UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
For the Quarterly Period Ended December 31, 2018September 30, 2019
or
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.) |
| | |
1660 Wynkoop Street, Suite 1000 | | |
Denver, Colorado | | 80202 |
(Address of Principal Executive Offices) | | (Zip Code) |
Registrant’s telephone number, including area code (303) (303) 573-1660
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol | Name of the Exchange on which Registered | ||
Common Stock, $0.01 par value | | RGLD | | Nasdaq Global Select Market |
Securities registered pursuant to Section 12(g) of the Act: None
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.
Large accelerated filer ☒ | Accelerated filer ☐ |
Non-accelerated filer ☐ | Smaller reporting company ☐ |
Emerging growth company ☐ | |
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 65,516,94065,591,907 shares of the Company’s common stock, par value $0.01 per share, outstanding as of JanuaryOctober 31, 2019.
INDEX
| | PAGE | ||
| | | | |
PART I | | FINANCIAL INFORMATION | | |
| | | | |
| | | ||
| | | | |
| | 3 | ||
| ||||
| ||||
Consolidated Statements of Operations and Comprehensive Income | | 4 | ||
| | | 5 | |
| | | 6 | |
| | | 7 | |
| | | | |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 19 | |
| | | | |
| | 30 | ||
| | | | |
| | 30 | ||
| | | | |
| | | ||
| | | | |
| | 31 | ||
| | | | |
| | 31 | ||
| | | | |
| | 31 | ||
| | | | |
| | 31 | ||
| | | | |
| | 31 | ||
| | | | |
| | 31 | ||
| | | | |
| | 32 | ||
| | | | |
| 33 |
2
ROYAL GOLD, INC.
(Unaudited, in thousands except share data)
|
|
|
|
|
|
|
|
| December 31, 2018 |
| June 30, 2018 | ||
ASSETS |
|
|
|
|
|
|
Cash and equivalents |
| $ | 156,536 |
| $ | 88,750 |
Royalty receivables |
|
| 25,659 |
|
| 26,356 |
Income tax receivable |
|
| 12,793 |
|
| 40 |
Stream inventory |
|
| 7,954 |
|
| 9,311 |
Prepaid expenses and other |
|
| 793 |
|
| 1,350 |
Total current assets |
|
| 203,735 |
|
| 125,807 |
Stream and royalty interests, net (Note 2) |
|
| 2,419,908 |
|
| 2,501,117 |
Other assets |
|
| 51,463 |
|
| 55,092 |
Total assets |
| $ | 2,675,106 |
| $ | 2,682,016 |
LIABILITIES |
|
|
|
|
|
|
Accounts payable |
| $ | 2,291 |
| $ | 9,090 |
Dividends payable |
|
| 17,359 |
|
| 16,375 |
Income tax payable |
|
| 10,739 |
|
| 18,253 |
Withholding taxes payable |
|
| 2,348 |
|
| 3,254 |
Other current liabilities |
|
| 4,439 |
|
| 4,411 |
Total current liabilities |
|
| 37,176 |
|
| 51,383 |
Debt (Note 3) |
|
| 358,897 |
|
| 351,027 |
Deferred tax liabilities |
|
| 90,700 |
|
| 91,147 |
Uncertain tax positions |
|
| 35,590 |
|
| 33,394 |
Other long-term liabilities |
|
| 5,773 |
|
| 13,796 |
Total liabilities |
|
| 528,136 |
|
| 540,747 |
Commitments and contingencies (Note 10) |
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
|
Preferred stock, $.01 par value, 10,000,000 shares authorized; and 0 shares issued |
|
| — |
|
| — |
Common stock, $.01 par value, 200,000,000 shares authorized; and 65,396,339 and 65,360,041 shares outstanding, respectively |
|
| 654 |
|
| 654 |
Additional paid-in capital |
|
| 2,197,254 |
|
| 2,192,612 |
Accumulated other comprehensive loss |
|
| - |
|
| (1,201) |
Accumulated losses |
|
| (86,238) |
|
| (89,898) |
Total Royal Gold stockholders’ equity |
|
| 2,111,670 |
|
| 2,102,167 |
Non-controlling interests |
|
| 35,300 |
|
| 39,102 |
Total equity |
|
| 2,146,970 |
|
| 2,141,269 |
Total liabilities and equity |
| $ | 2,675,106 |
| $ | 2,682,016 |
| | | | | | |
|
| September 30, |
| June 30, | ||
|
| 2019 | | 2019 | ||
ASSETS | | | | | | |
Cash and equivalents | | $ | 121,970 | | $ | 119,475 |
Royalty receivables | | | 26,635 | | | 20,733 |
Income tax receivable | | | 3,698 | | | 2,702 |
Stream inventory | | | 10,772 | | | 11,380 |
Prepaid expenses and other | | | 1,135 | | | 389 |
Total current assets | | | 164,210 | | | 154,679 |
Stream and royalty interests, net (Note 3) | | | 2,305,018 | | | 2,339,316 |
Other assets | | | 78,683 | | | 50,156 |
Total assets | | $ | 2,547,911 | | $ | 2,544,151 |
LIABILITIES | | | | | | |
Accounts payable | | $ | 3,496 | | $ | 2,890 |
Dividends payable | | | 17,380 | | | 17,372 |
Income tax payable | | | 5,548 | | | 6,974 |
Other current liabilities | | | 5,949 | | | 6,374 |
Total current liabilities | | | 32,373 | | | 33,610 |
Debt (Note 5) | | | 164,595 | | | 214,554 |
Deferred tax liabilities | | | 88,184 | | | 88,961 |
Uncertain tax positions | | | 38,322 | | | 36,573 |
Other long-term liabilities | | | 2,109 | | | - |
Total liabilities | | | 325,583 | | | 373,698 |
Commitments and contingencies (Note 12) | | | | | | |
EQUITY | | | | | | |
Preferred stock, $.01 par value, 10,000,000 shares authorized; and 0 shares issued | | | — | | | — |
Common stock, $.01 par value, 200,000,000 shares authorized; and 65,495,787 and 65,440,492 shares outstanding, respectively | | | 655 | | | 655 |
Additional paid-in capital | | | 2,202,350 | | | 2,201,773 |
Accumulated losses | | | (12,676) | | | (65,747) |
Total Royal Gold stockholders’ equity | | | 2,190,329 | | | 2,136,681 |
Non-controlling interests | | | 31,999 | | | 33,772 |
Total equity | | | 2,222,328 | | | 2,170,453 |
Total liabilities and equity | | $ | 2,547,911 | | $ | 2,544,151 |
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For The Three Months Ended |
| For The Six Months Ended |
| ||||||||
|
| December 31, |
| December 31, |
| December 31, |
| December 31, |
| ||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| ||||
Revenue |
| $ | 97,592 |
| $ | 114,348 |
| $ | 197,585 |
| $ | 226,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
| 18,162 |
|
| 19,863 |
|
| 34,689 |
|
| 40,282 |
|
General and administrative |
|
| 7,423 |
|
| 9,555 |
|
| 17,349 |
|
| 16,455 |
|
Production taxes |
|
| 909 |
|
| 602 |
|
| 2,201 |
|
| 1,145 |
|
Exploration costs |
|
| 842 |
|
| 1,358 |
|
| 5,204 |
|
| 4,561 |
|
Depreciation, depletion and amortization |
|
| 38,807 |
|
| 42,008 |
|
| 81,358 |
|
| 81,701 |
|
Total costs and expenses |
|
| 66,143 |
|
| 73,386 |
|
| 140,801 |
|
| 144,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
| 31,449 |
|
| 40,962 |
|
| 56,784 |
|
| 82,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value changes in equity securities |
|
| (3,631) |
|
| — |
|
| (5,099) |
|
| — |
|
Interest and other income |
|
| 487 |
|
| 645 |
|
| 590 |
|
| 1,634 |
|
Interest and other expense |
|
| (7,410) |
|
| (9,034) |
|
| (15,287) |
|
| (17,651) |
|
Income before income taxes |
|
| 20,895 |
|
| 32,573 |
|
| 36,988 |
|
| 66,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense) |
|
| 2,148 |
|
| (48,360) |
|
| (1,967) |
|
| (55,904) |
|
Net income (loss) |
|
| 23,043 |
|
| (15,787) |
|
| 35,021 |
|
| 10,759 |
|
Net loss attributable to non-controlling interests |
|
| 543 |
|
| 1,022 |
|
| 3,575 |
|
| 3,105 |
|
Net income (loss) attributable to Royal Gold common stockholders |
| $ | 23,586 |
| $ | (14,765) |
| $ | 38,596 |
| $ | 13,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 23,043 |
| $ | (15,787) |
| $ | 35,021 |
| $ | 10,759 |
|
Adjustments to comprehensive income (loss), net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized change in market value of available-for-sale securities |
|
| — |
|
| (390) |
|
| — |
|
| (193) |
|
Comprehensive income (loss) |
|
| 23,043 |
|
| (16,177) |
|
| 35,021 |
|
| 10,566 |
|
Comprehensive loss attributable to non-controlling interests |
|
| 543 |
|
| 1,022 |
|
| 3,575 |
|
| 3,105 |
|
Comprehensive income (loss) attributable to Royal Gold stockholders |
| $ | 23,586 |
| $ | (15,155) |
| $ | 38,596 |
| $ | 13,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share available to Royal Gold common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share |
| $ | 0.36 |
| $ | (0.23) |
| $ | 0.59 |
| $ | 0.21 |
|
Basic weighted average shares outstanding |
|
| 65,395,457 |
|
| 65,306,766 |
|
| 65,385,161 |
|
| 65,271,131 |
|
Diluted earnings (loss) per share |
| $ | 0.36 |
| $ | (0.23) |
| $ | 0.59 |
| $ | 0.21 |
|
Diluted weighted average shares outstanding |
|
| 65,473,400 |
|
| 65,306,766 |
|
| 65,485,423 |
|
| 65,460,430 |
|
Cash dividends declared per common share |
| $ | 0.265 |
| $ | 0.25 |
| $ | 0.515 |
| $ | 0.49 |
|
| | | | | | |
| | For The Three Months Ended | ||||
| | September 30, | | September 30, | ||
|
| 2019 |
| 2018 | ||
Revenue (Note 6) | | $ | 118,774 | | $ | 99,992 |
| | | | | | |
Costs and expenses | | | | | | |
Cost of sales (excludes depreciation, depletion and amortization) | | | 20,111 | | | 16,527 |
General and administrative | | | 7,443 | | | 9,927 |
Production taxes | | | 1,099 | | | 1,292 |
Exploration costs | | | 2,626 | | | 4,362 |
Depreciation, depletion and amortization | | | 38,714 | | | 42,551 |
Total costs and expenses | | | 69,993 | | | 74,659 |
| | | | | | |
Operating income | | | 48,781 | | | 25,333 |
| | | | | | |
Fair value changes in equity securities | | | (1,375) | | | (1,468) |
Interest and other income | | | 775 | | | 103 |
Interest and other expense | | | (2,834) | | | (7,877) |
Income before income taxes | | | 45,347 | | | 16,091 |
| | | | | | |
Income tax benefit (expense) | | | 23,525 | | | (4,115) |
Net income | | | 68,872 | | | 11,976 |
Net loss attributable to non-controlling interests | | | 1,581 | | | 3,032 |
Net income attributable to Royal Gold common stockholders | | $ | 70,453 | | $ | 15,008 |
| | | | | | |
Net income | | $ | 68,872 | | $ | 11,976 |
Comprehensive income | | | 68,872 | | | 11,976 |
Comprehensive loss attributable to non-controlling interests | | | 1,581 | | | 3,032 |
Comprehensive income attributable to Royal Gold stockholders | | $ | 70,453 | | $ | 15,008 |
| | | | | | |
Net income per share available to Royal Gold common stockholders: | | | | | | |
Basic earnings per share | | $ | 1.07 | | $ | 0.23 |
Basic weighted average shares outstanding | | | 65,465,611 | | | 65,374,866 |
Diluted earnings per share | | $ | 1.07 | | $ | 0.23 |
Diluted weighted average shares outstanding | | | 65,615,926 | | | 65,497,159 |
Cash dividends declared per common share | | $ | 0.265 | | $ | 0.25 |
The accompanying notes are an integral part of these consolidated financial statements.
4
ROYAL GOLD, INC.
