (Losses) Earnings |
| Interests |
| Equity | ||||||
Balance at December 31, 2018 |
| 65,396,339 |
| $ | 654 |
| $ | 2,197,254 |
| $ | — |
| $ | (86,238) |
| $ | 35,300 |
| $ | 2,146,970 |
Stock-based compensation and related share issuances |
| 3,965 |
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| — |
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| 1,675 |
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| — |
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| — |
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| — |
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| 1,675 |
Other |
| — |
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| — |
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| — |
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| — |
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| 266 |
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| — |
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| 266 |
Contributions from non-controlling interests |
| — |
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| — |
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| 420 |
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| — |
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| — |
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| (201) |
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| 219 |
Net income |
| — |
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| — |
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| — |
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| — |
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| 28,772 |
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| (178) |
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| 28,594 |
Other comprehensive loss |
| — |
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| — |
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| — |
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| — |
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| — |
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| — |
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| — |
Dividends declared |
| — |
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| — |
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| — |
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| — |
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| (17,363) |
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| — |
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| (17,363) |
Balance at March 31, 2019 |
| 65,400,304 |
| $ | 654 |
| $ | 2,199,349 |
| $ | — |
| $ | (74,563) |
| $ | 34,921 |
| $ | 2,160,361 |
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| Royal Gold Stockholders |
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| Accumulated |
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| Additional |
| Other |
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| Common Shares |
| Paid-In |
| Comprehensive |
| Accumulated |
| Non-controlling |
| Total | ||||||||
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| Shares |
| Amount |
| Capital |
| Income (Loss) |
| (Losses) Earnings |
| Interests |
| Equity | ||||||
Balance at December 31, 2017 |
| 65,307,285 |
| $ | 653 |
| $ | 2,186,648 |
| $ | 687 |
| $ | 69,842 |
| $ | 41,987 |
| $ | 2,299,817 |
Stock-based compensation and related share issuances |
| 1,733 |
|
| — |
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| 1,603 |
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| — |
|
| — |
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| — |
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| 1,603 |
Contributions from non-controlling interests |
| — |
|
| — |
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| — |
|
| — |
|
| — |
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| 134 |
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| 134 |
Net loss |
| — |
|
| — |
|
| — |
|
| — |
|
| (153,650) |
|
| (468) |
|
| (154,118) |
Other comprehensive loss |
| — |
|
| — |
|
| — |
|
| (666) |
|
| — |
|
| — |
|
| (666) |
Dividends declared |
| — |
|
| — |
|
| — |
|
| — |
|
| (16,365) |
|
| — |
|
| (16,365) |
Balance at March 31, 2018 |
| 65,309,018 |
| $ | 653 |
| $ | 2,188,251 |
| $ | 21 |
| $ | (100,173) |
| $ | 41,653 |
| $ | 2,130,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Royal Gold Stockholders |
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
| Additional |
| Other |
|
|
|
|
|
|
|
|
| ||
|
| Common Shares |
| Paid-In |
| Comprehensive |
| Accumulated |
| Non-controlling |
| Total | ||||||||
|
| Shares |
| Amount |
| Capital |
| Income (Loss) |
| (Losses) Earnings |
| Interests |
| Equity | ||||||
Balance at June 30, 2018 |
| 65,360,041 |
| $ | 654 |
| $ | 2,192,612 |
| $ | (1,201) |
| $ | (89,898) |
| $ | 39,102 |
| $ | 2,141,269 |
Stock-based compensation and related share issuances |
| 40,263 |
|
| — |
|
| 3,527 |
|
| — |
|
| — |
|
| — |
|
| 3,527 |
Other |
| — |
|
| — |
|
| — |
|
| — |
|
| 266 |
|
| — |
|
| 266 |
Contributions from non-controlling interests |
| — |
|
| — |
|
| 3,210 |
|
| — |
|
| — |
|
| (428) |
|
| 2,782 |
Net loss |
| — |
|
| — |
|
| — |
|
| — |
|
| 67,368 |
|
| (3,753) |
|
| 63,615 |
Other comprehensive loss |
| — |
|
| — |
|
| — |
|
| 1,201 |
|
| (1,201) |
|
| — |
|
| — |
Dividends declared |
| — |
|
| — |
|
| — |
|
| — |
|
| (51,098) |
|
| — |
|
| (51,098) |
Balance at March 31, 2019 |
| 65,400,304 |
| $ | 654 |
| $ | 2,199,349 |
| $ | — |
| $ | (74,563) |
| $ | 34,921 |
| $ | 2,160,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Royal Gold Stockholders |
|
|
|
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
| Additional |
| Other |
|
|
|
|
|
|
|
|
| ||
|
| Common Shares |
| Paid-In |
| Comprehensive |
| Accumulated |
| Non-controlling |
| Total | ||||||||
|
| Shares |
| Amount |
| Capital |
| Income (Loss) |
| (Losses) Earnings |
| Interests |
| Equity | ||||||
Balance at June 30, 2017 |
| 65,179,527 |
| $ | 652 |
| $ | 2,185,796 |
| $ | 879 |
| $ | 88,050 |
| $ | 44,887 |
| $ | 2,320,264 |
Stock-based compensation and related share issuances |
| 129,491 |
|
| 1 |
|
| 2,455 |
|
| — |
|
| — |
|
| — |
|
| 2,456 |
Contributions from non-controlling interests |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 339 |
|
| 339 |
Net loss |
| — |
|
| — |
|
| — |
|
| — |
|
| (139,786) |
|
| (3,573) |
|
| (143,359) |
Other comprehensive loss |
| — |
|
| — |
|
| — |
|
| (858) |
|
| — |
|
| — |
|
| (858) |
Dividends declared |
| — |
|
| — |
|
| — |
|
| — |
|
| (48,437) |
|
| — |
|
| (48,437) |
Balance at March 31, 2018 |
| 65,309,018 |
| $ | 653 |
| $ | 2,188,251 |
| $ | 21 |
| $ | (100,173) |
| $ | 41,653 |
| $ | 2,130,405 |
The accompanying notes are an integral part of these consolidated financial statements.
5
ROYAL GOLD, INC.
Consolidated Statements of Cash Flows
(Unaudited, in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For The Six Months Ended |
| For The Nine Months Ended | ||||||||
|
| December 31, |
| December 31, |
| March 31, |
| March 31, | ||||
|
| 2018 |
| 2017 |
| 2019 |
| 2018 | ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 35,021 |
| $ | 10,759 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
| ||||||
Net income (loss) |
| $ | 63,615 |
| $ | (143,359) | ||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
| ||||||
Depreciation, depletion and amortization |
|
| 81,358 |
|
| 81,701 |
|
| 120,726 |
|
| 121,380 |
Amortization of debt discount and issuance costs |
|
| 7,864 |
|
| 7,413 |
|
| 11,882 |
|
| 11,200 |
Non-cash employee stock compensation expense |
|
| 4,070 |
|
| 4,395 |
|
| 5,510 |
|
| 5,958 |
Fair value changes in equity securities |
|
| 5,099 |
|
| — |
|
| 3,318 |
|
| — |
Deferred tax (benefit) expense |
|
| (307) |
|
| 28,958 | ||||||
Deferred tax benefit |
|
| (5,329) |
|
| (31,583) | ||||||
Impairment of royalty interests |
|
| — |
|
| 239,364 | ||||||
Other |
|
| — |
|
| (158) |
|
| — |
|
| (199) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Royalty receivables |
|
| 697 |
|
| (2,399) |
|
| (1,198) |
|
| (909) |
Stream inventory |
|
| 1,356 |
|
| 524 |
|
| (3,102) |
|
| (4,816) |
Income tax receivable |
|
| (12,753) |
|
| (5,197) |
|
| (8,750) |
|
| 21,020 |
Prepaid expenses and other assets |
|
| 2,305 |
|
| (328) |
|
| 2,474 |
|
| 3,224 |
Accounts payable |
|
| (7,026) |
|
| (1,658) |
|
| (4,326) |
|
| (939) |
Income tax payable |
|
| (7,514) |
|
| 9,445 |
|
| (2,002) |
|
| 6,779 |
Withholding taxes payable |
|
| (906) |
|
| 26 |
|
| (393) |
|
| 227 |
Uncertain tax positions |
|
| 2,197 |
|
| 4,560 |
|
| 3,130 |
|
| 10,989 |
Other liabilities |
|
| (7,993) |
|
| 9,193 |
|
| (4,646) |
|
| 13,473 |
Net cash provided by operating activities |
| $ | 103,468 |
| $ | 147,234 |
| $ | 180,909 |
| $ | 251,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of stream and royalty interests |
|
| (55) |
|
| — |
|
| (1,055) |
|
| (1,012) |
Purchase of equity securities |
|
| (3,569) |
|
| — |
|
| (3,573) |
|
| — |
Other |
|
| (87) |
|
| (94) |
|
| (157) |
|
| (1,251) |
Net cash used in investing activities |
| $ | (3,711) |
| $ | (94) |
| $ | (4,785) |
| $ | (2,263) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of revolving credit facility |
|
| — |
|
| (100,000) |
|
| — |
|
| (175,000) |
Net payments from issuance of common stock |
|
| (2,217) |
|
| (3,541) |
|
| (1,982) |
|
| (3,502) |
Common stock dividends |
|
| (32,754) |
|
| (31,391) |
|
| (50,114) |
|
| (47,755) |
Contributions from non-controlling interest |
|
| 2,790 |
|
| — |
|
| 3,210 |
|
| — |
Other |
|
| 210 |
|
| 77 |
|
| 8 |
|
| 240 |
Net cash used in financing activities |
| $ | (31,971) |
| $ | (134,855) |
| $ | (48,878) |
| $ | (226,017) |
Net increase in cash and equivalents |
|
| 67,786 |
|
| 12,285 |
|
| 127,246 |
|
| 23,529 |
Cash and equivalents at beginning of period |
|
| 88,750 |
|
| 85,847 |
|
| 88,750 |
|
| 85,847 |
Cash and equivalents at end of period |
| $ | 156,536 |
| $ | 98,132 |
| $ | 215,996 |
| $ | 109,376 |
The accompanying notes are an integral part of these consolidated financial statements.
56
1. OPERATIONS, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENTLY ADOPTED AND RECENTLY ISSUED ACCOUNTING STANDARDS
Royal Gold, Inc. (“Royal Gold”, the “Company”, “we”, “us”, or “our”), together with its subsidiaries, is engaged in the business of acquiring and managing metal streams, royalties and similar interests. We seek to acquire existing stream and royalty interests or to finance mining projects that are in production or in the development stage in exchange for stream or royalty interests. A metal stream is a purchase agreement that provides, in exchange for an upfront deposit payment, the right to purchase all or a portion of one or more metals produced from a mine at a price determined for the life of the transaction by the purchase agreement. A royalty is a non-operating interest in a mining project that provides the right to revenue or metals produced from the project after deducting contractually specified costs, if any.
Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X under the Securities Exchange Act of 1934, as amended. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of management, all adjustments which are of a normal recurring nature considered necessary for a fair presentation of our interim financial statements have been included in this Form 10-Q. Operating results for the three and sixnine months ended DecemberMarch 31, 20182019 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2019. These interim unaudited financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2018 filed with the Securities and Exchange Commission on August 9, 2018 (“Fiscal 2018 10-K”).
Recently Adopted Accounting Standards
Revenue Recognition
On July 1, 2018, we adopted Accounting Standards Codification 606 - Revenue from Contracts with Customers (“ASC 606”) using the modified retrospective method of transition. Under this transition approach, we applied ASC 606 to all existing contracts for which all (or substantially all) of the revenue attributable to a contract had not been recognized under legacy revenue guidance. The guidance of ASC 606 will also be applied to any new contracts entered into on or after July 1, 2018.
ASC 606 supersedes nearly all of the existing revenue recognition guidance under U.S. GAAP and sets out a five-step revenue recognition framework to recognize revenue upon the transfer of control of goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services.
For the three and sixnine months ended DecemberMarch 31, 2018,2019, there was no impact to our reported revenue, operating costs and expenses or net income attributable to Royal Gold common stockholders as a result of adopting ASC 606, as compared to legacy revenue guidance under U.S. GAAP. In addition, no cumulative catch-up adjustment to accumulated losses was required on July 1, 2018 as a result of adopting ASC 606. Please refer to Note 45 for additional discussion.
Recognition and Measurement of Financial Instruments
On July 1, 2018, we adopted Accounting Standards Update (“ASU”) 2016-01 – Financial InstrumentInstruments, which is guidance on the recognition and measurement of financial instruments. The amended guidance requires, among other things, that equity securities previously classified as available-for-sale be measured at fair value with changes in fair value recognized in net income rather than other comprehensive income (loss) as required under previous guidance. Upon adoption, the Company recorded a cumulative-effect adjustment in Accumulated losses of $1.2 million. The increase and decrease in fair value of our equity securities was approximately $3.6$1.8 million and $5.1$3.3 million, respectively, for the three and sixnine months ended DecemberMarch 31, 2018, respectively,2019 and is included in Fair value change of marketablechanges in equity securities on our consolidated statements of operations and comprehensive income (loss). The carrying value of the Company’s equity securities as of DecemberMarch 31, 2018 and June 30, 2018 was $17.7 million and $19.2 million, respectively, and is included in Other assets on the
67
2019 and June 30, 2018 was $19.5 million and $19.2 million, respectively, and is included in Other assets on the Company’s consolidated balance sheets. As of DecemberMarch 31, 2018,2019, the Company owns 809,744 common shares of Contango Ore, Inc. (“CORE”) and 3,597,823 common shares of Rubicon Minerals Corporation.
Recently Issued Accounting Standards
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842) which requires recognition of right-of-use assets and lease payment liabilities on the balance sheet by lessees for virtually all leases currently classified as operating leases. Under ASU 2016-02, companies are permitted to make a policy election to not recognize lease assets or liabilities when the term of the lease is less than twelve months. The Company is evaluating the impacts of ASU 2016-02, which includes an analysis of non-cancelable leases, joint venture agreements and other existing arrangements that may contain a lease component. The Company has substantially completed the process of identifying contracts to which the new guidance applies and is effective forevaluating those identified contracts to determine the Company’s fiscal year beginningimpacts of ASC 2016-02 at adoption. Further, the Company is also evaluating policies, internal controls, and processes that will be necessary to support the additional accounting and disclosure requirements. The Company will adopt ASU 2016-02 on July 1, 2019, and early adoption is permitted. We are currently evaluatingusing the transition effort and impact, if any,modified retrospective approach. Adoption of this guidance will haveis anticipated to result in an insignificant increase in right-of-use assets and related liabilities on ourthe Company’s consolidated balance sheets; however, the full impact to the Company’s financial statements and related footnote disclosures.disclosures is still being evaluated.
In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”). ASU 2018-11 provides an additional transition method for adopting ASU 2016-02, as well as provides lessors with a practical expedient when applying ASU 2016-02 to certain leases. The Company anticipates making a policy election in connection with adopting ASU 2018-11, which will eliminate the need for adjusting prior period comparable financial statements prepared under current lease accounting guidance. The Company will adopt ASU 2018-11 at the same time it adopts ASU 2016-02.
2. STREAM AND ROYALTY INTERESTS, NETACQUISITION
The following tables summarize the Company’s stream and royalty interests, net asAcquisition of December 31, 2018 and June 30, 2018.Silver Stream on Khoemacau Copper Project
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018 (Amounts in thousands): |
| Cost |
| Accumulated Depletion |
| Net | |||
Production stage stream interests: |
|
|
|
|
|
|
|
|
|
Mount Milligan |
| $ | 790,635 |
| $ | (164,639) |
| $ | 625,996 |
Pueblo Viejo |
|
| 610,404 |
|
| (135,152) |
|
| 475,252 |
Andacollo |
|
| 388,182 |
|
| (73,736) |
|
| 314,446 |
Rainy River |
|
| 175,727 |
|
| (8,940) |
|
| 166,787 |
Wassa and Prestea |
|
| 146,475 |
|
| (51,523) |
|
| 94,952 |
Total production stage stream interests |
|
| 2,111,423 |
|
| (433,990) |
|
| 1,677,433 |
Production stage royalty interests: |
|
|
|
|
|
|
|
|
|
Voisey's Bay |
|
| 205,724 |
|
| (92,244) |
|
| 113,480 |
Peñasquito |
|
| 99,172 |
|
| (39,827) |
|
| 59,345 |
Holt |
|
| 34,612 |
|
| (21,946) |
|
| 12,666 |
Cortez |
|
| 20,878 |
|
| (11,428) |
|
| 9,450 |
Other |
|
| 487,224 |
|
| (377,655) |
|
| 109,569 |
Total production stage royalty interests |
|
| 847,610 |
|
| (543,100) |
|
| 304,510 |
Total production stage stream and royalty interests |
|
| 2,959,033 |
|
| (977,090) |
|
| 1,981,943 |
|
|
|
|
|
|
|
|
|
|
Development stage stream interests: |
|
|
|
|
|
|
|
|
|
Other |
|
| 12,038 |
|
| — |
|
| 12,038 |
|
|
|
|
|
|
|
|
|
|
Development stage royalty interests: |
|
|
|
|
|
|
|
|
|
Cortez |
|
| 59,803 |
|
| — |
|
| 59,803 |
Other |
|
| 70,952 |
|
| — |
|
| 70,952 |
Total development stage royalty interests |
|
| 130,755 |
|
| — |
|
| 130,755 |
Total development stage stream and royalty interests |
|
| 142,793 |
|
| — |
|
| 142,793 |
|
|
|
|
|
|
|
|
|
|
Exploration stage royalty interests: |
|
|
|
|
|
|
|
|
|
Pascua-Lama |
|
| 177,690 |
|
| — |
|
| 177,690 |
Other |
|
| 117,482 |
|
| — |
|
| 117,482 |
Total exploration stage royalty interests |
|
| 295,172 |
|
| — |
|
| 295,172 |
Total stream and royalty interests, net |
| $ | 3,396,998 |
| $ | (977,090) |
| $ | 2,419,908 |
On February 25, 2019, the Company announced that its wholly-owned subsidiary, RGLD Gold AG (“RGLD Gold”), entered into a life of mine purchase and sale agreement for silver produced from the Khoemacau Copper Project (“Khoemacau” or the “Project”) in Botswana with Khoemacau Copper Mining (Pty.) Limited (“KCM”), a wholly-owned subsidiary of Cupric Canyon Capital LP (together with all its subsidiaries including KCM, “Cupric”), a private company owned by management and funds advised by Global Natural Resource Investments. Pursuant to the purchase and sale agreement, RGLD Gold will make advance payments to Cupric totaling $212 million for 80% of the silver produced from Khoemacau until certain delivery thresholds are met (the “Silver Stream”), and at Cupric’s option, up to an additional $53 million in advance payments for up to the remaining 20% of the silver produced (the “Option Stream”). The stream rate will drop by 50% (to 40% of the silver produced) upon the 32 million silver ounces under the Silver Stream, or to 50% of the silver produced upon delivery of 40 million silver ounces in the event Cupric exercises delivery of the entire Option Stream. RGLD Gold will pay 20% of the spot price of silver for each ounce delivered; however, depending on the achievement by Cupric of mill expansion throughput levels 30% above current mill design capacity, RGLD Gold will pay higher ongoing cash payments for silver ounces delivered in excess of specific annual thresholds.