Consolidated Statements of Cash FlowsChanges in Stockholders’ Equity
(Unaudited,unaudited, in thousands)thousands except share data)
|
|
|
|
|
|
|
|
| For The Six Months Ended | ||||
|
| December 31, |
| December 31, | ||
|
| 2018 |
| 2017 | ||
Cash flows from operating activities: |
|
|
|
|
|
|
Net income |
| $ | 35,021 |
| $ | 10,759 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
| 81,358 |
|
| 81,701 |
Amortization of debt discount and issuance costs |
|
| 7,864 |
|
| 7,413 |
Non-cash employee stock compensation expense |
|
| 4,070 |
|
| 4,395 |
Fair value changes in equity securities |
|
| 5,099 |
|
| — |
Deferred tax (benefit) expense |
|
| (307) |
|
| 28,958 |
Other |
|
| — |
|
| (158) |
Changes in assets and liabilities: |
|
|
|
|
|
|
Royalty receivables |
|
| 697 |
|
| (2,399) |
Stream inventory |
|
| 1,356 |
|
| 524 |
Income tax receivable |
|
| (12,753) |
|
| (5,197) |
Prepaid expenses and other assets |
|
| 2,305 |
|
| (328) |
Accounts payable |
|
| (7,026) |
|
| (1,658) |
Income tax payable |
|
| (7,514) |
|
| 9,445 |
Withholding taxes payable |
|
| (906) |
|
| 26 |
Uncertain tax positions |
|
| 2,197 |
|
| 4,560 |
Other liabilities |
|
| (7,993) |
|
| 9,193 |
Net cash provided by operating activities |
| $ | 103,468 |
| $ | 147,234 |
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
Acquisition of stream and royalty interests |
|
| (55) |
|
| — |
Purchase of equity securities |
|
| (3,569) |
|
| — |
Other |
|
| (87) |
|
| (94) |
Net cash used in investing activities |
| $ | (3,711) |
| $ | (94) |
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
Repayment of revolving credit facility |
|
| — |
|
| (100,000) |
Net payments from issuance of common stock |
|
| (2,217) |
|
| (3,541) |
Common stock dividends |
|
| (32,754) |
|
| (31,391) |
Contributions from non-controlling interest |
|
| 2,790 |
|
| — |
Other |
|
| 210 |
|
| 77 |
Net cash used in financing activities |
| $ | (31,971) |
| $ | (134,855) |
Net increase in cash and equivalents |
|
| 67,786 |
|
| 12,285 |
Cash and equivalents at beginning of period |
|
| 88,750 |
|
| 85,847 |
Cash and equivalents at end of period |
| $ | 156,536 |
| $ | 98,132 |
| | | | | | | | | | | | | | | | | | | | |
| | 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, 2019 |
| 65,440,492 | | $ | 655 |
| $ | 2,201,773 | | $ | — | | $ | (65,747) | | $ | 33,772 | | $ | 2,170,453 |
Stock-based compensation and related share issuances |
| 55,295 | |
| — |
|
| (323) | |
| — | |
| — | |
| — | |
| (323) |
Distributions from (to) non-controlling interests | | — | |
| — |
|
| 900 | |
| — | |
| — | |
| (192) | |
| 708 |
Net income |
| — | |
| — |
|
| — | |
| — | |
| 70,453 | |
| (1,581) | |
| 68,872 |
Dividends declared |
| — | |
| — |
|
| — | |
| — | |
| (17,382) | |
| — | |
| (17,382) |
Balance at September 30, 2019 |
| 65,495,787 | | $ | 655 |
| $ | 2,202,350 | | $ | — | | $ | (12,676) | | $ | 31,999 | | $ | 2,222,328 |
| | | | | | | | | | | | | | | | | | | | |
| | 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 |
| 34,857 | |
| — |
|
| 472 | |
| — | |
| — | |
| — | |
| 472 |
Distributions from (to) non-controlling interests | | — | |
| — |
|
| 1,950 | |
| — | |
| — | |
| (25) | |
| 1,925 |
Net income |
| — | |
| — |
|
| — | |
| — | |
| 15,008 | |
| (3,032) | |
| 11,976 |
Other comprehensive loss |
| — | |
| — |
|
| — | |
| 1,201 | |
| (1,201) | |
| — | |
| — |
Dividends declared |
| — | |
| — |
|
| — | |
| — | |
| (16,376) | |
| — | |
| (16,376) |
Balance at September 30, 2018 |
| 65,394,898 | | $ | 654 |
| $ | 2,195,034 | | $ | — | | $ | (92,467) | | $ | 36,045 | | $ | 2,139,266 |
| | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
5
ROYAL GOLD, INC.
Consolidated Statements of Cash Flows
(Unaudited, in thousands)
| | | | | | |
| | Three Months Ended | ||||
| | September 30, | | September 30, | ||
|
| 2019 |
| 2018 | ||
Cash flows from operating activities: | | | | | | |
Net income | | $ | 68,872 | | $ | 11,976 |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
| | | | | | |
Depreciation, depletion and amortization | | | 38,714 | | | 42,551 |
Amortization of debt discount and issuance costs | | | 281 | | | 3,903 |
Non-cash employee stock compensation expense | | | 2,101 | | | 2,444 |
Fair value changes in equity securities | | | 1,375 | | | 1,468 |
Deferred tax benefit | | | (33,139) | | | (1,681) |
Changes in assets and liabilities: | | | | | | |
Royalty receivables | | | (5,902) | | | 1,250 |
Stream inventory | | | 608 | | | (701) |
Income tax receivable | | | (995) | | | (6,341) |
Prepaid expenses and other assets | | | (3,197) | | | 1,061 |
Accounts payable | | | 517 | | | (4,060) |
Income tax payable | | | (1,426) | | | (10,241) |
Uncertain tax positions | | | 1,748 | | | 3,266 |
Other liabilities | | | 1,682 | | | (258) |
Net cash provided by operating activities | | $ | 71,239 | | $ | 44,637 |
| | | | | | |
Cash flows from investing activities: | | | | | | |
Acquisition of royalty interests | | | (4,362) | | | (3) |
Other | | | 4,858 | | | (121) |
Net cash provided by (used in) investing activities | | $ | 496 | | $ | (124) |
| | | | | | |
Cash flows from financing activities: | | | | | | |
Repayment of debt | | | (50,000) | | | — |
Net payments from issuance of common stock | | | (2,423) | | | (1,972) |
Common stock dividends | | | (17,373) | | | (16,376) |
Other | | | 556 | | | 2,163 |
Net cash used in financing activities | | $ | (69,240) | | $ | (16,185) |
Net increase in cash and equivalents | | | 2,495 | | | 28,328 |
Cash and equivalents at beginning of period | | | 119,475 | | | 88,750 |
Cash and equivalents at end of period | | $ | 121,970 | | $ | 117,078 |
The accompanying notes are an integral part of these consolidated financial statements.
6
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 one1 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 six months ended December 31, 2018September 30, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2019.2020. 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, 20182019 filed with the Securities and Exchange Commission on August 9, 20188, 2019 (“Fiscal 20182019 10-K”).
Certain amounts in the prior period consolidated balance sheet have been reclassified for comparative purposes to conform with the presentation in the current period balance sheet. Reclassified amounts were not material.
Recently Adopted Accounting Standards
Revenue RecognitionLeases
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 six months ended December 31, 2018, 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 4 for additional discussion.
Recognition and Measurement of Financial Instruments
On July 1, 2018, we adopted Accounting Standards Update (“ASU”) 2016-01 – Financial Instrument, 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 decrease in fair value of our equity securities was approximately $3.6 million and $5.1 million for the three and six months ended December 31, 2018, respectively, and is included in Fair value change of marketable equity securities on our consolidated statements of operations and comprehensive income (loss). The carrying value of the Company’s equity securities as of December 31, 2018 and June 30, 2018 was $17.7 million and $19.2 million, respectively, and is included in Other assets on the
6
Company’s consolidated balance sheets. As of December 31, 2018, 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 ASUAccounting Standards Update (“ASU”) 2016-02, Leases (Topic 842)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 lesswith terms greater than twelve months. The new guidance Classification of leases as either a finance or operating lease will determine the recognition, measurement and presentation of expenses. ASU 2016-02 also requires certain quantitative and qualitative disclosures about material leasing arrangements.
Subsequently, in July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements (“ASU 2018-11”). ASU 2018-11 provides an additional modified retrospective transition method for adopting ASU 2016-02, which eliminates the need for adjusting prior period comparable financial statements prepared under legacy lease accounting guidance.
ASU 2016-02, together with ASU 2018-11, is effective for the Company’s fiscal year beginningCompany July 1, 2019, and early adoption is permitted. We are currently evaluating2019. The Company adopted the new guidance using the modified retrospective approach set forth in ASU 2018-11, with the date of initial application on July 1, 2019. Comparative reporting periods were not adjusted upon adoption.
As permitted under the transition effortguidance, the Company has elected to use the following practical expedients at transition:
● | To not reassess whether any expired or existing contracts were or contained leases; and |
● | To not reassess the lease classification for any expired or existing leases. |
7
In addition, the Company has elected to use the following practical expedients at and subsequent to adoption in accordance with ASU 2016-02:
● | Not to separate non-lease from lease components, and instead account for each lease component and any associated non-lease components as a single lease component; and |
● | Not to recognize right-of-use assets and associated liabilities for short-term contracts with lease terms of 12 months or less. |
The Company’s significant lease arrangements relate to its office spaces. These arrangements are for leases of assets such as corporate office space and office equipment. Through the implementation process, the Company evaluated its lease arrangements, which included an analysis of contracts, and updated its internal controls and processes that are necessary to track and calculate the additional accounting and disclosure requirements as required upon adoption of ASU 2016-02.
Upon adoption, the new standard had an insignificant impact if any, this guidance will haveon the Company’s consolidated balance sheets as of September 30, 2019. Adoption of the new standard resulted in the recognition of $2.4 million of right-of-use assets on our consolidated balance sheets with an offsetting $2.4 million of lease liabilities for operating leases. The current portion of our right of use assets are included in Prepaid expenses and other, while the long-term portion is included in Other assets on our consolidated balance sheets. The current portion of the offsetting lease liabilities are included in Other current liabilities, while the long-term portion is included in Other long-term liabilities on our consolidated balance sheets. The Company did not have any finance leases as of September 30, 2019. The adoption of ASU 2016-02 did not impact accumulated losses, our consolidated statements of operations and comprehensive income, and our consolidated statements of cash flows.
2. ACQUISITION
Castelo de Sonhos royalty acquisition
In August 2019, a subsidiary of the Company entered into an agreement with TriStar Gold Inc. and its subsidiaries (together “TriStar”) to acquire (i) up to a 1.5% net smelter return (“NSR”) royalty on the Castelo de Sonhos gold project (“CDS”), located in Brazil, and (ii) warrants to purchase up to 19,640,000 common shares of TriStar. Total consideration is $7.5 million and is payable over 3 payments, of which $4.5 million was paid in August 2019. The second and third payments of $1.5 million each are subject to satisfaction of certain conditions and are payable by November 30, 2019 and March 31, 2020. The NSR royalty is incrementally earned pro-rata with the funding schedule while the warrants to purchase TriStar common shares will be issued pro-rata with the funding schedule.
The CDS royalty acquisition has been accounted for as an asset acquisition. The $4.4 million paid as part of the aggregate funding schedule, plus direct acquisition costs, have been recorded as an exploration stage royalty interest within Stream and royalty interests, net on our consolidated balance sheets. Any future funding of the second and third payments, plus any direct acquisition costs, will also be recorded as an exploration stage royalty interest.
The warrants have been recorded within Other assets on our consolidated balance sheets and have a carrying value of approximately $0.8 million as of September 30, 2019. The warrants have been classified as a financial asset instrument and are recorded at fair value at each reporting date using the Black-Scholes model. Any change in fair value of the warrants at subsequent reporting periods will be recorded within Interest and other income on our consolidated statements of operations and footnote disclosures.comprehensive income. As of September 30, 2019, the Company holds 11,784,000 warrants at an exercise price of C$0.25 per common share with a term of five years.
8
2.ROYAL GOLD, INC.
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
3. STREAM AND ROYALTY INTERESTS, NET
The following tables summarize the Company’s stream and royalty interests, net as of December 31, 2018September 30, 2019 and June 30, 2018.2019.
|
|
|
|
|
|
|
|
|
| |||||||||
As of December 31, 2018 (Amounts in thousands): |
| Cost |
| Accumulated Depletion |
| Net | ||||||||||||
| | | | | | | | | | |||||||||
As of September 30, 2019 (Amounts in thousands): |
| Cost |
| Accumulated Depletion |
| Net | ||||||||||||
Production stage stream interests: |
|
|
|
|
|
|
|
|
| | | | | | | | | |
Mount Milligan |
| $ | 790,635 |
| $ | (164,639) |
| $ | 625,996 | | $ | 790,635 | | $ | (192,726) | | $ | 597,909 |
Pueblo Viejo |
|
| 610,404 |
|
| (135,152) |
|
| 475,252 | | | 610,404 | | | (168,961) | | | 441,443 |
Andacollo |
|
| 388,182 |
|
| (73,736) |
|
| 314,446 | | | 388,182 | | | (93,774) | | | 294,408 |
Rainy River |
|
| 175,727 |
|
| (8,940) |
|
| 166,787 | | | 175,727 | | | (17,462) | | | 158,265 |
Wassa and Prestea |
|
| 146,475 |
|
| (51,523) |
|
| 94,952 | | | 146,475 | | | (59,565) | | | 86,910 |
Total production stage stream interests |
|
| 2,111,423 |
|
| (433,990) |
|
| 1,677,433 | | | 2,111,423 | | | (532,488) | | | 1,578,935 |
Production stage royalty interests: |
|
|
|
|
|
|
|
|
| | | | | | | | | |
Voisey's Bay |
|
| 205,724 |
|
| (92,244) |
|
| 113,480 | | | 205,724 | | | (97,136) | | | 108,588 |
Peñasquito |
|
| 99,172 |
|
| (39,827) |
|
| 59,345 | | | 99,172 | | | (41,414) | | | 57,758 |
Holt |
|
| 34,612 |
|
| (21,946) |
|
| 12,666 | | | 34,612 | | | (22,936) | | | 11,676 |
Cortez |
|
| 20,878 |
|
| (11,428) |
|
| 9,450 | | | 80,681 | | | (12,777) | | | 67,904 |
Other |
|
| 487,224 |
|
| (377,655) |
|
| 109,569 | | | 487,224 | | | (390,591) | | | 96,633 |
Total production stage royalty interests |
|
| 847,610 |
|
| (543,100) |
|
| 304,510 | | | 907,413 | | | (564,854) | | | 342,559 |
Total production stage stream and royalty interests |
|
| 2,959,033 |
|
| (977,090) |
|
| 1,981,943 | | | 3,018,836 | | | (1,097,342) | | | 1,921,494 |
|
|
|
|
|
|
|
|
|
| |||||||||
| | | | | | | | | | |||||||||
Development stage stream interests: |
|
|
|
|
|
|
|
|
| | | | | | | | | |
Other |
|
| 12,038 |
|
| — |
|
| 12,038 | | | 12,038 | | | — | | | 12,038 |
|
|
|
|
|
|
|
|
|
| |||||||||
Development stage royalty interests: |
|
|
|
|
|
|
|
|
| | | | | | | | | |
Cortez |
|
| 59,803 |
|
| — |
|
| 59,803 | |||||||||
Other |
|
| 70,952 |
|
| — |
|
| 70,952 | | | 70,952 | | | — | | | 70,952 |
Total development stage royalty interests |
|
| 130,755 |
|
| — |
|
| 130,755 | |||||||||
Total development stage stream and royalty interests |
|
| 142,793 |
|
| — |
|
| 142,793 | | | 82,990 | | | — | | | 82,990 |
|
|
|
|
|
|
|
|
|
| |||||||||
| | | | | | | | | | |||||||||
Exploration stage royalty interests: |
|
|
|
|
|
|
|
|
| | | | | | | | | |
Pascua-Lama |
|
| 177,690 |
|
| — |
|
| 177,690 | | | 177,690 | | | — | | | 177,690 |
Other |
|
| 117,482 |
|
| — |
|
| 117,482 | | | 122,844 | | | — | | | 122,844 |
Total exploration stage royalty interests |
|
| 295,172 |
|
| — |
|
| 295,172 | | | 300,534 | | | — | | | 300,534 |
Total stream and royalty interests, net |
| $ | 3,396,998 |
| $ | (977,090) |
| $ | 2,419,908 | | $ | 3,402,360 | | $ | (1,097,342) | | $ | 2,305,018 |
7
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 |
| | | | | | | | | |
As of June 30, 2019 (Amounts in thousands): |
| Cost |
| Accumulated Depletion |
| Net | |||
Production stage stream interests: | | | | | | | | | |
Mount Milligan | | $ | 790,635 | | $ | (184,091) | | $ | 606,544 |
Pueblo Viejo | | | 610,404 | | | (158,819) | | | 451,585 |
Andacollo | | | 388,182 | | | (86,675) | | | 301,507 |
Rainy River | | | 175,727 | | | (14,522) | | | 161,205 |
Wassa and Prestea | | | 146,475 | | | (56,919) | | | 89,556 |
Total production stage stream interests | | | 2,111,423 | | | (501,026) | | | 1,610,397 |
Total production stage stream and royalty interests | | | | | | | | | |
Production stage royalty interests: | | | | | | | | | |
Voisey's Bay | | | 205,724 | | | (95,564) | | | 110,160 |
Peñasquito | | | 99,172 | | | (40,659) | | | 58,513 |
Holt | | | 34,612 | | | (22,570) | | | 12,042 |
Cortez | | | 20,878 | | | (12,362) | | | 8,516 |
Other | | | 487,224 | | | (386,501) | | | 100,723 |
Total production stage royalty interests | | | 847,610 | | | (557,656) | | | 289,954 |
Total production stage stream and royalty interests | | | 2,959,033 | | | (1,058,682) | | | 1,900,351 |
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 | | $ | (1,058,682) | | $ | 2,339,316 |
Voisey’s BayMount Milligan
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 CorporationRGLD Gold AG (“Altius”RGLD Gold”), a non-controlling interest.
On September 13, 2018, LNRLP entered into an agreement with Vale Canada Limited and certain of its subsidiaries (collectively,owns the “Parties”)right to comprehensively settle their long-standing litigation related to calculationpurchase 35% of the royalty onpayable gold and 18.75% of the sale of all concentratespayable copper produced from the Voisey’s Bay mine. ReferMount Milligan copper-gold mine in British Columbia, Canada, which is operated by an indirect subsidiary of Centerra Gold Inc. (“Centerra”). The Company’s carrying value for its stream interest at Mount Milligan is $597.9 million as of September 30, 2019.
On October 30, 2019, Centerra reported that issues identified with decreasing long-term gold recoveries and increased costs in the short-to medium-term led them to Note 14record an impairment charge against their carrying value of our Fiscal 2018 10-K for further discussion on the claims previously asserted by LNRLP.
The Parties agreedMount Milligan mine under applicable accounting standards, and that it has begun a comprehensive technical review of the operation with the objective of publishing an updated 43-101 technical report in the coming months. According to a new method for calculatingCenterra, the royaltyupdated 43-101 report will include studies to optimize the economics of the mine as well as incorporate results of exploration drilling through calendar 2019. While Centerra acknowledged that the extent of any changes in respect of concentrates processedreserves and mineralized material cannot be precisely determined until all relevant studies and modeling have been completed, it expects that the mineral reserves and mineralized material at Vale’s Long Harbour Processing Plant, whichMount Milligan will be effectivematerially reduced.
A significant reduction in reserves and mineralized material could be an indicator of potential impairment for all Voisey’s BayRoyal Gold. The financial impairment taken by Centerra does not impact the mine production after April 1, 2018. Underoperating performance, and, further, a significant reduction in reserves and mineralized material at Mount Milligan may not result in an impairment given current high gold prices and our low depletion rates for the terms of the settlement, Royal Gold expects the 3% royalty rate will apply to approximately 50% of the gross metal value in the concentratesMount Milligan stream interest. It is unclear 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.
8
this point what impact, if any,
10
the results of Centerra’s technical report work will have on the carrying value of our stream interest at Mount Milligan. The Company will continue to monitor these developments at Mount Milligan in subsequent quarterly reporting periods.
Other
During the three and six monthsquarter ended December 31, 2018,June 30, 2019, the Company recognized approximately $2.5 millionwas made aware of insolvency proceedings at one of our non-principal producing properties (El Toqui), 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 forduring the quarter ended September 30, 2019, the Company was made aware of insolvency proceedings at one of our evaluation stage properties. The outcome of these insolvency proceedings may impact our royalty interests and the associated carrying values, which are approximately $1.4 million (El Toqui) and $2.7 million (evaluation stage interest) as of September 30, 2019. The Company continues to monitor these insolvency proceedings as part of our regular asset impairment analysis. Based on the results of these insolvency proceedings, the Company could determine that a future write-down of either interest to an amount less than the current carrying value or to zero is necessary.
4. MARKETABLE EQUITY SECURITIES
As of September 30, 2019, the Company’s marketable equity securities include 809,744 common shares of Contango Ore, Inc. (“CORE”), 3,949,575 common shares of Rubicon Minerals Corporation, and warrants to purchase up to 11,784,000 common shares of TriStar. Our marketable equity securities are measured at fair value (Note 11) each reporting period with any changes in fair value recognized in net income.
The decrease in fair value of our marketable equity securities was approximately $1.4 million and $1.5 million for the three months ended September 30, 2019 and 2018, was attributable to metal production fromrespectively, and is included in Fair value changes in equity securities on our consolidated statements of operations and comprehensive income. The carrying value of the Company’s marketable equity securities as of September 30, 2019 and June 30, 2019 was $15.0 million and September 30, 2018 quarters. Royalty payments for each quarter are due 45 days after quarter-end. Refer to Note 4 for further discussion$16.0 million, respectively, and is included in Other assets on our revenue recognition.the Company’s consolidated balance sheets.
5. DEBT
3. DEBT
The Company’s non-current debt as of December 31, 2018September 30, 2019 and June 30, 20182019 consists of the following:
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| ||||||||||||||||||
|
| As of December 31, 2018 |
| As of June 30, 2018 | ||||||||||||||||||||||||||||||||||||||
|
| Principal |
| Unamortized Discount |
| Debt Issuance Costs |
| Total |
| Principal |
| Unamortized Discount |
| Debt Issuance Costs |
| Total | ||||||||||||||||||||||||||
|
|
| (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 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
| | As of September 30, 2019 | | As of June 30, 2019 | ||||||||||||||||||||||||||||||||||||||
|
| Principal |
| Debt Issuance Costs |
| Total |
| Principal |
| Debt Issuance Costs |
| Total | ||||||||||||||||||||||||||||||
| | | (Amounts in thousands) | | | (Amounts in thousands) | ||||||||||||||||||||||||||||||||||||
Revolving credit facility |
|
| — |
|
| — |
|
| (4,263) |
|
| (4,263) |
|
| — |
|
| — |
|
| (4,893) |
|
| (4,893) | | $ | 170,000 | | $ | (5,405) | | $ | 164,595 | | $ | 220,000 | | $ | (5,446) | | $ | 214,554 |
Total debt |
| $ | 370,000 |
| $ | (6,205) |
| $ | (4,898) |
| $ | 358,897 |
| $ | 370,000 |
| $ | (12,764) |
| $ | (6,209) |
| $ | 351,027 | | $ | 170,000 | | $ | (5,405) | | $ | 164,595 | | $ | 220,000 | | $ | (5,446) | | $ | 214,554 |
Convertible Senior Notes DueRevolving credit facility
On September 20, 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 requiredentered into a third amendment 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. 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 availableour revolving credit facility a non-current liability,dated as of December 31June 2, 2017. Under the amendment, the Company’s Swiss subsidiary, RGLD Gold AG, was added as a co-borrower and June 30, 2018.
Interest expense recognized on the 2019 Notes for the threejoint and six months ended December 31, 2018 was $6.3 million and $12.6 million, respectively, compared to $6.1 million and $12.1 million, respectively, for the three and six months ended December 31, 2017, and included the contractual coupon interest, the accretionseveral obligor, certain of the debt discountCompany’s Canadian subsidiaries were added as guarantors, and amortizationcertain equity pledges that previously had been granted in favor of the debt issuance costs.lenders to support the facility were released, with the result that the facility is now unsecured.
Revolving credit facility
The Company maintains a $1 billion revolving credit facility. As of December 31, 2018,September 30, 2019, the Company had no amounts$170 million outstanding and $1 billion$830 million available under the revolving credit facility. Interest expense recognized on the revolving credit facility for the three and six months ended December 31, 2018 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 the three and six months ended December 31, 2017, which included interest on the outstanding borrowings and the amortization of the debt issuance costs. Royal Gold may repay any borrowings under the revolving credit facility at any time without premium or penalty.
As of September 30, 2019, the interest rate on borrowings under the revolving credit facility was LIBOR plus 1.10% for an all-in rate of 3.24%. For the three months ended September 30, 2019 and 2018, interest expense, which includes interest on the outstanding borrowings and the amortization of the debt issuance costs, was $2.2 million and $0.3 million
11
respectively. As discussed in Note 5 to the notes to consolidated financial statements in the Company’s Fiscal 20182019 10-K, the Company has financial covenants associated with its revolving credit facility. As of December 31, 2018,September 30, 2019, the Company was in compliance with each financial covenant.
4.6. REVENUE
Revenue Recognition
Under current ASC 606 – Revenue from Contracts with Customers (“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.
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.occurs. 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
12
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 20182019 10-K. For the quarter ended December 31, 2018,September 30, 2019, royalty revenue that was estimated or was attributable to metal production for a period prior to December 31, 2018,September 30, 2019, was not material.
10
Disaggregation of Revenue
We have identified two2 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 8.10.
Revenue by metal type attributable to each of our revenue sources is disaggregated as follows:
|
|
|
|
| ||||||
| Three Months Ended |
| Six Months Ended | |||||||
| December 31, 2018 |
| December 31, 2018 | |||||||
| | | | | ||||||
| Three Months Ended | |||||||||
| September 30, | | September 30, | |||||||
| 2019 | | 2018 | |||||||
Stream revenue: |
|
|
|
| | | | | ||
Gold | $ | 53,179 |
| $ | 112,293 | $ | 72,224 | | $ | 59,114 |
Silver |
| 7,884 |
| 16,604 | | 8,436 | | 8,720 | ||
Copper |
| 6,616 |
|
| 8,819 | | 6,321 | | | 2,203 |
Total stream revenue | $ | 67,679 |
| $ | 137,716 | $ | 86,981 | | $ | 70,037 |
Royalty revenue: |
|
|
|
| | | | | ||
Gold | $ | 19,656 |
| $ | 38,210 | $ | 21,757 | | $ | 18,554 |
Silver |
| 1,567 |
| 2,919 | | 1,829 | | 1,352 | ||
Copper |
| 4,359 |
| 7,974 | | 2,980 | | 3,615 | ||
Other |
| 4,331 |
|
| 10,766 | | 5,227 | | | 6,434 |
Total royalty revenue | $ | 29,913 |
| $ | 59,869 | $ | 31,793 | | $ | 29,955 |
Total revenue | $ | 97,592 |
| $ | 197,585 | $ | 118,774 | | $ | 99,992 |
Revenue attributable to our principal stream and royalty interests is disaggregated as follows:
|
|
|
|
|
|
|
| |||||||||
|
|
|
| Three Months Ended |
| Six Months Ended | ||||||||||
|
| Metal(s) |
| December 31, 2018 |
| December 31, 2018 | ||||||||||
| | | | | | | | | ||||||||
| | | | Three Months Ended | ||||||||||||
| | | | September 30, | | September 30, | ||||||||||
| | Metal(s) | | 2019 | | 2018 | ||||||||||
Stream revenue: |
|
|
|
|
|
|
| | | | | | | | | |
Mount Milligan |
| Gold & Copper |
| $ | 28,169 |
| $ | 37,015 | | Gold & Copper | | $ | 30,497 | | $ | 8,847 |
Pueblo Viejo |
| Gold & Silver |
| 18,230 |
|
| 37,717 | | Gold & Silver | | | 21,618 | | | 19,486 | |
Wassa and Prestea |
| Gold |
| 9,550 |
|
| 17,611 | |||||||||
Andacollo |
| Gold |
|
| 7,635 |
| 35,378 | | Gold | | | 20,604 | | | 27,743 | |
Wassa | | Gold | | | 5,319 | | | 5,325 | ||||||||
Rainy River | | Gold & Silver | | | 7,166 | | | 5,900 | ||||||||
Other |
| Gold & Silver |
|
| 4,095 |
|
| 9,995 | | Gold & Silver | | | 1,777 | | | 2,736 |
Total stream revenue |
|
|
| $ | 67,679 |
| $ | 137,716 | | | | $ | 86,981 | | $ | 70,037 |
Royalty revenue: |
|
|
|
|
|
|
| | | | | | | | | |
Peñasquito |
| Gold, Silver, Lead & Zinc |
| $ | 4,660 |
| $ | 8,297 | | Gold, Silver, Lead & Zinc | | $ | 4,420 | | $ | 3,637 |
Cortez |
| Gold |
| 2,335 |
|
| 2,939 | | Gold | | | 4,417 | | | 603 | |
Other |
| Various |
|
| 22,918 |
|
| 48,633 | | Various | | | 22,956 | | | 25,715 |
Total royalty revenue |
|
|
| $ | 29,913 |
| $ | 59,869 | | | | $ | 31,793 | | $ | 29,955 |
Total revenue |
|
|
| $ | 97,592 |
| $ | 197,585 | | | | $ | 118,774 | | $ | 99,992 |
Please refer to Note 810 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.