RGLD Gold’s first advance payment under the Silver Stream is expected to occur after $100 million of net new debt and equity funding has been spent on the Project by Cupric. The $212 million in advance payments under the Silver Stream will be made in quarterly installments as project development advances according to the following approximate schedule: $60 million in the third and fourth quarters of calendar 2019, $125 million in calendar 2020 and the balance in calendar 2021. RGLD Gold will fund the transaction through cash on hand or cash advances from Royal Gold.
Separate from the Silver Stream and Option Stream, and subject to various conditions, RGLD Gold will make available up to $25 million to Cupric toward the end of development of Khoemacau in the form of a subordinated debt facility. Any
78
amounts drawn under the facility would carry interest at LIBOR + 11% and have a term of seven years. RGLD Gold will have the right to force repayment of the facility upon certain events.
The Company anticipates accounting for the Silver Stream and Option Stream (if exercised by Cupric) as an asset acquisition, consistent with the treatment of our other acquired streams. The $212 million in advance payments for the Silver Stream and $53 million in advance payments for the Option Stream, plus direct transaction costs, will be recorded as a development stage stream interest within Stream and royalty interests, net on our consolidated balance sheets in the period advance payments occur.
3. STREAM AND ROYALTY INTERESTS, NET
The following tables summarize the Company’s stream and royalty interests, net as of March 31, 2019 and June 30, 2018.
|
|
|
|
|
|
|
|
|
|
As of March 31, 2019 (Amounts in thousands): |
| Cost |
| Accumulated Depletion |
| Net | |||
Production stage stream interests: |
|
|
|
|
|
|
|
|
|
Mount Milligan |
| $ | 790,635 |
| $ | (172,737) |
| $ | 617,898 |
Pueblo Viejo |
|
| 610,404 |
|
| (145,955) |
|
| 464,449 |
Andacollo |
|
| 388,182 |
|
| (79,513) |
|
| 308,669 |
Rainy River |
|
| 175,727 |
|
| (12,218) |
|
| 163,509 |
Wassa and Prestea |
|
| 146,475 |
|
| (54,628) |
|
| 91,847 |
Total production stage stream interests |
|
| 2,111,423 |
|
| (465,051) |
|
| 1,646,372 |
Production stage royalty interests: |
|
|
|
|
|
|
|
|
|
Voisey's Bay |
|
| 205,724 |
|
| (94,055) |
|
| 111,669 |
Peñasquito |
|
| 99,172 |
|
| (40,496) |
|
| 58,676 |
Holt |
|
| 34,612 |
|
| (22,243) |
|
| 12,369 |
Cortez |
|
| 20,878 |
|
| (11,859) |
|
| 9,019 |
Other |
|
| 487,224 |
|
| (382,702) |
|
| 104,522 |
Total production stage royalty interests |
|
| 847,610 |
|
| (551,355) |
|
| 296,255 |
Total production stage stream and royalty interests |
|
| 2,959,033 |
|
| (1,016,406) |
|
| 1,942,627 |
|
|
|
|
|
|
|
|
|
|
Development stage stream interests: |
|
|
|
|
|
|
|
|
|
Other |
|
| 12,038 |
|
| — |
|
| 12,038 |
|
|
|
|
|
|
|
|
|
|
Development stage royalty interests: |
|
|
|
|
|
|
|
|
|
Cortez |
|
| 59,803 |
|
| — |
|
| 59,803 |
Other |
|
| 70,952 |
|
| — |
|
| 70,952 |
Total development stage royalty interests |
|
| 130,755 |
|
| — |
|
| 130,755 |
Total development stage stream and royalty interests |
|
| 142,793 |
|
| — |
|
| 142,793 |
|
|
|
|
|
|
|
|
|
|
Exploration stage royalty interests: |
|
|
|
|
|
|
|
|
|
Pascua-Lama |
|
| 177,690 |
|
| — |
|
| 177,690 |
Other |
|
| 118,482 |
|
| — |
|
| 118,482 |
Total exploration stage royalty interests |
|
| 296,172 |
|
| — |
|
| 296,172 |
Total stream and royalty interests, net |
| $ | 3,397,998 |
| $ | (1,016,406) |
| $ | 2,381,592 |
9
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2018 (Amounts in thousands): |
| Cost |
| Accumulated Depletion |
| Impairments |
| Net | ||||
Production stage stream interests: |
|
|
|
|
|
|
|
|
|
|
|
|
Mount Milligan |
| $ | 790,635 |
| $ | (152,833) |
| $ | — |
| $ | 637,802 |
Pueblo Viejo |
|
| 610,404 |
|
| (114,944) |
|
| — |
|
| 495,460 |
Andacollo |
|
| 388,182 |
|
| (59,851) |
|
| — |
|
| 328,331 |
Wassa and Prestea |
|
| 146,475 |
|
| (41,601) |
|
| — |
|
| 104,874 |
Rainy River |
|
| 175,727 |
|
| (4,028) |
|
| — |
|
| 171,699 |
Total production stage stream interests |
|
| 2,111,423 |
|
| (373,257) |
|
| — |
|
| 1,738,166 |
Total production stage stream and royalty interests |
|
|
|
|
|
|
|
|
|
|
|
|
Production stage royalty interests: |
|
|
|
|
|
|
|
|
|
|
|
|
Voisey's Bay |
|
| 205,724 |
|
| (86,933) |
|
| — |
|
| 118,791 |
Peñasquito |
|
| 99,172 |
|
| (38,426) |
|
| — |
|
| 60,746 |
Holt |
|
| 34,612 |
|
| (21,173) |
|
| — |
|
| 13,439 |
Cortez |
|
| 20,878 |
|
| (11,241) |
|
| — |
|
| 9,637 |
Other |
|
| 483,795 |
|
| (364,795) |
|
| — |
|
| 119,000 |
Total production stage royalty interests |
|
| 844,181 |
|
| (522,568) |
|
| — |
|
| 321,613 |
Total production stage stream and royalty interests |
|
| 2,955,604 |
|
| (895,825) |
|
| — |
|
| 2,059,779 |
Development stage stream interests: |
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
| 12,038 |
|
| — |
|
| — |
|
| 12,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Development stage royalty interests: |
|
|
|
|
|
|
|
|
|
|
|
|
Cortez |
|
| 59,803 |
|
| — |
|
| — |
|
| 59,803 |
Other |
|
| 74,610 |
|
| — |
|
| (284) |
|
| 74,326 |
Total development stage royalty interests |
|
| 134,413 |
|
| — |
|
| (284) |
|
| 134,129 |
Total development stage stream and royalty interests |
|
| 146,451 |
|
| — |
|
| (284) |
|
| 146,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration stage royalty interests: |
|
|
|
|
|
|
|
|
|
|
|
|
Pascua-Lama |
|
| 416,770 |
|
| — |
|
| (239,080) |
|
| 177,690 |
Other |
|
| 117,481 |
|
| — |
|
| — |
|
| 117,481 |
Total exploration stage royalty interests |
|
| 534,251 |
|
| — |
|
| (239,080) |
|
| 295,171 |
Total stream and royalty interests, net |
| $ | 3,636,306 |
| $ | (895,825) |
| $ | (239,364) |
| $ | 2,501,117 |
Voisey’s Bay
The royalty on production of nickel, copper, cobalt and other minerals from the Voisey’s Bay mine in Newfoundland and Labrador, Canada is directly owned by the Labrador Nickel Royalty Limited Partnership (“LNRLP”), in which the Company’s wholly-owned indirect subsidiary is the general partner and 90% owner. The remaining 10% interest in LNRLP is owned by a subsidiary of Altius MineralsRoyalty Corporation, (“Altius”), a non-controlling interest.
On September 13, 2018, LNRLP entered into an agreement with Vale Canada Limited and certain of its subsidiaries (collectively, the “Parties”) to comprehensively settle their long-standing litigation related to calculation of the royalty on the sale of all concentrates produced from the Voisey’s Bay mine. Refer to Note 14 of our Fiscal 2018 10-K for further discussion on the claims previously asserted by LNRLP.
The Parties agreedDuring the three and nine months ended March 31, 2019, the Company recognized approximately $2.5 million and $10.0 million (each period includes the 10% non-controlling interest), respectively, in royalty revenue attributable to a new method for calculating the royalty in respect of concentrates processed at Vale’s Long Harbour Processing Plant, which will be effective for all Voisey’s Bay mine productionroyalty. Royalty payments for each quarter are due 45 days after April 1, 2018. Under the terms of the settlement, Royal Gold expects the 3% royalty rate will applyquarter-end. Refer to approximately 50% of the gross metal value in the concentrates at the nickel, copper and cobalt prices prevailing at the time of settlement. As those metal prices rise or fall, the percentage of gross metal value in the concentrates applicable to the royalty would correspondingly increase or decrease.Note 5 for further discussion on our revenue recognition.
810
During the three and six months ended December 31, 2018, the Company recognized approximately $2.5 million and $7.5 million (each period includes 10% non-controlling interest), respectively, in royalty revenue attributable to the Voisey’s Bay royalty. Royalty revenue recognized on the Voisey’s Bay royalty for the quarter ended September 30, 2018 was attributable to metal production from the June 30 and September 30, 2018 quarters. Royalty payments for each quarter are due 45 days after quarter-end. Refer to Note 4 for further discussion on our revenue recognition.
3.4. DEBT
The Company’s non-current debt as of DecemberMarch 31, 20182019 and June 30, 2018 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2018 |
| As of June 30, 2018 |
| As of March 31, 2019 |
| As of June 30, 2018 | ||||||||||||||||||||||||||||||||||||||||
|
| Principal |
| Unamortized Discount |
| Debt Issuance Costs |
| Total |
| Principal |
| Unamortized Discount |
| Debt Issuance Costs |
| Total |
| Principal |
| Unamortized Discount |
| Debt Issuance Costs |
| Total |
| Principal |
| Unamortized Discount |
| Debt Issuance Costs |
| Total | ||||||||||||||||
|
|
| (Amounts in thousands) |
|
| (Amounts in thousands) |
|
| (Amounts in thousands) |
|
| (Amounts in thousands) | ||||||||||||||||||||||||||||||||||||
Convertible notes due 2019 |
| $ | 370,000 |
| $ | (6,205) |
| $ | (635) |
| $ | 363,160 |
| $ | 370,000 |
| $ | (12,764) |
| $ | (1,316) |
| $ | 355,920 |
| $ | 370,000 |
| $ | (2,844) |
| $ | (290) |
| $ | 366,866 |
| $ | 370,000 |
| $ | (12,764) |
| $ | (1,316) |
| $ | 355,920 |
Revolving credit facility |
|
| — |
|
| — |
|
| (4,263) |
|
| (4,263) |
|
| — |
|
| — |
|
| (4,893) |
|
| (4,893) |
|
| — |
|
| — |
|
| (3,951) |
|
| (3,951) |
|
| — |
|
| — |
|
| (4,893) |
|
| (4,893) |
Total debt |
| $ | 370,000 |
| $ | (6,205) |
| $ | (4,898) |
| $ | 358,897 |
| $ | 370,000 |
| $ | (12,764) |
| $ | (6,209) |
| $ | 351,027 |
| $ | 370,000 |
| $ | (2,844) |
| $ | (4,241) |
| $ | 362,915 |
| $ | 370,000 |
| $ | (12,764) |
| $ | (6,209) |
| $ | 351,027 |
Convertible Senior Notes Due 2019
In June 2012, the Company completed an offering of $370 million aggregate principal amount of 2.875% convertible senior notes due 2019 (“2019 Notes”). The 2019 Notes bear interest at the rate of 2.875% per annum, and the Company is required to make semi-annual interest payments on the outstanding principal balance of the 2019 Notes on June 15 and December 15 of each year, beginning December 15, 2012. The 2019 Notes mature on June 15, 2019.2019, and the Company will settle the principal amounts of each 2019 Note in cash and settle any excess conversion value in shares of the Company, plus cash in lieu of fractional shares. Generally, we classify debt that is maturing within one year as a current liability. However, the Company has the intent and ability to settle the principal amount of the 2019 Notes in cash primarily from its available revolving credit facility, a non-current liability, as of DecemberMarch 31 2019 and June 30, 2018.
Interest expense recognized on the 2019 Notes for the three and sixnine months ended DecemberMarch 31, 20182019 was $6.3 million and $12.6$18.9 million, respectively, compared to $6.1 million and $12.1$18.3 million, respectively, for the three and sixnine months ended DecemberMarch 31, 2017,2018, and included the contractual coupon interest, the accretion of the debt discount and amortization of the debt issuance costs.
Revolving credit facility
The Company maintains a $1 billion revolving credit facility. As of DecemberMarch 31, 2018,2019, the Company had no amounts outstanding and $1 billion available under the revolving credit facility. InterestAmortization of debt issuance costs, included within interest expense, recognized on the revolving credit facility for the three and sixnine months ended DecemberMarch 31, 20182019 was $0.3 million and $0.6 million (amortization of debt issuance costs only), respectively, and $1.8 million and $3.6 million, respectively, for$0.9 million. For the three and sixnine months ended DecemberMarch 31, 2017, which2018, interest expense included interest on the outstanding borrowings and the amortization of the debt issuance costs.costs and was $1.3 million and $4.9 million, respectively. Royal Gold may repay any borrowings under the revolving credit facility at any time without premium or penalty.
As discussed in Note 5 to the notes to consolidated financial statements in the Company’s Fiscal 2018 10-K, the Company has financial covenants associated with its revolving credit facility. As of DecemberMarch 31, 2018,2019, the Company was in compliance with each financial covenant.
4.5. REVENUE
Revenue Recognition
Under current ASC 606 guidance, a performance obligation is a promise in a contract to transfer control of a distinct good or service (or integrated package of goods and/or services) to a customer. A contract’s transaction price is allocated to
9
each distinct performance obligation and recognized as revenue when, or as, a performance obligation is satisfied. In accordance with this guidance, revenue attributable to our stream interests and royalty interests is generally recognized at the point in time that control of the related metal production transfers to our customers. The amount of revenue we recognize further reflects the consideration to which we are entitled under the respective stream or royalty agreement. A more detailed summary of our revenue recognition policies for our stream and royalty interests is discussed below.
11
Stream Interests
A metal stream is a purchase agreement that provides, in exchange for an upfront deposit payment, the right to purchase all or a portion of one or more of the metals produced from a mine, at a price determined for the life of the transaction by the purchase agreement. Gold, silver and copper received under our metal streaming agreements are taken into inventory, and then sold primarily using average spot rate gold, silver and copper forward contracts. The sales price for these average spot rate forward contracts is determined by the average daily gold, silver or copper spot prices during the term of the contract, typically a consecutive number of trading days between ten days and three months (depending on the frequency of deliveries under the respective streaming agreement and our sales policy in effect at the time) commencing shortly after receipt and purchase of the metal. We settle our forward sales contracts via physical delivery of the metal to the purchaser (our customer) on the settlement date specified in the contract. Under our forward sales contracts, there is a single performance obligation to sell a contractually specified volume of metal to the purchaser, and we satisfy this obligation at the point in time of physical delivery. Accordingly, revenue from our metal sales is recognized on the date of settlement, which is the date that control, custody and title to the metal transfer to the purchaser.
Royalty Interests
Royalties are non-operating interests in mining projects that provide the right to a percentage of revenue or metals produced from the project after deducting specified costs, if any. We are entitled to payment for our royalty interest in a mining project based on a contractually specified commodity price (for example, a monthly or quarterly average spot price) for the period in which metal production occurred. As a royalty holder, we act as a passive entity in the production and operations of the mining project, and the third-party operator of the mining project is responsible for all mining activities, including subsequent marketing and delivery of all metal production to their ultimate customer. In all of our material royalty interest arrangements, we have concluded that we transfer control of our interest in the metal production to the operator at the point at which production occurs, and thus, the operator is our customer. We have further determined that the transfer of each unit of metal production, comprising our royalty interest, to the operator represents a separate performance obligation under the contract, and each performance obligation is satisfied at the point in time of metal production by the operator. Accordingly, we recognize revenue attributable to our royalty interests in the period in which metal production occurs at the specified commodity price per the agreement, net of any contractually allowable offsite treatment, refining, transportation and, if applicable, mining costs.
Royalty Revenue Estimates
For a small number of our royalty interests, we may not receive, or be entitled to receive, payment information, including production information from the operator, for the period in which metal production occurred prior to issuance of our financial statements. As a result, we may estimate revenue for these royalties based on available information, including public information, from the operator. If adequate information is not available from the operator or from other public sources before we issue our financial statements, the Company will recognize royalty revenue during the period in which the necessary payment information is received. Differences between estimates and actual amounts could differ significantly and are recorded in the period that the actual amounts are known. Please also refer to our “Use of Estimates” accounting policy discussed in our Fiscal 2018 10-K. For the quarter ended DecemberMarch 31, 2018,2019, royalty revenue that was estimated or was attributable to metal production for a period prior to DecemberMarch 31, 2018,2019, was not material.
10
Disaggregation of Revenue
We have identified two material revenue sources in our business: stream interests and royalty interests. These identified revenue sources are consistent with our reportable segments as discussed in Note 8.9.