13
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 December 31, 2018,September 30, 2019, and June 30, 2018,2019, our royalty receivables were $25.7$26.6 million and $26.4$20.7 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 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.
5.7. STOCK-BASED COMPENSATION
The Company recognized stock-based compensation expense as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Three Months Ended |
| Six Months Ended |
| |||||||||||||||
|
| December 31, |
| December 31, |
| December 31, |
| December 31, |
| |||||||||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| |||||||||||
|
|
| (Amounts in thousands) |
|
| (Amounts in thousands) |
| |||||||||||||
| | | | | | | | |||||||||||||
| | Three Months Ended | | |||||||||||||||||
| | September 30, | | September 30, | | |||||||||||||||
|
| 2019 |
| 2018 |
| |||||||||||||||
| | | (Amounts in thousands) | | ||||||||||||||||
Stock options |
| $ | 33 |
| $ | 79 |
| $ | 154 |
| $ | 170 |
| | $ | 31 | | $ | 120 | |
Stock appreciation rights |
|
| 408 |
|
| 486 |
|
| 1,175 |
|
| 974 |
| | | 442 | | | 766 | |
Restricted stock |
|
| 677 |
|
| 888 |
|
| 1,956 |
|
| 2,314 |
| | | 1,243 | | | 1,280 | |
Performance stock |
|
| 507 |
|
| 568 |
|
| 785 |
|
| 937 |
| | | 385 | | | 278 | |
Total stock-based compensation expense |
| $ | 1,625 |
| $ | 2,021 |
| $ | 4,070 |
| $ | 4,395 |
| | $ | 2,101 | | $ | 2,444 | |
Stock-based compensation expense is included within General and administrative expense in the consolidated statements of operations and comprehensive income.
During the three and six months ended December 31,September 30, 2019 and 2018, the Company granted the following stock-based compensation awards:
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
| Three Months Ended |
|
| Six Months Ended | ||||||||||||
|
|
| December 31, |
|
| December 31, |
|
| December 31, |
|
| December 31, | ||||||
|
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 | ||||||
|
|
| (Number of shares) |
|
| (Number of shares) | ||||||||||||
| | | | | | | ||||||||||||
| | | Three Months Ended | |||||||||||||||
| | | September 30, | | | September 30, | ||||||||||||
|
| | 2019 |
| | 2018 | ||||||||||||
| | | (Number of shares) | |||||||||||||||
Stock options |
|
| — |
|
| — |
|
| 6,430 |
|
| 6,858 | | | 1,604 | | | 6,430 |
Stock appreciation rights |
|
| — |
|
| — |
|
| 69,360 |
|
| 71,262 | | | 46,726 | | | 69,360 |
Restricted stock |
|
| — |
|
| — |
|
| 42,260 |
|
| 50,380 | | | 23,976 | | | 42,260 |
Performance stock (at maximum 200% attainment) |
|
| — |
|
| — |
|
| 57,420 |
|
| 68,020 | | | 28,560 | | | 57,420 |
Total equity awards granted |
|
| — |
|
| — |
|
| 175,470 |
|
| 196,520 | | | 100,866 | | | 175,470 |
12
14
As of December 31, 2018,September 30, 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- | ||||||||
|
|
|
|
|
|
|
| compensation |
| average vesting | ||||||||
|
|
|
|
|
|
|
| expense |
| period (years) | ||||||||
| | | | | | | ||||||||||||
| | Unrecognized |
| Weighted- | ||||||||||||||
| | compensation | | average vesting | ||||||||||||||
| | expense |
| period (years) | ||||||||||||||
Stock options |
|
|
|
|
|
|
| $ | 197 |
|
| 2.0 | | $ | 160 | | | 1.9 |
Stock appreciation rights |
|
|
|
|
|
|
|
| 2,581 |
|
| 2.0 | | | 3,012 | | | 2.2 |
Restricted stock |
|
|
|
|
|
|
|
| 5,744 |
|
| 3.2 | | | 6,140 | | | 3.3 |
Performance stock |
|
|
|
|
|
|
|
| 1,307 |
|
| 1.7 | | | 2,522 | | | 2.1 |
6.8. 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 |
| |||||||||||||||
|
| December 31, |
| December 31, |
| December 31, |
| December 31, |
| |||||||||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 |
| |||||||||||
|
|
| (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 |
| |||||||
| | | | | | | | |||||||||||||
| | Three Months Ended | | |||||||||||||||||
| | September 30, | | September 30, | | |||||||||||||||
|
| 2019 |
| 2018 |
| |||||||||||||||
| | | (in thousands, except per share data) | | ||||||||||||||||
Net income available to Royal Gold common stockholders | | $ | 70,453 | | $ | 15,008 | | |||||||||||||
Weighted-average shares for basic EPS |
|
| 65,395,457 |
|
| 65,306,766 |
|
| 65,385,161 |
|
| 65,271,131 |
| | | 65,465,611 | | | 65,374,866 | |
Effect of other dilutive securities |
|
| 77,943 |
|
| — |
|
| 100,262 |
|
| 189,299 |
| | | 150,315 | | | 122,293 | |
Weighted-average shares for diluted EPS |
|
| 65,473,400 |
|
| 65,306,766 |
|
| 65,485,423 |
|
| 65,460,430 |
| | | 65,615,926 | | | 65,497,159 | |
Basic earnings (loss) per share |
| $ | 0.36 |
| $ | (0.23) |
| $ | 0.59 |
| $ | 0.21 |
| |||||||
Diluted earnings (loss) per share |
| $ | 0.36 |
| $ | (0.23) |
| $ | 0.59 |
| $ | 0.21 |
| |||||||
Basic earnings per share | | $ | 1.07 | | $ | 0.23 | | |||||||||||||
Diluted earnings per share | | $ | 1.07 | | $ | 0.23 | |
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. 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.
7.9. INCOME TAXES
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Three Months Ended |
| Six Months Ended | |||||||||||||||
|
| December 31, |
| December 31, |
| December 31, |
| December 31, | |||||||||||
|
| 2018 |
| 2017 |
| 2018 |
| 2017 | |||||||||||
|
| (Amounts in thousands, except rate) |
| (Amounts in thousands, except rate) | |||||||||||||||
Income tax benefit (expense) |
| $ | 2,148 |
| $ | (48,360) |
| $ | (1,967) |
| $ | (55,904) | |||||||
| | | | | | | | ||||||||||||
| | Three Months Ended | | ||||||||||||||||
| | September 30, | | September 30, | | ||||||||||||||
|
| 2019 |
| 2018 |
| ||||||||||||||
| | (Amounts in thousands, except rate) | | ||||||||||||||||
Income tax (benefit) expense | | $ | (23,525) | | $ | 4,115 | | ||||||||||||
Effective tax rate |
|
| (10.3%) |
|
| 148.5% |
|
| 5.3% |
|
| 83.9% | | | (51.9%) | | | 25.6% | |
13
The decrease in the effective tax rate for the three and six months ended December 31,September 30, 2019, as compared to the three months ended September 30, 2018, was attributable to discrete tax benefits ($32.3 million) primarily related to the Company’s refined analysisremeasurement of certain deferred tax assets and a net step-up in the basis of tax assets due to the enactment of the transition tax as partFederal Act on Tax Reform and AHV Financing in Zug, Switzerland on September 3, 2019.
15
Table of H.R. 1, originally known as the Tax Cuts and Jobs Act (the “Act”), and our abilityContents
ROYAL GOLD, INC.
Notes to utilize additional foreign tax credits. 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, however, the Company will continue to monitor any new developments.Consolidated Financial Statements (Continued)
(Unaudited)
8.
10. SEGMENT INFORMATION
The Company manages its business under two2 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 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| Total stream |
|
|
|
|
|
|
|
|
|
| Total stream | ||||||||||||||||||||
|
| Stream |
| Royalty |
| and royalty |
| Stream |
| Royalty |
|
|
|
| and royalty | ||||||||||||||||||||||||
|
| interest |
| interest |
| interests, net |
| interest |
| interest |
| Impairments |
| interests, net | |||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |||||||||||||||||||||
| | As of September 30, 2019 | | As of June 30, 2019 | |||||||||||||||||||||||||||||||||||
| | | | | | | | Total stream | | | | | | | | Total stream | |||||||||||||||||||||||
| | Stream | | Royalty | | and royalty | | Stream | | Royalty | | and royalty | |||||||||||||||||||||||||||
|
| interest |
| interest |
| interests, net |
| interest |
| interest | | interests, net | |||||||||||||||||||||||||||
Canada |
| $ | 792,783 |
| $ | 206,039 |
| $ | 998,822 |
| $ | 809,500 |
| $ | 214,562 |
| $ | (284) |
| $ | 1,023,778 | | $ | 756,174 | | $ | 197,409 | | $ | 953,583 | | $ | 767,749 | | $ | 200,251 | | $ | 968,000 |
Dominican Republic |
|
| 475,252 |
|
| — |
|
| 475,252 |
|
| 495,460 |
|
| — |
|
| — |
|
| 495,460 | | | 441,443 | | | — | | | 441,443 | | | 451,585 | | | — | | | 451,585 |
Chile |
|
| 314,446 |
|
| 214,226 |
|
| 528,672 |
|
| 328,331 |
|
| 453,306 |
|
| (239,080) |
|
| 542,557 | | | 294,408 | | | 214,225 | | | 508,633 | | | 301,507 | | | 214,226 | | | 515,733 |
Africa |
|
| 94,952 |
|
| 321 |
|
| 95,273 |
|
| 104,874 |
|
| 502 |
|
| — |
|
| 105,376 | | | 86,910 | | | 321 | | | 87,231 | | | 89,555 | | | 321 | | | 89,876 |
Mexico |
|
| — |
|
| 87,211 |
|
| 87,211 |
|
| — |
|
| 93,277 |
|
| — |
|
| 93,277 | | | — | | | 81,920 | | | 81,920 | | | — | | | 83,748 | | | 83,748 |
United States |
|
| — |
|
| 164,277 |
|
| 164,277 |
|
| — |
|
| 165,543 |
|
| — |
|
| 165,543 | | | — | | | 162,412 | | | 162,412 | | | — | | | 163,398 | | | 163,398 |
Australia |
|
| — |
|
| 33,061 |
|
| 33,061 |
|
| — |
|
| 34,254 |
|
| — |
|
| 34,254 | | | — | | | 31,187 | | | 31,187 | | | — | | | 31,944 | | | 31,944 |
Other |
|
| 12,039 |
|
| 25,301 |
|
| 37,340 |
|
| 12,039 |
|
| 28,833 |
|
| — |
|
| 40,872 | ||||||||||||||||||
Rest of world | | | 12,039 | | | 26,570 | | | 38,609 | | | 12,039 | | | 22,993 | | | 35,032 | |||||||||||||||||||||
Total |
| $ | 1,689,472 |
| $ | 730,436 |
| $ | 2,419,908 |
| $ | 1,750,204 |
| $ | 990,277 |
| $ | (239,364) |
| $ | 2,501,117 | | $ | 1,590,974 | | $ | 714,044 | | $ | 2,305,018 | | $ | 1,622,435 | | $ | 716,881 | | | 2,339,316 |
The Company’s revenue, costreportable segments for purposes of sales and netassessing performance are shown below (amounts in thousands):
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2019 | |||||||||||||
|
| Revenue |
| Cost of sales (1) |
| Production taxes |
| Depletion (2) |
| Segment gross profit | |||||
Stream interests | | $ | 86,981 | | $ | 20,111 | | $ | — | | $ | 31,462 | | $ | 35,408 |
Royalty interests | | | 31,793 | | | — | | | 1,099 | | | 7,199 | | | 23,495 |
Total | | $ | 118,774 | | $ | 20,111 | | $ | 1,099 | | $ | 38,661 | | $ | 58,903 |
| | | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2018 | |||||||||||||
|
| Revenue |
| Cost of sales (1) |
| Production taxes |
| Depletion (2) |
| Segment gross profit | |||||
Stream interests | | $ | 70,037 | | $ | 16,527 | | $ | — | | $ | 32,097 | | $ | 21,413 |
Royalty interests | | | 29,955 | | | — | | | 1,292 | | | 10,408 | | | 18,255 |
Total | | $ | 99,992 | | $ | 16,527 | | $ | 1,292 | | $ | 42,505 | | $ | 39,668 |
(1) | Excludes depreciation, depletion and amortization |
(2) | Depletion amounts are included within Depreciation, depletion and amortization on our consolidated statements of operations and comprehensive income. |
16
A reconciliation of total segment gross profit to the consolidated Income before income taxes is shown below (amounts in thousands):
| | | | | | |
| | Three Months Ended | ||||
| | September 30, | | September 30, | ||
| | | 2019 | | | 2018 |
Total segment gross profit | | $ | 58,903 | | $ | 39,668 |
| | | | | | |
Costs and expenses | | | | | | |
General and administrative expenses | | | 7,443 | | | 9,927 |
Exploration costs | | | 2,626 | | | 4,362 |
Depreciation | | | 53 | | | 46 |
Operating income | | | 48,781 | | | 25,333 |
Fair value changes in equity securities | | | (1,375) | | | (1,468) |
Interest and other income | | | 775 | | | 103 |
Interest and other expense | | | (2,834) | | | (7,877) |
Income before income taxes | | $ | 45,347 | | $ | 16,091 |
The Company’s revenue by reportable segment for the three and six months ended December 31,September 30, 2019 and 2018 and 2017 is geographically distributed as shown in the following table:table (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Three Months Ended December 31, 2018 |
| Three Months Ended December 31, 2017 | ||||||||||||||||||||
|
| Revenue |
| Cost of sales |
| Net revenue |
| Revenue |
| Cost of sales |
| Net revenue | ||||||||||||
Streams: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
| | | | | | | ||||||||||||||||||
| | Three Months Ended | ||||||||||||||||||||||
| | September 30, | | September 30, | ||||||||||||||||||||
|
| 2019 |
| 2018 | ||||||||||||||||||||
Stream interests: | | | | | | | ||||||||||||||||||
Canada |
| $ | 32,264 |
| $ | 9,729 |
| $ | 22,535 |
| $ | 22,702 |
| $ | 6,624 |
| $ | 16,078 | | $ | 37,663 | | $ | 14,747 |
Dominican Republic |
|
| 18,230 |
|
| 5,409 |
|
| 12,821 |
|
| 26,355 |
|
| 8,198 |
|
| 18,157 | | | 21,618 | | | 19,486 |
Chile |
|
| 7,635 |
|
| 1,124 |
|
| 6,511 |
|
| 21,601 |
|
| 3,297 |
|
| 18,304 | | | 20,604 | | | 27,742 |
Africa |
|
| 9,550 |
|
| 1,900 |
|
| 7,650 |
|
| 8,629 |
|
| 1,744 |
|
| 6,885 | | | 7,096 | | | 8,062 |
Total streams |
| $ | 67,679 |
| $ | 18,162 |
| $ | 49,517 |
| $ | 79,287 |
| $ | 19,863 |
| $ | 59,424 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Royalties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Mexico |
| $ | 7,837 |
| $ | — |
| $ | 7,837 |
| $ | 10,854 |
| $ | — |
| $ | 10,854 | ||||||
Total stream interests | | $ | 86,981 | | $ | 70,037 | ||||||||||||||||||
| | | | | | | ||||||||||||||||||
Royalty interests: | | | | | | | ||||||||||||||||||
United States |
|
| 8,284 |
|
| — |
|
| 8,284 |
|
| 12,298 |
|
| — |
|
| 12,298 | | $ | 10,602 | | $ | 6,056 |
Canada |
|
| 7,536 |
|
| — |
|
| 7,536 |
|
| 5,396 |
|
| — |
|
| 5,396 | | | 8,921 | | | 10,181 |
Mexico | | | 6,387 | | | 7,996 | ||||||||||||||||||
Australia |
|
| 3,157 |
|
| — |
|
| 3,157 |
|
| 3,227 |
|
| — |
|
| 3,227 | | | 3,802 | | | 3,060 |
Africa |
|
| 532 |
|
| — |
|
| 532 |
|
| 585 |
|
| — |
|
| 585 | | | 470 | | | 492 |
Other |
|
| 2,567 |
|
| — |
|
| 2,567 |
|
| 2,701 |
|
| — |
|
| 2,701 | ||||||
Total royalties |
| $ | 29,913 |
| $ | — |
| $ | 29,913 |
| $ | 35,061 |
| $ | — |
| $ | 35,061 | ||||||
Total streams and royalties |
| $ | 97,592 |
| $ | 18,162 |
| $ | 79,430 |
| $ | 114,348 |
| $ | 19,863 |
| $ | 94,485 | ||||||
Rest of world | | | 1,611 | | | 2,170 | ||||||||||||||||||
Total royalty interests | | $ | 31,793 | | $ | 29,955 | ||||||||||||||||||
Total revenue | | $ | 118,774 | | $ | 99,992 |
14
ROYAL GOLD, INC.
Notes to Consolidated Financial Statements (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended December 31, 2018 |
| Six Months Ended December 31, 2017 | ||||||||||||||
|
| 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 |
Dominican Republic |
|
| 37,717 |
|
| 11,733 |
|
| 25,984 |
|
| 51,758 |
|
| 15,785 |
|
| 35,973 |
Chile |
|
| 35,378 |
|
| 5,402 |
|
| 29,976 |
|
| 33,938 |
|
| 5,109 |
|
| 28,829 |
Africa |
|
| 17,611 |
|
| 3,560 |
|
| 14,051 |
|
| 17,699 |
|
| 3,541 |
|
| 14,158 |
Total streams |
| $ | 137,716 |
| $ | 34,689 |
| $ | 103,027 |
| $ | 158,049 |
| $ | 40,282 |
| $ | 117,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalties: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexico |
| $ | 15,833 |
| $ | — |
| $ | 15,833 |
| $ | 21,751 |
| $ | — |
| $ | 21,751 |
United States |
|
| 14,340 |
|
| — |
|
| 14,340 |
|
| 22,727 |
|
| — |
|
| 22,727 |
Canada |
|
| 17,717 |
|
| — |
|
| 17,717 |
|
| 11,488 |
|
| — |
|
| 11,488 |
Australia |
|
| 6,217 |
|
| — |
|
| 6,217 |
|
| 6,548 |
|
| — |
|
| 6,548 |
Africa |
|
| 1,024 |
|
| — |
|
| 1,024 |
|
| 1,047 |
|
| — |
|
| 1,047 |
Other |
|
| 4,738 |
|
| — |
|
| 4,738 |
|
| 5,214 |
|
| — |
|
| 5,214 |
Total royalties |
| $ | 59,869 |
| $ | — |
| $ | 59,869 |
| $ | 68,775 |
| $ | — |
| $ | 68,775 |
Total streams and royalties |
| $ | 197,585 |
| $ | 34,689 |
| $ | 162,896 |
| $ | 226,824 |
| $ | 40,282 |
| $ | 186,542 |
9.11. 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
17
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.
| | | | | | | | | | | | | | | |
| | As of September 30, 2019 | |||||||||||||
| | Carrying | | Fair Value | |||||||||||
|
| Amount |
| Total |
| Level 1 |
| Level 2 |
| Level 3 | |||||
Assets (In thousands): | | | | | | | | | | | | | | | |
Marketable equity securities(1) | | $ | 14,970 | | $ | 14,970 | | $ | 14,200 | | $ | 770 | | $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| As of December 31, 2018 | |||||||||||||
|
| Carrying |
| Fair Value | |||||||||||
|
| Amount |
| Total |
| Level 1 |
| Level 2 |
| Level 3 | |||||
Assets (In thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable equity securities(1) |
| $ | 17,681 |
| $ | 17,681 |
| $ | 17,681 |
| $ | — |
| $ | — |
Total assets |
| $ | 17,681 |
| $ | 17,681 |
| $ | 17,681 |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities (In thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt(2) |
| $ | 440,795 |
| $ | 371,388 |
| $ | 371,388 |
| $ | — |
| $ | — |
Total liabilities |
| $ | 440,795 |
| $ | 371,388 |
| $ | 371,388 |
| $ | — |
| $ | — |
|
|
|
|
15
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 securitymarkets multiplied by the quantity of shares held by the Company. The Company’s debtwarrants classified within Level 12 of the fair value hierarchy isare valued each period using quoted pricesthe Black-Scholes model. The warrants are part of the TriStar transaction discussed further in an active market. Note 2 and have been classified as a financial asset instrument. The carrying value of the Company’s revolving credit facility (Note 5) approximates fair value as of September 30, 2019.
As of December 31, 2018,September 30, 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.
10.12. COMMITMENTS AND CONTINGENCIES
Khoemacau Silver Stream Acquisition
As of September 30, 2019, the Company’s conditional funding schedule for $212 million pursuant to its Khoemacau silver stream acquisition made in February 2019 remains subject to certain conditions. On November 5, 2019, the Company’s wholly-owned subsidiary, RGLD Gold AG, made its first advance payment ($65.8 million) pursuant to the Khoemacau silver stream. Refer to our Fiscal 2019 10-K for further details on the Khoemacau silver stream acquisition.
Ilovica Gold Stream Acquisition
As of December 31, 2018,September 30, 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, 20182019 filed with the Securities and Exchange Commission (the “SEC”) on August 9, 2018.8, 2019 (Fiscal 2019 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 20182019 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.our Fiscal 2019 10-K. 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 December 31, 2018,September 30, 2019, we owned seven stream interests, which are on fivesix producing properties and onetwo development stage property.properties. Stream interests accounted for approximately 69% of73% and 70% our total revenue for the three and six months ended December 31,September 30, 2019 and 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 December 31, 2018,September 30, 2019, we owned royalty interests on 3635 producing properties, 1614 development stage properties and 133130 exploration stage properties, of which we consider 5648 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%27% and 30% of our total revenue for the three and six months ended December 31,September 30, 2019 and 2018, and 2017. respectively.
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 and royalties 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, legal 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 six months ended December 31,September 30, 2019 and 2018, and 2017, 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 | ||||||||||||||||||||||||||||
|
| December 31, 2018 |
| December 31, 2017 |
| December 31, 2018 |
| December 31, 2017 | ||||||||||||||||||||||||
| | | | | | | | | | | | |||||||||||||||||||||
| | Three Months Ended | | |||||||||||||||||||||||||||||
| | September 30, 2019 | | September 30, 2018 | | |||||||||||||||||||||||||||
Metal |
| 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% | | $ | 1,472 | | 79% | | $ | 1,213 | | 78% | | |
Silver ($/ounce) |
| $ | 14.54 |
| 10% |
| $ | 16.73 |
| 9% |
| $ | 14.78 |
| 10% |
| $ | 16.78 |
| 9% | | $ | 16.98 | | 9% | | $ | 15.02 | | 10% | | |
Copper ($/pound) |
| $ | 2.80 |
| 11% |
| $ | 3.09 |
| 9% |
| $ | 2.78 |
| 8% |
| $ | 2.98 |
| 9% | | $ | 2.63 | | 8% | | $ | 2.77 | | 6% | | |
Other |
|
| N/A |
| 4% |
|
| N/A |
| 3% |
|
| N/A |
| 6% |
|
| N/A |
| 4% | | | N/A | | 4% | | | N/A | | 6% | |
Recent Business Developments
Voisey’s BayCastelo de Sonhos royalty acquisition
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 byIn August 2019, a subsidiary of Altius Minerals Corporation (“Altius”).
On September 13, 2018, LNRLPthe Company entered into an agreement with Vale Canada LimitedTriStar Gold Inc. and certain of its subsidiaries (collectively, the “Parties”(together “TriStar”) to comprehensively settle their long-standing litigation relatedacquire (i) up to calculation of thea 1.5% net smelter return (“NSR”) royalty on the saleCastelo de Sonhos gold project (“CDS”), located in Brazil, and (ii) warrants to purchase up to 19,640,000 common shares of all concentrates produced fromTriStar. Total consideration is $7.5 million and is payable over three payments, of which $4.5 million was paid in August 2019. The second and third payments of $1.5 million each are subject to satisfaction of certain conditions and are payable by November 30, 2019 and March 31, 2020. The NSR royalty is incrementally earned pro-rata with the Voisey’s Bay mine.
The Parties agreedfunding schedule while the warrants to a new method for calculating the royalty in respect of concentrates processed at Vale’s Long Harbour Processing Plant (“LHPP”), whichpurchase TriStar common shares will be effective for all Voisey’s Bay mine production after April 1, 2018. Underissued pro-rata with the terms offunding schedule.
Aggregate funds invested by the settlement, Royal Gold expects the 3% royalty rateCompany will applybe used by TriStar primarily 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 applicableadvance CDS to the royalty would correspondingly increase or decrease.
The LHPP is designed to produce 50,000 tonnesfeasibility stage, including advancing permitting activities. A Preliminary Economic Assessment for CDS was prepared by TriStar in calendar 2018 and was based on a total of finished nickel annually. The plant is currently ramping up and has produced2.0 million ounces of mineralized material at an average quarterly rategrade 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 six months ended December 31, 2018, the Company recognized approximately $2.5 million and $7.5 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.1.0 gram per tonne. Refer to Note 42 of our notes to consolidated financial statements for further discussion on our revenue recognition.discussion.
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 December 31, 2018, 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 20182019 10-K for further discussion of our principal producing stream and royalty interests.
19
20
Principal Producing Properties
| | | | | | |
| | | | | | 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 | | Nevada Gold Mines LLC ("NGM"), a joint venture between Barrick Gold Corporation ("Barrick") and Newmont Goldcorp Corporation ("Newmont Goldcorp") | | GSR1: 0.40% to 5.0% sliding-scale GSR |
GSR2: 0.40% to 5.0% sliding-scale GSR | ||||||
GSR3: 0.71% GSR | ||||||
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) |
| | | | | | Silver stream - 75% of silver produced (until 50.0 million ounces delivered; 37.5% thereafter) |
|
| Ontario, Canada | New Gold, Inc. (“New Gold”) | Gold stream - 6.5% of gold produced (until 230,000 ounces delivered; 3.25% thereafter) | ||
| | | | | | Silver stream - 60% of silver produced (until 3.1 million ounces delivered; 30% thereafter) |
Wassa | | Western Region of Ghana | | Golden Star Resources Ltd. (“Golden Star”) | | Gold stream - 10.5% of gold produced (until 220,000 ounces delivered; 5.5% thereafter) |
|
|
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 December 31, 2018.September 30, 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.