12
Revenue by metal type attributable to each of our revenue sources is disaggregated as follows:
|
|
|
|
|
|
|
|
|
| ||
| Three Months Ended |
| Six Months Ended |
| Three Months Ended |
| Nine Months Ended | ||||
| December 31, 2018 |
| December 31, 2018 |
| March 31, 2019 |
| March 31, 2019 | ||||
Stream revenue: |
|
|
|
|
|
|
|
|
| ||
Gold | $ | 53,179 |
| $ | 112,293 |
| $ | 62,856 |
| $ | 175,149 |
Silver |
| 7,884 |
| 16,604 |
|
| 7,908 |
| 24,512 | ||
Copper |
| 6,616 |
|
| 8,819 |
|
| 7,001 |
|
| 15,819 |
Total stream revenue | $ | 67,679 |
| $ | 137,716 |
| $ | 77,765 |
| $ | 215,480 |
Royalty revenue: |
|
|
|
|
|
|
|
|
| ||
Gold | $ | 19,656 |
| $ | 38,210 |
| $ | 22,041 |
| $ | 60,251 |
Silver |
| 1,567 |
| 2,919 |
|
| 1,608 |
| 4,527 | ||
Copper |
| 4,359 |
| 7,974 |
|
| 3,056 |
| 11,030 | ||
Other |
| 4,331 |
|
| 10,766 |
|
| 5,308 |
|
| 16,074 |
Total royalty revenue | $ | 29,913 |
| $ | 59,869 |
| $ | 32,013 |
| $ | 91,882 |
Total revenue | $ | 97,592 |
| $ | 197,585 |
| $ | 109,778 |
| $ | 307,362 |
Revenue attributable to our principal stream and royalty interests is disaggregated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
| Three Months Ended |
| Six Months Ended |
|
|
| Three Months Ended |
| Nine Months Ended | ||||
|
| Metal(s) |
| December 31, 2018 |
| December 31, 2018 |
| Metal(s) |
| March 31, 2019 |
| March 31, 2019 | ||||
Stream revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Mount Milligan |
| Gold & Copper |
| $ | 28,169 |
| $ | 37,015 |
| Gold & Copper |
| $ | 26,938 |
| $ | 63,954 |
Pueblo Viejo |
| Gold & Silver |
| 18,230 |
|
| 37,717 |
| Gold & Silver |
| 20,787 |
|
| 58,504 | ||
Andacollo |
| Gold |
|
| 15,638 |
| 51,016 | |||||||||
Wassa and Prestea |
| Gold |
| 9,550 |
|
| 17,611 |
| Gold |
| 7,328 |
|
| 24,939 | ||
Andacollo |
| Gold |
|
| 7,635 |
| 35,378 | |||||||||
Other |
| Gold & Silver |
|
| 4,095 |
|
| 9,995 |
| Gold & Silver |
|
| 7,074 |
|
| 17,067 |
Total stream revenue |
|
|
| $ | 67,679 |
| $ | 137,716 |
|
|
| $ | 77,765 |
| $ | 215,480 |
Royalty revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Peñasquito |
| Gold, Silver, Lead & Zinc |
| $ | 4,660 |
| $ | 8,297 |
| Gold, Silver, Lead & Zinc |
| $ | 4,465 |
| $ | 12,763 |
Cortez |
| Gold |
| 2,335 |
|
| 2,939 |
| Gold |
| 4,127 |
|
| 7,066 | ||
Other |
| Various |
|
| 22,918 |
|
| 48,633 |
| Various |
|
| 23,421 |
|
| 72,053 |
Total royalty revenue |
|
|
| $ | 29,913 |
| $ | 59,869 |
|
|
| $ | 32,013 |
| $ | 91,882 |
Total revenue |
|
|
| $ | 97,592 |
| $ | 197,585 |
|
|
| $ | 109,778 |
| $ | 307,362 |
Please refer to Note 89 for the geographical distribution of our revenue by reportable segment.
Contract Receivables
Under our forward sales contracts related to our metal streaming arrangements, payment is due from the purchaser on the day of settlement. Accordingly, our metal stream sales contracts do not give rise to a receivable under ASC 606.
Under our royalty arrangements, payment is typically due by the royalty payor either (i) monthly, typically thirty days after month-end or (ii) quarterly, typically thirty to sixty days after the respective quarter-end. Revenue related to production that has occurred as of the reporting date but for which payment has not been received represents a receivable (rather than a contract asset) under ASC 606 as payment by the operator is unconditional upon the production of metal. As of DecemberMarch 31, 2018,2019, and June 30, 2018, our royalty receivables were $25.7$27.6 million and $26.4 million, respectively.
11
Practical Expedients Utilized
Our forward sales contracts related to our metal streaming arrangements are short-term in nature with a term of one year or less. For these contracts, we have utilized the practical expedient allowed in ASC 606 that exempts us from presenting
13
the transaction price allocated to remaining performance obligations (i.e. forecasts of unearned revenue) for contracts with an original expected term of one year or less.
Our royalty arrangements generally cover metal production over the life of a mine and, thus, have a contract term that is greater than one year. Under these contracts, variability related to future production volumes and market pricing is allocated entirely to those future production volumes from the mining operation. Consequently, we have utilized an alternative practical expedient allowed in ASC 606 that exempts us from presenting the transaction price allocated to remaining performance obligations (i.e. forecasts of unearned revenue) if the variable consideration in a contract is allocated entirely to a wholly unsatisfied performance obligation.
5.6. STOCK-BASED COMPENSATION
The Company recognized stock-based compensation expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended |
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||||||||||
|
| December 31, |
| December 31, |
| December 31, |
| December 31, |
|
| March 31, |
| March 31, |
| March 31, |
| March 31, |
| ||||||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||||||
|
|
| (Amounts in thousands) |
|
| (Amounts in thousands) |
|
|
| (Amounts in thousands) |
|
| (Amounts in thousands) |
| ||||||||||||
Stock options |
| $ | 33 |
| $ | 79 |
| $ | 154 |
| $ | 170 |
|
| $ | 33 |
| $ | 70 |
| $ | 187 |
| $ | 241 |
|
Stock appreciation rights |
|
| 408 |
|
| 486 |
|
| 1,175 |
|
| 974 |
|
|
| 417 |
|
| 482 |
|
| 1,592 |
|
| 1,456 |
|
Restricted stock |
|
| 677 |
|
| 888 |
|
| 1,956 |
|
| 2,314 |
|
|
| 679 |
|
| 727 |
|
| 2,636 |
|
| 3,041 |
|
Performance stock |
|
| 507 |
|
| 568 |
|
| 785 |
|
| 937 |
|
|
| 311 |
|
| 284 |
|
| 1,095 |
|
| 1,220 |
|
Total stock-based compensation expense |
| $ | 1,625 |
| $ | 2,021 |
| $ | 4,070 |
| $ | 4,395 |
|
| $ | 1,440 |
| $ | 1,563 |
| $ | 5,510 |
| $ | 5,958 |
|
Stock-based compensation expense is included within General and administrative expense in the consolidated statements of operations and comprehensive income.
During the three and sixnine months ended DecemberMarch 31, 2018,2019, the Company granted the following stock-based compensation awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended | ||||||||||||
|
|
| December 31, |
|
| December 31, |
|
| December 31, |
|
| December 31, |
|
| March 31, |
|
| March 31, |
|
| March 31, |
|
| March 31, |
|
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
|
| (Number of shares) |
|
| (Number of shares) |
|
| (Number of shares) |
|
| (Number of shares) | ||||||||||||
Stock options |
|
| — |
|
| — |
|
| 6,430 |
|
| 6,858 |
|
| — |
|
| — |
|
| 6,430 |
|
| 6,858 |
Stock appreciation rights |
|
| — |
|
| — |
|
| 69,360 |
|
| 71,262 |
|
| 3,500 |
|
| — |
|
| 72,860 |
|
| 71,262 |
Restricted stock |
|
| — |
|
| — |
|
| 42,260 |
|
| 50,380 |
|
| 1,200 |
|
| — |
|
| 43,460 |
|
| 50,380 |
Performance stock (at maximum 200% attainment) |
|
| — |
|
| — |
|
| 57,420 |
|
| 68,020 |
|
| 2,400 |
|
| — |
|
| 59,820 |
|
| 34,010 |
Total equity awards granted |
|
| — |
|
| — |
|
| 175,470 |
|
| 196,520 |
|
| 7,100 |
|
| — |
|
| 182,570 |
|
| 162,510 |
12
As of DecemberMarch 31, 2018,2019, unrecognized compensation expense (expressed in thousands below) and weighted-average vesting period for each of our stock-based compensation awards were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Unrecognized |
| Weighted- |
|
|
|
|
|
|
| Unrecognized |
| Weighted- | ||||
|
|
|
|
|
|
|
| compensation |
| average vesting |
|
|
|
|
|
|
| compensation |
| average vesting | ||||
|
|
|
|
|
|
|
| expense |
| period (years) |
|
|
|
|
|
|
| expense |
| period (years) | ||||
Stock options |
|
|
|
|
|
|
| $ | 197 |
|
| 2.0 |
|
|
|
|
|
|
| $ | 168 |
|
| 1.8 |
Stock appreciation rights |
|
|
|
|
|
|
|
| 2,581 |
|
| 2.0 |
|
|
|
|
|
|
|
| 2,296 |
|
| 1.9 |
Restricted stock |
|
|
|
|
|
|
|
| 5,744 |
|
| 3.2 |
|
|
|
|
|
|
|
| 5,260 |
|
| 3.1 |
Performance stock |
|
|
|
|
|
|
|
| 1,307 |
|
| 1.7 |
|
|
|
|
|
|
|
| 1,062 |
|
| 1.6 |
6.
14
7. EARNINGS PER SHARE (“EPS”)
Basic earnings (loss) per common share were computed using the weighted average number of shares of common stock outstanding during the period, considering the effect of participating securities. Unvested stock-based compensation awards that contain non-forfeitable rights to dividends or dividend equivalents are considered participating securities and are included in the computation of earnings per share pursuant to the two-class method. The Company’s unvested restricted stock awards contain non-forfeitable dividend rights and participate equally with common stock with respect to dividends issued or declared. The Company’s unexercised stock options, unexercised SSARs and unvested performance stock do not contain rights to dividends. Under the two-class method, the earnings used to determine basic earnings (loss) per common share are reduced by an amount allocated to participating securities. Use of the two-class method has an immaterial impact on the calculation of basic and diluted earnings (loss) per common share.
The following tables summarize the effects of dilutive securities on diluted EPS for the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended |
|
| Three Months Ended |
| Nine Months Ended |
| ||||||||||||||||
|
| December 31, |
| December 31, |
| December 31, |
| December 31, |
|
| March 31, |
| March 31, |
| March 31, |
| March 31, |
| ||||||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||||||
|
|
| (in thousands, except per share data) |
|
| (in thousands, except per share data) |
|
|
| (in thousands, except per share data) |
|
| (in thousands, except per share data) |
| ||||||||||||
Net income (loss) available to Royal Gold common stockholders |
| $ | 23,586 |
| $ | (14,765) |
| $ | 38,596 |
| $ | 13,864 |
|
| $ | 28,772 |
| $ | (153,650) |
| $ | 67,368 |
| $ | (139,786) |
|
Weighted-average shares for basic EPS |
|
| 65,395,457 |
|
| 65,306,766 |
|
| 65,385,161 |
|
| 65,271,131 |
|
|
| 65,398,369 |
|
| 65,307,324 |
|
| 65,389,499 |
|
| 65,283,019 |
|
Effect of other dilutive securities |
|
| 77,943 |
|
| — |
|
| 100,262 |
|
| 189,299 |
|
|
| 116,865 |
|
| — |
|
| 105,403 |
|
| — |
|
Weighted-average shares for diluted EPS |
|
| 65,473,400 |
|
| 65,306,766 |
|
| 65,485,423 |
|
| 65,460,430 |
|
|
| 65,515,234 |
|
| 65,307,324 |
|
| 65,494,902 |
|
| 65,283,019 |
|
Basic earnings (loss) per share |
| $ | 0.36 |
| $ | (0.23) |
| $ | 0.59 |
| $ | 0.21 |
|
| $ | 0.44 |
| $ | (2.35) |
| $ | 1.03 |
| $ | (2.14) |
|
Diluted earnings (loss) per share |
| $ | 0.36 |
| $ | (0.23) |
| $ | 0.59 |
| $ | 0.21 |
|
| $ | 0.44 |
| $ | (2.35) |
| $ | 1.03 |
| $ | (2.14) |
|
The calculation of weighted average shares includes all of our outstanding common stock. The Company intends to settle the principal amount of the 2019 Notes in cash from amounts available under our revolving credit facility.facility, and we intend to settle any excess conversion value in shares in the Company, plus cash in lieu of fractional shares. As a result, there will be no impact to diluted earnings per share unless the share price of the Company’s common stock exceeds the conversion price of $102.29.$102.16.
7.8. INCOME TAXES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended |
| Three Months Ended |
| Nine Months Ended | ||||||||||||||||
|
| December 31, |
| December 31, |
| December 31, |
| December 31, |
| March 31, |
| March 31, |
| March 31, |
| March 31, | ||||||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||||||
|
| (Amounts in thousands, except rate) |
| (Amounts in thousands, except rate) |
| (Amounts in thousands, except rate) |
| (Amounts in thousands, except rate) | ||||||||||||||||
Income tax benefit (expense) |
| $ | 2,148 |
| $ | (48,360) |
| $ | (1,967) |
| $ | (55,904) |
| $ | (9,388) |
| $ | 45,859 |
| $ | (11,355) |
| $ | (10,044) |
Effective tax rate |
|
| (10.3%) |
|
| 148.5% |
|
| 5.3% |
|
| 83.9% |
|
| 24.7% |
|
| 22.9% |
|
| 15.1% |
|
| (7.5%) |
13
The decreaseincrease in the effective tax rate for the three and six months ended DecemberMarch 31, 20182019 was primarily relatedattributable to lower discrete period benefits as compared to the Company’s refined analysis of the transitionthree months ended March 31, 2018. The prior year’s three months effective tax as part ofrate included discrete benefits from an impairment partially offset by true-ups to H.R. 1, originally known as the Tax Cuts and Jobs Act (the “Act”), and our ability. The effective tax rate for the nine months ended March 31, 2019 was primarily impacted by discrete true-ups recorded in the December 2018 quarter related to utilize additional foreignthe Company’s completion of its analysis of the Act. The effective tax credits.rate for the nine months ended March 31, 2018 was impacted by discrete period expense recorded during the December 2017 quarter related to the impacts of the Act, partially offset by discrete benefits related to impairment charges. As of December 31, 2018, the Company completed its analysis of the Act within the measurement period provided by Staff Accounting Bulletin No. 118 and the amounts are no longer considered provisional. Despite the completion of our analysis, many aspects of the law remain unclear and future guidance could impact the Company. A material impact due to evolving guidance is not anticipated,anticipated; however, the Company will continue to monitor any new developments.
8.
15
9. SEGMENT INFORMATION
The Company manages its business under two reportable segments, consisting of the acquisition and management of stream interests and the acquisition and management of royalty interests. Royal Gold’s long-lived assets (stream and royalty interests, net) are geographically distributed as shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2018 |
| As of June 30, 2018 |
| As of March 31, 2019 |
| As of June 30, 2018 | ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| Total stream |
|
|
|
|
|
|
|
|
|
| Total stream |
|
|
|
|
|
|
| Total stream |
|
|
|
|
|
|
|
|
|
| Total stream | ||||
|
| Stream |
| Royalty |
| and royalty |
| Stream |
| Royalty |
|
|
|
| and royalty |
| Stream |
| Royalty |
| and royalty |
| Stream |
| Royalty |
|
|
|
| and royalty | ||||||||||||
|
| interest |
| interest |
| interests, net |
| interest |
| interest |
| Impairments |
| interests, net |
| interest |
| interest |
| interests, net |
| interest |
| interest |
| Impairments |
| interests, net | ||||||||||||||
Canada |
| $ | 792,783 |
| $ | 206,039 |
| $ | 998,822 |
| $ | 809,500 |
| $ | 214,562 |
| $ | (284) |
| $ | 1,023,778 |
| $ | 781,404 |
| $ | 202,896 |
| $ | 984,300 |
| $ | 809,500 |
| $ | 214,562 |
| $ | (284) |
| $ | 1,023,778 |
Dominican Republic |
|
| 475,252 |
|
| — |
|
| 475,252 |
|
| 495,460 |
|
| — |
|
| — |
|
| 495,460 |
|
| 464,449 |
|
| — |
|
| 464,449 |
|
| 495,460 |
|
| — |
|
| — |
|
| 495,460 |
Chile |
|
| 314,446 |
|
| 214,226 |
|
| 528,672 |
|
| 328,331 |
|
| 453,306 |
|
| (239,080) |
|
| 542,557 |
|
| 308,669 |
|
| 214,226 |
|
| 522,895 |
|
| 328,331 |
|
| 453,306 |
|
| (239,080) |
|
| 542,557 |
Africa |
|
| 94,952 |
|
| 321 |
|
| 95,273 |
|
| 104,874 |
|
| 502 |
|
| — |
|
| 105,376 |
|
| 91,847 |
|
| 321 |
|
| 92,168 |
|
| 104,874 |
|
| 502 |
|
| — |
|
| 105,376 |
Mexico |
|
| — |
|
| 87,211 |
|
| 87,211 |
|
| — |
|
| 93,277 |
|
| — |
|
| 93,277 |
|
| — |
|
| 84,915 |
|
| 84,915 |
|
| — |
|
| 93,277 |
|
| — |
|
| 93,277 |
United States |
|
| — |
|
| 164,277 |
|
| 164,277 |
|
| — |
|
| 165,543 |
|
| — |
|
| 165,543 |
|
| — |
|
| 164,372 |
|
| 164,372 |
|
| — |
|
| 165,543 |
|
| — |
|
| 165,543 |
Australia |
|
| — |
|
| 33,061 |
|
| 33,061 |
|
| — |
|
| 34,254 |
|
| — |
|
| 34,254 |
|
| — |
|
| 32,404 |
|
| 32,404 |
|
| — |
|
| 34,254 |
|
| — |
|
| 34,254 |
Other |
|
| 12,039 |
|
| 25,301 |
|
| 37,340 |
|
| 12,039 |
|
| 28,833 |
|
| — |
|
| 40,872 |
|
| 12,041 |
|
| 24,048 |
|
| 36,089 |
|
| 12,039 |
|
| 28,833 |
|
| — |
|
| 40,872 |
Total |
| $ | 1,689,472 |
| $ | 730,436 |
| $ | 2,419,908 |
| $ | 1,750,204 |
| $ | 990,277 |
| $ | (239,364) |
| $ | 2,501,117 |
| $ | 1,658,410 |
| $ | 723,182 |
| $ | 2,381,592 |
| $ | 1,750,204 |
| $ | 990,277 |
| $ | (239,364) |
| $ | 2,501,117 |
The Company’s revenue, cost of sales and net revenue by reportable segment for the three and sixnine months ended DecemberMarch 31, 20182019 and 20172018 is geographically distributed as shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended December 31, 2018 |
| Three Months Ended December 31, 2017 |
| Three Months Ended March 31, 2019 |
| Three Months Ended March 31, 2018 | ||||||||||||||||||||||||||||
|
| Revenue |
| Cost of sales |
| Net revenue |
| Revenue |
| Cost of sales |
| Net revenue |
| Revenue |
| Cost of sales |
| Net revenue |
| Revenue |
| Cost of sales |
| Net revenue | ||||||||||||
Streams: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
| $ | 32,264 |
| $ | 9,729 |
| $ | 22,535 |
| $ | 22,702 |
| $ | 6,624 |
| $ | 16,078 |
| $ | 34,012 |
| $ | 9,398 |
| $ | 24,614 |
| $ | 51,709 |
| $ | 14,225 |
| $ | 37,484 |
Dominican Republic |
|
| 18,230 |
|
| 5,409 |
|
| 12,821 |
|
| 26,355 |
|
| 8,198 |
|
| 18,157 |
|
| 20,787 |
|
| 5,942 |
|
| 14,845 |
|
| 15,734 |
|
| 4,415 |
|
| 11,319 |
Chile |
|
| 7,635 |
|
| 1,124 |
|
| 6,511 |
|
| 21,601 |
|
| 3,297 |
|
| 18,304 |
|
| 15,638 |
|
| 2,282 |
|
| 13,356 |
|
| 7,186 |
|
| 1,039 |
|
| 6,147 |
Africa |
|
| 9,550 |
|
| 1,900 |
|
| 7,650 |
|
| 8,629 |
|
| 1,744 |
|
| 6,885 |
|
| 7,328 |
|
| 1,453 |
|
| 5,875 |
|
| 8,350 |
|
| 1,666 |
|
| 6,684 |
Total streams |
| $ | 67,679 |
| $ | 18,162 |
| $ | 49,517 |
| $ | 79,287 |
| $ | 19,863 |
| $ | 59,424 |
| $ | 77,765 |
| $ | 19,075 |
| $ | 58,690 |
| $ | 82,979 |
| $ | 21,345 |
| $ | 61,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexico |
| $ | 7,837 |
| $ | — |
| $ | 7,837 |
| $ | 10,854 |
| $ | — |
| $ | 10,854 |
| $ | 8,719 |
| $ | — |
| $ | 8,719 |
| $ | 11,021 |
| $ | — |
| $ | 11,021 |
United States |
|
| 8,284 |
|
| — |
|
| 8,284 |
|
| 12,298 |
|
| — |
|
| 12,298 |
|
| 9,813 |
|
| — |
|
| 9,813 |
|
| 8,459 |
|
| — |
|
| 8,459 |
Canada |
|
| 7,536 |
|
| — |
|
| 7,536 |
|
| 5,396 |
|
| — |
|
| 5,396 |
|
| 8,201 |
|
| — |
|
| 8,201 |
|
| 6,089 |
|
| — |
|
| 6,089 |
Australia |
|
| 3,157 |
|
| — |
|
| 3,157 |
|
| 3,227 |
|
| — |
|
| 3,227 |
|
| 3,234 |
|
| — |
|
| 3,234 |
|
| 3,343 |
|
| — |
|
| 3,343 |
Africa |
|
| 532 |
|
| — |
|
| 532 |
|
| 585 |
|
| — |
|
| 585 |
|
| 161 |
|
| — |
|
| 161 |
|
| 543 |
|
| — |
|
| 543 |
Other |
|
| 2,567 |
|
| — |
|
| 2,567 |
|
| 2,701 |
|
| — |
|
| 2,701 |
|
| 1,885 |
|
| — |
|
| 1,885 |
|
| 3,549 |
|
| — |
|
| 3,549 |
Total royalties |
| $ | 29,913 |
| $ | — |
| $ | 29,913 |
| $ | 35,061 |
| $ | — |
| $ | 35,061 |
| $ | 32,013 |
| $ | — |
| $ | 32,013 |
| $ | 33,004 |
| $ | — |
| $ | 33,004 |
Total streams and royalties |
| $ | 97,592 |
| $ | 18,162 |
| $ | 79,430 |
| $ | 114,348 |
| $ | 19,863 |
| $ | 94,485 |
| $ | 109,778 |
| $ | 19,075 |
| $ | 90,703 |
| $ | 115,983 |
| $ | 21,345 |
| $ | 94,638 |
1416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended December 31, 2018 |
| Six Months Ended December 31, 2017 |
| Nine Months Ended March 31, 2019 |
| Nine Months Ended March 31, 2018 | ||||||||||||||||||||||||||||
|
| Revenue |
| Cost of sales |
| Net revenue |
| Revenue |
| Cost of sales |
| Net revenue |
| Revenue |
| Cost of sales |
| Net revenue |
| Revenue |
| Cost of sales |
| Net revenue | ||||||||||||
Streams: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada |
| $ | 47,010 |
| $ | 13,994 |
| $ | 33,016 |
| $ | 54,654 |
| $ | 15,847 |
| $ | 38,807 |
| $ | 81,021 |
| $ | 23,393 |
| $ | 57,628 |
| $ | 106,363 |
| $ | 30,072 |
| $ | 76,291 |
Dominican Republic |
|
| 37,717 |
|
| 11,733 |
|
| 25,984 |
|
| 51,758 |
|
| 15,785 |
|
| 35,973 |
|
| 58,504 |
|
| 17,675 |
|
| 40,829 |
|
| 67,492 |
|
| 20,200 |
|
| 47,292 |
Chile |
|
| 35,378 |
|
| 5,402 |
|
| 29,976 |
|
| 33,938 |
|
| 5,109 |
|
| 28,829 |
|
| 51,016 |
|
| 7,684 |
|
| 43,332 |
|
| 41,124 |
|
| 6,148 |
|
| 34,976 |
Africa |
|
| 17,611 |
|
| 3,560 |
|
| 14,051 |
|
| 17,699 |
|
| 3,541 |
|
| 14,158 |
|
| 24,939 |
|
| 5,012 |
|
| 19,927 |
|
| 26,049 |
|
| 5,207 |
|
| 20,842 |
Total streams |
| $ | 137,716 |
| $ | 34,689 |
| $ | 103,027 |
| $ | 158,049 |
| $ | 40,282 |
| $ | 117,767 |
| $ | 215,480 |
| $ | 53,764 |
| $ | 161,716 |
| $ | 241,028 |
| $ | 61,627 |
| $ | 179,401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexico |
| $ | 15,833 |
| $ | — |
| $ | 15,833 |
| $ | 21,751 |
| $ | — |
| $ | 21,751 |
| $ | 24,551 |
| $ | — |
| $ | 24,551 |
| $ | 32,772 |
| $ | — |
| $ | 32,772 |
United States |
|
| 14,340 |
|
| — |
|
| 14,340 |
|
| 22,727 |
|
| — |
|
| 22,727 |
|
| 24,153 |
|
| — |
|
| 24,153 |
|
| 31,186 |
|
| — |
|
| 31,186 |
Canada |
|
| 17,717 |
|
| — |
|
| 17,717 |
|
| 11,488 |
|
| — |
|
| 11,488 |
|
| 25,918 |
|
| — |
|
| 25,918 |
|
| 17,577 |
|
| — |
|
| 17,577 |
Australia |
|
| 6,217 |
|
| — |
|
| 6,217 |
|
| 6,548 |
|
| — |
|
| 6,548 |
|
| 9,451 |
|
| — |
|
| 9,451 |
|
| 9,891 |
|
| — |
|
| 9,891 |
Africa |
|
| 1,024 |
|
| — |
|
| 1,024 |
|
| 1,047 |
|
| — |
|
| 1,047 |
|
| 1,185 |
|
| — |
|
| 1,185 |
|
| 1,589 |
|
| — |
|
| 1,589 |
Other |
|
| 4,738 |
|
| — |
|
| 4,738 |
|
| 5,214 |
|
| — |
|
| 5,214 |
|
| 6,624 |
|
| — |
|
| 6,624 |
|
| 8,764 |
|
| — |
|
| 8,764 |
Total royalties |
| $ | 59,869 |
| $ | — |
| $ | 59,869 |
| $ | 68,775 |
| $ | — |
| $ | 68,775 |
| $ | 91,882 |
| $ | — |
| $ | 91,882 |
| $ | 101,779 |
| $ | — |
| $ | 101,779 |
Total streams and royalties |
| $ | 197,585 |
| $ | 34,689 |
| $ | 162,896 |
| $ | 226,824 |
| $ | 40,282 |
| $ | 186,542 |
| $ | 307,362 |
| $ | 53,764 |
| $ | 253,598 |
| $ | 342,807 |
| $ | 61,627 |
| $ | 281,180 |
9.10. FAIR VALUE MEASUREMENTS
ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:
Level 1: Quoted prices for identical instruments in active markets;
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
Level 3: Prices or valuation techniques requiring inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
The following table sets forth the Company’s financial assets measured at fair value on a recurring basis (at least annually) by level within the fair value hierarchy.
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|
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|
|
| As of December 31, 2018 |
| As of March 31, 2019 | ||||||||||||||||||||||||||
|
| Carrying |
| Fair Value |
| Carrying |
| Fair Value | ||||||||||||||||||||||
|
| Amount |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Amount |
| Total |
| Level 1 |
| Level 2 |
| Level 3 | ||||||||||
Assets (In thousands): |
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|
|
|
|
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|
|
|
|
|
|
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|
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|
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|
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|
|
|
|
|
Marketable equity securities(1) |
| $ | 17,681 |
| $ | 17,681 |
| $ | 17,681 |
| $ | — |
| $ | — |
| $ | 19,465 |
| $ | 19,465 |
| $ | 19,465 |
| $ | — |
| $ | — |
Total assets |
| $ | 17,681 |
| $ | 17,681 |
| $ | 17,681 |
| $ | — |
| $ | — |
| $ | 19,465 |
| $ | 19,465 |
| $ | 19,465 |
| $ | — |
| $ | — |
|
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|
|
Liabilities (In thousands): |
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|
|
|
|
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|
|
|
|
|
Debt(2) |
| $ | 440,795 |
| $ | 371,388 |
| $ | 371,388 |
| $ | — |
| $ | — |
| $ | 444,156 |
| $ | 370,000 |
| $ | 370,000 |
| $ | — |
| $ | — |
Total liabilities |
| $ | 440,795 |
| $ | 371,388 |
| $ | 371,388 |
| $ | — |
| $ | — |
| $ | 444,156 |
| $ | 370,000 |
| $ | 370,000 |
| $ | — |
| $ | — |
(1) | Included in Other assets on the Company’s consolidated balance sheets. |
(2) | Included in the carrying amount is the equity component of our 2019 Notes in the amount of $77 million, which is included within Additional paid-in capital on the Company’s consolidated balance sheets. |
1517
The Company’s marketable equity securities classified within Level 1 of the fair value hierarchy are valued using quoted market prices in active markets. The fair value of the Level 1 marketable equity securities is calculated as the quoted market price of the marketable equity security multiplied by the quantity of shares held by the Company. The Company’s debt classified within Level 1 of the fair value hierarchy is valued using quoted prices in an active market.
As of DecemberMarch 31, 2018,2019, the Company also had assets that, under certain conditions, are subject to measurement at fair value on a non-recurring basis like those associated with stream and royalty interests, intangible assets and other long-lived assets. For these assets, measurement at fair value in periods subsequent to their initial recognition is applicable if any of these assets are determined to be impaired. If recognition of these assets at their fair value becomes necessary, such measurements will be determined utilizing Level 3 inputs.
10.11. COMMITMENTS AND CONTINGENCIES
Khoemacau Silver Stream Acquisition
As of March 31, 2019, the Company’s conditional funding schedule for $212 million related to the Silver Stream pursuant to its Khoemacau silver stream acquisition made in February 2019 (Note 2) remains subject to certain conditions.
Ilovica Gold Stream Acquisition
As of DecemberMarch 31, 2018,2019, the Company’s conditional funding schedule for $163.75 million related to its Ilovica gold stream acquisition made in October 2014 remains subject to certain conditions.
1618
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information to assist you in better understanding and evaluating our financial condition and results of operations. Royal Gold, Inc. (“Royal Gold”, the “Company”, “we”, “us”, or “our”) recommends that you read this MD&A in conjunction with our consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended June 30, 2018 filed with the Securities and Exchange Commission (the “SEC”) on August 9, 2018.2018 (Fiscal 2018 10-K).
This MD&A contains forward-looking information. You should review our important note about forward-looking statements following this MD&A.
We refer to “GSR,” “NSR,” “NVR,” “metal stream (or “stream”)” and other types of royalty or similar interests throughout this MD&A. These terms are defined in our Fiscal 2018 10-K.
Statement Regarding Third Party Information
Royal Gold does not own, develop, or mine the properties on which it holds stream or royalty interests, except for our interest in the Peak Gold, LLC joint venture (“Peak Gold JV”) as described further in this report. Certain information provided in this report, including the Operator’s Production Estimates by Stream and Royalty Interest for Calendar 2018 (or Calendar 2019)2019 and Property Developments, has been provided to us by the operators of properties where we own interests or is publicly available information filed by these operators with applicable securities regulatory bodies, including the SEC. Royal Gold has not verified, and is not in a position to verify, and expressly disclaims any responsibility for, the accuracy, completeness or fairness of such third-party information and refers the reader to the public reports filed by the operators for information regarding those properties.
Overview
Royal Gold, together with its subsidiaries, is engaged in the business of acquiring and managing metal streams, royalties, and similar interests. We seek to acquire existing stream and royalty interests or to finance projects that are in production or in the development stage in exchange for stream or royalty interests.
We manage our business under two segments:
Acquisition and Management of Stream Interests — A metal stream is a purchase agreement that provides, in exchange for an upfront deposit payment, the right to purchase all or a portion of one or more metals produced from a mine, at a price determined for the life of the transaction by the purchase agreement. As of DecemberMarch 31, 2018,2019, we owned seven stream interests, which are on fivesix producing properties and onetwo development stage property.properties. Stream interests accounted for approximately 69%71% and 70% of our total revenue for the three and sixnine months ended DecemberMarch 31, 2019, respectively, and 72% and 70% of our total revenue for the three and nine months ended March 31, 2018, and 2017.respectively. We expect stream interests to continue representing a significant proportion of our total revenue.
Acquisition and Management of Royalty Interests — Royalties are non-operating interests in mining projects that provide the right to revenue or metals produced from the project after deducting specified costs, if any. As of DecemberMarch 31, 2018,2019, we owned royalty interests on 3637 producing properties, 1615 development stage properties and 133131 exploration stage properties, of which we consider 5653 to be evaluation stage projects. We use “evaluation stage” to describe exploration stage properties that contain mineralized material and on which operators are engaged in the search for reserves. Royalties accounted for approximately 31%29% and 30%, respectively, of our total revenue for the three and sixnine months ended DecemberMarch 31, 20182019 and 2017.28% and 30%, respectively, for the three and nine months ended March 31, 2018.
We do not conduct mining operations on the properties in which we hold stream and royalty interests, and except for our interest in the Peak Gold JV, we generally are not required to contribute to capital costs, exploration costs, environmental costs or other operating costs on those properties.
19
In the ordinary course of business, we engage in a continual review of opportunities to acquire existing stream and royalty interests, to establish new streams on operating mines, to create new stream and royalty interests through the financing of
17
mine development or exploration, or to acquire companies that hold stream and royalty interests. We currently, and generally at any time, have acquisition opportunities in various stages of active review, including, for example, our engagement of consultants and advisors to analyze particular opportunities, our analysis of technical, financial and other confidential information of particular opportunities, submission of indications of interest and term sheets, participation in preliminary discussions and negotiations and involvement as a bidder in competitive processes.
Our financial results are primarily tied to the price of gold and, to a lesser extent, the price of silver and copper, together with the amounts of production from our producing stage stream and royalty interests. The price of gold, silver, copper and other metals has fluctuated widely in recent years. The marketability and the price of metals are influenced by numerous factors beyond the control of the Company and significant declines in the price of gold, silver or copper could have a material and adverse effect on the Company’s results of operations and financial condition.
For the three and sixnine months ended DecemberMarch 31, 20182019 and 2017,2018, gold, silver and copper price averages and percentage of revenue by metal were as follows:
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| Three Months Ended |
| Six Months Ended |
| Three Months Ended |
| Nine Months Ended | ||||||||||||||||||||||||||||||||
|
| December 31, 2018 |
| December 31, 2017 |
| December 31, 2018 |
| December 31, 2017 |
| March 31, 2019 |
| March 31, 2018 |
| March 31, 2019 |
| March 31, 2018 | ||||||||||||||||||||||||
Metal |
| Average |
| Percentage |
| Average |
| Percentage |
| Average |
| Percentage |
| Average |
| Percentage |
| Average |
| Percentage |
| Average |
| Percentage |
| Average |
| Percentage |
| Average |
| Percentage | ||||||||
Gold ($/ounce) |
| $ | 1,226 |
| 75% |
| $ | 1,275 |
| 79% |
| $ | 1,220 |
| 76% |
| $ | 1,277 |
| 78% |
| $ | 1,304 |
| 77% |
| $ | 1,329 |
| 76% |
| $ | 1,248 |
| 77% |
| $ | 1,294 |
| 77% |
Silver ($/ounce) |
| $ | 14.54 |
| 10% |
| $ | 16.73 |
| 9% |
| $ | 14.78 |
| 10% |
| $ | 16.78 |
| 9% |
| $ | 15.57 |
| 9% |
| $ | 16.77 |
| 6% |
| $ | 15.04 |
| 9% |
| $ | 16.78 |
| 8% |
Copper ($/pound) |
| $ | 2.80 |
| 11% |
| $ | 3.09 |
| 9% |
| $ | 2.78 |
| 8% |
| $ | 2.98 |
| 9% |
| $ | 2.82 |
| 9% |
| $ | 3.16 |
| 15% |
| $ | 2.80 |
| 9% |
| $ | 3.04 |
| 11% |
Other |
|
| N/A |
| 4% |
|
| N/A |
| 3% |
|
| N/A |
| 6% |
|
| N/A |
| 4% |
|
| N/A |
| 5% |
|
| N/A |
| 3% |
|
| N/A |
| 5% |
|
| N/A |
| 4% |
Recent Business Developments
Acquisition of Silver Stream on Khoemacau Copper Project
On February 25, 2019, the Company announced that its wholly-owned subsidiary, RGLD Gold AG (“RGLD Gold”), entered into a life of mine purchase and sale agreement for silver produced from the Khoemacau Copper Project (“Khoemacau” or the “Project”) in Botswana with Khoemacau Copper Mining (Pty.) Limited (“KCM”), a wholly-owned subsidiary of Cupric Canyon Capital LP (together with all its subsidiaries including KCM, “Cupric”), a private company owned by management and funds advised by Global Natural Resource Investments. Pursuant to the purchase and sale agreement, RGLD Gold will make advance payments totaling $212 million for 80% of the silver produced from Khoemacau until certain delivery thresholds are met (the “Silver Stream”), and at Cupric’s option, up to an additional $53 million in advance payments for up to the remaining 20% of the silver produced (the “Option Stream”). The stream rate will drop by 50% (to 40% of silver produced) upon the delivery to RGLD Gold of 32 million silver ounces under the Silver Stream, or to 50% of the silver produced upon delivery of 40 million silver ounces in the event Cupric exercises the entire Option Stream. RGLD Gold will pay 20% of the spot price of silver for each ounce delivered; however, depending on the achievement by Cupric of mill expansion throughput levels above 13,000 tonnes per day (30% above current mill design capacity), RGLD Gold will pay higher ongoing cash payments for silver ounces delivered in excess of specific annual thresholds.