21
Operators’ Estimated and Actual Production by Stream and Royalty Interest for Calendar 20182019
Principal Producing Properties
| | | | | | | | | | | | |
| | 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 |
| |
| |
| 40,400 |
| |
| |
Mount Milligan(4) |
| 155,000 - 175,000 |
| |
| |
| 137,100 |
| |
| |
Copper |
| |
| | | 65 - 75 million |
| |
| |
| 53.1 million |
Pueblo Viejo(5) | | 550,000 - 600,000 | | N/A | | | | 411,000 | | N/A | | |
Rainy River(6) | | 245,000 - 270,000 | | 245,000 - 270,000 | | | | 202,700 | | 214,200 | | |
Wassa(7) | | 150,000 - 160,000 | | | | | | 114,800 | | | | |
Royalty: |
| |
| |
| |
| |
| |
| |
Cortez GSR1 |
| 115,500 |
| |
| |
| 86,800 |
| |
| |
Cortez GSR2 |
| 70,200 |
| |
| |
| 17,900 |
| |
| |
Cortez GSR3 |
| 183,700 |
| |
| |
| 104,100 |
| |
| |
Cortez NVR1 |
| 156,900 |
| |
| |
| 90,900 |
| |
| |
Cortez NVR1C | | 2,000 | | | | | | 600 | | | | |
Peñasquito(8) |
| 165,000 |
| 25 million |
| | | 71,000 | | 9.2 million |
| |
Lead |
|
|
|
|
| 180 million | | | | |
| 63 million |
Zinc |
|
|
|
|
| 245 million | | | | |
| 108 million |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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: |
|
|
|
|
|
|
|
|
|
|
|
|
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 |
20
(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) |
|
(7) | The estimated and actual production figures shown for Wassa |
(8) |
| The estimated and actual gold and silver production figures shown for Peñasquito are payable gold and silver in concentrate and doré. 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 10,7009,700 ounces of gold for the three months ended December 31, 2018,September 30, 2019, compared to approximately 13,50015,300 ounces of gold for the three months ended December 31, 2017. Deliveries during the current quarter were lower as a result of timing of shipments.
Consistent with the mine plan, Teck expects copper grades to decline toward reserve grade in calendar 2018 and future years. Teck reports that it continues to study and pilot projects that would help partially offset the decline in grades. The current life of mine for Andacollo is expected to continue until 2035. Additional permitting or amendments to existing permits will be required to execute the life of mine plan.
Mount Milligan
Gold stream deliveries from Mount Milligan were approximately 10,300 ounces of gold for the three months ended December 31, 2018, compared to approximately 17,700 ounces of gold for the three months ended December 31, 2017.
Copper stream deliveries from Mount Milligan were approximately 2.5 million pounds during the three months ended December 31, 2018, compared to approximately 2.7 million pounds during the three months ended December 31, 2017.September 30, 2018. Decreased deliveries resulted from differences in the timing of shipments and settlements during the periods.
During calendarOn October 13, 2019, Centerra expects Mount MilliganTeck reported the Teck Carmen de Andacollo Workers Union gave notice that a strike would commence on October 14, 2019. On October 23, 2019, Teck confirmed that operations were suspended on October 14,
22
2019, with the exception of essential activities required to produce between 155,000maintain safety and 175,000 ounces of gold (compared to 195,000 actual ounces of gold in calendar 2018) and between 65 million and 75 million pounds of copper (compared to 47 million actual pounds of copper in calendar 2018). Centerra anticipates that mill throughput will be reduced during the remainderenvironment. Negotiations with the union are ongoing. We anticipate the impact of the winter seasonstrike to properly managebe reflected beginning with our March 2020 quarterly results as we generally receive gold deliveries from Andacollo within five months of concentrate shipment.
Khoemacau Copper Silver Project
According to Khoemacau Copper Mining (Pty.) Limited (“KCM”), they continued to make good progress at the water balance untilKhoemacau Project (“Khoemacau”) in Botswana. According to KCM, 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 halfproject reached approximately 11% of calendar 2019, Centerra expects to achieve an average throughput of approximately 55,000 tonnes per calendar day.
Permit applications are in process to allow the mine to draw additional flow during the spring melt period for the next three years from each 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 continueconstruction completion 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.first quarter with 67% of the capital committed. Also according to KCM, work at site primarily has been focused on excavation of the South, Central and North boxcuts to provide access to the Zone 5 orebody, with handover of the first boxcut to the underground mining contractor targeted for the end of calendar 2019. KCM reported that additional construction is underway on surface infrastructure at Zone 5 and the access and infrastructure corridor between Zone 5 and the Boseto mill, while work on refurbishment of the Boseto plant is scheduled to commence shortly.
Pueblo ViejoOn November 5, 2019, Royal Gold made the first advance payment of $65.8 million under the Khoemacau stream agreement. Royal Gold’s remaining commitment ranges from $146.2 million for the base stream of 80% of payable silver up to $199.2 million should KCM elect to increase the stream from 80% to 100% of payable silver. Further payments are subject to certain conditions and are scheduled to be made on a quarterly basis using an agreed formula and certification process as project spending progresses. The project cost remains on budget according to KCM’s forecast and KCM expects the first shipment of concentrate by mid-2021.
Mount Milligan
Gold stream deliveries from Pueblo ViejoMount Milligan were approximately 10,40014,000 ounces of gold for the three months ended December 31, 2018,September 30, 2019, compared to approximately 12,600 ounces of gold for the three months ended December 31, 2017. ProductionSeptember 30, 2018. Copper stream deliveries from Mount Milligan were approximately 2.4 million pounds during the three months ended September 30, 2019, compared to approximately 1.6 million pounds during the three months ended September 30, 2018.
Centerra reported that favorable rainfall combined with access to surface water during the year from Philip Lake 1 and Rainbow Creek resulted in more than twice the amount of stored water volume than last year at Pueblo Viejothis time. In addition, Centerra reported success in its groundwater exploration program, and subject to the receipt of permits, expects to bring new groundwater sources on line in December. With these improvements and prudent water management, Centerra currently expects that Mount Milligan should not need to slow production in the first calendar quarter of 2020 to conserve water, as was impacted by a higher portion of carbonaceous ore, resultingrequired in lowerthe two prior years.
Centerra also reported that it continues to work on life-of-mine water sources with relevant stakeholders, and formal applications and government review are expected to commence later in calendar 2019.
On October 30, 2019, Centerra reported that issues identified with decreasing long-term gold recoveries and increased costs in the short to medium-term led it to record an expected declineimpairment charge against the carrying value of the Mount Milligan mine using a financial analysis under applicable accounting standards, and that it has begun a comprehensive technical review of the operation with the objective of publishing an updated 43-101 technical report in ore gradesthe coming months. According to Centerra, the updated 43-101 report will include studies to optimize the economics of the mine as well as incorporate results of exploration drilling through 2019. While Centerra acknowledged that the extent of any changes in reserves and mineralized material cannot be precisely determined until all relevant studies and modeling have been completed, it expects that the mineral reserves and mineralized material at Mount Milligan will be materially reduced. It is unclear at this point what impact, if any, the results of this work will have on the carrying value of our stream interest at Mount Milligan.
Pueblo Viejo
Gold stream deliveries from Pueblo Viejo were approximately 10,500 ounces of gold for the period.three months ended September 30, 2019, compared to approximately 8,900 ounces of gold for the three months ended September 30, 2018. Silver stream deliveries were approximately 469,000462,500 ounces of silver for the three months ended December 31, 2018,September 30, 2019, compared to approximately 260,200509,500 ounces of silver for the three months ended December 31, 2017. Prior period silver deliveries were adversely impacted by timingSeptember 30, 2018.
23
Barrick stated that it is advancing a prefeasibility-level study for aexpects Pueblo Viejo’s plant expansion at Pueblo Viejo, whichprefeasibility study to be completed by the end of calendar 2019. Barrick expects the plant expansion project could significantly 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 of2022 (on a pre-oxidation heap leach pad with a capacity of eight million tonnes per year, a new mill and flotation concentrator with a capacity of four million tonnes per year, and additional tailings capacity. According to Barrick, the project has potential to convert roughly seven million ounces of mineralized material to proven and probable reserves. Barrick reports that the pilot pre-oxidation heap leach pad is now in operation, and construction of the pilot flotation circuit is well advanced, including the holding tank and thickener. 100% basis).
Rainy River
Gold stream deliveries from Rainy River were approximately 4,5004,400 ounces of gold for the three months ended December 31, 2018,September 30, 2019, compared to approximately 1,0003,600 ounces of gold for the three months ended December 31, 2017.September 30, 2018. Silver stream deliveries were approximately 41,70049,400 ounces of silver for the three months ended December 31, 2018,September 30, 2019, compared to approximately 11,90035,200 ounces of silver for the three months ended December 31, 2017. Milling operations were initiated duringSeptember 30, 2018. The increase resulted from the December 2017 quarter and have been ramping up production through calendar 2018.continued improved operating performance at Rainy River.
New Gold Inc. (“New Gold”) reported thatmill throughput for the first quarter averaged 24,500 tonnes per day, which is the first full quarter the mill has operated at the target range of 24,000 tonnes per day. Ore production during the first quarter included planned lower grade ore from Phase 2 as well as remaining higher-grade ore from Phase 1, as mining operations continued the transition from Phase 1 to Phase 2 of the mine plan. New Gold expects grades in the December 20182019 quarter Rainy River continued to improve its overall operational performance with quarterly gold production of approximately 77,200 ouncesdecline and calendar 2018 gold production of approximately 227,300 ounces, achieving their revised annual guidance ofaverage between 210,0000.8 and 250,000 gold ounces.1.0 grams per tonne as ore from Phase 1 is now mined out. New Gold also reported that during the December 2018 quarter, mill throughput averaged approximately 20,700 tonnes per day, while achieving an average gold recovery averaged 91% for the first quarter in-line with the mine plan, and efforts continue to focus on achieving additional circuit optimizations as well as the commissioning of 89%, the best quarterly performance to-date.gravity circuit, which could further improve recoveries.
New Gold reported that it deferred the underground mine development plancontinued to calendar 2020. During calendar 2019, New Gold will launchadvance a comprehensive reviewmine optimization study that includes a review of alternative open pit and underground mining scenarios, withand it expects to release the overall objectiveresults of reducing capital and improving the return on investment for the underground portion of the life of mine.this study by no later than mid-February 2020.
Wassa and Prestea
Gold stream deliveries from Wassa and Prestea were approximately 4,7002,900 ounces of gold for the three months ended December 31, 2018,September 30, 2019, compared to approximately 6,0004,200 ounces of gold for the three months ended December 31, 2017. Decreased deliveries resulted from lowerSeptember 30, 2018. Golden Star reported the decrease in production at Prestea dueWassa was primarily a result of lower grades and recoveries compared to slower than planned ramp-up of the underground and the completion of open pit mining at Prestea earlier in calendar 2018, which contributed to production in the prior year quarter.quarter, which was partially offset by an increase in the mining rate at Wassa underground.
InGolden Star announced they completed their calendar 2019 drilling program at Wassa and the geological interpretations have commenced. Golden Star expects Wassaplans to produce at an average rate of approximately 3,500 tonnes per day moving towards a target of 4,000 tonnes per day in calendar 2020.use the new geological interpretations for mineral resource estimations that will be updated for Golden Star reported that deep drilling continues to show positive results and studies are ongoing to decide on the optimal long-term development of Wassa, including the appropriate mining method. A PEA is expected in the second half 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’s lead production indicators at the end of calendar 2018. Golden Star expects improvements in raise
22
development, long 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 consolidatedStar’s calendar 2019 gold production to range between 220,000year-end resource and 240,000 ounces. reserve statements.
Royalty Interests
Cortez
Production attributable to our royalty interest at Cortez decreased approximately 20% overwas 35,100 ounces of gold for the prior year quarter,three months ended September 30, 2019 compared to 7,000 ounces of gold for the three months ended September 30, 2018, 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 NVR1C, GSR2 and portions of our NVR1 (Crossroads) and GSR2GSR3 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. Barrick reported that Crossroads transitioned from pre-production in the June 2019 quarter to production at Crossroads is expected to continue ramping up into calendar 2020. status in the September 2019 quarter.
Peñasquito
Gold and zinc production attributable to our royalty interest at Peñasquito decreased approximately 25%30%, silver and 12%, respectively, leadzinc production attributable to our royalty interest increased approximately 8%10% and 67%, and silverrespectively, when compared to the prior year quarter, while lead production was in line with the prior year quarter.
Newmont Goldcorp forecasted lower than historic gold recoveryreported that production at Peñasquito was impacted during the December 2018first quarter due to the carbonaceous contentsuspension of operations on September 14 resulting from an illegal blockade of the sediment ore forecastedmine by a trucking contractor and some members of the Cedros community and was related to the same dispute that resulted in a suspension of operations from April 29, 2019 through June 17, 2019. Newmont Goldcorp stated the Chile Colorado pit.
On November 29, 2018, Goldcorp announced thatthis most recent blockade impacted Peñasquito’s production during the first quarter by approximately 11,000 gold from the Peñasquito Pyrite Leach Project (“PLP”) was achieved,ounces, 1.7 million silver ounces, 13.7 million pounds of lead and on January 14, 2019, announced that PLP achieved commercial production in December 2018, both under budget and ahead22.8 million pounds of schedule. Peñasquito’s PLP is expected to recover approximately 35% of the gold and 42% of the silver currently reporting to the tailingszinc, and is expected to add productionimpact Newmont Goldcorp’s full-year results for the operation.