RGLD Gold’s first advance payment under the Silver Stream is expected to occur after $100 million of net new debt and equity funding has been spent on the Project by Cupric. The $212 million in advance payments under the Silver Stream will be made in quarterly installments as project development advances according to the following approximate schedule: $60 million in the third and fourth quarters of calendar 2019, $125 million in calendar 2020 and the balance in calendar 2021. RGLD Gold will fund the transaction through cash on hand or cash advances from Royal Gold. Royal Gold will fund any advances made to RGLD Gold largely out of cash flow from operations and its current undrawn $1 billion revolving credit facility, as required.
Separate from the Silver Stream and Option Stream, and subject to various conditions, RGLD Gold will make available up to $25 million to Cupric toward the end of development of Khoemacau in the form of a subordinated debt facility. Any amounts drawn under the facility would carry interest at LIBOR + 11% and have a term of seven years. RGLD Gold will have the right to force repayment of the facility upon certain events.
20
Background on Khoemacau
Khoemacau is a copper-silver project located in the Kalahari copper belt, in a sparsely populated region of northwestern Botswana in the Kalahari Desert. Khoemacau is made up of over 4,040 square kilometers of mineral concessions from Cupric’s acquisition of Hana Mining Ltd. in 2013, as well as additional mineral concessions and a plant and associated infrastructure (the “Boseto Mill”) acquired by Cupric out of the receivership of Discovery Metals Inc. in 2015. Cupric consolidated the land position and infrastructure and has focused on exploration and development of the Zone 5 orebody.
Cupric plans to develop the Zone 5 orebody as three separate underground mines, each planned to produce 1.2 million tonnes of ore per year over the first five years. Each of the mines is expected to have its own independent ramp access and operate over a strike length of approximately 1,000 meters, extracting ore using conventional sub-level open stoping. Cupric’s plan provides for the ore to be trucked approximately 35 kilometers to the Boseto Mill, which is to be refurbished and enhanced to process approximately 10,000 tonnes of ore per day. Processing will be conventional sulfide flotation via three stage crushing, ball milling and flotation, which will produce a high-quality copper concentrate grading approximately 40% for shipment to international smelters. Cupric expects that power will be sourced from an expansion to the existing power grid currently under construction by Botswana Power Corporation, and that existing diesel generation capacity remaining from previous operations will be used as backup power. Water is expected to be supplied from three borefields along with mine dewatering.
Voisey’s Bay
The royalty on production of nickel, copper, cobalt and other minerals from the Voisey’s Bay mine in Newfoundland and Labrador, Canada is directly owned by the Labrador Nickel Royalty Limited Partnership (“LNRLP”), in which the Company’s wholly-owned indirect subsidiary is the general partner and 90% owner. The remaining 10% interest in LNRLP is owned by a subsidiary of Altius Minerals Corporation (“Altius”).Royalty Corporation.
On September 13, 2018, LNRLP entered into an agreement with Vale Canada Limited and certain of its subsidiaries (collectively, the “Parties”) to comprehensively settle their long-standing litigation related to calculation of the royalty on the sale of all concentrates produced from the Voisey’s Bay mine.
The Parties agreed to a new method for calculating the royalty in respect of concentrates processed at Vale’s Long Harbour Processing Plant (“LHPP”), which will be effective for all Voisey’s Bay mine production after April 1, 2018. Under the terms of the settlement, Royal Gold expects the 3% royalty rate will apply to approximately 50% of the gross metal value in the concentrates at the nickel, copper and cobalt prices prevailing at the time of settlement. As those metal prices rise or fall, the percentage of gross metal value in the concentrates applicable to the royalty would correspondingly increase or decrease.
The LHPP is designed to produce 50,000 tonnes of finished nickel annually. The plant is currently ramping up and has produced at an average quarterly rate of approximately 8,600 tonnes of finished nickel during the June and September 2018 quarters, which is approximately 70% of LHPP’s design capacity. In the next few years, Voisey’s Bay concentrate will provide 100% of the feed to LHPP but, over time, other sources of concentrate will be added to LHPP.
Vale announced it will recommence the $1.7 billion development of an underground mine and associated facilities, which is expected to extend the Voisey’s Bay mine life until 2034. Vale expects the underground mine to begin production in 2021 and to ramp up over four years, while the current open pit mining in the Ovoid deposit is expected to continue until 2022. Vale estimates Voisey's Bay mineral reserves at 32.4 million tonnes with a nickel grade of 2.13%, a copper grade of 0.96%, and a cobalt grade of 0.13% as of December 31, 2017.
18
During the three and sixnine months ended DecemberMarch 31, 2018,2019, the Company recognized approximately $2.5 million and $7.5$10.0 million (each period includes the 10% non-controlling interest), respectively, in royalty revenue attributable to the Voisey’s Bay royalty. Royalty revenue recognized on the Voisey’s Bay royalty for the quarter ended September 30, 2018 was attributable to metal production from the June 30 and September 30, 2018 quarters. Royalty payments for each quarter are due 45 days after quarter-end. The Company anticipates recognizing revenue for the Voisey’s Bay royalty in the period in which metal production occurs, based on information provided by the operator. If information is not received timely from the operator, the Company may estimate Voisey’s Bay royalty revenue based on available or historical information. Refer to Note 45 of our notes to consolidated financial statements for further discussion on our revenue recognition.
21
Peak Gold JV
On September 24, 2018, the Company announced that the Peak Gold JV, of which our Royal Alaska, LLC subsidiary owns a 40% interest, completed a Preliminary Economic Assessment (“PEA”) on the Peak Gold Project located near Tok, Alaska. The PEA contemplates on a preliminary basis an open pit mining operation with positive economics at base case gold and silver prices. The Company has engaged an external advisor to assist in identifying options with respect to our interests in the Peak Gold Project.
Royal Gold also owns two net smelter return royalties on the Peak Gold Project.
Acquisition of Contango Ore, Inc. Common Stock
On October 3, 2018, the Company purchased the second and final tranche of Contango Ore, Inc. (“CORE”) common stock (127,188 shares) for $26 per share. As previously reported in our Fiscal 2018 10-K, the Company purchased 682,556 shares of CORE common stock at $26 per share in June 2018. As of DecemberMarch 31, 2018,2019, the Company owns 809,744 shares of CORE common stock.
Principal Stream and Royalty Interests
The Company considers both historical and future potential revenues in determining which stream and royalty interests in our portfolio are principal to our business. Estimated future potential revenues from both producing and development properties are based on a number of factors, including reserves subject to our stream and royalty interests, production estimates, feasibility studies, metal price assumptions, mine life, legal status and other factors and assumptions, any of which could change and could cause the Company to conclude that one or more of such stream and royalty interests are no longer principal to our business. Currently, our principal producing stream and royalty interests are listed alphabetically in the following table.
Please refer to our Fiscal 2018 10-K for further discussion of our principal producing stream and royalty interests.
1922
Principal Producing Properties
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| Stream or royalty interests |
Mine |
| Location |
| Operator |
| (Gold unless otherwise stated) |
Andacollo |
| Region IV, Chile |
| Compañía Minera Teck Carmen de Andacollo (“Teck”) |
| Gold stream - 100% of gold produced (until 900,000 ounces delivered; 50% thereafter) |
Cortez |
| Nevada, USA |
| Barrick Gold Corporation ("Barrick") |
| GSR1: 0.40% to 5.0% sliding-scale GSR |
|
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|
|
| GSR2: 0.40% to 5.0% sliding-scale GSR |
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|
|
| GSR3: 0.71% GSR |
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|
|
| NVR1: 4.91% NVR; 4.52% NVR (Crossroads) |
Mount Milligan |
| British Columbia, Canada |
| Centerra Gold Inc. ("Centerra") |
| Gold stream - 35.00% of payable gold |
|
|
|
|
|
| Copper stream - 18.75% of payable copper |
Peñasquito |
| Zacatecas, Mexico |
| Newmont Goldcorp |
| 2.0% NSR (gold, silver, lead, zinc) |
Pueblo Viejo |
| Sanchez Ramirez, Dominican Republic |
| Barrick (60%) |
| Gold stream - 7.5% of gold produced (until 990,000 ounces delivered; 3.75% thereafter) |
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|
|
| Silver stream - 75% of silver produced (until 50.0 million ounces delivered; 37.5% thereafter) |
Wassa and Prestea |
| Western Region of Ghana |
| Golden Star Resources Ltd. (“Golden Star”) |
| Gold stream - 10.5% of gold produced |
|
|
Operators’ Production Estimates by Stream and Royalty Interest for Calendar 20182019
We generally receive annual production estimates from many of the operators of our producing mines during the first quarter of each calendar year. In some instances, an operator may revise their original calendar year guidance.guidance throughout the year. The following table shows current production estimates for our principal producing properties for calendar 20182019 as well as the actual production reported to us by the various operators through DecemberMarch 31, 2018.2019. The estimates and production reports are prepared by the operators of the mining properties. We do not participate in the preparation or calculation of the operators’ estimates or production reports and have not independently assessed or verified, and disclaim all responsibility for, the accuracy of such information. Please refer to “Property Developments” below within this MD&A for further discussion on our principal producing and development stage properties.
Operators’ Estimated and Actual Production by Stream and Royalty Interest for Calendar 2018
Principal Producing Properties
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|
| Calendar 2018 Operator’s Production Estimate |
| Calendar 2018 Operator’s Production | ||||||||
|
| Estimate(1) |
| Actual(2) | ||||||||
|
| Gold |
| Silver |
| Base Metals |
| Gold |
| Silver |
| Base Metals |
Stream/Royalty |
| (oz.) |
| (oz.) |
| (lbs.) |
| (oz.) |
| (oz.) |
| (lbs.) |
Stream: |
|
|
|
|
|
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|
|
|
|
|
|
Andacollo(3) |
| 66,700 |
|
|
|
|
| 59,600 |
|
|
|
|
Mount Milligan(4) |
| 175,000 - 195,000 |
|
|
|
|
| 195,000 |
|
|
|
|
Copper |
|
|
|
|
| 40 - 47 million |
|
|
|
|
| 47.1 million |
Pueblo Viejo(5) |
| 575,000 - 590,000 |
| Not provided |
|
|
| 581,000 |
| Not provided |
|
|
Wassa and Prestea(6) |
| 225,000 - 235,000 |
|
|
|
|
| 224,900 |
|
|
|
|
Royalty: |
|
|
|
|
|
|
|
|
|
|
|
|
Cortez GSR1 |
| 48,300 |
|
|
|
|
| 44,600 |
|
|
|
|
Cortez GSR2 |
| 2,200 |
|
|
|
|
| 5,200 |
|
|
|
|
Cortez GSR3 |
| 50,500 |
|
|
|
|
| 49,800 |
|
|
|
|
Cortez NVR1 |
| 31,600 |
|
|
|
|
| 36,600 |
|
|
|
|
Peñasquito(7) |
| 310,000 |
| Not provided |
|
|
| 220,000 |
| 14.1 million |
|
|
Lead |
|
|
|
|
| 160 million |
|
|
|
|
| 82.5 million |
Zinc |
|
|
|
|
| 300 million |
|
|
|
|
| 225.9 million |
2023
Operators’ Estimated and Actual Production by Stream and Royalty Interest for Calendar 2019
Principal Producing Properties
|
|
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|
| Calendar 2019 Operator’s Production |
| Calendar 2019 Operator’s Production | ||||||||
|
| Estimate(1) |
| Actual(2) | ||||||||
|
| Gold |
| Silver |
| Base Metals |
| Gold |
| Silver |
| Base Metals |
Stream/Royalty |
| (oz.) |
| (oz.) |
| (lbs.) |
| (oz.) |
| (oz.) |
| (lbs.) |
Stream: |
|
|
|
|
|
|
|
|
|
|
|
|
Andacollo(3) |
| 62,000 |
|
|
|
|
| 13,200 |
|
|
|
|
Mount Milligan(4) |
| 155,000 - 175,000 |
|
|
|
|
| 33,300 |
|
|
|
|
Copper |
|
|
|
|
| 65 - 75 million |
|
|
|
|
| 11.4 million |
Pueblo Viejo(5) |
| 550,000 - 600,000 |
| N/A |
|
|
| 148,000 |
| N/A |
|
|
Wassa and Prestea(6) |
| 220,000 - 240,000 |
|
|
|
|
| N/A |
|
|
|
|
Royalty: |
|
|
|
|
|
|
|
|
|
|
|
|
Cortez GSR1 |
| 102,000 |
|
|
|
|
| 28,500 |
|
|
|
|
Cortez GSR2 |
| 98,000 |
|
|
|
|
| 4,100 |
|
|
|
|
Cortez GSR3 |
| 199,000 |
|
|
|
|
| 32,600 |
|
|
|
|
Cortez NVR1 |
| 168,200 |
|
|
|
|
| 30,700 |
|
|
|
|
Peñasquito(7) |
| 370,000 - 400,000 |
| N/A |
|
|
| N/A |
| N/A |
|
|
Lead |
|
|
|
|
| 240 - 290 million |
|
|
|
|
| N/A |
Zinc |
|
|
|
|
| 390 - 450 million |
|
|
|
|
| N/A |
(1) | Production estimates received from our operators are for calendar |
(2) | Actual production figures shown are from our operators and cover the period January 1, |
(3) | The estimated and actual production figures shown for Andacollo are contained gold in concentrate. |
(4) | The estimated and actual production figures shown for Mount Milligan are payable gold and copper in concentrate. |
(5) | The estimated and actual production figures shown for Pueblo Viejo are payable gold in doré and represent Barrick’s 60% interest in Pueblo Viejo. The operator did not provide estimated or actual silver production. |
(6) | The estimated |
(7) | The estimated |
Property Developments
The following property development information is provided by the operators of the property, either to Royal Gold or in various documents made publicly available.
Stream Interests
Andacollo
Gold stream deliveries from Andacollo were approximately 10,7009,900 ounces of gold for the three months ended DecemberMarch 31, 2018,2019, compared to approximately 13,50010,000 ounces of gold for the three months ended DecemberMarch 31, 2017. Deliveries during the current quarter were lower as a result of timing of shipments.2018.
Consistent with the mine plan, Teck expects copper grades to decline towardtowards reserve grade in calendar 20182019 and future years. Teck reports that it continues to study and pilotimplement projects that would help partially offsetincrease production, including the declineinstallation of a sizer to manage harder ores at depth and increase mill throughput. Teck anticipated that the sizer project will be operational in grades. Thethe first half of calendar 2019. Teck expects the current life of mine for Carmen de Andacollo is expected to continue until 2035. Additional permitting or amendments to existing permits will be required to execute the life of mine plan.
24
Mount Milligan
Gold stream deliveries from Mount Milligan were approximately 10,30023,100 ounces of gold for the three months ended DecemberMarch 31, 2018,2019, compared to approximately 17,70027,400 ounces of gold for the three months ended DecemberMarch 31, 2017.
2018. Copper stream deliveries from Mount Milligan were approximately 2.5 million pounds of copper during the three months ended DecemberMarch 31, 2018,2019, compared to approximately 2.73.4 million pounds of copper during the three months ended DecemberMarch 31, 2017.2018. Decreased deliveries resulted from differences in the timing of shipments and settlements during the periods.
During calendarOn February 27, 2019, Centerra expectsannounced that it received an amendment to the Mount Milligan environmental assessment certificate that permits access to produce between 155,000additional sources of surface water and 175,000 ouncesgroundwater. According to Centerra, Mount Milligan will be permitted to use water at set rates from Philip Lake 1, Rainbow Creek and Meadows Creek until November 30, 2021, as well as water from groundwater sources within a six-kilometer radius of gold (comparedthe mine for the life of mine. Mount Milligan reported that it has upgraded its water pumping infrastructure and commenced accessing water from the newly permitted sources at the beginning of April 2019. Mill throughput was limited to 195,000 actual ounces of gold32,000 tonnes per operating day in calendar 2018)the March 2019 quarter and between 65 million and 75 million pounds of copper (compared to 47 million actual pounds of copperhas increased slowly as water levels increased in calendar 2018).the tailing’s facility. Centerra anticipates thatexpects mill throughput willto be reducedat full capacity of 55,000 tonnes per day starting mid-May 2019 as additional water is captured during the pending spring melt, and to remain at that level throughout the remainder of calendar 2019.
With respect to the long-term water supply plan, Centerra continues to work with relevant stakeholders to identify and evaluate water sources for the remainder of the winter season to properly manage the water balance until the water flow increases in the spring. Once the spring melt has commenced, which typically occurs in April, mill throughput levels are expected to return to full capacity. In the second half of calendar 2019,mine life. Centerra expects formal applications and government review to achieve an average throughput of approximately 55,000 tonnes percommence later this calendar day.
Permit applications are in process to allowyear. Centerra also expects that the mine to draw additional flow during the spring melt periodlong-term source, or sources, should be available after November 2021, for the next three years from eachentire mine life. Centerra continues to expect Mount Milligan gold and copper production to be in-range of Philip Lake, Rainbow Creek and Meadows Creek. This additional water would be stored in the tailings storage facility for use during the remainder of the year, which is expected to allow operations to continue at a rate
21
of 55,000 tonnes per calendar day. Centerra is also completing an inventory of regional water sources to identify other potential long-term water sources that could provide additional water through to the end of the mine life.their earlier reported guidance.