24
Newmont Goldcorp reported that the blockade was lifted on October 8, 2019 and 45 million ounces of silver overconcentrate shipments resumed immediately thereafter. Newmont Goldcorp further stated the current life of the mine. For calendar 2019, Goldcorp expects grades and recoveriessite has now returned to climb at Peñasquito as the mine benefits from completion of the multi-year waste stripping campaign in the main Peñasco pit andfull operation after a full year of operation at the PLP.10-day restart process, which commenced on October 22, 2019.
Results of Operations
Quarter Ended December 31, 2018,September 30, 2019, Compared to Quarter Ended December 31, 2017September 30, 2018
For the quarter ended December 31, 2018,September 30, 2019, we recorded net income attributable to Royal Gold stockholders of $23.6$70.5 million, or $0.36$1.07 per basic and diluted share, as compared to net lossincome attributable to Royal Gold stockholders of $14.8$15.0 million, or ($0.23)$0.23 per basic and diluted share, for the quarter ended December 31, 2017.September 30, 2018. The increase in our earnings per share was primarily attributable to a decrease(i) an increase in income tax expense, as discussed further below. The decrease in our income tax expense during the current period was partially offset byrevenue, (ii) a decrease in our revenueinterest expense, and fair value decreases on our equity securities,(iii) discrete income tax benefits recognized, primarily attributable to recent Swiss tax reform, each discussed further 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 per basic share, respectively. Refer to Note 7 of our notes to consolidated financial statements for further discussion on the Act.
For the quarter ended December 31, 2018,September 30, 2019, we recognized total revenue of $97.6$118.8 million, which is comprised of stream revenue of $67.7$87.0 million and royalty revenue of $29.9$31.8 million at an average gold price of $1,226$1,472 per ounce, an average silver price of $14.54$16.98 per ounce and an average copper price of $2.80$2.63 per pound. This is compared to total revenue of $114.4$100.0 million for the three months ended December 31, 2017,September 30, 2018, which was comprised of stream revenue of $79.3$70.0 million and royalty revenue of $35.1$30.0 million, at an average gold price of $1,275$1,213 per ounce, an average silver price of $16.73$15.02 per ounce and an average copper price of $3.09$2.77 per pound for the quarter ended December 31, 2017.pound. Revenue and the corresponding production attributable to our stream and royalty interests for the quarter ended December 31, 2018September 30, 2019 compared to the quarter ended December 31, 2017September 30, 2018 are as follows:
23
Revenue and Reported Production Subject to Our Stream and Royalty Interests
Quarter Ended December 31,September 30, 2019 and 2018 and 2017
(In thousands, except reported production ozs. and lbs.)
| | | | | | | | | | | | | | |
| | | | Three Months Ended | | Three Months Ended | ||||||||
| | | | September 30, 2019 | | September 30, 2018 | ||||||||
| | | | | | Reported | | | | Reported | ||||
Stream/Royalty |
| Metal(s) |
| Revenue |
| Production(1) |
| Revenue |
| Production(1) | ||||
Stream(2): | | | | | | | | | | | | | | |
Mount Milligan | | | | $ | 30,497 | | | | | $ | 8,847 | | | |
| | Gold | | | | | 16,600 | oz. | | | | | 5,500 | oz. |
| | Copper | | | | | 2.4 | Mlbs. | | | | | 837,100 | lbs. |
Pueblo Viejo | | | | $ | 21,618 | | | | | $ | 19,486 | | | |
| | Gold | | | | | 9,500 | oz. | | | | | 9,200 | oz. |
| | Silver | | | | | 475,600 | oz. | | | | | 540,200 | oz. |
Andacollo | | Gold | | $ | 20,604 | | 14,000 | oz. | | $ | 27,743 | | 22,700 | oz. |
Rainy River | | | | $ | 7,166 | | | | | $ | 5,900 | | | |
| | Gold | | | | | 4,600 | oz. | | | | | 4,500 | oz. |
| | Silver | | | | | 34,500 | oz. | | | | | 31,500 | oz. |
Wassa | | Gold | | $ | 5,319 | | 3,600 | oz. | | $ | 5,325 | | 4,300 | oz. |
Other(3) | | Gold | | $ | 1,777 | | 1,200 | oz. | | $ | 2,736 | | 2,200 | oz. |
Total stream revenue | | | | $ | 86,981 | | | | | $ | 70,037 | | | |
| | | | | | | | | | | | | | |
Royalty(2): | | | | | | | | | | | | | | |
Peñasquito | | | | $ | 4,420 | | | | | $ | 3,637 | | | |
| | Gold | | | | | 35,500 | oz. | | | | | 50,300 | oz. |
| | Silver | | | | | 4.6 | Moz. | | | | | 4.2 | Moz. |
| | Lead | | | | | 29.7 | Mlbs. | | | | | 29.9 | Mlbs. |
| | Zinc | | | | | 107.1 | Mlbs. | | | | | 64.2 | Mlbs. |
Cortez | | Gold | | $ | 4,417 | | 35,100 | oz. | | $ | 603 | | 7,000 | oz. |
Other(3) | | Various | | $ | 22,956 | | N/A | | | $ | 25,715 | | N/A | |
Total royalty revenue | | | | $ | 31,793 | | | | | $ | 29,955 | | | |
Total Revenue | | | | $ | 118,774 | | | | | $ | 99,992 | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Three Months Ended | ||||||||
|
|
|
| December 31, 2018 |
| December 31, 2017 | ||||||||
|
|
|
|
|
| Reported |
|
|
| Reported | ||||
Stream/Royalty |
| Metal(s) |
| Revenue |
| Production(1) |
| Revenue |
| Production(1) | ||||
Stream(2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mount Milligan |
|
|
| $ | 28,169 |
|
|
|
| $ | 21,632 |
|
|
|
|
| Gold |
|
|
|
| 17,700 | oz. |
|
|
|
| 12,600 | oz. |
|
| Copper |
|
|
|
| 2.4 | Mlbs. |
|
|
|
| 1.8 | Mlbs. |
Pueblo Viejo |
|
|
| $ | 18,230 |
|
|
|
| $ | 26,355 |
|
|
|
|
| Gold |
|
|
|
| 8,900 | oz. |
|
|
|
| 14,500 | oz. |
|
| Silver |
|
|
|
| 509,500 | oz. |
|
|
|
| 469,600 | oz. |
Wassa and Prestea |
| Gold |
| $ | 9,550 |
| 7,800 | oz. |
| $ | 8,629 |
| 6,800 | oz. |
Andacollo |
| Gold |
| $ | 7,635 |
| 6,200 | oz. |
| $ | 21,601 |
| 17,000 | oz. |
Other(3) |
|
|
| $ | 4,095 |
|
|
|
| $ | 1,070 |
|
|
|
|
| Gold |
|
|
|
| 2,900 | oz. |
|
|
|
| 800 | oz. |
|
| Silver |
|
|
|
| 36,000 | oz. |
|
|
|
| N/A |
|
Total stream revenue |
|
|
| $ | 67,679 |
|
|
|
| $ | 79,287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty(2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peñasquito |
|
|
| $ | 4,660 |
|
|
|
| $ | 6,190 |
|
|
|
|
| Gold |
|
|
|
| 53,400 | oz. |
|
|
|
| 71,100 | oz. |
|
| Silver |
|
|
|
| 5.0 | Moz. |
|
|
|
| 5.1 | Moz. |
|
| Lead |
|
|
|
| 36.1 | Mlbs. |
|
|
|
| 33.4 | Mlbs. |
|
| Zinc |
|
|
|
| 83.1 | Mlbs. |
|
|
|
| 94.4 | Mlbs. |
Cortez |
| Gold |
| $ | 2,335 |
| 19,900 | oz. |
| $ | 2,934 |
| 25,000 | oz. |
Other(3) |
| Various |
| $ | 22,918 |
| N/A |
|
| $ | 25,937 |
| N/A |
|
Total royalty revenue |
|
|
| $ | 29,913 |
|
|
|
| $ | 35,061 |
|
|
|
Total Revenue |
|
|
| $ | 97,592 |
|
|
|
| $ | 114,348 |
|
|
|
(1) |
| Reported production relates to the amount of metal sales subject to our stream and royalty interests for the three months ended |
25
(2) |
| Refer to “Property Developments” above for further discussion on our principal stream and royalty interests. |
(3) |
| Individually, no stream or royalty included within the “Other” category for royalties contributed greater than 5% of our total revenue for either period. |
The decreaseincrease in our total revenue for the three months ended December 31, 2018,September 30, 2019, compared with the three months ended December 31, 2017,September 30, 2018, resulted primarily from a decreasean increase in our stream revenue and a decreasean increase in the average gold silver and coppersilver prices. The decreaseincrease in our stream revenue was primarily attributable to a decreasean increase in gold sales at Andacollo and Pueblo Viejo due to the timing of deliveries. This decrease was partially offset by higher gold and copper sales at Mount Milligan.
24
Gold and silver ounces and copper pounds purchased and sold during the three months ended December 31, 2018 and 2017, andThis increase was partially offset by lower 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 September 30, 2019 and 2018, and gold and silver ounces and copper pounds in inventory as of September 30, 2019, and June 30, 2019, for our streaming interests were as follows:
| | | | | | | | | | | | |
| | Three Months Ended | | Three Months Ended | | As of | | As of | ||||
| | September 30, 2019 | | September 30, 2018 | | September 30, 2019 | | June 30, 2019 | ||||
Gold Stream |
| Purchases (oz.) |
| Sales (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Inventory (oz.) |
| Inventory (oz.) |
Mount Milligan | | 14,000 | | 16,600 | | 12,600 | | 5,500 | | 4,500 | | 7,100 |
Pueblo Viejo | | 10,500 | | 9,500 | | 8,900 | | 9,200 | | 10,500 | | 9,500 |
Andacollo | | 9,700 | | 14,000 | | 15,300 | | 22,700 | | 100 | | 4,300 |
Wassa | | 2,900 | | 3,600 | | 4,200 | | 4,300 | | 700 | | 1,500 |
Rainy River | | 4,400 | | 4,600 | | 3,600 | | 4,500 | | 1,600 | | 1,800 |
Other | | 1,400 | | 1,200 | | 2,300 | | 2,200 | | 600 | | 400 |
Total | | 42,900 | | 49,500 | | 46,900 | | 48,400 | | 18,000 | | 24,600 |
| | | | | | | | | | | | |
| | Three Months Ended | | Three Months Ended | | As of | | As of | ||||
| | September 30, 2019 | | September 30, 2018 | | September 30, 2019 | | June 30, 2019 | ||||
Silver Stream |
| Purchases (oz.) |
| Sales (oz.) |
| Purchases (oz.) |
| Sales (oz.) |
| Inventory (oz.) |
| Inventory (oz.) |
Pueblo Viejo | | 462,500 | | 475,600 | | 509,500 | | 540,200 | | 462,500 | | 475,600 |
Rainy River | | 49,400 | | 34,500 | | 35,200 | | 31,500 | | 51,400 | | 36,500 |
Total | | 511,900 | | 510,100 | | 544,700 | | 571,700 | | 513,900 | | 512,100 |
| | | | | | | | | | | | |
| | Three Months Ended | | Three Months Ended | | As of | | As of | ||||
| | September 30, 2019 | | September 30, 2018 | | September 30, 2019 | | June 30, 2019 | ||||
Copper Stream |
| Purchases (Mlbs.) |
| Sales (Mlbs.) |
| Purchases (Mlbs.) |
| Sales (Mlbs.) |
| Inventory (Mlbs.) |
| Inventory (Mlbs.) |
Mount Milligan | | 2.4 | | 2.4 | | 1.6 | | 0.8 | | 0.8 | | 0.8 |
Cost of sales, decreasedwhich excludes depreciation, depletion and amortization, increased to $18.2$20.1 million for the three months ended December 31, 2018September 30, 2019 from $19.9$16.5 million for the three months ended December 31, 2017.September 30, 2018. The decreaseincrease was primarily due to decreasedincreased 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”) 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 million for the three months ended December 31, 2018September 30, 2019 from $9.6$9.9 million for the three months ended December 31, 2017.September 30, 2018. The decrease during the current quarter was primarily due to a decrease in legal costs primarily attributable to the Voisey’s Bay royalty calculation dispute and settlement, as discussed further above under “Recent Business Developments.”which was settled during the three months ended September 30, 2018.
Depreciation, depletion and amortization decreased to $38.8$38.7 million for the three months ended December 31, 2018September 30, 2019 from $42.0$42.6 million for the three months ended December 31, 2017.September 30, 2018. 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 loss on changes in fair value of equity securities of $3.6 million for the three months ended December 31, 2018. 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 December 31, 2018, we recognized an income tax benefit totaling $2.1 million compared with income tax expense of $48.4 million during the three months ended December 31, 2017. This resulted in an effective tax rate of (10.3%) in the current period, compared with 148.5% in the quarter ended December 31, 2017. The decrease in the effective tax rate for the three months ended December 31, 2018 was primarily related to the Company’s updated
25
analysis of the tax impacts of 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.
Six Months Ended December 31, 2018, Compared to Six Months Ended December 31, 2017
For the six months ended December 31, 2018, we recorded net income attributable to Royal Gold stockholders of $38.6 million, or $0.59 per basic and diluted share, as compared to net income attributable to Royal Gold stockholders of $13.9 million, or $0.21 per basic and diluted share, for the six months ended December 31, 2017. The increase in our earnings per share was primarily attributable 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 due to the effects of 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 per basic share, respectively. Refer to Note 7 of our notes to consolidated financial statements for further discussion on the Act.