Pueblo Viejo
Gold stream deliveries from Pueblo Viejo were approximately 10,40012,400 ounces of gold for the three months ended DecemberMarch 31, 2018,2019, compared to approximately 12,60013,200 ounces of gold for the three months ended DecemberMarch 31, 2017. Production at Pueblo Viejo was impacted by a higher portion of carbonaceous ore, resulting in lower gold recoveries and an expected decline in ore grades for the period.2018. Silver stream deliveries were approximately 469,000553,000 ounces of silver for the three months ended DecemberMarch 31, 2018,2019, compared to approximately 260,200616,300 ounces of silver for the three months ended DecemberMarch 31, 2017. Prior period silver deliveries were adversely impacted by timing of payments from Barrick’s third-party refiners.2018.
In calendar 2019, Barrick statedexpects production at Pueblo Viejo to be in line with calendar 2018 production levels, driven by increased throughput and recoveries, offset by declining ore grades. Barrick indicated that it is advancing a prefeasibility-level study forscoping studies and pilot project work are supportive of a plant expansion at the Pueblo Viejo whichmine that could increase throughput by roughly 50% to 12 million tonnes per year, thereby allowing the mine to maintain average annual gold production of approximately 800,000 ounces after calendar 2022. The prefeasibility study will evaluate options including the addition ofTo achieve this, Barrick is evaluating a pre-oxidation heap leach pad with a capacity of eight million tonnes per year, a new mill and flotation concentrator with a capacityfollowed by ultra-fine grinding and tank oxidation of four million tonnes per year,the concentrate. Barrick reported that testing to date indicates that tank oxidation is preferable to the pad pre-oxidation process previously considered. Barrick expects to complete prefeasibility studies for the plant expansion and additional tailings capacity.capacity by the end of calendar 2019. According to Barrick, the project has potential to convert roughly seven million ounces of mineralized material to proven and probable reserves.
Barrick and its power generation partner, AES Corporation, made significant progress in 2018 toward securing all necessary permits and commencing construction of a new 50-kilometer gas pipeline to the Quisqueya I power generation facility at Pueblo Viejo. Barrick reports that completion and first delivery of natural gas is expected to occur in the pilot pre-oxidation heap leach pad is now in operation,December 2019 quarter and constructionthat conversion of the pilot flotation circuitpower plant to natural gas from heavy fuel oil is well advanced, including the holding tankanticipated to reduce both greenhouse gas emissions and thickener. power costs at Pueblo Viejo.
Rainy River
Gold stream deliveries from Rainy River were approximately 4,5004,400 ounces of gold for the three months ended DecemberMarch 31, 2018,2019, compared to approximately 1,0002,900 ounces of gold for the three months ended DecemberMarch 31, 2017.2018. Silver stream deliveries were approximately 41,70035,700 ounces of silver for the three months ended DecemberMarch 31, 2018,2019, compared to approximately 11,90041,800 ounces of silver for the three months ended DecemberMarch 31, 2017. Milling operations were initiated during the December 2017 quarter and have been ramping up production through calendar 2018.
New Gold, Inc. (“New Gold”) reported thatRainy River produced 61,557 ounces of gold and 60,383 ounces of silver during the December 2018 quarter,March 2019 quarter. Production at Rainy River included planned lower grades as mining operations continued the
25
transition to improve its overall operational performance with quarterly gold productionphase 2 of approximately 77,200 ounces andthe mine plan. Mill throughput for the March 2019 quarter averaged 19,725 tonnes per calendar 2018 gold productionday, below the annual target of approximately 227,300 ounces, achieving their revised annual guidance22,000-24,000 tonnes per day. The lower average mill throughput was negatively impacted by the significant buildup of between 210,000 and 250,000 gold ounces.ice in the crushed ore stockpile above the apron feeders. New Gold also reported thataverage mill throughput returned to target levels at the end of the March 2019 quarter. Also during the December 2018March 2019 quarter, mill throughput averaged approximately 20,700 tonnes per day, while achieving an average gold recovery of 89%, the best quarterly performance to-date.
New Gold reported that it deferred the underground mine development plan to calendar 2020. During calendar 2019, New Gold will launchthey launched a comprehensive reviewoptimization study that includes the review of alternative open pit and underground mining scenarios with the overall objective of reducing capital and improving the return on investment for the underground portion ofover the life of mine. New Gold expects to complete an updated life of mine plan in the December 2019 quarter.
New Gold expects to begin a strategic exploration drilling program in the June 2019 quarter that will test near-mine targets in the Intrepid North area.
On May 1, 2019, New Gold announced that a buildup of excess water in the tailings facility from snowmelt caused a temporary suspension of milling operations at Rainy River on April 24, 2019. Mining and crushing operations are continuing and ore is being stockpiled during the suspension. New Gold is managing the excess water and expects full mill operations to resume within five days of the announcement of the suspension depending on precipitation levels over the same period.
Wassa and Prestea
Gold stream deliveries from Wassa and Prestea were approximately 4,7005,800 ounces of gold for the three months ended DecemberMarch 31, 2018,2019, compared to approximately 6,0006,800 ounces of gold for the three months ended DecemberMarch 31, 2017. Decreased deliveries resulted2018.
On March 28, 2019, Golden Star announced Wassa underground mineral reserves increased 47% to 949,000 ounces of gold, which was attributable to strong results from lower production at Prestea due to slower than planned ramp-up of the underground and the completion of open pit mining at Prestea earlier in calendar 2018 which contributedunderground definition drilling program combined with a stope design optimization. Prestea mineral reserves decreased by 36% to production in317,000 ounces of gold, resulting from calendar 2018 mining depletion and changes to the prior year quarter.resource model following definition drilling and underground development.
In calendar 2019, Golden Star expects the average targeted mining rate for Wassa underground to produce at an average rate of approximatelybe 3,500 tonnes per day, moving towards a target of 4,000 tonnes per day in calendar 2020. Golden Star reported that deep drilling continues to show positive results and studies are ongoing to decide onAt the optimal long-term development of Wassa, including the appropriate mining method. A PEA is expected in the second halfend of calendar 2019.
Golden Star reported that during the December 2018, quarter, the Prestea plant was converted to a low tonnage, high grade configuration, allowing it to efficiently treat underground production and that significant improvements were being recorded in Prestea’sPrestea underground's lead production indicators at the end of calendar 2018.indicators. Golden Star expects improvements in raise
22
development, long holelong-hole drilling and blasting productivities to continue to bring the production rate up to the 650 tonnes per day target in calendar 2019.
Golden Star expects consolidated calendar 2019 gold production to range between 220,000 and 240,000 ounces.
Royalty Interests
Cortez
Production attributable to our royalty interest at Cortez decreasedduring the quarter increased approximately 20%73% over the prior year quarter, as a result of lower production subject to our royalty interests duringramping up at the current quarter. Waste stripping at Crossroads deposit, which is subject to our NVR1 (Crossroads) and GSR2 royalty interests, is currently ongoing.interests. Initial ore production at Crossroads was realized during calendar 2018, which included 5.5 million tonnes of predominately heap leach ore containing approximately 62,000 ounces of gold. Ore2018. In calendar 2019, Barrick expects Crossroads expansion stripping to transition to production at Crossroads is expected to continue ramping up into calendar 2020. phase stripping.
Peñasquito
Gold and zinc production attributable to our royalty interest at Peñasquito decreased approximately 25%59% and 12%17%, respectively, and lead production attributable to our royalty interest increased approximately 8%33%, andwhen compared to the prior year quarter, while silver production was in line with the prior year quarter. Goldcorp forecasted lower than historic gold recovery during the December 2018 quarter due to the carbonaceous content of the sediment ore forecasted from the Chile Colorado pit.
On November 29, 2018, Newmont Goldcorp announced that the first gold from the Peñasquito Pyrite Leach Project (“PLP”) was achieved, and on January 14, 2019, announced that PLP achieved commercial production in December 2018, both under budget and ahead of schedule. Newmont Goldcorp stated that during the March 2019 quarter the PLP is running well with overall higher recoveries.
On April 29, 2019, Newmont Goldcorp reported a temporary suspension of operations at Peñasquito’s PLPasquito due to a blockade by a trucking contractor and certain community leaders. Newmont Goldcorp reported that it is pursuing legal avenues and working with government authorities to resolve the situation but did not indicate what effect this suspension is expected to recover approximately 35%have on calendar 2019 production.
26
For calendar 2019, Newmont Goldcorp expects grades and recoveries to climb at Peñasquito as the mine benefits from completion of the multi-year waste stripping campaign in the main Peñasco pit and a full year of operation at the PLP. In June 2019, Newmont Goldcorp plans to launch their full potential continuous improvement program at Peñasquito, where they expect the greatest overall value to be in processing improvements, which will concentrate on productivity, reliability and cost efficiency.
Results of Operations
Quarter Ended DecemberMarch 31, 2018,2019, Compared to Quarter Ended DecemberMarch 31, 20172018
For the quarter ended DecemberMarch 31, 2018,2019, we recorded net income attributable to Royal Gold stockholders of $23.6$28.8 million, or $0.36$0.44 per basic and diluted share, as compared to net loss attributable to Royal Gold stockholders of $14.8$153.7 million, or ($0.23)2.35) per basic and diluted share, for the quarter ended DecemberMarch 31, 2017.2018. The increase in our earnings per share, when compared to the prior year period, was primarily attributable to a decrease in income tax expense,prior period impairment charges of approximately $239.4 million, primarily on our royalty interest at Pascua-Lama, as discussed further below. The decrease in our income tax expenseFiscal 2018 10-K. The effect of the impairment charges during the current periodquarter ended March 31, 2018 was partially offset by a decrease in our revenue and fair value decreases on our equity securities, each discussed below. Income tax expense was higher in the prior period due to the effects of the Tax Cuts and Jobs Act (the “Act”) and a non-cash functional currency election for income tax purposes. The impacts of the Act and the non-cash functional currency election on our prior period income tax expense was approximately $26.4 million and $15.9 million, respectively, or $0.40 and $0.24$2.74 per basic share, respectively. Refer to Note 7 of our notes to consolidated financial statements for further discussion on the Act.after taxes.
For the quarter ended DecemberMarch 31, 2018,2019, we recognized total revenue of $97.6$109.8 million, which is comprised of stream revenue of $67.7$77.8 million and royalty revenue of $29.9$32.0 million at an average gold price of $1,226$1,304 per ounce, an average silver price of $14.54$15.57 per ounce and an average copper price of $2.80$2.82 per pound. This is compared to total revenue of $114.4$116.0 million for the three months ended DecemberMarch 31, 2017,2018, which was comprised of stream revenue of $79.3$83.0 million and royalty revenue of $35.1$33.0 million, at an average gold price of $1,275$1,329 per ounce, an average silver price of $16.73$16.77 per ounce and an average copper price of $3.09$3.16 per pound for the quarter ended DecemberMarch 31, 2017.2018. Revenue and the corresponding production attributable to our stream and royalty interests for the quarter ended DecemberMarch 31, 20182019 compared to the quarter ended DecemberMarch 31, 20172018 are as follows:
23
Revenue and Reported Production Subject to Our Stream and Royalty Interests
Quarter Ended DecemberMarch 31, 20182019 and 20172018
(In thousands, except reported production ozs. and lbs.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Three Months Ended |
|
|
| Three Months Ended |
| Three Months Ended | ||||||||||||||||
|
|
|
| December 31, 2018 |
| December 31, 2017 |
|
|
| March 31, 2019 |
| March 31, 2018 | ||||||||||||||||
|
|
|
|
|
| Reported |
|
|
| Reported |
|
|
|
|
| Reported |
|
|
| Reported | ||||||||
Stream/Royalty |
| Metal(s) |
| Revenue |
| Production(1) |
| Revenue |
| Production(1) |
| Metal(s) |
| Revenue |
| Production(1) |
| Revenue |
| Production(1) | ||||||||
Stream(2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mount Milligan |
|
|
| $ | 28,169 |
|
|
|
| $ | 21,632 |
|
|
|
|
|
| $ | 26,938 |
|
|
|
| $ | 47,807 |
|
|
|
|
| Gold |
|
|
|
| 17,700 | oz. |
|
|
|
| 12,600 | oz. |
| Gold |
|
|
|
| 15,200 | oz. |
|
|
|
| 25,800 | oz. |
|
| Copper |
|
|
|
| 2.4 | Mlbs. |
|
|
|
| 1.8 | Mlbs. |
| Copper |
|
|
|
| 2.6 | Mlbs. |
|
|
|
| 4.3 | Mlbs. |
Pueblo Viejo |
|
|
| $ | 18,230 |
|
|
|
| $ | 26,355 |
|
|
|
|
|
| $ | 20,787 |
|
|
|
| $ | 15,734 |
|
|
|
|
| Gold |
|
|
|
| 8,900 | oz. |
|
|
|
| 14,500 | oz. |
| Gold |
|
|
|
| 10,400 | oz. |
|
|
|
| 8,500 | oz. |
|
| Silver |
|
|
|
| 509,500 | oz. |
|
|
|
| 469,600 | oz. |
| Silver |
|
|
|
| 469,000 | oz. |
|
|
|
| 260,800 | oz. |
Andacollo |
| Gold |
| $ | 15,638 |
| 12,000 | oz. |
| $ | 7,186 |
| 5,400 | oz. | ||||||||||||||
Wassa and Prestea |
| Gold |
| $ | 9,550 |
| 7,800 | oz. |
| $ | 8,629 |
| 6,800 | oz. |
| Gold |
| $ | 7,328 |
| 5,600 | oz. |
| $ | 8,350 |
| 6,300 | oz. |
Andacollo |
| Gold |
| $ | 7,635 |
| 6,200 | oz. |
| $ | 21,601 |
| 17,000 | oz. | ||||||||||||||
Other(3) |
|
|
| $ | 4,095 |
|
|
|
| $ | 1,070 |
|
|
|
|
|
| $ | 7,074 |
|
|
|
| $ | 3,902 |
|
|
|
|
| Gold |
|
|
|
| 2,900 | oz. |
|
|
|
| 800 | oz. |
| Gold |
|
|
|
| 5,000 | oz. |
|
|
|
| 2,800 | oz. |
|
| Silver |
|
|
|
| 36,000 | oz. |
|
|
|
| N/A |
|
| Silver |
|
|
|
| 40,800 | oz. |
|
|
|
| 11,100 | oz. |
Total stream revenue |
|
|
| $ | 67,679 |
|
|
|
| $ | 79,287 |
|
|
|
|
|
| $ | 77,765 |
|
|
|
| $ | 82,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty(2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peñasquito |
|
|
| $ | 4,660 |
|
|
|
| $ | 6,190 |
|
|
|
|
|
| $ | 4,465 |
|
|
|
| $ | 6,452 |
|
|
|
|
| Gold |
|
|
|
| 53,400 | oz. |
|
|
|
| 71,100 | oz. |
| Gold |
|
|
|
| 37,300 | oz. |
|
|
|
| 91,200 | oz. |
|
| Silver |
|
|
|
| 5.0 | Moz. |
|
|
|
| 5.1 | Moz. |
| Silver |
|
|
|
| 4.9 | Moz. |
|
|
|
| 5.0 | Moz. |
|
| Lead |
|
|
|
| 36.1 | Mlbs. |
|
|
|
| 33.4 | Mlbs. |
| Lead |
|
|
|
| 34.5 | Mlbs. |
|
|
|
| 26.0 | Mlbs. |
|
| Zinc |
|
|
|
| 83.1 | Mlbs. |
|
|
|
| 94.4 | Mlbs. |
| Zinc |
|
|
|
| 72.8 | Mlbs. |
|
|
|
| 88.0 | Mlbs. |
Cortez |
| Gold |
| $ | 2,335 |
| 19,900 | oz. |
| $ | 2,934 |
| 25,000 | oz. |
| Gold |
| $ | 4,127 |
| 32,700 | oz. |
| $ | 1,901 |
| 18,900 | oz. |
Other(3) |
| Various |
| $ | 22,918 |
| N/A |
|
| $ | 25,937 |
| N/A |
|
| Various |
| $ | 23,421 |
| N/A |
|
| $ | 24,651 |
| N/A |
|
Total royalty revenue |
|
|
| $ | 29,913 |
|
|
|
| $ | 35,061 |
|
|
|
|
|
| $ | 32,013 |
|
|
|
| $ | 33,004 |
|
|
|
Total Revenue |
|
|
| $ | 97,592 |
|
|
|
| $ | 114,348 |
|
|
|
|
|
| $ | 109,778 |
|
|
|
| $ | 115,983 |
|
|
|
27
(1) | Reported production relates to the amount of metal sales subject to our stream and royalty interests for the three months ended |
(2) | Refer to “Property Developments” above for further discussion on our principal stream and royalty interests. |
(3) |
|
The decrease in our total revenue for the three months ended DecemberMarch 31, 2018,2019, compared with the three months ended DecemberMarch 31, 2017,2018, resulted primarily from a decrease in our stream revenue and a decrease in the average gold, silver and copper prices. The decrease in our stream revenue was primarily attributable to a decrease in gold and copper sales at Andacollo and Pueblo Viejo due to the timing of deliveries.Mount Milligan. This decrease was partially offset by higher gold and coppersilver sales at Mount Milligan.
24
GoldPueblo Viejo and silver ounces and copper pounds purchased and sold during the three months ended December 31, 2018 and 2017, andhigher gold and silver ounces and copper pounds in inventory as of December 31, 2018, and June 30, 2018, for our streaming interests were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Three Months Ended |
| As of |
| As of | ||||
|
| December 31, 2018 |
| December 31, 2017 |
| December 31, 2018 |
| June 30, 2018 | ||||
Gold Stream |
| Purchases (oz.) |
| Sales (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Inventory (oz.) |
| Inventory (oz.) |
Andacollo |
| 10,700 |
| 6,200 |
| 13,500 |
| 17,000 |
| 4,500 |
| 7,400 |
Pueblo Viejo |
| 10,400 |
| 8,900 |
| 12,600 |
| 14,500 |
| 10,400 |
| 9,200 |
Mount Milligan |
| 10,300 |
| 17,700 |
| 17,700 |
| 12,700 |
| — |
| 300 |
Wassa and Prestea |
| 4,700 |
| 7,900 |
| 6,000 |
| 6,800 |
| 700 |
| 3,900 |
Rainy River |
| 4,500 |
| 2,900 |
| 1,000 |
| 800 |
| 1,600 |
| 800 |
Total |
| 40,600 |
| 43,600 |
| 50,800 |
| 51,800 |
| 17,200 |
| 21,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Three Months Ended |
| As of |
| As of | ||||
|
| December 31, 2018 |
| December 31, 2017 |
| December 31, 2018 |
| June 30, 2018 | ||||
Silver Stream |
| Purchases (oz.) |
| Sales (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Inventory (oz.) |
| Inventory (oz.) |
Pueblo Viejo |
| 469,000 |
| 509,500 |
| 260,200 |
| 469,600 |
| 469,000 |
| 540,200 |
Rainy River |
| 41,700 |
| 36,000 |
| 11,900 |
| — |
| 41,700 |
| 32,300 |
Total |
| 510,700 |
| 545,500 |
| 272,100 |
| 469,600 |
| 510,700 |
| 572,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Three Months Ended |
| As of |
| As of | ||||
|
| December 31, 2018 |
| December 31, 2017 |
| December 31, 2018 |
| June 30, 2018 | ||||
Copper Stream |
| Purchases (Mlbs.) |
| Sales (Mlbs.) |
| Purchases (Mlbs.) |
| Sales (Mlbs.) |
| Inventory (Mlbs.) |
| Inventory (Mlbs.) |
Mount Milligan |
| 2.5 |
| 2.4 |
| 2.7 |
| 1.8 |
| 0.9 |
| — |
Our royalty revenue decreased during the quarter ended December 31, 2018, compared with the quarter ended December 31, 2017, primarilysales at Andacollo due to decreased production at Peñasquito and Cortez and a decrease in the average gold, silver and copper prices.timing of deliveries. Please refer to “Property Developments” earlier within this MD&A for further discussion on recent developments regarding properties covered by certain of our stream and royalty interests.
Gold and silver ounces and copper pounds purchased and sold during the three months ended March 31, 2019 and 2018, and gold and silver ounces and copper pounds in inventory as of March 31, 2019, and June 30, 2018, for our streaming interests were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Three Months Ended |
| As of |
| As of | ||||
|
| March 31, 2019 |
| March 31, 2018 |
| March 31, 2019 |
| June 30, 2018 | ||||
Gold Stream |
| Purchases (oz.) |
| Sales (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Inventory (oz.) |
| Inventory (oz.) |
Mount Milligan |
| 23,100 |
| 15,200 |
| 27,400 |
| 25,800 |
| 7,900 |
| 300 |
Pueblo Viejo |
| 12,400 |
| 10,400 |
| 13,200 |
| 8,500 |
| 12,400 |
| 9,200 |
Andacollo |
| 9,900 |
| 12,000 |
| 10,000 |
| 5,400 |
| 2,400 |
| 7,400 |
Wassa and Prestea |
| 5,800 |
| 5,600 |
| 6,800 |
| 6,300 |
| 900 |
| 3,900 |
Rainy River |
| 4,400 |
| 5,000 |
| 2,900 |
| 2,800 |
| 1,000 | �� | 800 |
Total |
| 55,600 |
| 48,200 |
| 60,300 |
| 48,800 |
| 24,600 |
| 21,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Three Months Ended |
| As of |
| As of | ||||
|
| March 31, 2019 |
| March 31, 2018 |
| March 31, 2019 |
| June 30, 2018 | ||||
Silver Stream |
| Purchases (oz.) |
| Sales (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Inventory (oz.) |
| Inventory (oz.) |
Pueblo Viejo |
| 553,000 |
| 469,000 |
| 616,300 |
| 260,800 |
| 553,000 |
| 540,200 |
Rainy River |
| 35,700 |
| 40,800 |
| 41,800 |
| 11,100 |
| 36,600 |
| 32,300 |
Total |
| 588,700 |
| 509,800 |
| 658,100 |
| 271,900 |
| 589,600 |
| 572,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Three Months Ended |
| As of |
| As of | ||||
|
| March 31, 2019 |
| March 31, 2018 |
| March 31, 2019 |
| June 30, 2018 | ||||
Copper Stream |
| Purchases (Mlbs.) |
| Sales (Mlbs.) |
| Purchases (Mlbs.) |
| Sales (Mlbs.) |
| Inventory (Mlbs.) |
| Inventory (Mlbs.) |
Mount Milligan |
| 2.5 |
| 2.6 |
| 3.4 |
| 4.3 |
| 0.8 |
| — |
Cost of sales decreased to $18.2$19.1 million for the three months ended DecemberMarch 31, 20182019 from $19.9$21.3 million for the three months ended DecemberMarch 31, 2017.2018. The decrease was primarily due to decreased gold and copper sales from Andacollo.Mount Milligan. Cost of sales is specific to our stream agreements and is the result of RGLD Gold AG’s (“RGLD Gold”)Gold’s purchase of gold, silver and copper for a cash payment. The cash payment for gold from Mount Milligan is the lesser of $435 per ounce or the prevailing market price of gold when purchased, while the cash payment for our other streams is a set contractual percentage of the gold, silver or copper spot price near the date of metal delivery.
General and administrative expenses decreased to $7.4$6.8 million for the three months ended DecemberMarch 31, 20182019 from $9.6$8.1 million for the three months ended DecemberMarch 31, 2017.2018. The decrease during the current quarter was primarily due to a decrease in legal costs attributable to the Voisey’s Bay royalty calculation dispute and settlement as discussed further above under “Recent Business Developments.”
Depreciation, depletion and amortization decreased to $38.8 million for the three months ended December 31, 2018 from $42.0 million for the three months ended December 31, 2017. The decrease was primarily attributable to decrease in gold sales at Andacollo and Pueblo Viejo, which resulted in a decrease in depletion of approximately $8.1 million. This decrease was partially offset by an increase in metal sales at Mount Milligan and Rainy River, which resulted in an increase in depletion of approximately $4.1 million
On July 1, 2018, the Company adopted new Accounting Standards Update (“ASU”) guidance which impacts how we recognize changes in fair value on our equity securities at each reporting period. As a result of the new ASU guidance, the Company recognized a lossgain on changes in fair value of equity securities of $3.6approximately $1.8 million for the three months ended DecemberMarch 31, 2018.2019. Refer to Note 1 of our notes to consolidated financial statements for further detail. The new guidance could increase our earnings volatility.
During the three months ended DecemberMarch 31, 2018,2019, we recognized an income tax benefitexpense totaling $2.1$9.4 million compared with an income tax expensebenefit of $48.4$45.9 million during the three months ended DecemberMarch 31, 2017.2018. This resulted in an effective tax rate of (10.3%)24.7% in the current period, compared with 148.5%22.9% in the quarter ended DecemberMarch 31, 2017.2018. The decreaseincrease in the effective tax rate for the three months ended December 31, 2018 was primarily related to the Company’s updated
2528
analysis ofeffective tax rate for the three months ended March 31, 2019 was primarily related to lower discrete benefits recorded in the current quarter as compared to the quarter ended March 31, 2018. The prior year’s quarter included a discrete tax impacts ofbenefit related to the Act, considering all recently released U.S. Treasury regulations and IRS guidance. Refer to Note 7 of our notes to consolidated financial statements for further discussion on the Act.impairment charges.
SixNine Months Ended DecemberMarch 31, 2018,2019, Compared to SixNine Months Ended DecemberMarch 31, 20172018
For the sixnine months ended DecemberMarch 31, 2018,2019, we recorded net income attributable to Royal Gold stockholders of $38.6$67.4 million, or $0.59$1.03 per basic and diluted share, as compared to a net incomeloss attributable to Royal Gold stockholders of $13.9$139.8 million, or $0.21($2.14) per basic and diluted share, for the sixnine months ended DecemberMarch 31, 2017.2018. The increase in our earnings per share, was primarily attributablewhen compared to a decrease in income tax expense. The decrease in our income tax expense during the current period was partially offset by a decrease in our revenue and fair value decreases on our equity securities, each discussed below. Income tax expense was higher in the prior period, duewas attributable to the effectsprior period impairment charges of approximately $239.4 million, primarily on our royalty interest at Pascua-Lama, as discussed further in our Fiscal 2018 10-K. The effect of the Act and a non-cash functional currency election for income tax purposes. The impacts ofimpairment charges during the Act and the non-cash functional currency election on our prior period income tax expensequarter ended March 31, 2018 was approximately $26.4 million and $15.9 million, respectively, or $0.40 and $0.24$2.74 per basic share, respectively. Refer to Note 7 of our notes to consolidated financial statements for further discussion on the Act.after taxes.
For the sixnine months ended DecemberMarch 31, 2018,2019, we recognized total revenue of $197.6$307.4 million, which is comprised of stream revenue of $137.7$215.5 million and royalty revenue of $59.9$91.9 million at an average gold price of $1,220$1,248 per ounce, an average silver price of $14.78$15.04 per ounce and an average copper price of $2.78$2.80 per pound. This is compared to total revenue of $226.8$342.8 million for the sixnine months ended DecemberMarch 31, 2017,2018, which was comprised of stream revenue of $158.0$241.0 million and royalty revenue of $68.8$101.8 million, at an average gold price of $1,277$1,294 per ounce, an average silver price of $16.78 per ounce and an average copper price of $2.98$3.04 per pound. Revenue and the corresponding production attributable to our stream and royalty interests for the sixnine months ended DecemberMarch 31, 20182019 compared to the quarternine months ended DecemberMarch 31, 20172018 are as follows:
Revenue and Reported Production Subject to Our Stream and Royalty Interests
SixNine Months Ended DecemberMarch 31, 20182019 and 20172018
(In thousands, except reported production ozs. and lbs.)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended |
| Six Months Ended |
|
|
| Nine Months Ended |
| Nine Months Ended | ||||||||||||||||
|
|
|
| December 31, 2018 |
| December 31, 2017 |
|
|
| March 31, 2019 |
| March 31, 2018 | ||||||||||||||||
|
|
|
|
|
|
| Reported |
|
|
|
| Reported |
|
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|
|
|
| Reported |
|
|
|
| Reported | ||||
Stream/Royalty |
| Metal(s) |
| Revenue |
| Production(1) |
| Revenue |
| Production(1) |
| Metal(s) |
| Revenue |
| Production(1) |
| Revenue |
| Production(1) | ||||||||
Stream(2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pueblo Viejo |
|
|
| $ | 37,717 |
|
|
|
| $ | 51,758 |
|
|
| ||||||||||||||
Mount Milligan |
|
|
| $ | 63,954 |
|
|
|
| $ | 101,390 |
|
|
| ||||||||||||||
|
| Gold |
|
|
|
| 18,100 | oz. |
|
|
|
| 27,400 | oz. |
| Gold |
|
|
|
| 38,500 | oz. |
|
|
|
| 57,100 | oz. |
|
| Silver |
|
|
|
| 1.0 | Moz. |
|
|
|
| 1.0 | Moz. |
| Copper |
|
|
|
| 5.8 | Mlbs. |
|
|
|
| 8.7 | Mlbs. |
Mount Milligan |
|
|
| $ | 37,015 |
|
|
|
| $ | 53,584 |
|
|
| ||||||||||||||
Pueblo Viejo |
|
|
| $ | 58,504 |
|
|
|
| $ | 67,492 |
|
|
| ||||||||||||||
|
| Gold |
|
|
|
| 23,300 | oz. |
|
|
|
| 31,300 | oz. |
| Gold |
|
|
|
| 28,500 | oz. |
|
|
|
| 35,900 | oz. |
|
| Copper |
|
|
|
| 3.2 | Mlbs. |
|
|
|
| 4.4 | Mlbs. |
| Silver |
|
|
|
| 1.5 | Moz. |
|
|
|
| 1.3 | Moz. |
Andacollo |
| Gold |
| $ | 35,378 |
| 28,900 | oz. |
| $ | 33,938 |
| 26,700 | oz. |
| Gold |
| $ | 51,016 |
| 40,900 | oz. |
| $ | 41,124 |
| 32,100 | oz. |
Wassa and Prestea |
| Gold |
| $ | 17,611 |
| 14,400 | oz. |
| $ | 17,699 |
| 13,900 | oz. |
| Gold |
| $ | 24,939 |
| 20,000 | oz. |
| $ | 26,049 |
| 20,200 | oz. |
Other(3) |
|
|
| $ | 9,995 |
|
|
|
| $ | 1,070 |
|
|
|
|
|
| $ | 17,067 |
|
|
|
| $ | 4,973 |
|
|
|
|
| Gold |
|
|
|
| 7,400 | oz. |
|
|
|
| 800 | oz. |
| Gold |
|
|
|
| 12,300 | oz. |
|
|
|
| 3,600 | oz. |
|
| Silver |
|
|
|
| 67,500 | oz. |
|
|
|
| N/A |
|
| Silver |
|
|
|
| 108,300 | oz. |
|
|
|
| 11,100 | oz. |
Total stream revenue |
|
|
| $ | 137,716 |
|
|
|
| $ | 158,049 |
|
|
|
|
|
| $ | 215,480 |
|
|
|
| $ | 241,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty(2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peñasquito |
|
|
| $ | 8,297 |
|
|
|
| $ | 13,986 |
|
|
|
|
|
| $ | 12,763 |
|
|
|
| $ | 20,439 |
|
|
|
|
| Gold |
|
|
|
| 103,700 | oz. |
|
|
|
| 205,100 | oz. |
| Gold |
|
|
|
| 141,000 | oz. |
|
|
|
| 296,200 | oz. |
|
| Silver |
|
|
|
| 9.2 | Moz. |
|
|
|
| 11.0 | Moz. |
| Silver |
|
|
|
| 14.1 | Moz. |
|
|
|
| 15.9 | Moz. |
|
| Lead |
|
|
|
| 65.9 | Mlbs. |
|
|
|
| 69.6 | Mlbs. |
| Lead |
|
|
|
| 100.4 | Mlbs. |
|
|
|
| 95.5 | Mlbs. |
|
| Zinc |
|
|
|
| 147.3 | Mlbs. |
|
|
|
| 186.8 | Mlbs. |
| Zinc |
|
|
|
| 220.1 | Mlbs. |
|
|
|
| 274.8 | Mlbs. |
Cortez |
| Gold |
| $ | 2,939 |
| 26,900 | oz. |
| $ | 5,922 |
| 54,900 | oz. |
| Gold |
| $ | 7,066 |
| 59,700 | oz. |
| $ | 7,823 |
| 73,800 | oz. |
Other(3) |
| Various |
| $ | 48,633 |
| N/A |
|
| $ | 48,867 |
| N/A |
|
| Various |
| $ | 72,053 |
| N/A |
|
| $ | 73,517 |
| N/A |
|
Total royalty revenue |
|
|
| $ | 59,869 |
|
|
|
| $ | 68,775 |
|
|
|
|
|
| $ | 91,882 |
|
|
|
| $ | 101,779 |
|
|
|
Total revenue | Total revenue |
| $ | 197,585 |
|
|
|
| $ | 226,824 |
|
|
| Total revenue |
| $ | 307,362 |
|
|
|
| $ | 342,807 |
|
|
|
(1) | Reported production relates to the amount of metal sales subject to our stream and royalty interests for the |
26
(2) | Refer to “Property Developments” above for further discussion on our principal stream and royalty interests. |
(3) |
|
29
The decrease in our total revenue for the sixnine months ended DecemberMarch 31, 2018,2019 compared with the sixnine months ended DecemberMarch 31, 2017,2018, resulted primarily from a decrease in our stream revenue and a decrease in the average gold, silver and copper prices. The decrease in our stream revenue was primarily attributable to a decrease in gold and copper sales at Mount Milligan and a decrease in gold sales at Pueblo Viejo. These decreases were partially offset by higher metal sales at Andacollo and Rainy River. The decrease in metal sales at Mount Milligan was anticipated based on previously announced news from Centerra and as reported earlier by the Company.
Gold and silver ounces and copper pounds purchased and sold during the sixnine months ended DecemberMarch 31, 20182019 and 2017,2018, and gold and silver ounces and copper pounds in inventory as of DecemberMarch 31, 2018,2019, and June 30, 2018, for our streaming interests were as follows:
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|
|
|
|
|
|
|
|
| Six Months Ended |
| Six Months Ended |
| As of |
| As of |
| Nine Months Ended |
| Nine Months Ended |
| As of |
| As of | ||||||||
|
| December 31, 2018 |
| December 31, 2017 |
| December 31, 2018 |
| June 30, 2018 |
| March 31, 2019 |
| March 31, 2018 |
| March 31, 2019 |
| June 30, 2018 | ||||||||
Gold Stream |
| Purchases (oz.) |
| Sales (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Inventory (oz.) |
| Inventory (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Inventory (oz.) |
| Inventory (oz.) |
Mount Milligan |
| 46,100 |
| 38,500 |
| 63,800 |
| 57,100 |
| 7,900 |
| 300 | ||||||||||||
Andacollo |
| 26,000 |
| 28,900 |
| 26,500 |
| 26,700 |
| 4,500 |
| 7,400 |
| 35,900 |
| 41,000 |
| 36,500 |
| 32,100 |
| 2,400 |
| 7,400 |
Mount Milligan |
| 23,000 |
| 23,300 |
| 36,400 |
| 31,300 |
| — |
| 300 | ||||||||||||
Pueblo Viejo |
| 19,300 |
| 18,100 |
| 23,100 |
| 27,400 |
| 10,400 |
| 9,200 |
| 31,700 |
| 28,500 |
| 36,300 |
| 35,900 |
| 12,400 |
| 9,200 |
Wassa and Prestea |
| 11,200 |
| 14,300 |
| 13,400 |
| 13,900 |
| 700 |
| 3,900 |
| 17,000 |
| 20,000 |
| 20,200 |
| 20,200 |
| 900 |
| 3,900 |
Rainy River |
| 8,100 |
| 7,400 |
| 1,000 |
| 800 |
| 1,600 |
| 800 |
| 12,500 |
| 12,300 |
| 3,900 |
| 3,600 |
| 1,000 |
| 800 |
Total |
| 87,600 |
| 92,000 |
| 100,400 |
| 100,100 |
| 17,200 |
| 21,600 |
| 143,200 |
| 140,300 |
| 160,700 |
| 148,900 |
| 24,600 |
| 21,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended |
| Six Months Ended |
| As of |
| As of |
| Nine Months Ended |
| Nine Months Ended |
| As of |
| As of | ||||||||
|
| December 31, 2018 |
| December 31, 2017 |
| December 31, 2018 |
| June 30, 2018 |
| March 31, 2019 |
| March 31, 2018 |
| March 31, 2019 |
| June 30, 2018 | ||||||||
Silver Stream |
| Purchases (oz.) |
| Sales (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Inventory (oz.) |
| Inventory (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Inventory (oz.) |
| Inventory (oz.) |
Pueblo Viejo |
| 978,400 |
| 1,049,700 |
| 730,200 |
| 1,006,200 |
| 469,000 |
| 540,200 |
| 1,531,400 |
| 1,518,700 |
| 1,346,500 |
| 1,267,000 |
| 553,000 |
| 540,200 |
Rainy River |
| 76,900 |
| 67,400 |
| 11,900 |
| — |
| 41,700 |
| 32,300 |
| 112,600 |
| 108,300 |
| 53,700 |
| 11,100 |
| 36,600 |
| 32,300 |
Total |
| 1,055,300 |
| 1,117,100 |
| 742,100 |
| 1,006,200 |
| 510,700 |
| 572,500 |
| 1,644,000 |
| 1,627,000 |
| 1,400,200 |
| 1,278,100 |
| 589,600 |
| 572,500 |
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended |
| Six Months Ended |
| As of |
| As of |
| Nine Months Ended |
| Nine Months Ended |
| As of |
| As of | ||||||||
|
| December 31, 2018 |
| December 31, 2017 |
| December 31, 2018 |
| June 30, 2018 |
| March 31, 2019 |
| March 31, 2018 |
| March 31, 2019 |
| June 30, 2018 | ||||||||
Copper Stream |
| Purchases (Mlbs.) |
| Sales (Mlbs.) |
| Purchases (Mlbs.) |
| Sales (Mlbs.) |
| Inventory (Mlbs.) |
| Inventory (Mlbs.) |
| Purchases (Mlbs.) |
| Sales (Mlbs.) |
| Purchases (Mlbs.) |
| Sales (Mlbs.) |
| Inventory (Mlbs.) |
| Inventory (Mlbs.) |
Mount Milligan |
| 4.2 |
| 3.2 |
| 5.3 |
| 4.4 |
| 0.9 |
| — |
| 6.6 |
| 5.8 |
| 8.7 |
| 8.7 |
| 0.8 |
| — |
Cost of sales decreased to $34.7$53.8 million for the sixnine months ended DecemberMarch 31, 20182019 from $40.3$61.6 million for the sixnine months ended DecemberMarch 31, 2017.2018. The decrease was primarily due to decreased gold and copper sales from Mount Milligan and Pueblo Viejo, partially offset by an increase in gold sales at Rainy River.River and Andacollo. Cost of sales is specific to our stream agreements and is the result of RGLD Gold’s purchase of gold, silver and copper for a cash payment. The cash payment for gold from Mount Milligan is the lesser of $435 per ounce or the prevailing market price of gold when purchased, while the cash payment for our other streams is a set contractual percentage of the gold, silver or copper (Mount Milligan) spot price near the date of metal delivery.