For the six months ended December 31, 2018, we recognized total revenue of $197.6 million, which is comprised of stream revenue of $137.7 million and royalty revenue of $59.9 million at an average gold price of $1,220 per ounce, an average silver price of $14.78 per ounce and an average copper price of $2.78 per pound. This is compared to total revenue of $226.8 million for the six months ended December 31, 2017, which was comprised of stream revenue of $158.0 million and royalty revenue of $68.8 million, at an average gold price of $1,277 per ounce, an average silver price of $16.78 per ounce and an average copper price of $2.98 per pound. Revenue and the corresponding production attributable to our stream and royalty interests for the six months ended December 31, 2018 compared to the quarter ended December 31, 2017 are as follows:
Revenue and Reported Production Subject to Our Stream and Royalty Interests
Six Months Ended December 31, 2018 and 2017
(In thousands, except reported production ozs. and lbs.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended |
| Six Months Ended | ||||||||
|
|
|
| December 31, 2018 |
| December 31, 2017 | ||||||||
|
|
|
|
|
|
| Reported |
|
|
|
| Reported | ||
Stream/Royalty |
| Metal(s) |
| Revenue |
| Production(1) |
| Revenue |
| Production(1) | ||||
Stream(2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pueblo Viejo |
|
|
| $ | 37,717 |
|
|
|
| $ | 51,758 |
|
|
|
|
| Gold |
|
|
|
| 18,100 | oz. |
|
|
|
| 27,400 | oz. |
|
| Silver |
|
|
|
| 1.0 | Moz. |
|
|
|
| 1.0 | Moz. |
Mount Milligan |
|
|
| $ | 37,015 |
|
|
|
| $ | 53,584 |
|
|
|
|
| Gold |
|
|
|
| 23,300 | oz. |
|
|
|
| 31,300 | oz. |
|
| Copper |
|
|
|
| 3.2 | Mlbs. |
|
|
|
| 4.4 | Mlbs. |
Andacollo |
| Gold |
| $ | 35,378 |
| 28,900 | oz. |
| $ | 33,938 |
| 26,700 | oz. |
Wassa and Prestea |
| Gold |
| $ | 17,611 |
| 14,400 | oz. |
| $ | 17,699 |
| 13,900 | oz. |
Other(3) |
|
|
| $ | 9,995 |
|
|
|
| $ | 1,070 |
|
|
|
|
| Gold |
|
|
|
| 7,400 | oz. |
|
|
|
| 800 | oz. |
|
| Silver |
|
|
|
| 67,500 | oz. |
|
|
|
| N/A |
|
Total stream revenue |
|
|
| $ | 137,716 |
|
|
|
| $ | 158,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty(2): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peñasquito |
|
|
| $ | 8,297 |
|
|
|
| $ | 13,986 |
|
|
|
|
| Gold |
|
|
|
| 103,700 | oz. |
|
|
|
| 205,100 | oz. |
|
| Silver |
|
|
|
| 9.2 | Moz. |
|
|
|
| 11.0 | Moz. |
|
| Lead |
|
|
|
| 65.9 | Mlbs. |
|
|
|
| 69.6 | Mlbs. |
|
| Zinc |
|
|
|
| 147.3 | Mlbs. |
|
|
|
| 186.8 | Mlbs. |
Cortez |
| Gold |
| $ | 2,939 |
| 26,900 | oz. |
| $ | 5,922 |
| 54,900 | oz. |
Other(3) |
| Various |
| $ | 48,633 |
| N/A |
|
| $ | 48,867 |
| N/A |
|
Total royalty revenue |
|
|
| $ | 59,869 |
|
|
|
| $ | 68,775 |
|
|
|
Total revenue |
| $ | 197,585 |
|
|
|
| $ | 226,824 |
|
|
|
|
|
26
|
|
|
|
The decrease in our total revenue for the six months ended December 31, 2018, compared with the six months ended December 31, 2017, 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 bywhen compared to the Company.prior year quarter.
Gold and silver ounces and copper pounds purchased and sold during the six months ended December 31, 2018 and 2017, and 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended |
| Six 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 |
| 26,000 |
| 28,900 |
| 26,500 |
| 26,700 |
| 4,500 |
| 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 |
Wassa and Prestea |
| 11,200 |
| 14,300 |
| 13,400 |
| 13,900 |
| 700 |
| 3,900 |
Rainy River |
| 8,100 |
| 7,400 |
| 1,000 |
| 800 |
| 1,600 |
| 800 |
Total |
| 87,600 |
| 92,000 |
| 100,400 |
| 100,100 |
| 17,200 |
| 21,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended |
| Six 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 |
| 978,400 |
| 1,049,700 |
| 730,200 |
| 1,006,200 |
| 469,000 |
| 540,200 |
Rainy River |
| 76,900 |
| 67,400 |
| 11,900 |
| — |
| 41,700 |
| 32,300 |
Total |
| 1,055,300 |
| 1,117,100 |
| 742,100 |
| 1,006,200 |
| 510,700 |
| 572,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended |
| Six 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 |
| 4.2 |
| 3.2 |
| 5.3 |
| 4.4 |
| 0.9 |
| — |
Cost of sales decreased to $34.7 million for the six months ended December 31, 2018 from $40.3 million for the six months ended December 31, 2017. The decrease was primarily due to decreased gold sales from Mount Milligan and Pueblo Viejo, partially offset by an increase in gold sales at Rainy River. 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.
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 $5.1 million for the six months ended December 31, 2018. 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 expense decreased to $15.3$2.8 million for the sixthree months ended December 31, 2018,September 30, 2019, from $17.7$7.9 million for the sixthree months ended December 31, 2017.September 30, 2018. The decrease was primarily attributable to lower interest expense as a result of a decrease in average debt 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 millionwhen 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
27
prior period. As discussed in our Fiscal 2019 10-K, the Company settled the $370 million aggregate principal amount due under its convertible senior notes that
26
analysis of the tax impacts of the Act, considering all recently released U.S. Treasury regulations and IRS guidance.matured in June 2019. Refer to Note 75 of our notes to consolidated financial statements for further discussion on our outstanding debt.
During the Act.three months ended September 30, 2019, we recognized an income tax benefit totaling $23.5 million compared with income tax expense of $4.1 million during the three months ended September 30, 2018. The income tax benefit resulted in an effective tax rate of (51.9%) in the current period, compared with 25.6% in the quarter ended September 30, 2018. The decrease in the effective tax rate for the three months ended September 30, 2019 was attributable to discrete tax benefits ($32.3 million) primarily related to the remeasurement of certain deferred tax assets held by our Swiss subsidiary, RGLD Gold AG, and a net step-up in the basis of tax assets, resulting from the enactment of the Federal Act on Tax Reform and AHV Financing in Zug, Switzerland during the current quarter. In October of 2019, RGLD Gold AG decided to relocate its corporate office from the Canton of Zug to the Canton of Lucerne. As a result of the corporate relocation, we anticipate an additional step-up in the basis of tax assets during the three months ending December 31, 2019, which may result in additional tax benefits.
Liquidity and Capital Resources
Overview
At December 31, 2018,September 30, 2019, we had current assets of $203.7$164.2 million compared to current liabilities of $37.2$32.4 million resulting in working capital of $166.5$131.8 million and a current ratio of 5 to 1. This compares to current assets of $125.8$154.7 million and current liabilities of $51.4$33.6 million at June 30, 2018,2019, resulting in working capital of $74.4$121.1 million and a current ratio of approximately 25 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 quarterthree months ended December 31, 2018,September 30, 2019, liquidity needs were met from $79.4$71.2 million in net revenuecash provided by operating activities and our available cash resources. During the three months ended September 30, 2019, the Company repaid $50 million of the outstanding borrowings under the revolving credit facility. As of December 31, 2018,September 30, 2019, the Company had no amounts$170 million outstanding and $1 billion$830 million available under its revolving credit facility. Working capital, combined with the Company’s undrawn revolving credit facility, resulted in approximately $1.2$1.0 billion of total liquidity at December 31, 2018.September 30, 2019. The Company was in compliance with each financial covenant under the revolving credit facility as of December 31, 2018.September 30, 2019. Refer to Note 35 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.interests, including the conditional funding schedule in connection with the Khoemacau silver stream acquisition. 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 andor 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 20182019 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$71.2 million for the sixthree months ended December 31, 2018,September 30, 2019, compared to $147.2$44.6 million for the sixthree months ended December 31, 2017.September 30, 2018. The decreaseincrease is primarily due to higher income taxes paid of $20.6 million over the prior quarter and a decreasean increase in proceeds received from our stream and royalty interests, net of production taxes and cost of sales, of approximately $20.5 million. The increase in cash$14.7 million and lower income taxes paid duringof $10.6 million over 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 provided by investing activities totaled $0.5 million for the three months ended September 30, 2019, compared to net cash used in investing activities totaled $3.7 million for the six months ended December 31, 2018, comparedof $0.1 million for the sixthree months ended December 31, 2017. The increase in cash used investing activities is primarily due to additional CORE common stock purchased during the current period.September 30, 2018.
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Financing Activities
Net cash used in financing activities totaled $32.0$69.2 million for the sixthree months ended December 31, 2018,September 30, 2019, compared to $134.9$16.2 million for the sixthree months ended December 31, 2017.September 30, 2018. The decreaseincrease in cash used in financing activities is primarily due to a decreasean increase in repayments on our revolving credit facility. The Company repaid the remaining amounts outstanding$50.0 million on theour revolving credit facility during fiscal year 2018.the three months ended September 30, 2019.
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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 20182019 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 projectedthe impact of recently adopted or issued accounting standards; the expected schedule for making additional payments to complete acquisition of the CDS NSR and warrants to purchase common shares of TriStar; adverse financial conditions experienced by operators of certain producing stream and royalty properties; available water sources, success in groundwater exploration, expectations for production estimatesduring the first calendar quarter of 2020, and progress of work on life-of-mine water sources, decreasing long-term recoveries and increasing short to medium-term costs, expected results of updated 43-101 technical report and impact of updated 43-101 technical report on the Company’s interests at Mount Milligan; insolvency proceedings and potential for write-down of Company’s carrying value for certain non-principal producing and evaluation properties; expected schedule for making advance payments pursuant to the Khoemacau copper-silver project stream agreement and the funding of such payments; remaining conditions for funding under the Ilovica stream agreement; expectations concerning the proportion of total revenue to come from stream and royalty interests; estimates pertaining to timing, commencement and commencementvolume of production from the operators of properties where we hold stream and royalty interests;interests and comparisons of estimates to actual production; statements related to ongoing developments and expected developments at properties where we hold stream and royalty interests; thestrike, suspension of operations and ongoing negotiations at Andacollo and anticipated impact of recently issued or adopted accounting standards;suspension to the Company; progress of construction, capital committed, forecasted budget and estimated timeframe for first shipment of concentrate at Khoemacau, and size of and conditions to the Company’s remaining commitment under the Khoemacau stream agreement; mill availability and throughput, ore production, declining grade, recoveries, circuit optimization, commissioning of gravity circuit and mine optimization at Rainy River; decrease in production, lower grades and recoveries, increased mining rate, 2019 drilling program and geological interpretations and updated mineral resource estimations at Wassa; expected transition from pre-stripping to production phase stripping at Cortez; dispute, blockade, suspension and resumption of concentrate sales and operations at, and impact to full-year results for, Peñasquito; expected completion of plant expansion prefeasibility study and feasibility study, and expected increase in throughput and production, at Pueblo Viejo; possible tax benefits from relocation of the RGLD Gold AG office; fluctuations in the prices for gold, silver, copper, nickel and other metals; stream and royalty revenue estimates and comparisons of estimates 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;reforms; 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 past results as well as 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; |
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| 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, local communities, 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; |
| 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 and changes to operators’ cost structure, 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; |
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| 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 20182019 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.
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 dropdecrease in metals prices,” under Part I, Item 1A of our Fiscal 20182019 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 sixthree months ended December 31, 2018,September 30, 2019, we reported revenue of $197.6$118.8 million, with an average gold price for the period of $1,220$1,472 per ounce, an average silver price of $14.78$16.98 per ounce and an average copper price of $2.78$2.63 per pound. Approximately 76%79% of our total reported revenues for the sixthree months ended December 31, 2018September 30, 2019 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 sixthree months ended December 31, 2018,September 30, 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$9.9 million.
Approximately 10%9% of our total reported revenues for the sixthree months ended December 31, 2018September 30, 2019 were attributable to silver sales from our silver producing stream and royalty interests. For the sixthree months ended December 31, 2018,September 30, 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$1.1 million.
Approximately 8% of our total reported revenues for the sixthree months ended December 31, 2018September 30, 2019 were attributable to copper sales from our copper producing stream and royalty interests. For the sixthree months ended December 31, 2018,September 30, 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$1.0 million.
ITEM 4.CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of December 31, 2018,September 30, 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 December 31, 2018,September 30, 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
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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 December 31, 2018September 30, 2019 that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II.OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
Not applicable.
Voisey’s Bay
Refer to Note 2 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 20182019 10-K.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Not applicable.
Not applicable.
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ITEM 6.EXHIBITS
Exhibit |
| Description |
4.2* | | |
| | |
10.1* | | |
| | |
31.1* | | |
| | |
31.2* | | |
| | |
32.1‡ | | |
| | |
32.2‡ | | |
| | |
101.INS* | | Inline XBRL Instance Document. |
| | |
101.SCH* | | Inline XBRL Taxonomy Extension Schema Document. |
| | |
101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
| | |
101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
| | |
101.LAB* | | Inline XBRL Taxonomy Extension Label Linkbase Document. |
| | |
101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
| | |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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SIGNATURES
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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