Production taxes increased to $3.2 million for the nine months ended March 31, 2019, from $1.6 million for the nine months ended March 31, 2018. The increase is primarily due to an increase in mining proceeds tax associated with our Voisey’s Bay royalty, which resulted from increased revenue from the Voisey’s Bay royalty during the current period.
On July 1, 2018, the Company adopted new ASU guidance which impacts how we recognize changes in fair value on our equity securities at each reporting period. As a result of the new ASU guidance, the Company recognized a loss on changes in fair value of equity securities of $5.1approximately $3.3 million for the sixnine months ended DecemberMarch 31, 2018.2019. Refer to Note 1 of our notes to consolidated financial statements for further detail. The new guidance could increase our earnings volatility.
Interest and other income decreased to $1.1 million for the nine months ended March 31, 2019, from $3.4 million for the nine months ended March 31, 2018. As discussed further in our Fiscal 2018 10-K, in June 2018, Golden Star repaid its $20 million term loan facility with Royal Gold, thus reducing interest income during the current period.
Interest and other expense decreased to $15.3$22.3 million for the sixnine months ended DecemberMarch 31, 2018,2019, from $17.7$25.9 million for the sixnine months ended DecemberMarch 31, 2017.2018. The decrease was primarily attributable to lower interest expense as a result of a decrease in amounts outstanding under our revolving credit facility. The Company repaid the remaining amounts outstanding on the revolving credit facility during fiscal year 2018.
During the six months ended December 31, 2018, we recognized income tax expense totaling $2.0 million compared with income tax expense of $55.9 million during the six months ended December 31, 2017. This resulted in an effective tax rate of 5.3% in the current period, compared with 83.9% during the six months ended December 31, 2017. The decrease in the effective tax rate for the six months ended December 31, 2018 was primarily related to the Company’s updated
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During the nine months ended March 31, 2019, we recognized income tax expense $11.4 million compared with income tax expense of $10.0 million during the nine months ended March 31, 2018. This resulted in an effective tax rate of 15.1% in the current period, compared with (7.5%) during the nine months ended March 31, 2018. The effective tax rate for the nine months ended March 31, 2019 was primarily impacted by discrete true-ups recorded in the December 2018 quarter related to the Company’s completion of its analysis of the Tax Cuts and Jobs Act (the “Act”). The effective tax rate for the nine months ended March 31, 2018 was impacted by discrete period expense recorded during the December 2017 quarter related to the impacts of the Act, considering all recently released U.S. Treasury regulations and IRS guidance.partially offset by discrete benefits related to impairment charges. Refer to Note 7 of our notes to consolidated financial statements for further discussion on the Act.
Liquidity and Capital Resources
Overview
At DecemberMarch 31, 2018,2019, we had current assets of $203.7$265.4 million compared to current liabilities of $37.2$49.3 million resulting in working capital of $166.5$216.1 million and a current ratio of 5 to 1. This compares to current assets of $125.8 million and current liabilities of $51.4 million at June 30, 2018, resulting in working capital of $74.4 million and a current ratio of approximately 2 to 1. The increase in our current ratio was primarily attributable to an increase in our cash and equivalents, which is discussed further below under “Summary of Cash Flows.”
During the quarternine months ended DecemberMarch 31, 2018,2019, liquidity needs were met from $79.4$180.9 million in net revenueoperating cash flows and our available cash resources. As of DecemberMarch 31, 2018,2019, the Company had no amounts outstanding and $1 billion available under its revolving credit facility. Working capital, combined with the Company’s undrawn revolving credit facility, resulted in approximately $1.2 billion of total liquidity at DecemberMarch 31, 2018.2019. The Company was in compliance with each financial covenant under the revolving credit facility as of DecemberMarch 31, 2018.2019. Refer to Note 34 of our notes to consolidated financial statements for further discussion on our debt.
We believe that our current financial resources and funds generated from operations will be adequate to cover anticipated expenditures for debt service, general and administrative expense costs and capital expenditures for the foreseeable future. Our current financial resources are also available to fund dividends and for acquisitions of stream and royalty interests. Our long-term capital requirements are primarily affected by our ongoing acquisition activities. The Company currently, and generally at any time, has acquisition opportunities in various stages of active review. In the event of one or more substantial stream and royalty interest or other acquisitions, we may seek additional debt or equity financing as necessary.
Please refer to our risk factors included in Part 1, Item 1A of our Fiscal 2018 10-K and in Part II, Item 1A of this Quarterly Report on Form 10-Q for a discussion of certain risks that may impact the Company’s liquidity and capital resources.
Summary of Cash Flows
Operating Activities
Net cash provided by operating activities totaled $103.5$180.9 million for the sixnine months ended DecemberMarch 31, 2018,2019, compared to $147.2$251.8 million for the sixnine months ended DecemberMarch 31, 2017.2018. The decrease is primarily due to higher income taxes paid of $20.6$41.2 million over the prior quarterperiod and a decrease in proceeds received from our stream and royalty interests, net of production taxes and cost of sales, of approximately $20.5$27.5 million. The increase in cash taxes paid during the current period is primarily attributable to an increase in required estimated tax payments made to various taxing authorities and an increase in prior fiscal year earnings at certain foreign subsidiaries, which corresponding tax payments were made within the current period.
Investing Activities
Net cash used in investing activities totaled $3.7$4.8 million for the sixnine months ended DecemberMarch 31, 2018,2019, compared $0.1$2.3 million for the sixnine months ended DecemberMarch 31, 2017.2018. The increase in cash used in investing activities is primarily due to additional CORE common stock purchased during the current period.
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Financing Activities
Net cash used in financing activities totaled $32.0$48.9 million for the sixnine months ended DecemberMarch 31, 2018,2019, compared to $134.9$226.0 million for the sixnine months ended DecemberMarch 31, 2017.2018. The decrease in cash used in financing activities is primarily due to a decrease in repayments on our revolving credit facility. The Company repaid the remaining amounts outstanding on the revolving credit facility during fiscal year 2018.
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Recently Issued or Adopted Accounting Standards and Critical Accounting Policies
Refer to Note 1 of our notes to consolidated financial statements for further discussion on any recently issued or adopted accounting standards. Refer to our Fiscal 2018 10-K for discussion on our critical accounting policies.
Forward-Looking Statements
Cautionary “Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: With the exception of historical matters, the matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from projections or estimates contained herein. Such forward-looking statements include, without limitation, statements regarding the impact of recently adopted or issued accounting standards; the expected schedule for making advance payments pursuant to the Khoemacau Copper Project stream agreement and the funding of such payments; application of the royalty on production from Voisey’s Bay to a percentage of gross metal value in concentrates; expectations to settle the principal amount of 2019 Notes in cash (primarily from the available revolving credit facility) and any excess conversion value in shares plus cash in lieu of fractional shares; expectations concerning the proportion of total revenue to come from stream and royalty interests; the results of the PEA for the Peak Gold Project and the results of efforts to identify options with respect to the Company’s interests in the Peak Gold Project; the results of pre-feasibility study work for the Pueblo Viejo plant expansion; projected production estimates and estimates pertaining to timing, commencement and commencementvolume of production from the operators of properties where we hold stream and royalty interests; statements related to ongoing developments and expected developments at properties where we hold stream and royalty interests; fluctuations in the impact of recently issued or adopted accounting standards;prices for gold, silver, copper, nickel and other metals; stream and royalty revenue estimates compared to actual revenue; effective tax rate estimates, including the effect of recently enacted tax reform; application of the royalty on production from Voisey’s Bay to a percentage of gross metal value in concentrates; royalty revenue estimates compared to actual royalty payments; the results of the PEAs for the Peak Gold Project and the Wassa underground mine, and the results of the pre-feasibility study for the Pueblo Viejo plant expansion; the adequacy of financial resources and funds to cover anticipated expenditures for debt service, general and administrative expenses and dividends, as well as costs associated with exploration and business development and capital expenditures; expected delivery dates of gold, silver, copper and other metals; and our expectation that substantially all our revenues will be derived from stream and royalty interests. Words such as “may,” “could,” “should,” “would,” “believe,” “estimate,” “expect,” “anticipate,” “plan,” “forecast,” “potential,” “intend,” “continue,” “project,” and variations of these words, comparable words and similar expressions generally indicate forward-looking statements, which speak only as of the date the statement is made. Do not unduly rely on forward-looking statements. Actual results may differ materially from those expressed or implied by these forward-looking statements. Factors that could cause actual results to differ materially from these forward-looking statements include, among others:
· | a low price environment for gold and other metal prices on which our stream and royalty interests are paid or a low price environment for the primary metals mined at properties where we hold stream and royalty interests; |
· | the production at or performance of properties where we hold stream and royalty interests, and variation of actual performance from the production estimates and forecasts made by the operators of these properties; |
· | the ability of operators to bring projects into production on schedule or operate in accordance with feasibility studies, including development stage mining properties, mine and mill expansion projects and other development and construction projects; |
· | acquisition and maintenance of permits and authorizations, completion of construction and commencement and continuation of production at the properties where we hold stream and royalty interests; |
· | challenges to mining, processing and related permits and licenses, or to applications for permits and licenses, by or on behalf of indigenous populations, non-governmental organizations or other third parties; |
· | liquidity or other problems our operators may encounter, including shortfalls in the financing required to complete construction and bring a mine into production; |
· | decisions and activities of the operators of properties where we hold stream and royalty interests; |
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· | hazards and risks at the properties where we hold stream and royalty interests that are normally associated with developing and mining properties, including unanticipated grade, continuity and geological, metallurgical, processing or other problems, mine operating and ore processing facility problems, pit wall or tailings dam failures, industrial accidents, environmental hazards and natural catastrophes such as drought, floods, hurricanes or earthquakes and access to sufficient raw materials, water and power; |
· | changes in operators’ mining, processing and treatment techniques, which may change the production of minerals subject to our stream and royalty interests; |
· | changes in the methodology employed by our operators to calculate our stream and royalty interests, or failure to make such calculations in accordance with the agreements that govern them; |
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· | changes in project parameters as plans of the operators of properties where we hold stream and royalty interests are refined; |
· | accuracy of and decreases in estimates of reserves and mineralization by the operators of properties where we hold stream and royalty interests; |
· | contests to our stream and royalty interests and title and other defects in the properties where we hold stream and royalty interests; |
· | adverse effects on market demand for commodities, the availability of financing, and other effects from adverse economic and market conditions; |
· | future financial needs of the Company and the operators of properties where we hold stream or royalty interests; |
· | federal, state and foreign legislation governing us or the operators of properties where we hold stream and royalty interests; |
· | the availability of stream and royalty interests for acquisition or other acquisition opportunities and the availability of debt or equity financing necessary to complete such acquisitions; |
· | our ability to make accurate assumptions regarding the valuation, timing and amount of revenue to be derived from our stream and royalty interests when evaluating acquisitions; |
· | risks associated with conducting business in foreign countries, including application of foreign laws to contract and other disputes, validity of security interests, governmental consents for granting interests in exploration and exploitation licenses, application and enforcement of real estate, mineral tenure, contract, safety, environmental and permitting laws, currency fluctuations, expropriation of property, repatriation of earnings, taxation, price controls, inflation, import and export regulations, community unrest and labor disputes, endemic health issues, corruption, enforcement and uncertain political and economic environments; |
· | changes in laws governing us, the properties where we hold stream and royalty interests or the operators of such properties; |
· | risks associated with issuances of additional common stock or incurrence of indebtedness in connection with acquisitions or otherwise including risks associated with the issuance and conversion of convertible notes; |
· | changes in management and key employees; and |
· | failure to complete future acquisitions; |
as well as other factors described elsewhere in this report and our other reports filed with the SEC, including our Fiscal 2018 10-K. Most of these factors are beyond our ability to predict or control. Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements. Forward-looking statements speak only as of the date on which they are made. We disclaim any obligation to update any forward-looking statements made herein, except as required by law. Readers are cautioned not to put undue reliance on forward-looking statements.
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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our earnings and cash flows are significantly impacted by changes in the market price of gold and other metals. Gold, silver, copper and other metal prices can fluctuate significantly and are affected by numerous factors, such as demand, production levels, economic policies of central banks, producer hedging, world political and economic events and the strength of the U.S. dollar relative to other currencies. Please see “Volatility in gold, silver, copper, nickel and other metal prices may have an adverse impact on the value of our stream and royalty interests and may reduce our revenues. Certain contracts governing our stream and royalty interests have features that may amplify the negative effects of a drop in metals prices,” under Part I, Item 1A of our Fiscal 2018 10-K, for more information that can affect gold, silver, copper and other metal prices as well as historical gold, silver, copper and nickel prices.
During the sixnine months ended DecemberMarch 31, 2018,2019, we reported revenue of $197.6$307.4 million, with an average gold price for the period of $1,220$1,248 per ounce, an average silver price of $14.78$15.04 per ounce and an average copper price of $2.78$2.80 per pound. Approximately 76%77% of our total reported revenues for the sixnine months ended DecemberMarch 31, 20182019 were attributable
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to gold sales from our gold producing stream and royalty interests, as shown within the MD&A. For the sixnine months ended DecemberMarch 31, 2018,2019, if the price of gold had averaged 10% higher or lower per ounce, we would have recorded an increase or decrease in revenue of approximately $15.6$24.5 million.
Approximately 10%9% of our total reported revenues for the sixnine months ended DecemberMarch 31, 20182019 were attributable to silver sales from our silver producing stream and royalty interests. For the sixnine months ended DecemberMarch 31, 2018,2019, if the price of silver had averaged 10% higher or lower per ounce, we would have recorded an increase or decrease in revenue of approximately $2.0$3.0 million.
Approximately 8%9% of our total reported revenues for the sixnine months ended DecemberMarch 31, 20182019 were attributable to copper sales from our copper producing stream and royalty interests. For the sixnine months ended DecemberMarch 31, 2018,2019, if the price of copper had averaged 10% higher or lower per pound, we would have recorded an increase or decrease in revenue of approximately $2.0$3.1 million.
ITEM 4.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of DecemberMarch 31, 2018,2019, the Company’s management, with the participation of the President and Chief Executive Officer (the principal executive officer) and Chief Financial Officer and Vice President Strategy (the principal financial and accounting officer) of the Company, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on such evaluation, the Company’s President and Chief Executive Officer and its Chief Financial Officer and Vice President Strategy have concluded that, as of DecemberMarch 31, 2018,2019, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the required time periods and that such information is accumulated and communicated to the Company’s management, including the President and Chief Executive Officer and the Chief Financial Officer and Vice President Strategy, as appropriate to allow timely decisions regarding required disclosure.
Disclosure controls and procedures involve human diligence and compliance and are subject to lapses in judgment and breakdowns resulting from human failures. As a result, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
Changes in Internal Controls
There has been no change in the Company’s internal control over financial reporting during the three months ended DecemberMarch 31, 20182019 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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Voisey’s Bay
Refer to Note 23 of our notes to consolidated financial statements for a discussion of the settlement associated with our Voisey’s Bay royalty.
Information regarding risk factors appears in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements,” and various risks faced by us are also discussed
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elsewhere in Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report on Form 10-Q. In addition, risk factors are included in Part I, Item 1A of our Fiscal 2018 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURE
Not applicable.
Not applicable.
Exhibit |
| Description |
10.1*▲ | ||
10.2*▲ | ||
10.3*▲ | ||
31.1* |
| |
|
|
|
31.2* |
| |
|
|
|
32.1‡ |
| |
|
|
|
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32.2‡ |
| |
|
|
|
101.INS* |
| XBRL Instance Document. |
101.SCH* |
| XBRL Taxonomy Extension Schema Document. |
101.CAL* |
| XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF* |
| XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB* |
| XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE* |
| XBRL Taxonomy Extension Presentation Linkbase Document. |
*Filed herewith.
|
|
|
|
‡Furnished herewith.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ROYAL GOLD, INC. | |
|
|
|
Date: |
|
|
| By: | /s/ Tony Jensen |
|
| Tony Jensen |
|
| President and Chief Executive Officer |
|
| (Principal Executive Officer) |
|
|
|
Date: | By: | /s/ William Heissenbuttel |
|
| William Heissenbuttel |
|
| Chief Financial Officer and Vice President Strategy |
|
| (Principal Financial and Accounting Officer) |
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